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AHEXY 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adecco Group Q3 Results 2025. [Operator Instructions] I would now like to turn the call over to Benita Barretto, Head of Investor Relations. Please go ahead. Benita Barretto: Good morning. Thank you for joining the Adecco Group's Q3 Results Conference Call. I'm Benita Barretto, the group's Head of Investor Relations. And with me are the Adecco Group CEO, Denis Machuel; and CFO, Coram Williams. Before we begin, please take note of the disclaimer on Slide 2. Today's presentation will reference both GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements, which are based on current assumptions and as always, present opportunities as well as risks and uncertainties. With that, I will now hand over to Denny. Denis Machuel: Thank you, Benita, and a warm welcome to all of you who have joined the call today. So today, I want to share an important leadership update which also underscores the strength of our succession planning and our commitment to continuity. At the end of this year, Coram Williams will step down as Chief Financial Officer after 5 years of outstanding service. Coram has played an absolutely pivotal role in guiding the Adecco Group through a period of significant transformation and strengthening our financial foundations. His disciplined approach and strategic insight have been absolutely instrumental in achieving the strong Q3 results we announced today. We warmly thank Coram for his tremendous contribution and wish him every success as he takes on a CFO role in the automotive sector in Germany, a move that reflects his passion for this sector and also brings him closer to his family. And I'm pleased to announce that Valentina Ficaio will succeed Coram as CFO effective January 1, 2026. Valentina is a proven leader with deep knowledge of our business and strong financial and strategic acumen. She's been part of our global finance leadership team, most recently leading financial planning, controllership and strategy and has acted as Coram's deputy for the past 3.5 years. Her appointment follows a rigorous selection process and represents an internal promotion to the CFO role, which is a testament to the strength of our talent pipeline. This leadership transition is well planned, and we remain focused on delivering sustainable growth, improving margins and creating long-term shareholder value. Let's now turn to our results and starting with Slide 4 and an overview for the quarter. We gained significant market share this quarter with the group and Adecco, leading key competitors by 375 and 300 basis points, respectively. The group delivered EUR 5.8 billion in revenues, 3.4% higher year-on-year on an organic trading days adjusted basis. Revenue trends improved sequentially across all GBUs. Additionally, we observed a strong performance from Adecco U.S. with revenues increasing by 20% year-on-year. Gross profit reached EUR 1.1 billion with a gross margin of 19.2%, while this represents a modest year-on-year decrease of 10 basis points on an organic basis, it is a 30 basis point sequential improvement, fully matching our Q3 guidance. Gross margins benefited from reduced pressure in Akkodis Germany, where the turnaround plan is progressing well. EBITA excluding one-offs, was EUR 195 million with a 3.4% margin. Disciplined execution drove good operating leverage with productivity up 8% year-on-year and higher in all GBUs. Adjusted EPS was EUR 0.67. Cash conversion was very strong at 110%, and the group generated a solid operating cash flow of EUR 200 million, up EUR 79 million from the prior year period. In summary, the group delivered a strong performance this quarter and remains on track to achieve the 3% EBITA margin floor for the full year. Moving now to Slide 5. The group delivered a further increase in market share this Q3. In Q2, the group gained 205 basis points in market share and Adecco gained in 130 basis points. In Q3, the group gained 375 basis points of share and Adecco gained 300 basis points. We have seen a consistent improvement in flex volumes year-to-date across the Adecco GBU. In Q3, we were encouraged to see volumes move clearly into modest growth territory with a meaningful uptick in demand from the largest Adecco countries. Now as we move to Slide 6, you will see case studies that demonstrate our strong win momentum in the market. First, in the life sciences sector, Adecco and Akkodis were selected as the preferred suppliers for global solutions due to the group's global footprint and breadth of services. The client was impressed by our technology expertise, reporting quality, market insights, all of which are underpinned by strong data analytics. Second, Akkodis was selected as a Tier 1 supplier to a leading German aerospace company, our comprehensive suite of advanced system engineering solutions covering lending gear and system design and installation, supports the client's strategic need for innovation to improve operational efficiency and sustainability. Akkodis' global presence which maximizes responsiveness and cross-fertilization of ideas was key to be selected. Third, LHH's EZRA won a multiyear contract with a leading U.S. software provider for AI and human coaching services beating a major competitor. EZRA will coach over 27,000 employees, creating a measurable business impact. With that, I will now hand over to Coram for further details on the Q3 results. Coram Williams: Good morning, everyone, and thank you, Denis, for your kind words earlier. It's been an honor to be the CFO of the group over the last 5 years and a real pleasure to work with you and the talented teams that we have around the group. The Q3 results that we're announcing today show that the group is on a good path and affirm my decision to step back and pursue a new role in a sector I'm passionate about in my adopted home country. I'm really delighted that you and the Board have chosen Valentina as my successor. She's been a strong member of my team, a brilliant deputy and I have no doubt that she is the right person to drive the group forward. With that said, I'd like to now focus on the Q3 results. First, let's discuss GBU developments, beginning with Adecco on Slide 7. Adecco delivered EUR 4.7 billion in revenues, up 4.5% year-on-year on an organic trading days adjusted basis and up 2.8% sequentially. Flexible placement revenues increased by 4%. On an organic basis, outsourcing remained strong with revenues up 12%. Permanent placement revenues were 7% lower, while MSP Pontoon revenues rose 5%. By client type, revenue growth from SMEs was strong, up 5%. Gross margin was healthy, reflecting the client and solutions mix, particularly lower perm volumes. Pricing remains firm. Productivity improved by 5%, while selling FTEs decreased by 1%. The EBITA margin improved 50 basis points year-on-year to 3.9%, reflecting higher volumes and operating leverage, aided by G&A savings and agile capacity management. Adecco's dropdown ratio this quarter was north of 100%, a very strong outcome. Now let's move to Adecco at the segment level on Slide 8. In Adecco France, revenues were 2% lower year-on-year, improved sequentially and outperforming the market, driven by robust growth across large clients. Growth in autos, financial and professional services, food and beverage and the strategically important construction sector was strong. However, logistics presented some challenges. The EBITA margin of 4% was 80 basis points higher year-on-year with France benefiting from the execution of G&A savings plans. Adecco EMEA, excluding France, returned to growth, with revenues up 3% year-on-year and taking market share. Looking at the larger markets, revenues in Italy were flat, with strong activity in logistics and food and beverages offsetting weak autos demand. Iberia was strong, with revenues up 13%, reflecting strength in flex and outsourcing as well as double-digit growth from SMEs. Food and beverage, financial and professional services, manufacturing and autos were strong. In the U.K. and Ireland, revenues declined by 4% year-on-year. a resilient result given the challenging market environment. While soft demand in logistics and the public sector impacted performance, the business continues to demonstrate adaptability. Revenues in Germany and Austria were flat year-on-year, reflecting a solid outcome in a demanding market. The manufacturing and automotive sectors performed robustly, supporting overall stability. The segment's EBITA margin of 4.1% was 20 basis points higher year-on-year. The margin reflects client mix and good operating leverage with productivity up in all territories and support from G&A savings. Turning now to Slide 9. Adecco Americas delivered very strong revenue growth of 20% year-on-year. North America revenues increased by 20% year-on-year, improving sequentially and ahead of market trends. The result was driven by strength in Flex across all client segments, including double-digit growth from SMEs. In sector terms, consumer goods, autos, manufacturing and food and beverage were notably strong. This growth rate shows the continuing progress we're making with the turnaround of Adecco U.S. At the same time, we do have work to do on the business mix and cost to serve to restore margins further. In Latin America, revenues grew 21%, with all countries experiencing double-digit growth, driven by demand for flex and outsourcing across SMEs and large clients. By sector, financial and professional services, logistics and manufacturing were strong. The Americas EBITA margin of 2.5% increased 240 basis points year-on-year, reflecting higher volumes and operating leverage. Productivity improved, while the segment continues to optimize costs. Adecco APAC remains strong, with revenues up 9% year-on-year and ahead of the market, led by strong demand from SMEs. Revenues rose 8% in Japan, 18% in Asia and 14% in India. In Australia and New Zealand, revenues were 3% lower. In sector terms, financial and professional services, consumer goods, food and beverage and defense was strong. The EBITA margin of 4.7% reflects higher volumes, G&A savings and modest investment in capacity to capture future growth opportunities. Let's now focus on Akkodis on Slide 10. Akkodis' revenues were 3% lower year-on-year on an organic constant currency basis and sequentially improved. Consulting and Solutions revenues were 1% lower organically, improving by 4% sequentially. By segment, EMEA revenues were 3% lower. France returned to growth, with revenues up 1% and ahead of the market. Aerospace, defense and autos were strong. Revenues in Germany were 9% lower, driven by market headwinds in autos and despite good momentum in defense. Italy, Iberia and the U.K. performed well. North America revenues returned to growth, with revenues up 1%. The business has seen a modest improvement in tech staffing demand and delivered very strong growth in the Strategic, Consulting and Solutions segment, with revenues up 45%. APAC revenues were stable, with Japan and China up 2%. Revenues in Australia were 4% lower, reflecting a slow market backdrop. Akkodis' EBITA margin was 4.5%, 60 basis points lower year-on-year. Excluding Germany, the margin was 6.5%, and an improvement year-on-year, reflecting solid utilization rates and good cost discipline. Germany's turnaround is progressing well. Given the market context, the level of targeted savings has risen to approximately EUR 50 million. To date, an annualized savings run rate of approximately EUR 36 million has been achieved, driven primarily by adjusting consulting headcount, which improves bench utilization and G&A savings. Additional savings were expected in Q4. These actions will enable the unit to return to healthy run rate profitability by year-end. Let's move on to LHH on Slide 11. LHH executed well with revenues returning to growth, rising 4% in the third quarter on an organic constant currency basis. The EBITA margin reached 9%, up 240 basis points year-on-year, driven by higher volumes and strong operating leverage with a 25% increase in productivity. Turning to LHH's segment. Professional Recruitment Solutions revenues were 7% lower, with the unit taking share in tough recruitment markets. Recruitment Solutions revenues were 5% lower, primarily due to an 8% decline in permanent placement. Gross profit was 6% lower. Productivity remained flat and billing FTEs decreased by 6%. Our peer activities remain soft. Career transition performed very well, with revenues up 9%. U.S. revenues grew by 7% and revenues outside the U.S. increased by 11%. The pipeline remains healthy across all geographies, supporting future momentum. Revenues in coaching and skilling rose 40%. EZRA delivered outstanding growth with revenues increasing 59% to another record high. General Assembly returned to growth, with revenues up 48%, driven by strong momentum in its B2B business, which focuses on AI-related offerings. Let's turn now to Slide 12, which shows the group's gross margin drivers on a year-on-year basis. Gross margin was healthy at 19.2%, 10 basis points lower year-on-year on an organic basis. Currency translation had a negative impact of 10 basis points. Permanent placement has a 25 basis point negative impact with headwinds in both Adecco and LHH. Career transition had a positive impact of 10 basis points. Outsourcing, consulting and other services had a 10 basis point negative impact due to mix in outsourcing and ongoing pressure in Akkodis Germany. Additionally, training, upskilling and reskilling had a positive impact of 15 basis points driven by growth at EZRA and General Assembly. Let's look at Slide 13 and the group's EBITA bridge. At 3.4%, the EBITA margin, excluding one-offs, was 10 basis points higher year-on-year, driven by a 10 basis point negative impact from currency translation, a 10 basis point negative impact from organic gross margin development, a 40 basis point favorable impact from operating leverage and a 10 basis point negative impact from Akkodis Germany. In Q3, SG&A expenses, excluding one-offs, as a percentage of revenues, were 15.9%. And 30 basis points better year-on-year, reflecting cost discipline with G&A expenses up 3% of revenues and agile capacity management. Selling FTEs were 3% lower. Productivity in terms of direct contribution per selling FTE rose 8% with all GBUs improving year-on-year. Let's turn to Slide 14 and the group's cash flow and financing structure. The last 12 months cash conversion ratio was strong at 110%. DSO remains best in class at 53.6 days. The group delivered cash flow from operating activities of EUR 200 million in the quarter, a EUR 79 million increase versus the prior year period. The cash result reflects strong working capital management, partially offset by increased working capital absorption, resulting from improved revenue performance. CapEx was EUR 30 million, and free cash flow was EUR 170 million, an increase of EUR 88 million compared to the prior year period. The group benefits from a robust financial structure. We have strong liquidity, including an undrawn EUR 750 million revolving credit facility. 80% of debts have fixed interest rates and there are no financial covenants on any outstanding debt. The group also has low interest expenses with a net charge of EUR 13 million in Q3. At the end of Q3, net debt was EUR 2,705 million, EUR 220 million lower year-on-year. Since 2021, the group's capital structure has included a EUR 500 million hybrid bond, which rating agencies classify as 50% equity and 50% debt. Management is in the process of refinancing this hybrid bond, reaffirming its long-term role in the capital structure. In light of this planned refinancing, and to align with rating agency methodology, the group will now apply 50% equity treatment to the hybrid bond when reporting its leverage ratio. This adjustment does not impact the group's credit rating or the net debt calculation. It does, however, ensure consistency and transparency in how leverage is assessed across stakeholders. Applying this methodology, the group's end Q3 leverage ratio was 3 terms. On an underlying basis, strong cash generation and EBITDA improvement in Q3 has reduced the group's net debt-to-EBITDA ratio, excluding one-offs, by 0.3x sequentially. The group remains firmly committed to bringing the net debt-to-EBITDA ratio to 1.5x or below by the end of 2027, absent any major macroeconomic or geopolitical disruption. Our capital allocation policy is clear on options for excess capital once we achieve this target. Let's move to Slide 15 and the group's outlook. Based on Q4 volumes to date, the group expects revenue growth in Q4 to be in line with Q3's revenue growth year-on-year on an organic trading days adjusted basis. For Q4, the group expects gross margin and SG&A expenses, excluding one-offs, to be broadly stable sequentially. The group is focused on managing capacity with agility to balance share gain and productivity in mixed markets, in addition to securing G&A savings. The group is on track to deliver its full year EBITA margin commitment. And with that, I'll hand back to Denis. Denis Machuel: Thank you, Coram. And let me conclude with Slide 16 and few takeaways. In Q3, the group delivered a further increased market share with revenues improving sequentially across all GBUs. At the GBU level, we were encouraged by the strong growth in Adecco U.S., evidencing traction with the turnaround plan. Meanwhile, the Akkodis German turnaround is progressing well with the unit expected to return to healthy run rate profitability by year-end. In reaching a 3.4% EBITA margin this quarter, we demonstrated good operating leverage. Cash generation was solid. We thank our teams for yet another quarter of rigorous execution. We look forward to sharing the evolution of our strategy and detailed value creation plans at our Capital Markets Day on 26th of November in London. With this said, thank you for your attention, and let's open the lines for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Andy Grobler, BNP Paribas. Andrew Grobler: I've got a lot, but just a couple to start with, if that's all right. From a cost base perspective, a couple of things here. As you move into Q4, what are the incremental savings that you expect to drive? And does that include turning that about EUR 16 million loss in Akkodis Germany into a positive? And how should we think about that as the right base going into 2026 if you could chat through that, that would be really helpful. And also, just adding to that, does that guide include the currency headwinds that you'll see in the Q4? And then secondly, on cash flow, very strong performance through the quarter. Can you just talk through the drivers of that and whether you're seeing any pressure on payment terms? Has that been incremental through this year? Denis Machuel: I think I'll let Coram answer most of these questions. I'm just going to say a word on payment terms. Yes, definitely I think we have pressure from our clients on payment terms. We resist actively to this pressure. We are -- I think we are very focused with our teams managing these kind of negotiations. We see also our DSO remaining relatively solid. So I think we are able to -- thanks to the strong relationship that we have with our clients to resist to the maximum on the payment terms request from our clients. I mean for all the other questions, Coram. Coram Williams: Thank you, Denis. Thank you, Andy. Actually, let me start with cash, therefore and build on Denis' answer. I mean, yes, we do see pressure on payment terms, but our DSO is at 53.6 days. It is quite clearly best in class at the moment where our peers see their DSOs going in the wrong direction. So I think it's very clear that we are managing that and managing it very effectively. On the cash flow itself in Q3, I mean, we tried to unpick the drivers. Fundamentally, you have good working capital management, which includes the point I'm making about keeping DSO very stable, but also payables, where we've been managing those very tightly and have done for a number of quarters, which is partially offset by the working capital absorption that you see because of the growth that the business is delivering. And we know that's a feature of the way this operates. So when you put all of that together, then we're very pleased with the operating cash flow of EUR 200 million. It's up year-on-year, and it has obviously helped us deliver that rolling 12-month cash conversion of 110%. On the cost side, yes, the guide includes FX movements. If you step back and look at what we're saying, we're guiding to SG&A being broadly stable. Typically a seasonal movement between Q3 and Q4 actually increases SG&A little bit, usually between EUR 10 million to EUR 20 million. So you can see by saying that we will hold it stable, we are confident we will continue to deliver savings. Part of that comes from Akkodis, as you mentioned, we have real estate optimization, which will flow through, but we also have further savings in other parts of the business that we've been activating through the year. You saw the benefits, for example, on the margins in France. There are other territories where we continue to manage this. By the end, and I'm now just moving on to Akkodis Germany. The restructuring there is progressing well. We have EUR 36 million of run rate savings locked in. We've got clear plans for how we get to a run rate of EUR 50 million, and that will deliver healthy run rate profitability for that business by the end of the year. And I think it's important to make the point that we are not presupposing an improvement in the top line of that business in the short term. We're managing the restructuring to make sure that we see healthy profitability on the market conditions that we now see. Denis Machuel: And just maybe one last word. Andy, top line in Akkodis Germany is being stabilized. So I mean, we can go in details around what we do very actively in Germany on our turnaround plan, but there's also an element of stabilization of top line, of course. But thanks, Andy, for your questions. . Andrew Grobler: And just to add, Coram, best of luck with the new role. Coram Williams: Thank you, Andy. I appreciate it. Operator: Your next question comes from the line of Remi Grenu with Morgan Stanley. Remi Grenu: A few questions on my side, if I may. So just first taking a step back and looking at your outlook for stable growth on the same comp base. It feels like similarly to some of your competitors, you are assuming that the recovery of organic growth we've seen over the last few quarters is stalling a bit or kind of stabilizing. So what makes you slightly more cautious compared to the sequential improvement we've seen over the last few quarters. Just wanted to understand if there was anything there? And if so, what part of the business, which divisions do you think could improve, remain stable or deteriorate in Q4 just to have a bit of breakdown of that stable organic growth comment for Q4. The second question is on the U.S. organic growth. Obviously, I mean, very impressive. Can you just elaborate a little bit on this? What are the drivers in terms of type of clients if you think the broad-based recovery or has it been driven by any specific contract win and on the market share gains in that country, why do you think is the case that your winning volumes away from your competitors? And then the last one would be just maybe a little bit of a teaser on end of November, then if you wanted to share with us a few of the topics you think could be important to address during the CMD? Denis Machuel: Thank you, Remi, I think I'm going to take the 3 questions. So on the outlook, actually, we're pragmatic. We're looking at our flex volumes data. And they are -- let's say, they are nicely up year-on-year. They continue to do so, but we have only a few weeks of data. So we are -- definitely, we see some momentum. We see an improving momentum in the HH and Akkodis, but we are -- we've always been -- I must say, we've always been relatively cautious. When we see it, we talk about it but I don't want to overpromise and create expectations. So we have volumes, as I said, nicely up, but it's not stored definitely. It's not stalling. It's improving nicely, but this is reasonable. So it's not -- it's -- I continue to be positive about what we have ahead of us. As far as the U.S., yes, actually, it's broad-based. It's also the result of our turnaround. It's -- and there's so much more to do. Let's be clear. And we are -- we're pleased with the growth. We were plus 10% in Q2. We are now plus 20%. We've returned the U.S. to be profitable, which is good. We are growing ahead of the market. So it's been systematic. It's been rigorous execution on how we improve branch profitability, how we see that the incentives that we've put in place in the branches that are boosting both flex and perm are delivering results. We're focusing on increasing the traction with the MSP business. We are really, really focused on cutting our cost to serve to preserve our competitiveness. We've moved into more centralized delivery, nearshore offshore delivery. We have adjust also our G&A costs. So and all that. It's a series of things that we've applied rigorously and systematically for now, almost 3 years, and it starts to deliver results, which is good. The sales growth is broad-based. We grow large accounts, plus 36% this year. We also grow SME plus 12%. So that means both drivers are executing nicely. We have a nice development of new accounts in branches. If I look at the number of new accounts that we had in Q2 versus -- in Q3 versus Q2, it's plus 19%. So we've also had a healthy development of new clients and branches, okay? But we're not there yet. Let's be clear. We start from a low base because we -- what we've been through some -- so encouraging, good, people deliver. So it's, as I said, it's encouraging, but I wouldn't call it impressive. It's good numbers. We've got to confirm over time but I'm confident in what we're delivering. Now as far as the CMD, well, we'll -- I think we are going to deep dive on some of the drivers that show that the proof points of the way the strategy is delivering results. So to give you more insights, more granularity in what the things that you do. And also, of course we're going to focus on some of the transformative actions that we are layering on top of the way we run the business. We also, of course, as you can imagine, have a deep dive on Akkodis because it's going to be on stage to explain his value creation plan and how confident he is to improve both the top line and the margins at Akkodis. So this is what we're going to talk about. Operator: Your next question comes from the line of Suhasini Varanasi of Goldman Sachs. Suhasini Varanasi: Just a few for me, please. On perm trends, the declines have been easing for a couple of quarters now. Can you maybe give some color on whether you're seeing things stabilizing at these low levels? The second one, just to clarify again on working capital, the strength that we've seen in Q3, was there any timing effect that helped, especially on the payable side that is potentially going to unwind in Q4? And the last one on Akkodis restructuring, how much more should we expect on restructuring costs in the next quarter, please? Denis Machuel: Thanks, Suhasini. I'll take the question on perm and also on working capital in Akkodis Germany.So on perm, yes, I mean we've been -- and it's an industry -- it's a global industry challenge, and we see it both in Adecco and LHH. Adecco is minus 7% on perm, LHH is minus 8%. So it's -- I wouldn't call it yet stabilized definitely. I think it reflects, fundamentally, it reflects the fact that there is little visibility for many of our clients and when you don't have visibility because of the -- let's be clear, the unpredictability of geopolitics and some of the tariffs and things like this, we -- clients do not dare to recruit permanently. When you recruit permanently, it's because you're confident on the things that you have ahead of you. And because even in markets like the U.S. where it's relatively easy to recruit and lay off, you don't do that if you don't have visibility. So I think an interesting point is we see this momentum on perm coming up, and that says something about the mindset of our clients. Though we have seen a little bit of pickup in September, particularly in the U.S. so that there are pockets here and there in the finance sector, particularly where we have seen a pickup. But it's still -- it's not massive. So I wouldn't call it a change in the trend. But of course, on the mid, long term, I'm confident that perm will come back because we will -- this is a market that we like. Companies, even with AI, they will need people and we need experts to recruit permanently. So that's -- this is a moment where we're a bit low on that business, but progressively, I believe it will recover but not now. Coram? Coram Williams: And I'll pick up on your other 2 questions. So on the working capital side. We had timing effect in Q3 '24, if you remember, which did work against us and then helped in Q4 '24, but there are no material timing effects in Q3 '25 that will unwind in Q4. This is a pretty clean set of numbers in cash terms in Q3. And I think to the point I made earlier, it's really all about tight working capital management. Payables, obviously, we mentioned, but also really ensuring that we manage that DSO in a best-in-class way. On the one-off costs, we're forecasting EUR 25 million in Q4. Almost all of that will be related to Akkodis Germany, and it's a sign of how rapidly we are moving on this restructuring plan so that we can make sure that we get that business back to healthy run rate profitability by the end of the year. Operator: Your next question comes from the line of Simon Van Oppen of Kepler Cheuvreux. Simon Van Oppen: I have a question on the gross margin contribution from your adjacent services. We saw that trading upskilling and reskilling was up only 1% organically, but drove a 15 basis point margin improvement and if I'm correct, then this segment has a gross margin of roughly 60% historically. Could you please elaborate how this segment is contributing to this improvement in gross margin? And has the gross margin in this segment moves up? Or where do you see the long-term potential for the gross margin of this segment? Coram Williams: Sure. I will pick that one up. It's really important to understand the underlying growth number that you've highlighted, Simon, because there is actually an exit in that number of something called the U.S. Akkodis Academy. It's relatively small in the context of the group, but it does impact the growth rate in this segment. And on an underlying basis, training, upskilling and reskilling is up 28%, which I think gives you a real sense of how strong the growth is in EZRA, in GA and in the other parts of our business, which contribute training services, et cetera. They do all -- and certainly, GA and EZRA have strong gross margins. This is very much a characteristic of this type of business. I think it gives you a real sense of how much value is created there. And because of the growth rates, because those businesses are becoming material in the context of the group top line they're having a material impact on the gross margin, and that's what's dropping through in Q3. I would expect those businesses to continue to contribute to positive gross margin. Denis Machuel: Yes. And then to your point, Coram, I think I'm very pleased with the momentum we see in GA. GA is having great pipeline and great development in how we can accompany our clients on their own AI evolution, there is a lot of appetite for the type of services that GA provides in terms of how we can -- how we focus on specialties roles that are impacted by AI, and we can embark our clients on the journey. And in EZRA, I mean we are -- there is a significant market potential, and we are scaling this platform. It's really a platform business that we are scaling now with a really high gross margin. So EZRA has become -- is extremely relevant in most of our client transformation, the cultural transformation, the AI transformation, so that's -- we have great expectations for the growth of that business moving forward with very, very healthy gross margins. Operator: Your next question comes from the line of Rory McKenzie of UBS. Rory Mckenzie: It's Rory here. First, I want to ask about the growth outlook for both career transition and the training businesses after a very strong quarter. Career transition, in particular, had been bumping up against high competitors for a while, and clearly, it's now jumped past of that. So is that new contracts ramping up or anything else one-off in there? And so should we expect similar growth in Q4 and into the start of next year? And then secondly, given the other announcements today, I feel like I have to ask Coram about trends in autos specifically. So maybe when you look at the Adecco GBU and the strength this quarter, can you just talk about the performance of the global verticals like autos, logistics, manufacturing, and given all the contract wins you're kind of talking about, are there any commonalities in sectors you think you've targeted well or doing well in? And what lessons can you draw from that? Denis Machuel: Thanks, Rory. So as far as the growth outlook, I think we have -- so we grew 9% this quarter in CT. We have a bit of a difference. U.S. is growing 7%. Rest of the World is growing 11%. So -- but it's still very high numbers. The pipeline is still quite healthy. And to your question, it's mostly new clients that we win. I mean we have a constant sales team on the field, remind you that we are the world leader by far. And we have an excellent reputation, the way we've also digitized our business the way we have now people on the platform, all the people that we accompany on platform with very efficient AI support, and that's a good thing. And as I said, in training and scaling, GA is growing 45% -- 48%, EZRA is growing 59%. So are we going to sustain the super high level, I cannot promise, but definitely strong double-digit growth for EZRA and GA. No problem. And I would say for the moment, given the pipeline that we have in CT, I think we can expect modest growth, maybe mid-single digits or low-single digit. But let's be clear, we are on very high levels, and we've sustained these very high levels of revenue for quite some time. And now I pass over to Coram to speak about autos. Coram Williams: Thank you, Denis. and you did make me smile, Rory. So thank you. But to be clear, I would have been happy to answer a question on autos at any point during our discussions. So a couple of points on this. Firstly, when we look at Adecco, the growth is very broad-based. We have a number of sectors, which are all up across multiple countries. And I think it's a sign of the momentum that we have, the share that we're taking and the way, as you know, that we have been managing the business with agility to really identify growth wherever we can. On autos, in Adecco represents about 8% of the Adecco GBU. It's up 10% year-on-year. And we see growth in France, Spain, U.S. and Germany. Germany is up 3%, which is encouraging for me, but partially offset by the one area, the one country where we do see a bit of pressure right now, which is Italy. I think the key to this is that cars are still being produced. There is obviously impact from all of the changes that are happening. But there are still models that are doing well. And our teams are very effective at identifying which manufacturers to partner with, which sites they should be targeting and in particular, therefore, which models have momentum and will require flexible labor. And I think that is really strongly demonstrated by that Adecco Germany plus 3% number. And obviously, the other side of the autos coin for us is Akkodis. That is down 7% year-on-year. Interestingly and I'll focus on the 2 big markets, France is up, and we've had some really strong successes with a number of French manufacturers, which I think demonstrates the strength of the offering. In the short term, there continues to be pressure in Germany, as the German OEMs are reconfiguring their product plans and looking to move more of their R&D work of -- outsourced and offshored. And that's what gives us confidence that longer term, the demand for the Akkodis services is there. And France is a really good proof point for that because that expertise is required . Denis Machuel: And in Japan, with the -- also Japanese carmakers, Akkodis is also growing nicely. So it's also a complement. And it's -- we said something about the that the problem is more focused on the German OEMs than the rest -- than the whole industry. Coram Williams: Now look, we manage these sectors, as you know, very forensically. But I think we're pleased with the progress that we see. And then the final comment I'll make is on logistics, which you flagged. That's around 9% of the Adecco GBU. It is down year-on-year, around 8%. That's almost a 1 basis point -- a 1 percentage point headwind to the group as a whole. This is the nature of this sector, so logistics partners manage demand very carefully. They go through periods where actually they increased the number of temps that they use. They go through periods where they reduce and they in-source. Actually, if we look at the decade, there are some of our countries which are growing in logistics, for example, Italy and Japan. And there are several countries where right now, we're declining slightly, such as France, Germany and Spain. But that very much is the nature of that sector, and we're well positioned and it will be healthy in the medium to longer term. And my final point, please remember the broad-based nature of what's happening in Adecco. It's really important. Operator: Your next question comes from the line of Michael Foeth of Vontobel. Michael Foeth: I just have a follow-up on the training, reskilling and upskilling business. You said it's up 28% when you exclude the inorganic effect there. But still coaching skilling LHH is up 40% and EZRA up -- or G&A up 48%. So what's actually dragging the whole thing down. So I'm missing some part of that business. That would be the first one. The second question is regarding U.S. You said manufacturing is a driver. I was just wondering which type of manufacturing activities you're talking about and whether that's a trend that we should expect to continue in light of the whole repatriating manufacturing to the U.S. And then finally, if you can make a comment on the Akkodis defense exposure and how that's working? Denis Machuel: So I think Coram will take the first question, and I'll take the other 2. Coram Williams: Yes. And very quickly on this one because I think we are very pleased with 28% underlying growth. And I think there is real strength in EZRA and GA and this offering as a whole. There are 2 pieces which are bringing that growth rate down from the 40% to 50% that you see in EZRA and GA. There is some more traditional coaching business which is effectively being substituted by EZRA. That's an opportunity for us long term because the digital nature of EZRA's coaching platform actually expands the addressable market. And as we've talked about before, there is still a small piece of B2C business in general assembly, which we are sunsetting and in the short term, brings the growth rate down. So those are the 2 other pieces. But I think you'll agree the 28% underlying growth is a strong number. Denis Machuel: And as far as the manufacturing is concerned, we're growing -- in the U.S., we're growing 11% on overall manufacturing, I would say, in the U.S., which is good. It's broad-based. I mean there is a lot of -- from the sort of mid-sized manufacturer that can serve a variety of industries to the larger piece. We exclude, if you want, in that category, we exclude the manufacturing that are purely sector-related like automotive or aerospace or others. So far, we've seen -- it's a series of quarters where we've seen manufacturing relatively solid in the U.S. Is it related to ensuring I am not fully sure, we have seen some announcements, but before you build a new factory, or before you change your production strategy, it takes a bit of time. Probably over time, given the promises that we've heard from so many companies to increase their investments in the U.S., this will be supportive of our manufacturing business. I would say it's probably a bit early to link it to reshoring. It's just like we have, as I said, we have our salespeople really, really on the field, close to our clients and making sure that we fill every job requisition that we receive. That's the point. It's -- the motto that we've had for several years now is I don't care whether the economy is good or bad, our markets are fragmented, if you are close to your clients, you can win share. And if you deliver faster than your competitor, then you gain share. And that's how we win. Now on the Akkodis defense, yes, we see momentum. It's -- the overall -- the aerospace and defense sector overall is growing 11% year-on-year. It's supported both by the aerospace dynamic and also with the pickup in defense, we say, I see it across the board, it's not yet -- I mean, the full investment that has been announced, for example, in Germany is not fully in place, but we see a pickup. And let's be clear, we are a key Tier 1 supplier for engineering services to all the major players, particularly in Europe and that puts us in a very good place. They also want to consolidate their Tier 1 list and we are in a very, very good place to continue to grow there. Michael Foeth: Okay. Perfect. And thanks, Coram, for the very transparent and clear communication over the years and all the best. Operator: Your next question comes from the line of Will Kirkness of Bernstein. William Kirkness: I just had 2 questions, please. Just on Akkodis, in terms of the U.S. and France, is there anything to do on cost there? Or is that just a case of waiting for end markets to get better to continue to improve? And then the second question was just a clarification on the 1.5x leverage target by the end of '27. And how we think about that with the new hybrid definition. So whether that -- when we start to think about return of surplus capital, just which calculation we use related to the hybrid? Denis Machuel: I'll take the first one and then Coram will be super happy to talk about the second one. The -- yes, so U.S. and France, I mean, we are -- first of all, we are laser-focused on our cost base to ensure our competitiveness. We are also accelerating and Jo will talk about that at the CMD, accelerating our offshoring capacity to make sure that we provide the best possible service to our clients. There's a big need from our clients to -- for us to grow offshoring. So that's good. We are -- so we are super focused on the cost base. France is back to growth, right, 1%, which is good. And the U.S., I mean, we have a great, great dynamic with -- in Consulting & Solutions. We grew 45%. And the tech staffing is improving. So it's sequentially, okay? So if you go back to North America in Akkodis was minus 9% in Q1, minus 4% in Q2 and now plus 1% year-on-year. So it is improving. We are still working on our cost base, it's too high. We are accelerating, particularly on the tech staffing, we're accelerating the way we use offshore to recruit faster and at more competitive costs. So this is what we're doing. I think I'm positive on both markets. Coram Williams: Let me pick up on the net debt-to-EBITDA question. Just to reiterate why we're doing this. We introduced the hybrid in 2021 as part of our capital structure. Obviously, the rating agencies from day 1 have given us the equity credit on 50% of it. We are in the process of refinancing, which very much reinforces the long-term nature of this instrument in our capital structure. And therefore, it is the moment to align our reporting with rating agency methodology, it makes sense to do it. It is common practice, many companies do this. And as you can see in the press release, we've been very transparent in terms of the numbers, both before and after the change on the leverage ratio. The target remains at or below 1.5x net debt to EBITDA. And it's important to remember it is at or below and we are leaving it there for 2 reasons. One, it reflects our commitment to the investment grade credit rating. And obviously, that credit rating is assessed and calculated, including the hybrid, so it makes sense. And as we know, for a business of this size and this nature, the 1.5x is a good point where you reach efficiency on cost of capital. So we will leave the target where it is. We've been transparent in the move on the reporting change and we are very committed to achieving that target. Operator: Your next question comes from the line of James Rowland Clark of Barclays. James Clark: So just on the very strong North American performance, which is obviously well ahead of market growth rates at the moment. Does this sort of normalize back to market growth rates in the second half of next year or even lower on the tough comps? And I guess, could you just express your confidence that you could outperform the market on a sustainable basis there beyond that? Just on the CFO change, I'd just like to know whether this maybe there's an opportunity for any slight changes to how to think about the financial guidance or use of capital in the future? And then finally, are you confident you can hold on to the broader cost savings, the structural cost savings in the business to deliver ahead of the market organically next year? Denis Machuel: Thank you, James. So yes, I think the -- on North America, as I said, I mean, I don't think we'll grow 20% every quarter for the years to come. But yes, the objective is to always be ahead of the market. So are we going to normalize a little bit of growth, probably. Do we want to be ahead of the market? Yes, that's the objective. You know that the incentives of our executives and people are linked to doing better than the competition. So definitely, we will do -- we will push hard to always be ahead of the market. Sometimes we get there, sometimes we don't, but that's the absolute focus of our teams, and it's not only North America, it's everywhere. As far as the CFO change, I mean we'll go in depth on this -- the financial strategy and the guidance in the Capital Markets Day, but you can expect continuity because this is what we've been told. I think we -- sorry, what we have been saying, you've understood that this was a very smooth transition. It was well prepared. And so that's the idea. It's all about the continuity. And yes, I mean the structural cost savings we will continue to be laser-focused on cost, both to achieve and to secure our gross margins. So cost to serve is an absolute obsession because this is how we deliver our competitiveness. That's why and Christophe will talk about that in the CMD, that's why we've accelerated our talent supply chain delivery because that works. And of course, we are absolutely laser focused on the G&A and as you could see, we delivered on our promise to deliver the full savings, EUR 174 million net of inflation and we've kept that line really strictly. So moving forward, our G&A will be less than 3.5% of revenue, that's the sort of the line we've set and we'll stick to it. Operator: There are no further questions at this time. And with that, I will turn the call back to Denis Machuel, CEO, for closing remarks. Please go ahead. Denis Machuel: Thank you very much. And again, thanks again to all of you for having attended this call where we think we presented strong quarterly results and these results, they evidence further the strength of our execution. So we believe we are leading a recovery in our key markets. That's encouraging. While there is still a lot to do, all our turnaround plans are delivering according to our expectations. So that's encouraging for the future. We are on track, as you understood, to meet our margin commitment for the full year, and that was very important for us. And so we are looking forward to seeing you at the CMD in London. I mentioned what we're going to talk about. And it's going to be also the opportunity for you to say goodbye to Coram and also to meet Valentina, they will be both on stage, as you can imagine, and also see with your eyes how we are living through a very smooth transition that we ensure full continuity. So as you could hear, I'm confident in the future we're building a very strong group and we'll talk a lot about that in the CMD. See you there. Thank you so much. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

159天前Insight Analytics约5分钟阅读

LFST 2025 Q3 财报电话会议

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 LifeStance Health Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Monica Prokocki. Please go ahead. Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's Third Quarter 2025 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer and Ryan McGroarty, Chief Financial Officer. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call. Before turning over to management for their prepared remarks, please direct your attention to the disclaimers about forward-looking statements included in the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our financial performance outlook, business model and strategy. Those statements involve risks, uncertainties, and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially. Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave? David Bourdon: Thanks, Monica, and thank you all for joining us today. I'm incredibly proud of the LifeStance team for the exceptional results we delivered in the third quarter. For the past 3 years, we have met or exceeded our guided metrics, a testament to our consistency, execution and the resilience of our commercial pay hybrid model. Offering both in-person and virtual care continues to be a key differentiator, especially in a fluid landscape that favors providers like LifeStance who can deliver high-quality care in both settings. Additionally, given our focus on commercial insurance, we have minimal exposure to government pay, largely insulating us from legislative shifts and stroke of the pen risks. Our business model positions us well in a dynamic health care environment. Now turning to our quarterly results. This was a quarter of records for LifeStance. First, the team delivered remarkable organic visit growth of 17%, providing increased access for patients. This was driven by both record organic clinician net adds and clinician productivity improvement. This growth reflects the strong demand for our services and the effectiveness of our model. Additionally, we achieved adjusted EBITDA of $40 million and margins of 11% in the quarter. Both are the highest since we went public in 2021. Given the outperformance in the third quarter, we are once again raising full year guidance for adjusted EBITDA. From an operational perspective, our record organic net clinician growth in the quarter has resulted in a team of now roughly 8,000 clinicians, validating that our value proposition continues to resonate strongly in the market. At the same time, we are continuously looking to improve that value proposition as our clinicians' unwavering commitment to delivering high-quality patient care remains the cornerstone of our success. Earlier this year, we outlined several initiatives designed to better fill the time clinicians give us to see patients. I'm pleased to report that these efforts are paying off. In the third quarter, we achieved the largest improvement of quarterly organic productivity in our company's history. For example, one of the initiatives is our Cash Incentive Program launched in May, which has been highly effective in rewarding clinicians for improving access and quality. We also saw strong patient acquisition and improved retention, which was partially driven by the new engagement platform, which fosters deeper connections with patients. Additionally, we have implemented a tech platform to assist our phone scheduling team. This has delivered a meaningful improvement in conversion of phone calls to booked appointments, which also results in a higher number of new patients. By providing live guidance and summary AI, our team members are able to automate documentation, capture critical insights and focus on more meaningful patient interactions. The result is stronger conversion rates, higher patient satisfaction and greater workforce efficiency. Through multiple initiatives we've implemented this year, we have been responsive to clinician feedback to better optimize their schedules while at the same time, expanding access to high-quality mental health care for our patients. This milestone of meaningfully improved productivity underscores the strength of our operational strategy and our commitment to operational and clinical excellence. We also recently announced our partnership with Calm, a leading evidence-based mental health company. This collaboration allows Calm Health members to be seamlessly referred to LifeStance when higher acuity care is needed and is an example of new referral partners giving us access to patients we may not see through our existing channels. For patients, this will streamline access to trusted, personalized support through both virtual and in-person care. Together, we're expanding access to mental health care and empowering individuals to take proactive steps towards wellness. As we look ahead to 2026 and beyond, we will continue to advance operational and clinical excellence to further differentiate ourselves in the marketplace. In addition, we remain focused on deepening strategic partnerships with payers, health systems and partners from other channels like Calm, while also building on our position to be the employer of choice for clinicians. By combining disciplined execution with innovation and care delivery, we aim to strengthen our leadership in outpatient mental health and create lasting value for patients, providers and shareholders. With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan?â€¯ Ryan McGroarty: Thanks, Dave. I am pleased with the team's operational and financial performance in the third quarter. We delivered strong growth across revenue, visit volume and clinician count. Revenue grew 16% year-over-year to $364 million. This outperformance was driven by visit volumes. Visit volumes of 2.3 million increased 17% year-over-year. This outperformance was primarily driven by better-than-expected clinician productivity as well as net clinician adds. Our visits per average clinician increased 5% year-over-year. This was achieved while at the same time adding a record 288 organic clinicians, an 11% increase year-over-year, bringing our total to 7,996 clinicians. Total revenue per visit of $158 was flat year-over-year as expected.â€¯ Turning to profitability. Center margin of $117 million increased 16% year-over-year and was 32% as a percentage of revenue. The outperformance in the quarter was driven by the revenue beat. Adjusted EBITDA of $40 million in the quarter exceeded our expectations. This 31% year-over-year increase resulted in our adjusted EBITDA as a percentage of revenue of 11.1%. As Dave mentioned, the adjusted EBITDA margins we achieved this quarter were the highest in our history as a public company. The outperformance in the quarter was primarily attributable to favorable center margin.â€¯ Additionally, we delivered meaningful operating leverage on the G&A line for the second consecutive quarter with our adjusted General & Administrative Expenses increasing only 10% in the quarter versus 16% revenue growth. After making strategic investments in 2023 and 2024, we said we would drive operating leverage on the G&A line, and that's exactly what we're delivering. These results validate our disciplined approach and position us well to continue expanding margins while achieving sustainable growth. We also finished with positive net income of $1.1 million in the quarter. This is the second quarter this year and in our history as a public company that we achieved positive net income. We view this as a key profitability metric for our business, and our progress this year increases our confidence in delivering positive net income and earnings per share for the full year in 2026.â€¯ Turning to liquidity. In the third quarter, free cash flow remained solid at positive $17 million. We exited the quarter with a strong cash position of $204 million and net long-term debt of $269 million. This cash balance, which is roughly double of our position from last year, is the result of the strength of our operating cash flows this quarter and year-to-date. We have additional capacity from an undrawn revolver of $100 million. DSO for the quarter improved once again and is now down to 31 days, an improvement of 3 days sequentially and 16 days year-over-year. This DSO is the lowest since we went public, and we remain confident in our ability to deliver strong positive free cash flow for the full year. We are pleased with our leverage ratios and continue to delever with net and gross leverage of 0.6x and 2x, respectively. We have significant financial flexibility to run the business and fully execute on our strategy, including potential acquisitions.â€¯ In terms of our outlook for the full year, we are maintaining the midpoint of our revenue range of $1.41 billion to $1.43 billion. We are raising our center margin range by $2 million at the midpoint to $448 million to $462 million and raising our adjusted EBITDA guidance range by $4 million at the midpoint to $146 million to $152 million. This puts us on track for approximately 1 point of margin expansion year-over-year and double-digit margins for the full year. As previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes, with total revenue per visit being roughly flat. For the fourth quarter, we expect revenue of $368 million to $388 million, center margin of $113 million to $127 million and adjusted EBITDA of $37 million to $43 million. We expect the step-up in revenue quarter-over-quarter to be driven primarily by continued growth in our clinician base and modest sequential rate improvement. We are pleased with the productivity gains delivered in the third quarter, and we expect to maintain those elevated productivity levels in the fourth quarter. These factors position us to deliver another strong quarter of revenue growth to close out the year. Based on the adjusted EBITDA outperformance so far this year, we have flexibility through the remainder of the year to make additional investments to better position us to achieve our 2026 growth objectives. Additionally, we continue to expect stock-based compensation of approximately $70 million to $85 million. We now expect to open 20 to 25 new centers in 2025, modestly lower than our previous range of 25 to 30 due to shifts in timing. Looking ahead to 2026, we continue to anticipate mid-teens revenue growth. We expect this to be driven by low double-digit visit volume increases and low to mid-single-digit rate improvements. We plan to drive volume growth with continued clinician expansion balanced with year-over-year productivity improvements, supported by strong demand for mental health care. At the same time, while our full year guidance implies exceeding our initial expectations for 2025 margin expansion, we expect continued expansion in 2026 and beyond. These will be driven by the operational efficiencies we have been introducing as we enter a new chapter of tech enablement such as leveraging AI and digital solutions to automate processes, improve accuracy and support our clinicians. These initiatives, combined with disciplined execution and technology-driven operating leverage will strengthen our financial profile and support sustainable profitable growth. With that, I'll turn it back to Dave for his closing comments. David Bourdon: In closing, this was another outstanding quarter for LifeStance. While we are pleased with what we've accomplished, we feel the best is yet to come. Our progress this year and the incredible dedication of each of our clinicians and team members serve to reinforce our confidence in the future as we focus on expanding access to high-quality, affordable mental health care. Operator, we'll now take questions. Operator: [Operator Instructions] Your first question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: I wanted to touch on clinician productivity, the context of 17% growth in visits versus 11% clinician adds. And just how you're thinking about the durability of that in terms of being able to continue to see leverage there? David Bourdon: Craig, this is Dave. I'll take that one. So first of all, we feel great about the productivity improvement that we saw in the quarter. As we mentioned in the prepared remarks, it was a record increase for us. And we achieved that while also having really strong net clinician adds in the quarter. And that just shows that we're able to balance both productivity and the net clinician adds and drive what you noted, the 17% visit growth. And that's a testament to our value prop as well. And as we think about the initiatives that drove that, I mentioned a few on the call, it was the Cash Incentive Program that incentivizes access and quality, the Patient Engagement platform and then some new things around tech and AI that we're implementing that's driving new patient volumes. All of those are durable. They're not onetime in nature. We feel really good about those continuing. And we still have additional initiatives like our Care Matching Enhancements and things like that, that will be coming online in the fourth quarter and as we step into next year. Craig Hettenbach: And then just as a follow-up on operating leverage, consistent with how you've been talking about the business the last couple of years in terms of that increase in investment in the business, and then you'll see that in G&A. So encouraging to see it kind of come through. Can you maybe just expand a little bit more on kind of productivity on the AI side of things, understanding it's kind of early days, but just how much of a lever that adds on the operating leverage front? David Bourdon: Yes, Craig, I'll take this one as well. I wouldn't dimension it with specifics. It is definitely part of the story as when we think about getting to margins of 15% to 20% in the out years, the expansion of operating leverage that's a big part of that story. We are a heavily manual business when you think about the work we do behind the scenes to support our clinicians and even what our clinicians do is very manual. So there's a lot of opportunity for us to be able to implement technology, digital AI-type tools and we do expect those to, again, to be a big part of the story of driving that operating leverage. Operator: Your next question comes from the line of Lisa Gill with JPMorgan. Lisa Gill: I just want to dig in a little bit on the revenue per visit, which increased more than we anticipated. I think previously, you talked about it being roughly flattish. Dave, I think I just heard you talk about when we think about '26 being flattish. Can you talk about what you saw in the quarter on the revenue per visit? Is it a higher acuity? Is there any change from a managed care contracting or anything else we need to keep in mind when we think about that? Ryan McGroarty: This is Ryan. So I'll be happy to address that question. So when you think of TRPV like for the quarter, it was relatively flat, as you mentioned, and kind of sequentially stepped up like $1.3 overall. And so this was in line with our expectations. When you kind of look ahead, so this, obviously, we had the unique payer situation this year. So as you kind of look ahead, so from a full year perspective, we expect TRPV to be flat overall for the full year. And then when we get into '26, we start to see the low to mid-single-digit rate increases as we get back to a more normalized kind of environment. So, we're really encouraged with the dialogue and the discussions that we're having with the payers right now. So again, so as you kind of go out into the next year, you get to that low to mid-single digits. Lisa Gill: That's very helpful. And then just as a follow-up, the comments around potential acquisitions. I'm just curious around what you see out in the marketplace today. Are valuations reasonable? Is it you're looking for geographic coverage, you're looking for adding up clinicians? How do I think about your strategy on the acquisition side? David Bourdon: Lisa, it's Dave. I'll take that one. So, first of all, I appreciate where your question is coming from, which is we're excited about the free cash flow generation that we have and the strength of the balance sheet, which gives us a lot of flexibility to be able to deploy capital to enable the business. And M&A is certainly a part of that. And we right now have a really good pipeline of opportunities for potential acquisitions that we're working through. The valuations for the ones that make our cut are what we feel is appropriate. We're being very thoughtful and disciplined. And to where you were going, the primary purpose of these acquisitions is for geographic expansion. So, establishing beachheads in new MSAs or states, things like that. That's our focus area. But again, we feel really good about M&A being complementary to our organic growth. Organic growth is still going to be the primary driver in the coming years. And I think we'll have more to share in the coming quarters around M&A. Operator: Your next question comes from the line of Ryan Daniels with William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan Daniels. So I want to focus more on the clinician retention side of the productivity initiatives. And you've mentioned previously that a key objective of your productivity initiatives is improving clinician retention. Can you share how much of an impact these initiatives are having on retention? And then looking out in the future, how much these initiatives could kind of provide an improvement for clinician retention? David Bourdon: Matthew, this is Dave. I'll take that one. So as we mentioned, we had a really strong performance in the quarter with net adds of 288 clinicians. That was driven by stable retention and the strength of recruiting of adding new clinicians. So that's a similar story to what we've talked about in previous quarters with retention being what we call is like stubbornly stable. At the same time, we're continuing to focus on enhancing the clinician experience and the value proposition for them. We talked about a number of initiatives, both last quarter as well as even in our prepared remarks. So that continues to be a big focus area for us. And as we think about the future, we still believe that we can move the needle on clinician retention. And I'd say what gives me hope is when I look at our various regional businesses across the country, we have a region that is running at about 87% retention. So we've talked about that North Star being in the mid to high 80s. We can actually see that happening in one of our regions. We just got to get the other ones up to that similar level. Matthew Mardula: Great. And then regarding the Specialty Services, how has those offerings progressed throughout the year and the quarter? And how should we think about its progression into 2026? And lastly, how has the reception been from centers both in terms of adoption and overall engagement? David Bourdon: Yes. Matthew, it's Dave. I'll take that one as well. So, first of all, just to ground, Specialty Services is about $50 million of our revenue. So, from an annual perspective. So that's, it's meaningful, but it's still not a major portion of our business. We're excited about this as an opportunity to increase services to our patients and to improved care. The focus right now has been neuro-psych testing and services around treatment-resistant depression, so primarily Spravato and TMS. And we have been rolling those out in phases, and that will continue actually for the coming years. The receptivity has been really great. The clinicians like it because it's more services that they can provide to be able to deliver better care for their patients and the patients obviously like it. It's one-stop shopping. And we expect these services to grow at a much higher rate than our core business in the coming years. And when we get to maturity, these will have higher margins than our standard psychiatry and therapy services. Operator: Your next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Ryan, maybe first question, as I think about the revenue guidance, obviously, you had a good Q3 here. The organic adds on clinicians in theory, would drive productivity gains to carry over into the quarter. Just curious, what are the moving pieces that factored into maintaining the revenue guide? I know you cut the new clinic openings guidance, but just curious what you can share with us on that. Ryan McGroarty: Perfect, Brian. Yes, this is Ryan. So I'll be happy to take that question as well. So overall, just starting off, we're super pleased with the outperformance in the quarter as it relates to revenue, which was largely driven, as you mentioned, just in terms of productivity. And again, like if you take a step back, we're also very pleased that we're able to raise our full year EBITDA guide by the $4 million. So, to go back to our Q2 call, we talked a lot about the step-up in second half over first half from an overall revenue perspective of approximately $60 million. So that step-up still holds. Essentially, all we've really done is just rebalance between the quarters versus anything else. And so, when you look at the fourth quarter in isolation, it's still really attractive when you look at the year-over-year growth of 16%, and it's a nice sequential step-up from Q3 as well of about $14 million.â€¯ And so, we really feel good about the team's progress in Q3 around productivities. And as Dave mentioned in his prepared remarks, the ability to not only get productivity but have net clinician adds at such a high point bodes well as we kind of move into the fourth quarter this year.â€¯ Brian Tanquilut: Got it. And then, Dave, maybe I know you alluded to your partnership with Calm. If you can just share with us how that works? And what are you expecting in terms of growth contribution or also the profile of the patients that Calm brings to LifeStance?â€¯ David Bourdon: Yes, Brian. So, we're really excited about the partnership with Calm. And this is great for patients and their customers. And it's an example of a different kind of referral partner for us than what we normally get through our existing channels. And we're uniquely positioned for these kinds of new partnerships with our large-scale and hybrid model.â€¯ And in regard to the types of patients, we actually think this will have a different profile, like a younger demographic than what we typically get through our partnerships with health systems and primary care practices and things like that.â€¯ Operator: Your next question comes from the line of Richard Close with Canaccord Genuity Corp.â€¯ Richard Close: Congratulations on a great quarter there. Just curious your thoughts with respect to behavioral health has been called out over the last several quarters, I guess, by Managed Care. And I'm just curious your perspective, if you think this is a risk to LifeStance or why not? And then maybe also confidence in that rate commentary for 2026.â€¯ David Bourdon: Richard, it's Dave. I'll take that. So, agree, you've had multiple payers in recent quarters that have mentioned higher mental health utilization. And it really varies by payer and by service line. So, for example, a lot of the commentary has been directed towards Medicaid and towards the autism, the AVA services. We have very little exposure to both of those business lines. And so, it's not as relevant for us as it is to some of our competitors that are in the space.â€¯ And then you always have to take a step back and think about there's still a significant unmet need in society today for mental health services. So that's going to continue to drive higher utilization as we come into the next few years as well as another trend that benefits LifeStance is the move from cash pay to insurance as it becomes more of an affordability issue for individuals and still wanting to be able to get care.â€¯ So those are probably some of my big points that go to the recent commentary around the higher trends. As far as rates, the one thing that I'd always highlight is that payers continue to focus on access for their employer clients and members. They're still getting a lot of pressure for them around access.â€¯ And then what we're starting to see is a few thought-leading payers that are focusing on quality. And we expect that the market will gradually shift towards quality and outcomes, and we welcome that change, and we think we're positioned really well for the market to go in that direction.â€¯ Richard Close: Okay. And as a follow-up, obviously, great adds, clinician adds in the quarter. What are you hearing from the clinicians in terms of why they're choosing LifeStance? Any changes that you're seeing in the marketplace? Just curious there.â€¯ David Bourdon: Yes. It's Dave. I'll take that one as well. I wouldn't point to anything new in regards to the recruiting and retention dynamics. It's still a very competitive marketplace for mental health clinicians. And our value proposition continues to resonate. We're not for everyone. We're looking for a certain profile of clinicians. But within that profile, we certainly are doing very well from both a retention and a recruiting perspective.â€¯ Operator: Your next question comes from the line of Kevin Caliendo with UBS Investment Bank.â€¯ Kevin Caliendo: My first one, just looking at the implied guidance for 4Q, the gross profit and adjusted EBITDA margins are down a little bit sequentially. Normally, 4Q is a better quarter in terms of margin. I'm just wondering, you mentioned investments. Is there anything in particular there that's prompting that change or anything to call out?â€¯ Ryan McGroarty: Yes, Kevin, this is Ryan. So, to your question, so you got it right. So, there is a little bit of a step down in margins going from Q4 from Q3. And overall, the way to think about that is an increase in G&A. And so, we as a team are looking at items and pulling forward some of the investment that helps get off to a strong start in 2026. Just in terms of execution of our plan and going back to the delivery of mid-teens revenue growth.â€¯ So, an example of that, Kevin, would be accelerating our Business Development team, right? So, folks that we want to get on board to be able to kind of work out in the local MSA and the local community just to make sure that the LifeStance brand is out there with the community partners. So that's just an example. So, it provides some flexibility just in terms of some of the investments that are positive from a return perspective, kind of getting a jump start on those from '26.â€¯ Kevin Caliendo: And the obvious logical follow-up question is you're pulling forward some spending, you're getting the productivity improvements that you said you're going to get and delivered on. You got better payer rates next year. When we think about the impact to margin next year, you said you expect the margin to expand, but should we think about expansion being greater than what we saw in '25? Is there any kind of color you can provide us in terms of an outline of where you think margins can be next year?â€¯ Ryan McGroarty: So, really looking forward to providing more specific '26 guidance in our 4Q call. Overall, I kind of go back to some of the points that we've made is really like the momentum that we have going into '26 and then anchoring back to the mid-teens as it relates from a revenue perspective in terms of what the revenue growth is. When you look at it from an operating leverage perspective, we've had really nice momentum on that. We look forward to continuing to expand out the leverage, but we'll get more specific with guidance as we get into the conversation for the 4Q call.â€¯ Operator: Your next question comes from David Larsen with BTIG.â€¯ David Larsen: Congratulations on the good quarter. Can you expand, maybe on your comments around business development and in terms of filling the top of the funnel and patient volumes? And can you maybe touch on, number one, the Managed Care piece; number two, getting referrals in from other providers in the area? And then number three, any sort of digital selling efforts that might be going on? It's my understanding that Google has sort of maybe changed some algorithms recently.â€¯ David Bourdon: This is Dave. I'll take your question. So first of all, as I mentioned earlier, there's really strong patient demand in the marketplace for mental health services. And it's that unmet need that is out there, and we have this demand supply imbalance. And so again, we feel very good about our model. And then you put on top of that, what we're trying to provide is high-quality care that's affordable. And so that's people being able to use their insurance versus cash pay, which also adds some additional patient opportunity for us.â€¯ So we continue to feel very good about the fourth quarter, and as we step into next year in regards to patient supply or new patient supply. As far as the channels, our primary channel of how we get new patients is through referral partners that are medical practices. And we continue to strengthen that, as Ryan mentioned, in that, that's what we call the business development team. These are the feet on the street. They're out there working with those medical practices to be able to provide a referral channel for their patients.â€¯ And we continue to enhance that year-over-year to continue to drive higher volumes. And we certainly do a little bit of the paid search. And I'll remind you that we spend less than 2% of revenue on marketing and acquiring of new patients. So again, the bulk of our patients are coming organic or through the referral partners. And again, we expect that to continue into 2026.â€¯ David Larsen: And then do you participate in like risk or ACOs or any sort of value-based care arrangements? It's obviously an important part of Primary Care in Medicare for the new physician fee schedule for '26. Just any thoughts around that?â€¯ David Bourdon: We do not. So we do not take risk today. And we have very limited exposure to government as a payer, right? That's about 5% of our total revenue for all government channels in regards to them being a payer. So we have very limited exposure to that segment.â€¯ Operator: And your last question comes from Steve Dechert with KeyBanc Capital Markets. Steven Dechert: I just want to ask another one around the guidance. What does the high end of your 4Q revenue guidance imply in terms of visit volumes and TRPV? And then could you provide a little bit more color on the 2026 strategic investments you mentioned earlier to meet your revenue goals?â€¯ Ryan McGroarty: Yes. So Steve, I appreciate the question. This is Ryan. So the first piece, we don't provide specific guidance to that, just in terms of the range and kind of how to think through the numbers. As it relates to the 2026 investment, so we continue to make investments. So we mentioned the business development. So all health care is local. And so being able to be out there with the key referral partners, as Dave mentioned earlier. And then a whole host of just investments that drive efficiency, so continue to be able to drive operating leverage.â€¯ So again, we're pleased with the momentum that we have overall just in terms of being able to drive leverage. And so the investments that we make will continue to have that orientation as well.â€¯ Operator: And with no further questions in queue, I'd like to turn the call back over to Dave Bourdon, CEO, for any closing remarks.â€¯ David Bourdon: Thank you, operator. I'd like to thank our over 10,000 mission-driven teammates who make sure that our patients get the quality care that they need and deserve. I continue to be inspired by the passion and the commitment that you all bring every day. Have a great day, everyone.â€¯ Operator: This concludes today's conference call. You may now disconnect.

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GLPG 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the Galapagos Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Dr. Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Thank you all for joining us today as we report Galapagos' 9-month 2025 financial results. Last evening, we issued a press release outlining these results. This release, along with today's webcast presentation, can be found on the Galapagos investor website. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, November 6, 2025. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all of that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. It has been a very active time here at Galapagos as we have worked tirelessly toward advancing the transformation of our company. This transformation has been ongoing for several years, and I firmly believe we have a bright future ahead of us. Earlier this year, we announced our decision to separate the company into two entities with Galapagos advancing its cell therapy programs and the planned launch of a SpinCo that would focus on business development and be funded with approximately EUR 2.45 billion in existing cash. However, in May, it became apparent that the spin-off could not be executed as planned, and the Board took swift and decisive action towards a different path to realize value, and I was honored to be named CEO. The Board gave me a clear mandate to analyze strategic alternatives for our existing businesses, including cell therapy. In addition, I was asked to further refine the strategy for deploying our cash resources into transformative business development and rebuilding our pipeline. We moved quickly, brought on advisers and commenced a thorough strategic review and sale process to identify potential buyers or investors with the expertise and resources to take the cell therapy business forward. We were highly motivated to identify a buyer or investor who could not only support the ongoing investment requirements in the business but also honor the efforts of our employees, who have put their blood, sweat and tears into the cell therapy business over the past several years. However, after a 5-month process, there were no viable proposals presented that would reasonably support the business going forward. We offered to divest the business for minimal upfront consideration and, where appropriate, we even offered to provide capital support to potential buyers. But no party was able to provide committed financing to enable a viable acquisition of the business. One key reason is that several hundreds of millions of euros would be required for any such deal given the significant ongoing investment requirements not only in the business but also to stand behind the obligations to our employees. After this comprehensive review of strategic alternatives and given these ongoing investment requirements, coupled with evolving market dynamics and taking into account the interest of all relevant stakeholders, the Board unanimously agreed to form an intention to wind down the cell therapy business. Given the impact on our employees and ongoing operations, this was a difficult decision. But I firmly believe it was the right decision given our circumstances. Now that the strategic review process has concluded, we are actively consulting with the works councils in Belgium and the Netherlands to seek their advice in order to implement this wind down. During this ongoing consultation process regarding the intended wind down, we would consider any viable proposals to acquire all or a part of the cell therapy activities if such a proposal emerges during the wind-down process. In parallel to all this activity, we have assembled what I believe to be a world-class team focused on executing our business development strategy. Our deal funnel has been building steadily, and I'm confident that we can identify and execute on opportunities that can bring exciting new opportunities to Galapagos in our pipeline. I will share more detail on our strategy in today's presentation. As part of our ongoing transformation, we have also welcomed four new Board members over the past 6 months. I am delighted to be working with Jane, Dawn, Neil and Devang on the Board going forward. And I would like to again thank Peter, Simon, Elisabeth, Susanne and Andy for all their valuable contributions during their time on our Board. As I mentioned, our intention to wind down the cell therapy business is subject to the conclusion of consultations with work councils in Belgium and the Netherlands, which is standard practice in Europe. During this period, Galapagos will continue to operate the business. If the wind down is ultimately implemented, we anticipate that up to approximately 365 employees would be impacted across our offices in Europe, the U.S. and China. Also, we would plan to close Galapagos sites in Leiden, Basel, Princeton, Pittsburgh and Shanghai. In this scenario, we would effectively proceed with a full exit of our cell therapy activities and we would expect to incur the costs detailed on the slide, which will be discussed in more detail during Aaron's review of financials later on this call. We are deeply grateful to our dedicated employees, investigators, patients, shareholders and partners for their continued commitment and support. We will stand behind our obligations as an employer to treat our employees fairly throughout all of this. The remaining Galapagos organization will be repositioned for long-term growth through transformational business development and would maintain a dedicated presence at our headquarters in Mechelen, Belgium. We hope to complete the works council process quickly as we aim to provide more clarity to our employees and stakeholders as soon as possible. Although it is difficult to predict the exact duration of this process, we currently expect it to be concluded in the first quarter of 2026. I wanted to spend a few minutes on the last remaining legacy R&D program, our TYK2 program. Our development team has done an excellent job progressing the Phase III enabling studies, and we expect to see data from two studies by early '26, ahead of our original expectations. The studies are now fully enrolled and the remaining spend related to this program is moderating. GLPG3667 is a differentiated oral TYK2 inhibitor currently in two Phase III enabling studies for SLE and dermatomyositis. At the recent ACR conference, we presented new in vitro pharmacological data suggesting additional differentiation of 3667 from two other TYK2 inhibitors. 3667 demonstrated inhibition of the interferon-alpha and IL-23 pathways with no measurable impact on TYK2 independent pathways. Additionally, 3667 showed no inhibition of IL-10. These findings support our belief in the program's potential, and we are looking forward to reporting data from the two fully enrolled trials in early 2026, which will guide us towards the next steps to maximize value for this program. Now let's review the other assets we have at Galapagos. Our significant scientific successes over our 25-plus year history have enabled Galapagos to attract significant capital. And today, we have the benefit of a significant cash balance as well as a portfolio of other attractive assets that can drive additional shareholder value. Our cash balance of approximately EUR 3 billion represents approximately EUR 46 per share. This cash balance generates significant interest income. Through the first 9 months of this year alone, we received approximately EUR 77 million. In addition, we are receiving an attractive stream of royalties and earn-outs from Gilead and Alfasigma on their sales of Jyseleca, the JAK program developed here at Galapagos. The income related to Jyseleca has been approximately EUR 15 million to EUR 20 million annually and is expected to continue into the mid-2030s with potential upside. In addition, we expect to receive tax receivables of approximately EUR 20 million to EUR 35 million per year over the next 3 years with additional opportunities for credits beyond that. We also have stakes in multiple private biotech companies such as Third Arc, Frontier and Onco3R, plus other private companies that haven't been disclosed. Last but certainly not least, we own our building in Leiden. It's a fabulous building, easily the nicest lab and office building I've ever worked in, a state-of-the-art building in which we invested over EUR 70 million for construction and build-out. It opened in 2022 and it's a great asset. As you look at this portfolio in total, I believe we could see the potential for several hundreds of millions of additional value on top of our cash balance from this portfolio. Let's go back to the ongoing transformation of the company. I am incredibly pleased that we have been able to attract new leadership talent to the company that, in my opinion, represents the team with the best business development expertise in our industry. This team has been through hundreds of M&A and business development transactions as principals and advisers. I won't go into their individual and very impressive bios, but they are summarized on the slide. Aside from their bios, having worked closely with each of them, they are not only uniquely talented, but they are wonderful leaders with strong values and all are excited to be part of our transformation and drive significant value for patients and shareholders going forward. I am very proud to work with this talented group every day as we execute our mission and vision. In addition to our executive talent, we have also assembled a fantastic group of outside advisers that have joined our Strategic Advisory Board. These four individuals have brought numerous drugs to patients, and we are collaborating closely with them as we prioritize the many potential BD transactions in front of us and diligence individual opportunities. Let's jump into our business development strategy. Let me start with what Galapagos brings to the table as we pursue business development. We see several key strengths that provide us a unique advantage. First, we have built the team to execute creative BD deals. Second, we have significant capital to invest in promising programs and science. Third, we can be incredibly flexible in our approach as we are not constrained by an existing pipeline. For example, we can enable external teams or companies to pursue their programs with our capital. Finally, we have a unique partnership with Gilead that I believe also represents a unique asset for us that I will discuss some more in a minute. We will be financially disciplined and focused on value creation while pursuing programs we believe can make a clear difference for patients. We've identified some key focus areas for our activities. First off, we will focus on what we believe have been meaningfully clinically derisked and differentiated opportunities. We are looking for opportunities that can substantially enhance the standard of care in a disease and have clear patient impact. We will initially prioritize areas where there is a strategic synergy with Gilead. Next slide, please. Now let me turn to our existing partnership with Gilead. We've been getting a lot of questions on why we believe it's in our best interest to work with Gilead on business development opportunities. So we wanted to address that here. Let's start with the obvious. Gilead owns 25% of Galapagos and has an existing collaboration agreement, the OLCA as we call it, that allows Gilead to opt into U.S. rights of proof-of-concept assets at Galapagos at relatively favorable terms. These terms were originally envisioned for programs that came out of our original discovery platform, but they also apply to business development opportunities we would bring into the company at this stage. For most assets we might consider bringing in, Gilead's option to acquire U.S. rights for $150 million upfront would likely represent too much value leakage to make a deal attractive for us. However, Gilead has expressed a willingness to renegotiate these terms, and we share a joint perspective that by working together, we can create win-win deal opportunities that create more value than each of us could drive individually. What does that look like? Gilead has expressed a willingness to contribute capital to our BD activities and they are also bringing their capabilities to the table, such as their technical due diligence team. By working with them, we might be able to find unique value creation opportunities where, on a combined basis, we might be able to unlock more value in a portfolio than a single party would be able to. And finally, Gilead's commercial expertise will bring additional credibility to our efforts. Our partnership also allows for creative deals that could drive structural and financial benefits that Gilead may not be able to achieve on their own. I've known some of the key leaders at Gilead for many years, and I'm quite pleased with the close collaborative working relationship we have strengthened over the past several months. In conclusion, I am confident we can find win-win opportunities that will create value for Galapagos shareholders and Gilead. Let's explore how working with Gilead may open opportunities that would otherwise not be available to us. There are many deal structures possible. However, we thought it would be helpful to share just three illustrative examples. Starting on the left side, we can partner with Gilead to jointly acquire or license an opportunity. For example, these deals could potentially involve us acquiring public stock. In the middle, there could be opportunities where we at Galapagos may see value in one asset and Gilead may see value in another asset at the same company, thus enhancing our ability to structure a value-creating deal for a multi-asset company. And finally, on the right, our cash balance makes us a very attractive merger partner, recognizing we would, of course, require receiving fair value for our portfolio of assets in any business combination. So how do we operationalize our strategy? We will be flexible on ideas but financial discipline will be key, and we will balance intrinsic risk of each opportunity with overall portfolio risk. Said in another way, if we dedicate a large portion of our capital to one opportunity, we must have very high confidence in that opportunity to create value. For any significant transaction, we believe we can renegotiate our existing agreement with Gilead to enable win-win deals for both. Of course, nothing prevents us from doing transactions on our own to the extent that they could drive value over the long term. However, I hope I've been clear why we believe working with Gilead can broaden our set of opportunities and create shareholder value. As we execute on our strategy, we believe we can work to eliminate our current trading discount and open our deal aperture even more. Now let me address a few other important topics. As I mentioned earlier during this call, the transformation of Galapagos is well underway. Looking ahead and if the intention to wind down is ultimately implemented, Galapagos would be a much leaner and strategically focused organization. We will maintain our headquarters in Belgium, leveraging the experience and talented teams in place there across a number of functions. Many investors have asked us whether we will return capital to shareholders. While our goal is ultimately to drive value for our shareholders, it's important to recognize that any return of capital would require alignment with Gilead given their 25% ownership and the terms of our existing partnership agreement with them. In addition, even as permitted, Belgium law imposes certain limitations on capital returns to shareholders. Given we do not have any distributable profits available at the current time, the ability to distribute would require a resolution at an EGM with at least 50% of shares present at the meeting and at least 75% approval. So again, while this could be an interesting alternative down the road, for now, we are focused on using our capital for business development opportunities. With that overview, I would now like to turn the call over to Aaron Cox, our CFO, to review our 9 months financial results. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our 9-month financial results through the quarter ended September 30. Total operating loss from continuing operations for the first 9 months of 2025 amounted to EUR 462.2 million compared to an operating loss of EUR 125.6 million for the first 9 months of 2024. This operating loss was negatively impacted by an impairment on the cell therapy business of EUR 204.8 million as a result of the strategic alternatives process for the cell therapy business. Additionally, there was also a EUR 135.5 million impact related to the strategic reorganization announced in January 2025. This EUR 135.5 million is comprised of severance costs of EUR 47.5 million, costs for early termination of collaborations of EUR 45.5 million, impairment on fixed assets related to small molecules activities of EUR 9.5 million, deal costs of EUR 21.4 million, accelerated noncash cost recognition of subscription rights plans related to good levers of EUR 9.8 million and other operating expenses of EUR 1.8 million. Net other financial income for the first 9 months of 2025 amounted to EUR 30.4 million compared to net other financial income of EUR 71.7 million for the first 9 months of 2024. Interest income amounted to EUR 31.4 million for the first 9 months of 2025 compared to EUR 70.6 million of interest income for the first 9 months of 2024 due to a decrease in the interest rates and a shift from investments in term deposits generating financial income to investments in money market funds generating fair value adjustments. Notably, fair value gains and interest income derived from cash, cash equivalents and current financial investments excluding any currency exchange rate impact amounted to EUR 77.2 million for the first 9 months of 2025. Financial investments, cash and cash equivalents totaled EUR 3.05 billion on September 30, 2025 as compared to EUR 3.32 billion on December 31, 2024. Our cash and cash equivalents and current financial investments included $2.16 billion held in U.S. dollars versus $726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.174. As we announced with our first half 2025 results, we continue to hold approximately 60% of our cash in U.S. dollars and 40% in euros. As I mentioned, cash and investments as of 9/30/2025 was EUR 3.05 billion, representing EUR 46 per share. Looking forward, we anticipate ending 2025 with approximately EUR 2.975 billion to EUR 3.05 billion in cash, cash equivalents and financial investments excluding any business development activities and currency fluctuations. As the intention to wind down is confirmed and implemented, following the Works Council processes, we would expect to incur the following cash impacts related to our cell therapy business: EUR 100 million to EUR 125 million of operating cash impact from Q4 2025 through 2026 with EUR 50 million to EUR 75 million of this being in 2026 and EUR 150 million to EUR 200 million of onetime restructuring cash costs in 2026. Lastly, as the intention of wind down is implemented and completed, we would expect to be cash flow neutral to positive by the end of 2026 excluding any business development activities and currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In summary, it has been a transformative time at Galapagos. We are committed to building a novel therapeutic pipeline that can have meaningful impact for patients. We will provide updates related to discussions with the Belgium and Dutch works councils as appropriate. As I mentioned, our deal funnel has been building steadily and we will remain disciplined and will only execute on any opportunity in front of us if we believe we can create value. We are confident we have the team in place to execute and look forward to the future with optimism and purpose. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] We will now take the first question from the line of Faisal Khurshid from Leerink Partners. Faisal Khurshid: Really phenomenal presentation today. I just wanted to ask, maybe for Aaron or for Henry, when you say that you expect to achieve cash flow neutral to positive status by year-end '26, can you talk a little bit about what the assumptions are that go into that? Aaron Cox: Sure. Sure, this is Aaron. We will -- the assumptions that go into it are primarily related to interest income, one. So we made some assumptions on interest rates based on the forward curve and our cash balance. It doesn't assume any BD activity. Obviously, if we use cash for BD activity or take on additional burn with any BD activity, that could impact that forecast. We also have income, as we outlined on Slide 7, related to Jyseleca. We have tax credits coming in related to tax refunds from Belgium and other countries in the region. And we also assume that we are through the works council process and we've implemented and completed the wind down. Faisal Khurshid: Got it. That's helpful. And then for Henry or for Dan, you guys mentioned that you have -- that the deal funnel is currently building. To the extent that you're able to speak to it, could you talk to us a little bit about what kinds of opportunities are in the deal funnel, what those look like and your kind of level of optimism around that? Henry Gosebruch: Yes. No, thanks. It's Henry. I'll start and I'll turn it over to Dan. I mean, as we outlined in the prepared remarks we're focused on opportunities that are clinically derisked. So we're looking at mid- to late-stage opportunities. Again, that can be M&A, partnerships. We're looking at many different structures. But it's clear that there is a lot of capital required in biotech still. And while perhaps the access to capital has improved slightly, there are still many companies that would benefit from capital from us, partnerships, et cetera. So with that, maybe I'll ask Dan to put a little bit more color on it. Dan Grossman: Thanks for the question. This is Dan. I would just add the therapeutic area overlay, which I think is an important one. We're in the fortunate position really not having too many legacy attachments of being able to consider opportunities across a wide range of therapeutic areas. But as Henry indicated, for the early deals, we think it's a high priority to the extent we can to collaborate with Gilead, to go in with Gilead on deals. And that brings us to look for assets or at least deals that have some anchor asset that is mutually value-creating for both of us but also strategically aligned with Gilead's direction. That brings us to the therapeutic areas of oncology and immunology or inflammatory disease. Faisal Khurshid: Got it. Okay. And then just one last one for me, if I can. Just kind of maybe combining like the two questions in a way. Henry, can you speak to us about the kind of like relative balance between kind of being conservative and you not going for a deal and kind of getting to the status of being cash flow positive versus doing BD? Like how do you kind of balance those two priorities in a way? Henry Gosebruch: I think they're both really key focus areas. I mean, we have to get through the works council process that we outlined as quickly as we can and then leverage again the broad set of assets we have today and outlined, so the cash balance that generates interest, the good growing and attractive royalty stream, we're getting the tax benefit. So that sets the base. But look, the intent is to ultimately use our cash balance to find opportunities that create a positive return and incremental return on that cash balance. And as we've outlined, we have EUR 46 per share in cash and we're trading obviously at a much, much lower number. So to the extent we can put that cash to work and create a return on that cash, I think there's tremendous upside in our story here. And so that's what we're focused on. Operator: We will now take the next question from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: I'm curious if you could talk about what your expectations would be for Gilead to contribute to the deal process really in terms of their expertise. Would this be kind of expertise in identifying a transaction? Or might you expect commitment to providing resources or expertise on development prior to a formal opt-in? And then just secondarily, really quickly. In the past, I think you've talked about virology as another area that might be of interest. You didn't mention it today. Just wondering if we should assume that, that's not as high a priority as oncology and immunology and inflam? Henry Gosebruch: Yes. Brian, it's Henry. Thanks for the question. So on the first part, I'd say, again, I'm incredibly pleased with the relationship that we've strengthened with Gilead. And on several of the opportunities that we've looked at, they have contributed really along the lines of what you've talked about both their diligence expertise in looking at those opportunities. They've offered capital both upfront and, in some cases, if there's a portfolio of assets, to take some of these assets and develop them at Gilead, leveraging their infrastructure. So it can really take many forms. I think the bigger point is that I think they're coming to the table, as are we, with a very constructive sort of win-win attitude. And that can take many different forms. So we don't have to limit ourselves to that current partnership agreement where we would do the deal and then they would opt into certain opportunities. It can be really a much broader situation. And again, we're quite pleased with their commitment in our working relationship. And I'll ask Dan maybe to talk about the therapeutic area and the question on virology. Dan Grossman: Yes, that's fair. Thanks, Henry, and thanks also for the question. Before that, I'll reiterate Henry's point. I mean, we will make our own decisions about deals that we do. We will do our own careful diligence on key aspects of any asset we consider bringing in. In terms of the question about virology, I would say you're correct that it is of lower priority. I wouldn't say we would necessarily rule it out, but this is an area of enormous strength for Gilead. And frankly, our funnel is very, very nicely filling with oncology and I&I already. Operator: We will now take the next question from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Just one question on the Gilead relationship. We understand the strengths of working with Gilead due to their expertise and the commitments you have through the OLCA agreement. But it seems like one potential drawback would be speed in collaborating and getting to a decision point. In the past, we've seen big organizations take a long time to sometimes make decisions. So how is that contemplated in your strategy? Are there ways that you can assure that Gilead is ready when you need them and the two of you even collaborating can be competitively fast? Henry Gosebruch: Yes. Phil, it's Henry. Look, good observation. And we have to be fair, yes, that does create some complexity. So that is a fair comment. But I think it goes back to having a very collaborative relationship. Gilead is represented on our Board so they see some of the activity we're doing. And again, as I said, I'm very pleased with the ongoing dialogue we have. And so the more we can do in terms of working together and doing joint work ahead of making a formal approach to a company, as an example, or tabling an offer term sheet, if we can in a way sort of prewire some of what it would look like in terms of us and Gilead, then it really shouldn't impact the process ultimately with a potential partner or target. But yes, we do have to acknowledge there's some additional complexity. I guess the last thing I'd say is, look, we've built the team here that has been through many, many very, very complex BD transactions. So it's nothing that anybody here hasn't done in prior context. And I think on a combined basis, I feel we have just a phenomenal team to work through that complexity. Operator: We will now take the next question from the line of Jason Gerberry from Bank of America Securities. Chi Meng Fong: This is Chi on for Jason. There's obviously a lot of focus on bolstering the pipeline from external means. But my question is actually on the internal existing pipeline. Can you talk about the potential plans for 3667 upon completion of the two Phase III enabling studies in lupus and dermatomyositis? Are you leaning towards divesting the asset in favor of BD activities? And how might the different data scenarios help inform that decision? And I'm also wondering, do you have any refined thoughts on the strategy for dermatomyositis given the brepocitinib top line results from the VALOR study in the DM? Henry Gosebruch: Yes. It's Henry. Thanks for the question, Chi. So the company prior to us arriving had started a process talking to potential partners about 3667. Just recognizing that if that asset has the type of data in Phase II that would enable a comprehensive Phase III program, that would take expertise and resources that we currently don't have. And so in that context, a partnering process was started earlier in the year. Given we're so close to data now with data expected early next year, that process is currently not active, but I think it's something we would come back to. So to answer your question, I think we would look at the data very carefully and then we would think through what are the capabilities required if there's a path forward and who is best positioned to maximize the value. And that may well not be us. That may well be one of the players with established infrastructure, and that's sort of how we would how we look at that. As to your specific question on dermatomyositis, I mean, of course, we're paying close attention to the TYK2 landscape and the other landscape in I&I that impacts these diseases. And we'll look at what the target product profile is and what the bars we need to meet in these Phase II studies. So the team is all over that. But all of that will go into a decision sometime early next year in terms of the next steps for 3667. Operator: We will now take the next question from the line of Sean McCutcheon from Raymond James. Unknown Analyst: This is [ Yang ] for Sean. We have a question on the cell therapy wind down process. Could you please walk us through the timeline for the wind down and the continued efforts in this process? And also, do you think you may get some additional interest getting the update on the incoming ASH? Henry Gosebruch: Yes. No, thank you for the question. So again, I recognize that for many American investors or analysts, you may not be as familiar with the way the process works in Europe. But in Europe, the Board can really only form an intention to wind down and that intention is subject to consultation with works council. So you're essentially explaining to works council what the rationale is, why it's the best decision for the company. And that process usually takes several months. As we said in our prepared remarks, it's hard to predict exactly how long that takes, but we expect that to be concluded in Q1. So that's what we can say about that. During the process, we are open to receiving viable proposals. But as we said in the prepared remarks, at this point, nobody has come to the table with committed financing. As I said, it would take several hundreds of millions of euros of committed financing to not only take the business forward but stand behind with a pretty sizable employee obligations. And we, of course, are going to treat our employees very fairly in all of this. So again, if an offer does emerge during this process, we're quite open to considering it. But again, we hope to have resolution here in Q1. And we'll, of course, keep the market posted as we make progress in these consultations with works council. So I hope that answers your question. Operator: We will now take the next question from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: I have one on the topic of BD. You mentioned that you will after derisked programs with proof-of-concept. So I'm just curious, how will you ensure that you obtain such programs in a cost-effective way? And perhaps, are you prepared to pay a bit more in order to get access to the best programs and targets? Henry Gosebruch: Yes. It's Henry. Let me start on that question. We're going to be quite financially disciplined. So at the end of the day, it's really about do we see an opportunity that we think allows us to create value from here. Again, that may well involve partnering with Gilead on the basis we outlined where, on a combined basis, maybe we can see that incremental value that would be hard to realize for other parties. So at the end of the day, yes, when you are ultimately the party that does the transaction, generally speaking, you're going to pay more than everybody else. Otherwise, you won't be able to do the deal. But again, I'm quite confident given the environment and given how our deal funnel is building, we'll find those opportunities. But we're going to be quite disciplined. So if it takes another quarter or 2 or 3 to find the right deal, it will take another quarter or 2 or 3. We're not going to rush into anything, I think. Well, of course, I recognize shareholders and analysts want some clarity of what the deal is and what the pipeline looks going forward. We're not going to compromise on the financial criteria that we'll use to analyze the deal. Does that answer your question? Jacob Mekhael: Yes, very clear. Maybe just a follow-up on that. Given that any deal that you would take over, you'd need to continue developing it until approval either by yourself or in collaboration with Gilead, can you share anything on how much capacity for deal making does that leave you with? Henry Gosebruch: Yes. No, it's a good comment. So look, our roughly EUR 3.1 billion is really a phenomenal starting point plus, again, these other assets that are helping us get to positive cash flow on top of that. But yes, of course, we need to reserve some capacity for what might be a Phase IIb or Phase III spend for any asset we bring in. So that is absolutely part of the deal modeling we're doing. And that's the comments we made earlier. Again, if we dedicate a large portion of that capital into one opportunity, we really have to be quite confident that, that opportunity will create value. If we spread the risk over several opportunities, maybe we could have a slightly different perspective. But the ongoing development requirements are absolutely something that we're quite focused on. And there, again, this is where the partnership with Gilead could come in, where we might be able to split some of those ongoing requirements and on a joint basis come up with a mutually value-creating structure. Operator: We will now take the next question from the line of Sebastiaan van der Schoot from Van Lanschot Kempen. Sebastiaan van der Schoot: Really clear on the strategy. I just had one question for our side. Can you provide some clarity on whether potential transactions, whether they would also bring in R&D capabilities? Or is that something that you don't want to take on with newer transactions? Henry Gosebruch: Yes. Sebastiaan, it's Henry. That's a very good question. Again, one of the, I think, very attractive features we have here at Galapagos is that we can be flexible on what that looks like. So it could be that, yes, with an acquisition, there might come a very capable team. In fact, it might be very attractive for certain teams just to join us at Galapagos and essentially stay intact and continue to work on their asset. But it might also be that our capital just enables an external party to continue to do the work and we won't have that capability at the company, but we essentially fund that existing capability at a third party. So honestly, we're not focused on one over the other. I think it's whatever is right for any opportunity, whatever is the best way to create value. Now I will say we do have the TYK2 development team still in place. So that does give us a starting point if we wanted to build it further from there. But again, it really depends on the opportunity, and we want to be open to whatever creates the most value going forward. Sebastiaan van der Schoot: Got it. And then I'm just wondering whether -- if you compare it to the past, whether Gilead's involvement in the setting process for potential transactions has increased compared to before. Maybe you can comment on that. Henry Gosebruch: Well, look, I don't want to really talk about the past. I'm really more focused on how we're moving forward and how we create value from here. And I think to this question and also the question that I think Phil asked a little bit earlier, I do think it's important that we coordinate with Gilead on these joint opportunities. And yes, that involves talking to them, meeting them, understand mutually how we can create value on certain transactions. So again, I can't talk about the past. I can only talk about the future. And as I think we've been clear on, we don't have to go through Gilead. We don't have to work on everything with Gilead. But we think for opportunities that are jointly aligned, that can create more value for our shareholders than doing it on our own. And I think our approach will be to continue to work with them very collaboratively. Again, I'm quite pleased with how that's going. They're coming really with a kind of a can-do attitude and we plan on continuing that approach. Operator: [Operator Instructions] We will now take the next question from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: Hello, can you hear me well? Henry Gosebruch: Yes, we can hear you fine. Delphine Le Louet: Perfect. I was wondering, and a bit of a follow-up regarding the Gilead partnership, regarding their investment which was so far mostly philanthropic. I was wondering how long the collaboration would last for or will take place for now? Is it something like a 5-year agreement that you have in mind? Or is it shorter, 3-year time? And I was also wondering, what is the underlying KPI? Is it an ROI number? Is it a number of assets? Is it a progress in the pipeline? Can you be more specific on that, please? Henry Gosebruch: Okay. We heard a little bit of background noise. So I think you asked what's the length of the Gilead agreement. Is that the question? Delphine Le Louet: In a way, because Gilead is obviously a preferred partner so far and will help you in the selection. But obviously, I'm asking, will that long for 3, 5 years? Or what is the underlying KPI? Is it an ROI number? Is it a number of asset? Is it progress in the pipeline? What is the underlying you should have in mind? Henry Gosebruch: Okay. Yes. I'm sorry, there was a lot of background noise, but let me attempt to answer your question. So what we're talking about is what we call the OLCA agreement. So that is that broad collaboration agreement that was signed roughly 6, 6.5 years ago. That was a 10-year agreement. So that has another, call it, 3.5 years running. And it is that agreement that provides Gilead's -- yes, sorry, we're getting a lot of background noise. But again, to stick with the answer, that agreement has another about 3.5 years running. And so it is really that period that we are focused on that goes back to the original deal 6.5 years ago. And in terms of KPIs, again, that agreement was entered with a view towards Gilead having the ability of opting into programs that came out of the Galapagos research platform. Now of course, with time moving on, this is no longer the current situation today. So now it's really more about business development that we would be doing and working with Gilead in this period, as we've outlined, to jointly complete transactions that will create value for them but very importantly, of course, for our company as well. Does that answer your question? Delphine Le Louet: All right. Yes, yes, definitely. Operator: Thank you. There are no further questions at this time. I would like to turn back over to Glenn Schulman for closing remarks. Glenn Schulman: Thanks, Sandra, and thanks, everyone, for your time today and your attention. As the team discussed, there's indeed a bright future as we continue to undergo these transformations at Galapagos. For your awareness, I wanted to mention that our corporate events calendar is provided here in the deck and also posted on our investor website. With respect to upcoming investor conferences, the team will be hosting a fireside chat in 2 weeks at the Jefferies London Conference on Wednesday, November 19. And looking ahead to 2026 already, the team will be attending the Annual JPMorgan Conference in San Francisco and the TD Cowen Conference in next March up in Boston. Please feel free to reach out to your respective bank reps to request a meeting with the team, or you can reach out to me directly to find the time to catch up. Thanks, everyone, and have a great day.

159天前Insight Analytics约5分钟阅读

LEU 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the Centrus Energy Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Neal Nagarajan. Neal Nagarajan: Good morning. Welcome, and thank you to all of our callers as well as those listening to our webcast. Today's call will cover the results of the third quarter 2025 ended September 30. Today, we have Amir Vexler, President and Chief Executive Officer; and Todd Tinelli, Chief Financial Officer. This conference call follows our earnings news release issued yesterday. We filed a report for the third quarter on Form 10-Q earlier today. All of our news releases and SEC filings, including our 10-K, 10-Qs and 8-Ks, are available on our website. A replay of this call will also be available later this morning on the Centrus website. I would like to remind everyone that certain information we may discuss on this call today may be considered forward-looking information that involves risks and uncertainty, including assumptions about the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Finally, the forward-looking information provided today is time-sensitive and accurate only as of today, November 6, 2025, unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission or rebroadcast of the call in any form without the expressed written consent of Centrus is strictly prohibited. Thank you for your participation. And I'll now turn the call over to Amir. Amir Vexler: Thank you, Neal, and thank you to everyone on the call today. We made significant progress this quarter in strengthening Centrus to capitalize on our forthcoming growth opportunities while continuing to successfully operate our broker trader business. This includes hiring Todd Tinelli to succeed our former Chief Financial Officer, Kevin Harrill. I would like to again thank Kevin for his work to help improve and bring Centrus forward. Todd brings a wealth of knowledge and expertise to Centrus, including more than 20 years of experience in the energy industry. He has been part of a number of large industrial expansions and capital raises, precisely and not coincidentally the tasks we're facing now. I welcome Todd to the team. Our progress to date includes our internally focused operational preparations, the growing momentum and discussion we are having with potential future customers and increasingly strong signals we see from the marketplace. All of these have strengthened our outlook and culminated in, one, our event in Ohio announcing our hiring plans ahead of our planned expansion; and two, today's capital raise announcement. But first, let me turn to the quarter results. As many of you know, there can be a significant amount of variability quarter-to-quarter due to the nature of our business. And as such, we believe our annual results are more indicative of our progress. In the third quarter, we achieved $74.9 million in revenue, a gross loss of $4.3 million, and operating loss of $16.6 million and a net income of $3.9 million. 2025 year-to-date net income was $60 million compared to $19.5 million during the same period last year. Todd will discuss the results and their respective drivers in more depth shortly. Turning to our broker trader segment. During the quarter, Centrus received waivers from the Department of Energy to continue to import LEU for all currently committed deliveries to U.S. customers in years 2026 and 2027. This announcement provides greater clarity and helps to derisk that side of our business. Now turning to our future commercial enrichment business. As a reminder to our listeners, our proposed public-private partnership model envisions Centrus potentially securing funding from a number of sources. On the public side, this includes potential task order awards under our LEU enrichment contract or under our HALEU enrichment and deconversion contract, which altogether represent opportunities to obtain a portion of the $3.4 billion appropriated by Congress or potential national security awards. As we have previously stated, we hope to capitalize on any potential public funding made available by the DOE as it will create the lowest cost of capital structure. As the only U.S.-owned company with a proven technology, we feel we make a strong case. The private capital would then come in multiple forms, including partnerships for our balance sheet. Furthermore, we also have other business models that address a variety of funding scenarios. Ahead of the DOE's LEU and HALEU awards, we continue to pursue our readiness initiative to strengthen our investment case and to prepare ahead of our industrial expansion. First, in the quarter, we closed an oversubscribed and upsized convertible senior note transaction on favorable terms, increasing our unrestricted cash balance to over $1.6 billion, in line with our strategy to optimize our capital structure and strengthen our position ahead of government announcement. Second, we continue to execute on our supply chain readiness program announced last November that is laying the groundwork for future large-scale deployment of our technology. Our September Ohio jobs announcement is another concurrent preparation step. Third, we continue to successfully operate our HALEU cascade under our contract with the DOE and reached a milestone of 2 full years of continuous uranium enrichment this past October. Our technology has been proven with over 3.9 million machine hours. It can meet the full range of America's commercial and national security enrichment requirements, including, but not limited to, LEU, LEU + and HALEU. Fourth, we are seeing growing momentum in our engagements with key stakeholders, including potential external investors. In August, we signed an agreement with KHNP, the third largest operator of nuclear assets in the world and POSCO International for a potential investment in Centrus' enrichment capacity. The key development is an example of how private sector capital could support our potential expansion. There is a large and growing opportunity set for these types of partnerships that could come from foreign countries and utilities to SMR developers and hyperscalers, all of which are looking to secure fuel for their respective ambitions. Our strong progress and these developments have led us to our 2 most recent announcements. First, at our September event alongside Governor DeWine, Senator Jon Husted and Congressman Taylor of Ohio, we announced our plan to hire on a large scale ahead of our plant expansion. These are important jobs to an economically depressed area that holds significant talent and is but one example of the value that comes from investing in an American company that is creating American jobs. Second, this morning, we announced we are launching a $1 billion at-the-market program. Given the market signal and our progress, we believe now it is an appropriate time to raise these funds in this form ahead of our proposed build-out. With that, I will turn the call over to Todd to walk through the numbers. Todd? Todd Tinelli: Thank you, Amir, for that welcome, and thank you to everyone on today's call. First, I'd like to thank Amir for that kind welcome. My first 100 days on the job have been exciting and have reinforced my strong belief in Centrus platform and substantial upside potential. I have been impressed with its unique world-class technical capabilities, the operations and its assets already in place, a strong position in the market with high barriers to entry and the talented workforce. Looking ahead, I will be focused on appropriately position our balance sheet and potential partnership network to sufficiently capitalize the company for our future needs and implementing best practices across our operations to support our potentially large expansion. Let me first walk through our results, which were in line for our internal projections and reflected the typical quarter-over-quarter shift in contractual mix that can transpire based on our customer orders and deliveries. Total revenue for the third quarter was $74.9 million, an increase of $17.2 million or 30% versus the same quarter last year. The LEU segment generated $44.8 million in the third quarter, an increase of 29% or $10 million compared to the same quarter last year, driven by an increase in the volume of uranium sold, partially offset by a decrease in the average price of SWU sold. The technical solutions segment delivered revenue of $30.1 million in the third quarter, an increase of $7.2 million or 31% over Q3 2024 results, driven by the sale of LEU to the DOE. Centrus generated a third quarter gross loss of $4.3 million compared to a gross profit of $8.9 million in the same period last year. The LEU segment cost of sales increased $23.0 million to $52.6 million in the quarter, primarily driven by an increase of volumes of uranium sold, partially offset by a decrease in the average cost of SWU sold. Cost of sales in the CTS segment grew $7.4 million to $26.6 million in the quarter, primarily attributed to the $8.5 million in cost increases under the HALEU operations contract. Centrus generated net income of $3.9 million in Q3 compared to a net loss of $5 million in the same period last year. Excluding nonrecurring costs associated with the CFO transaction, Q3 2025 net income was $4.6 million. 2025 year-to-date net income was $60 million compared to $19.5 million during the same period last year. As of September 30, 2025, the total company backlog stood at $3.9 billion and extends to 2040. The LEU segment backlog is approximately $3 billion. This includes future SWU and uranium deliveries primarily under medium- and long-term contracts with fixed commitments as well as the $2.3 billion in contingent LEU sales commitments. With $2.1 billion of the total under definitive agreements and $0.2 billion of the total subject to entering into definitive agreements. Our technical solutions segment backlog is approximately $0.9 billion as of September 30, 2025, which includes funded amounts, unfunded amounts and unexercised options. The options relate to the company HALEU operation contract. Turning to our capitalization. In the third quarter, we issued $805 million of 0% convertible senior notes for a total net proceeds of $782.4 million. The proceeds from the offering deliver added liquidity to execute our strategic plans and help derisk our business. Furthermore, as announced today, we filed a shelf registration and simultaneously brought down $1 billion to be used in an at-the-market offering. We believe that having a shelf in place is part of good business practices and that using equity to raise capital at this time is a prudent solution given our strong valuation and lower cost of capital associated with it. We will be using the proceeds from the ATM for general corporate purposes. The issuance of the 0% convertible notes as well as today's announced ATM program are in line with our capital plans to appropriately and prudently raise funds ahead of our planned industrial build-out and government funding decisions. With that, I will turn the call back to Amir. Amir Vexler: Thanks, Todd. Before ending the call, I'd like to quickly summarize the points that have led to our growing confidence in our most recent announcements. First, U.S. utilities are set to expand nuclear capacity. The Nuclear Energy Institute recently identified over 8 gigawatts of expected additional generation from the existing fleet, including plant restarts and power upgrades. And recall that Westinghouse recently pledged to build 10 new large reactors in the United States and the federal government recently announced $80 billion investment related to the project. The combination of just these 2 events could equate to a need for an additional roughly 2.5 million SWU per year. Second, we continue to see an acceleration in new market demand for nuclear power. For example, the projected power requirements for data centers are driving major investment in nuclear by technology giants, including Amazon, Google, Microsoft and Meta as well as non-hyperscaler owned and operated data centers like REITs, and continue to come to market. Third, the SMR market continues to mature. The Tennessee Valley Authority, for example, recently announced a deal for a 6-gigawatt deployment from one SMR design. The Department of Energy, meanwhile, has launched the reactor pilot program that aims to demonstrate criticality in at least 3 test reactors by July 4, 2026. And just last month, the U.S. Army launched the Janus Program aimed at deploying microreactors in 9 bases over the next few years. All of these will drive the demand for more enriched uranium and have strengthened our outlook. Last month, the published spot price for LEU SWU soared to $220, near historic levels. The demand for U.S.-owned enrichment capacity has never been stronger. I would like to close by thanking our growing list of investors, analysts and listeners without whom none of this would be possible. We look forward to updating you on our progress on our next earnings call. With that, we are happy to take questions. Operator? Operator: [Operator Instructions] Our first question comes from Ryan of B. Riley Securities. Ryan Pfingst: Amir, you mentioned the national security opportunity. We saw the BWXT award in September. And then a few weeks later on SAM, the NNSA's notice of intent sole-source contract with ACO for unobligated LEU enrichment. Could you just talk a little bit about Centrus' opportunity there and what that entails? Amir Vexler: Sure, and good morning to you, Ryan. So as you pointed out, the NNSA recently published a notice of intent to sole source and award ACO for AC100 deployment for unobligated LEU enrichment. I am not sure that I can add anything beyond what the NNSA announced. It is an intent to a sole-source award. But I will add just color maybe to it from my perspective in that if you recall, we have repeatedly stated that our strategy is to serve 3 market segments that are important and all 3 of them are growing, the LEU existing market, behavior market and obviously, the national security market. And so we definitely look forward to hear further communication from the NNSA regarding this notice. And as always, we stand ready to support the NNSA and the nation on a critical national security mission. So what I would read into this is that things are moving forward, it looks. It looks like the things that we were aiming for are materializing. But as I said, not much to add beyond what the NNSA had announced. Operator: The next question comes from Rob Brown of Lake Street Capital Markets. Robert Brown: I just wanted to get if you get a little more color on your readiness efforts at Piketon. How do you sort of foresee that playing out? And what are the decision gates you're looking at in the next sort of 12 months? Amir Vexler: Okay, thank you for that question. We -- as you pointed out correctly, and as we have announced in previous calls, the readiness efforts for a plant build-out are taking shape, and they're taking shape fast. We have already announced investment, which we're in the middle of spending as part of that preparedness. We are launching things like studies of our production cycle time analysis, first time -- first article manufacturing, things of the sorts that you would need to have lined up for rapid manufacturing deployment, all in anticipation of a planned build-out. So yes, there's a few more things that need to fall into place in terms of the public part of it. And I will turn your attention to the Ohio's jobs announcement that we made just recently, where we are in the midst of hiring a lot of folks. We are in the midst of building up our strength and skills. And all of this is in anticipation of ensuring that we are able to execute and are able to go as fast as we can when we announce our build-out. Operator: The next question comes from Joseph Reagor of ROTH Capital. Joseph Reagor: Now that you guys have the waivers for '26 and '27, and there's been these extra announcements about investments in nuclear facilities restarts and new facilities. Has there been any shift in political commentary out of Washington about the Jan 1, 2028 deadline for Russian imports? Any realization that's an unreasonable date? And then if not, what do you guys -- how do you guys think about the late 2020s and early 2030s as far as a the business model until you guys ramp up production? Amir Vexler: Actually, this is a really good question from a macro perspective, from a market fundamentals perspective. So the first part of your question, there's nothing really that I know that I can report officially or unofficially that I've heard about reconsidering anything has to do with Russia. If you remember, that was done legislatively, and that was tied to an investment here in the U.S. to establish domestic supply chain, which is exciting news. The reason why I think the question is critical is because what's building excitement for our case is not a day goes by that there's no new announcements of new builds, whether it's the $80 billion announcement from Westinghouse, Cameco and the U.S. government or as I mentioned earlier, some of the microreactor announcements. I mean, heck I even heard we're planning to put a reactor on the moon by NASA. So all of this is adding to the demand for enrichment. Demand for enrichment in the Western world could be supplied only by a finite number of companies that are currently serving the market. And obviously, Centrus is the new entrant into the market. I call into question as to -- I think this points to the fact also that there has to be ability by these companies to produce centrifuges and to be able to satisfy that market demand. And to me, this is a reinforcement to our business model. This is a reinforcement to where we're marching with some of our investment decisions to be made here soon and the investment decisions that we already made. All of this is reinforcing the -- just the macros that we've been preaching and saying that there will be a significant increase in demand for nuclear enrichment -- nuclear fuel enrichment. And so we're kind of seeing that materialize. And I think you're asking that question. I cannot -- I'm unable to quantify it. I'm unable to say whether there is any back talk in the government about anything that has to do with Russia. But all I know is that we're laser-focused on ensuring that we are able to maximize enrichment capability and enrichment production as much as we can here in the United States. I mean that's our task. And if the market is growing and the market is looking stronger and stronger day by day, that just further reinforces our case. Joseph Reagor: Okay. On the second part of the question about if they don't extend the deadline, what do you guys think about the late 2020s, '28, '29 and maybe 2030 as far as the business? Amir Vexler: Yes. You're asking me to speculate. I would not be able to answer that. I do think -- I do believe that there is going to be an extremely tight market in the years that you're mentioning for the reasons that I mentioned earlier is that a lot of stuff is coming online. Russia has been really banned out. So these are going to be tight years. We're going to work as hard as we can to make sure there's enough capacity. But these are the years that I've put a question mark on as well. Operator: Our next question comes from Nick Amicucci of Evercore ISI. Nicholas Amicucci: Just following on that, Amir. I just wanted to get a sense that we saw kind of a pretty significant uptick in SWU prices during the quarter, up to $220 per SWU. So just could we kind of parse out kind of the dynamics that we're seeing? Because obviously, Russia is kind of, for lack of a better term, rushing to kind of get their fair share of the U.S. market and so supplying SWU on the market. So if we kind of peel back the onion a little bit, is that could we argue that, that's almost even a depressed kind of price at $220 and where that can be going? Amir Vexler: Yes. Really good question. And my personal view on things is, as I always mentioned, the only way the price is going to go down is when there is excess capacity in the market. I do not see a line of sight to that based on what we're seeing, we're seeing the demand side of the equation growing so much faster than any new capacity coming online, at least announced new capacity. So you tied it really nicely in your question and sort of reaffirming what I'm saying. This is not just my sentiment. This is the market sentiment. We're seeing SWU prices almost at an all-time highs here. And do I think they will continue to go up? I mean, my answer to the previous question was there is going to be tightness in a few years. And really all it takes is indication of Western capacity inability to meet that demand. And I think you will see that the prices take a much sharper turn than we've seen before. That -- at least that's how I look at it. Again, the way for them to come down is there has to be active capacity on the market. And we're just not seeing that. We're seeing the complete opposite of that, and that's why we're seeing the prices go up. Nicholas Amicucci: Great. And then if I could just try and parse through some of the NNSA sole-source opportunity a little bit. If we think about that and inevitably kind of the government support that we've seen in the -- and yes, the continued government support and administrative support for kind of rectifying the domestic nuclear fuel supply chain. Is there any kind of levers that even from a national or a federal security perspective that could be pulled just to expedite kind of the time to build the first cascade, just trying to truncate that a little bit? Amir Vexler: Yes. No, really good question. You're talking about synergies of commercial and sort of potential national security commitments. I mean there's a lot of things that could be done. I'm really hesitant to go deeper into speculating that just because what we've seen at this point is a notice of intent to sole source. If we're fortunate enough to get through sort of the rest of the process with the NNSA, I think it would be a more merited discussion at that point. But absolutely, there is a lot of levers and a lot of things that could be done in the name of synergies in terms of build-outs. Operator: Our next question comes from Jed Dorsheimer of William Blair. Jonathan Dorsheimer: I guess, Amir, if we look at the $3.4 billion grant and we look at the -- we're past the 120 days since the task orders. Is the timing of this distribution being affected by the government shutdown? And then I have a second part of that question. Amir Vexler: Officially, I do not know. I honestly have no idea. I suspect maybe the answer is yes, but I don't know anything officially. Jonathan Dorsheimer: Got it. That's helpful. And then if I look at the -- it seems like there's -- this is not a technology risk issue. It's really just one of capital and capital is going to determine what the cost basis looks like. Could you maybe just discuss any nongovernment private sector discussions that you guys might be engaged in? Obviously, not the details, but I'm assuming -- I just find it hard to believe that the trillions of CapEx being deployed, many of which I can think of one data center in particular, that has at least 7 gigawatts of their capacity tied to nuclear that they're not aware of the supply chain gap in terms of fueling. And so where I'm getting -- what I'm getting at is when we look at the utilities, when we look at the private sector that's investing behind the meter, why there wouldn't be -- there's not more around a potential offtake to stand up, which would render maybe some of the government money much smaller in the grand scheme of things? Amir Vexler: Yes good question, Jed. So I think you are pointing out correctly to what we've been saying for a while now that we are looking to maximize the public-private partnership from every source we can, obviously, the public part of it. But also the private. The private does not solely depend on Centrus' ability to raise some capital, but it also relies on external investors as well. As we have announced earlier, we have an MOU with KHNP and POSCO, where we are in discussions now, hopefully moving towards a commitment. But that really is kind of symptomatic of what we're seeing in the market. I think the market, as you said, particularly the companies that would come to rely or would come to rely on nuclear power in general, are starting to realize that, hey, it really is important to turn our attention now to fuel. And so we do have discussions with numerous parties. We've already publicly announced the KHNP and POSCO, but we also have discussions with other interested parties like hyperscalers. We're not at the point of announcing anything or naming anybody, but I will, though, put some energy behind what you said. We are seeing very encouraging signs out there that people now are turning their attention to fuel, and they realize that investment has to be -- it has to be made in the fuel. I mean these are the signals that have led us to make some of the announcements in the Ohio jobs, as I mentioned earlier. And obviously, today's capital raise fits very well into the confidence that we're getting from these discussions and these signals. Operator: Our next question comes from Vikram Bagri of Citi. Vikram Bagri: Amir, you've highlighted strong fundamentals in your closing remarks and responses to questions so far. Clearly, the landscape is very supportive of domestic enrichment. I was wondering what signals would you look for to announce further expansion beyond the planned 3.5 million SWU capacity, perhaps doubling it? And how much time it will take to get there? And then finally, it seems you have a bullish view on SWU pricing. I was wondering what SWU pricing is required to incentivize more expansions? And what SWU pricing are you underwriting in your own expansion? Amir Vexler: Good questions, and thank you for that. So to your first question about expansion, the way I see the natural events unfolding is we have to get to a base case type capacity in our facility, which we're planning towards. Once we start moving towards that, it is my anticipation that we were going to get a lot more than signals from the market. We're going to get enhanced commitments and additional commitments from others that we have not gotten them from. Basically, what I'm saying is there is a large population out there that is perhaps sitting it out for now and waiting to see how things progress and how we will execute, how others will execute, how the market will unfold. So I fully expect that once planned execution is underway, we're going to get more interest and more commitment for further expansion. That really is the signal that we'll be looking for, and it would be more than the signal we'll be looking for commitments. To your question about SWU pricing and what is an advantageous or hurdle SWU pricing, obviously, I will not be able to name that because that will point to our cost structure and things that we normally would not want anybody to know. It's very proprietary and sensitive information to us. But I will say to you, though, that the SWU pricing that we're seeing right now is not bad. I mean this is the SWU pricing that has people that have technology, that are able to utilize technology, that are able to launch their technology into production. It's not a disadvantageous SWU pricing that we're seeing right now. Operator: The next question comes from Bill Peterson of JPMorgan. Unknown Analyst: This is Nehima on for Bill. I was curious, are strategic investors looking for you to further derisk the balance sheet yourself before committing to funding? Or are they perhaps waiting for the government or national security type funding to come through before those conversations progress further? Todd Tinelli: This is Todd, the CFO. I think there's a variety of different areas that the balance sheet can go, obviously, with public and private investment. One of the things that is our objective is to put us in a position that really we're not reliant on one source of capital to come in to fund our proposed or planned expansion. So obviously, when we're looking at private investments that come in, there is offtake arrangements. There's a variety of different scenarios that could take place. But our first objective is to well capitalize the balance sheet and have a capital structure that allows Centrus to be well positioned for the future. Operator: The next question comes from Jeff Grampp of Northland Capital Markets. Jeffrey Grampp: Maybe just kind of building off of the last question. I wanted to touch on the recent release regarding the potential Korean investment. And maybe more broadly, like how do you guys think about taking third-party private capital investment to help fund any build-out of the enrichment? What are the kind of trade-offs you guys may consider as you think about taking third-party investment? Amir Vexler: That's a good question. I'll try to answer it without revealing things that are nondisclosed in a nondisclosure agreement with any of the parties. Obviously, if an investor invests, they expect something in return. And it's a process of negotiations to ensure that we can find a win-win solution. When you're in an environment where you're hitting record SWU prices and the prospects appear that they will continue to go up and the prospects are that the market will continue to have tightness in supply, that helps make a very strong case for an investor that comes in. So I know I'm not really giving you a lot of details, but all this to say is that we have numerous models that we're working through. And whatever decision we make, we certainly are grounded in delivering shareholder value and maximizing it from our perspective. Operator: The next question comes from Eric Stine of Craig-Hallum Capital Group. Unknown Analyst: This is Luke on for Eric. So have your views on your targeted enrichment mix between LEU and HALEU in the market changed at all given the progress being made by some of the advanced reactor developers? Do you see more robust HALEU demand in the near term becoming more realistic in your view? Amir Vexler: Right. Good question. So the ultimate decision of the planned expansion in terms of how much HALEU, how much LEU would be 100% driven by customer demand and customer commitments. And however they weigh that mix. I will say that during my time in the company, which is almost 2 years now, particularly in the last year, we have seen HALEU going from sort of like an MOU type, let's agree to some point in the future where we can talk about a contract, very noncommittal to we're seeing companies now, hey, we're ready to make a commitment type conversations. So we're seeing HALEU evolve very quickly and rapidly, especially through some of these expansion plans that you're hearing from microreactors and other small modular reactors. I mean, ultimately, if somebody starts buying these reactors as is happening right now in the market, they would be able to make commitments for fuel. So all this to say that there's a lot of momentum behind HALEU now. We're -- but the ultimate decision is going to be what that commitment breakdown looks like between HALEU and LEU. Operator: The next question comes from Sameer Joshi of H.C. Wright. Sameer Joshi: And Todd, congrats on the new role. Looking forward to interact with you. I just have one question on the improved SWU pricing environment. Are you able to contract these? Like has the backlog increased from the new SWU prices? And when should we see -- I know these are longer term -- mid- to long-term contracts, so we may not see it in revenues soon. But when if you have signed contracts, when should we see those prices? Amir Vexler: I want to reassure our investors and shareholders that locking in commitments and growing that commitment backlog is a big priority for us, both in HALEU and LEU and the 3 segments that we have been discussing. That is a key important focus for us. Obviously, we don't disclose details around our contracts. And I will point out to you, though, that a lot of these conversations and the results of these conversations are very nonlinear. So we could be working on something for a while and release something large and then not hear anything or see anything for a little while. So it's not necessarily a steady stream, but like I said, it could present itself in a nonlinear fashion. But the only thing I can leave you with without violating any, again, nondisclosures that we have is that it is still a major focus area for us and a priority for the company. Operator: Ladies and gentlemen, we have now reached the end of the Q&A session. I will now hand you over to Neal Nagarajan for closing remarks. Neal Nagarajan: Thank you, Judith. This will conclude our investor call for the third quarter of 2025. As always, I want to extend a thank you to our listeners and our analysts who have called in, and we look forward to speaking with you again next quarter. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.

159天前Insight Analytics约5分钟阅读

BDX 2025 Q4 财报电话会议

Operator: Hello, and welcome to BD's Fourth Quarter and Full Year Fiscal 2025 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 839-2383 for domestic calls and area code +1 402 220-7202 for international calls. [Operator Instructions] I will now turn the call over to Adam Reiffe, Vice President, Investor Relations. Adam Reiffe: Good morning, and welcome to BD's earnings call. I'm Adam Reiffe, Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the fourth quarter and full year fiscal 2025. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an adjusted FX neutral basis unless otherwise noted. Beginning October 1, we began operating under our previously disclosed new BD segment structure that includes Medical Essentials, Connected Care, BioPharma Systems and Interventional and a 5th Life Sciences segment comprised of Biosciences and Diagnostic solutions. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I am pleased to turn it over to Tom. Thomas Polen: Thank you, Adam, and good morning, everyone. As you saw in our press release, our Q4 and full year performance was in line with the preliminary results we announced last month. During our prepared remarks today, Chris and I will provide additional context on the drivers of our performance. I'll also provide an update on the immediate steps we are taking to accelerate our strategy as we transition into new BD, and I'll conclude with our fiscal '26 guidance and outlook on Q1, after which we'll take your questions. With that, let's jump in. Q4 revenue of $5.9 billion increased 7% and 3.9% organic. New BD delivered strong organic growth of 4.9%, accelerating 90 basis points sequentially. For the full year, record revenue of $21.8 billion increased 7.7% and 2.9% organic. New BD grew 3.9% organic. We delivered adjusted diluted EPS of $3.96 for Q4 and a record $14.40 for the full year, which represents 9.6% earnings growth including a 2-point impact from tariffs. We also returned $2.2 billion to shareholders, inclusive of a $1 billion share buyback. Earlier this morning, we announced our 54th consecutive year of dividend increases. During the quarter, we had a greater-than-anticipated impact in macro areas we've been closely monitoring, specifically Pharm Systems vaccines in Biosciences academic and government research. Vaccines are approximately 20% of our Pharm Systems business. While we plan for a slowdown in Q4, further reductions in demand evolved rapidly late in the quarter as most Q4 vaccine demand typically occurs in September and continues into Q1 and Q2. In our biosciences business, research funding remains subdued, but sales in the U.S. and EMEA continued to improve sequentially, led by strong demand for our new FACSDiscover platform. In Diagnostic Solutions, the business returned to positive growth in the quarter as BD BACTEC utilization continued to recover. Together, Biosciences and Diagnostic Solutions delivered flat growth for the quarter, excluding the impact of discontinued platforms. Outside of these 2 areas, we delivered strong growth across a broad range of the portfolio, demonstrating new BD's attractive profile with over 90% consumables revenue and a strong cadence of new innovation. This includes high single-digit growth in BD Interventional driven by double-digit growth in PureWick and advanced tissue regeneration. We delivered double-digit pro forma growth in advanced patient monitoring, which in the first year of integration, performed well ahead of our deal model and is on track to continue this momentum in fiscal '26 and beyond. In Pharm Systems, Biologics grew high single digits, driven by GLP-1s, and MMS had a record quarter for Alaris pump installations, including several new competitive wins, solidifying our leadership position now and for years to come as we complete our fleet upgrade in FY '26. Our BD Excellence operating model helped to drive strong P&L leverage throughout the year with adjusted gross margin up 140 basis points, fueling 80 basis points of adjusted operating margin expansion, while we invested in selling and innovation which will continue to be our engine for growth in the New BD. This supported robust 9.6% adjusted diluted EPS growth, inclusive of tariffs while we also delivered on our full year goal to reach a record 25% adjusted operating margin. While we are navigating specific transitory market dynamics that are expected to continue into fiscal 2026, we have strong business fundamentals, high confidence in our continued long-term mid-single-digit growth profile and a proven track record of delivering value through periods such as this. We are acting with speed to optimize our performance during this time and emerge stronger. We've already begun implementing decisive actions to accelerate our strategy as we create the New BD with a focus on boldly advancing BD Excellence across our commercial and innovation organizations while identifying cost optimization opportunities to reinforce our commitment to long-term profitable growth. Let me highlight 3 specific initiatives underway. First, as part of accelerating our focus on commercial excellence, we're rearchitecting our operating model to build a more focused, agile vertical organization. This includes commercial teams directly aligned with each business unit to best support customer needs, drive share gains and accelerate growth. We're also taking immediate action to expand our sales force in targeted high-growth markets, investing an incremental $30 million to capitalize in areas that either are or have the potential to grow in the high single digits or double digits. These include opportunities such as the recent VA reimbursement for PureWick at home and new surgery innovations launching in Europe and a 15% increase in both the PI and APM sales forces. Finally, we've announced that Mike Feld's role has been expanded to include the newly created position of Chief Revenue Officer. Michael will apply his expertise in BD Excellence to accelerate our initiatives to become a best-in-class commercial organization to deliver incremental growth. Michael will remain President of Life Sciences until the close of the RMT with Waters. Second, over the last several years, we've built positions in multiple attractive markets and are investing to capture opportunities and new product innovation. Going into FY '26, we've moved nearly $50 million of corporate costs into R&D and the businesses to fuel future innovation and growth in attractive high-growth markets, such as tissue regeneration, PureWick adjacent markets, Biologic Drug Delivery and Connected Care. Additionally, we focused investments behind planned new product launches, including our recently launched BD Incada AI-enabled platform that unifies BD device data into 1 intelligent ecosystem, and our next-generation BD Pyxis Pro medication dispensing platform as well as new planned launches in APM, MDS, UCC, Surgery and MMS. We are pleased we also recently received 510(k) clearance for HemoSphere Stream, our continuous noninvasive blood pressure monitoring module, an impressive clearance in less than 30 days paves the way for commercial launch in 2026. Third and finally, we initiated a 2-year $200 million cost-out program, proactively addressing stranded corporate costs with approximately half expected this year. Before I turn it over to Chris to provide additional color on our performance. On behalf of the leadership team, I want to take a moment to thank Chris for his leadership, hard work and dedication to BD over the past 4 years. I'm confident the CFO transition ahead will be seamless and wish Chris well in his new endeavors. With that, I'll turn it to Chris. Christopher DelOrefice: Thanks, Tom. Before I begin, I want to take a moment to thank the entire team at BD. It has been a privilege and a career highlight to serve as the CFO of this company and getting to work hand-in-hand with our talented and committed colleagues to advance the world of health. I am proud of the accomplishments we achieved together that enabled us to deliver against our BD 2025 strategy, including the meaningful work to advance the margin profile of BD while simultaneously transforming our portfolio that has us well positioned for the future. I look forward to partnering with [ Vitor Roque ] and my entire leadership team to ensure a seamless transition as BD enters its next phase of value creation. Let's pivot to our performance results, starting with revenue. Organic growth was led by high single-digit growth in BD Interventional with strong performance across our growth platforms. This includes double-digit growth in UCC driven by PureWick and high single-digit growth in Surgery led by our advanced tissue regeneration platform, including continued strong adoption of Phasix resorbable mesh. Growth in PI reflects strength across the oncology portfolio and Rotarex. In BD Medical, mid-single-digit organic growth was led by APM, which grew double digits on a pro forma basis with strong growth across all product lines. We feel really good about the momentum in APM continuing into FY '26, which will be further supported by significant sales force expansion currently underway. MDS also delivered a strong quarter with solid mid-single-digit growth in our Vascular Access Management portfolio. In MMS, we achieved a record sales quarter for our Alaris pump installations and we feel good about our strong backlog of committed contracts in dispensing. Lastly, in Pharm Systems, strong performance in Biologics continued with high single-digit growth driven by GLP-1s, this was offset by lower demand for vaccine products. In BD Life Sciences, DS returned a positive growth in the quarter with a greater than 300 basis point improvement in growth sequentially, driven by our molecular platforms and continued recovery in BD BACTEC utilization, which exceeded 85% of historical levels in the U.S. In BDB, as Tom shared, research spending remains subdued, but sales continue to improve sequentially in the U.S. and EMEA led by demand of our new FACSDiscover platform. As a combined unit, BDB and DS increased approximately low single digits on a reported basis and was approximately flat on a currency-neutral basis, excluding the impact of discontinued platforms. Rounding out the Life Sciences segment, solid growth in specimen management was driven by the BD Vacutainer portfolio, partially offset by China market dynamics. Turning to the P&L. In Q4, as Tom shared, we continued strong execution down the P&L with momentum from BD Excellence while investing in key growth areas. We delivered adjusted gross margin of 54.2% and adjusted operating margin of 25.8%, including an impact from tariffs of about 140 basis points. Adjusted diluted EPS of $3.96 grew 3.9%, including a 6-point tariff impact. For the full year, adjusted gross margin of 54.7% and adjusted operating margin of 25% increased by 140 and 80 basis points year-over-year, respectively, inclusive of absorbing about a 40 basis point impact from tariffs. We delivered adjusted diluted EPS of $14.40, which represents strong growth of 9.6%, including a 2-point tariff headwind. We continue to execute against our cash flow and capital allocation strategy with fiscal '25 free cash flows of $2.7 billion. Underlying free cash flow was strong overall and in line with our long-term target and inclusive of Alaris remediation, tariffs and other discrete payments, free cash flow conversion was 64%. We ended the fiscal year with net leverage of 2.8x and made progress towards our net leverage target of 2.5x. With that, I'll turn it back to Tom. Thomas Polen: Thanks, Chris. As we look ahead, we remain focused on executing the Waters transaction. The combination of our Biosciences and Diagnostic Systems business with Waters continues to be a significant strategic and financial opportunity to unlock value for our investors. Our teams are partnering exceptionally well to set up a successful combination and momentum for the new company. Last month, we received FTC clearance and remain on track to close around the end of the first quarter of calendar year 2026, subject to obtaining required regulatory approvals and customary closing conditions. We've begun executing our new BD strategy and the work we've done since establishing BD 2025 has set the foundation for the long-term sustainable success of the New BD. During this period of strategic progress, we delivered $5.4 billion of organic growth, the most substantive period of organic growth in BD's history. We created multiple new growth platforms, achieved best-in-class adjusted gross and operating margin expansion near the top of our peer group and increased adjusted operating margin to 25% in FY '25, a record level for BD with more room ahead. We see a clear opportunity to drive further commercial momentum. New BD will be a pure-play MedTech company with a deep innovation pipeline in attractive markets and a best-in-class consumables revenue profile of over 90%. Our growth strategy is supported by BD Excellence, a differentiated capability we've created that is driving gross margin improvement operating effectiveness, cash generation and fueling reinvestment in innovation and commercial capabilities. To give some color on the benefits we're seeing, in fiscal 2025, consumables quality hit record highs with a 50% reduction in manufacturing nonconformances. Further, we delivered world-class gross productivity improvements of over 8% in our plants this past year. These productivity gains enabled more production with less CapEx achieving the lowest CapEx to revenue ratio in over a decade. We expect momentum to continue in FY '26. We also plan to deliver an enhanced capital allocation strategy that prioritizes internal investment, share repurchases and a reliable and increasing dividend with focused tuck-in M&A in targeted high-growth markets, all with the focus on steadily increasing ROIC. We expect to significantly improve free cash flow conversion, excluding onetime impacts resulting from the Waters transaction, including [ OUS ] tax payments. We continue to see share repurchases as a value-creating opportunity given our view of the intrinsic value of BD. We plan to execute another $250 million share buyback this quarter in addition to it using at least half of the $4 billion in cash proceeds from the Waters transaction following the closing with the balance for debt repayment. In summary, we see New BD delivering consistent mid-single-digit revenue growth over the long term with margin expansion driven primarily by gross margin fueled by our BD Excellence business system. Moving to our fiscal '26 guide. I'll start with our guidance for WholeCo BD and then provide color on our expectations for New BD post the Waters transaction. We're taking a prudent and transparent approach with our guidance framework. This includes low single-digit revenue growth as our starting point for the year and includes the following assumptions: First, regarding Alaris capital installations. Fiscal '26 is the last year of our 3-year remediation commitment. We expect sales to remain strong and above our historical run rate. However, compared to FY '25's record install levels, this creates a headwind to growth of over 100 basis points. Second, we expect China to decline in the mid-teens. As government policies, including volume-based procurement continue, which will impact growth by about 100 basis points. Our assumptions include China VoBP reaching 80% coverage of our portfolio by the end of FY '26. Third, we are assuming reductions in vaccination rates will continue to drive conservative ordering patterns in Pharm Systems Vaccines. As we've said, vaccines are about 20% of Pharm Systems revenue and our guidance assumes a decline of approximately 25%, which is an impact to growth of about 50 basis points. Excluding vaccines, we expect Pharm Systems to grow mid- to high single digits supported by continued strong growth in Biologics. As you can tell, our guidance includes a thoughtful approach to the macro environment. The combined headwinds from these 3 factors impacts about 10% of BD revenue. Across the remaining 90% of the portfolio, we expect to drive mid-single-digit growth, including continued strength across our BDI, Connected Care and Medical Essentials portfolios fueled by commercial investments and our strong innovation pipeline. We're confident in delivering overall mid-single-digit growth over the long term as these dynamics exit, and we continue to advance our strong core business fundamentals. Based on current spot rates, currency is estimated to be a tailwind to revenue of about 90 basis points. Moving down the P&L. We expect continued strong adjusted operating margin consistent with FY '25 of about 25%. This includes absorbing an incremental $185 million or 80 basis points year-over-year headwind from tariffs, in line with what we've previously communicated. Excluding tariffs, the primary driver of margin expansion is expected to continue to come from gross margin, powered by BD Excellence along with some leverage in shipping and G&A. For tax, we expect our adjusted effective tax rate to be between 14% and 15%. Given these considerations, we are setting our initial adjusted diluted EPS guidance in a range of $14.75 to $15.05. Excluding the year-over-year tariff headwind, we expect EPS growth at the midpoint to be high single digits, which is the right way to think about our business longer term. As you think about fiscal 2026 phasing, we expect Q1 revenue to be down low single digits due to the items we covered. This includes a tough year-over-year comparison Biosciences, which also reflects prior year licensing revenue dynamics before we move to easier comparison periods beginning in Q2 and order timing in our Medical essentials portfolio. We expect Q1 adjusted diluted EPS to be in the range of $2.75 to $2.85, inclusive of tariffs, which we anticipate will be most prominent in Q1 and continue through Q3, and about a 5-point headwind to the tax rate due to a prior year comparison. I'll now provide some context for how to think about New BD for the full fiscal year following the deal closing, which is expected to be around the end of the first quarter of calendar year 2026, subject to obtaining required regulatory approvals and customary closing conditions. We expect New BD's FY '26 revenue growth and margin profiles to be similar to WholeCo. This includes BDB and DS revenue and operating income moving to Waters along with conveyed costs, and a half a year of TSA income. Below operating income on a pro forma basis, we expect NewCo's tax rate will be about 200 basis points higher, driven largely by mix. Collectively, including the use of the cash distribution proceeds associated with the transaction and a higher tax profile, based upon projected close timing, we expected New BD pro forma adjusted EPS growth to be over 200 basis points higher than WholeCo. In summary, as we close out fiscal 2025, we are excited to start the next chapter of BD. As we navigate transitory headwinds in contained areas, our broader portfolio is doing well, and we are actively investing in high-growth, high-margin areas. Combined with actions underway to unlock the untapped commercial potential in the New BD portfolio and reallocate resources, we are building the mechanisms to emerge stronger. We are confident in our long-term mid-single-digit growth profile and our ability to outperform our served markets. With the upcoming combination of Biosciences and Diagnostic Solutions with Waters as a near-term catalyst, and an attractive capital allocation strategy, we are well positioned to deliver value for our shareholders, both in the near and long term. With that, let's start the Q&A session. Operator, can you please assemble our queue. Operator: [Operator Instructions] Our first question will come from Travis Steed with Bank of America. Travis Steed: I guess I'll start with, first of all, kind of bigger picture, this guidance for New BD here. Just -- how does that kind of reflect the conservatism you've kind of put in place. You can have confidence that this is a year that you can deliver on the initial guide and -- is that going to be the same for EPS and margins as well that you have the same confidence to deliver on this guidance? Thomas Polen: Travis, thank you for the question. Yes. I think you -- as you just described, what we want to make sure we're doing is clearing the table on the macro dynamics and taking a prudent approach to our guide framework as we launch into the New BD. And so what you're seeing is we're incorporating our updated view on the operating environment, including a sharper view on certain areas of the portfolio, particularly vaccines as we've seen vaccine patterns, as I outlined on the call. Obviously, the Alaris -- success of Alaris over the last year and how we've been running ahead of performance there, and that just creates a natural headwind as we go into '26, still a very strong year in '26, a year that we expect continued share gains built into that plan as well, but a natural lapping of the success of being ahead of the -- of our commitment to the FDA on remediation. And then, obviously, China, we've built in a prudent approach to China and what we've seen in terms of VoBP. And so what we haven't done is we haven't built any improvements in the macro environment into our outlook. We think that's, again, the most prudent thing to do. If things improve, that could be an opportunity. But again, we think it's really important to clear the table on those macro dynamics, have them built into our plan in a very prudent way as we start and launch the New BD. And as you said, we have a very strong track record on continued margin expansion. BD excellence, you saw this past year has very strong momentum. We're continuing that momentum into FY '26. You saw the margin expansion in '25, you're continuing to see that strong margin expansion underlying in '26, fully offsetting tariffs. And that flows through, right, EPS performance is driven largely by the continued gross margin expansion from BD Excellence. Travis Steed: Great. I don't know if there's anything you want to point out on kind of the Q1 guide versus the full year and how to get confidence that this is not a ramp year and Q1 is kind of fully baked as well? Thomas Polen: Yes, sure. Good question. So as we think about, obviously, the factors that I described, Alaris Vaccines, China we're building those into Q1. Q1 guide reflects the full year -- those full year headwinds as well as the BDB comp and Med Essentials timing that we talked about. And some of the areas, particularly vaccines, their greatest weighting is in Q1. So you have a disproportionate impact of vaccines in the quarter. I think we then expect growth as a step up in Q2 and Q3, which will likely be our strongest quarters in the year. And so I think very unique this year is the phasing doesn't rely on any back half for ROIC, right? We're not assuming that at the end of the year. And we're not assuming macro relief in the base either as we describe that. So we're confident in the step-ups. We also see comps easing in Q2 and Q3, as well as we continue to drive the continued strong momentum in areas like APM, Advanced Tissue Regeneration, PureWick Dispensing Biologics, right, that 90% of the portfolio that we still see continuing to grow strong mid-single digits and that you heard us announce some incremental selling investments behind those areas of both high growth but also higher margin areas, which fuels our strategy as well. So thanks for the question, Travis. Operator: Our next question will come from Patrick Wood with Morgan Stanley. Patrick Wood: Tom, in the remarks you guys were opening where you mentioned capital allocation a bunch of times and incremental investment in the base business as well. Given where your stock is, I appreciate the extra being done in Q4 of the buybacks and things like that. Is there not a temptation just to get off to the RMT even more aggressive in returning capital to shareholders, just given where the yield on the stock is and the fact that you guys get swung around so much by small differentials in organic growth. Why not just get extra aggressive even beyond what you're suggesting now and just buy back a ton of stock. Is there any reason not? Is it just the payback on the base business is critical? Help us understand that capital allocation framework? Christopher DelOrefice: Patrick, it's Chris. Thanks for the question. Look, what we've said is we're going to continue to focus on cash generation. And as we generate cash above our plan, we're going to be in the market based on what we see as the intrinsic value of the stock and be aggressive with share buybacks. Thus, the incremental $250 million. It's important to note that we're trying to be disciplined around kind of a net leverage ratio. We did show progress through the year. We went from 3x down to 2.8x. I think importantly, the Waters transaction here is a huge value creation unlock. And as you know, there's $4 billion of proceeds there, of which we said at least half of those will go to the share buybacks, that actually creates an opportunity post spin, where you're going to see our earnings profile increase in terms of the growth rate by over 200 basis points. I think importantly, the value that BD shareholders will get on the earnings that moves to Waters as part of the spin is coming at a significant premium multiple, almost 2x where it's trading at BDX approaching 20x. And then I think importantly, when you look at kind of New BD and the EPS, it would imply a trading multiple of about 10x against an extremely attractive financial profile when you think of the leadership positions we have, a mid-20% margin profile and earnings profile that's going to be high single digits, right? We're having the impact of tariffs this year. If you extract that, our guide implies high single digits, plus it's going to improve by 200 basis points, strong cash generation. So we're definitely going to be in the market with those cash proceeds and see this as a significant value creation opportunity. Thomas Polen: Patrick, maybe just to add on to Chris' very good comments there is, as you said, we see the intrinsic value of the company significantly higher than as trading today and a real value disconnect, which is why we also announced the incremental $250 million buyback effective essentially immediately early this quarter. And we'll continue to obviously, as we close the transaction, execute at least half of the $4 billion into a share buyback, which will by itself then accelerate, as I mentioned on the call, at least 200 basis points higher EPS growth for New BD because of that than the initial guide for WholeCo. I think just maybe to give a little bit more color on what Chris shared. If you look at -- we're really pleased with the transaction with Waters. Both teams are working phenomenally well together. As I shared, we just got FTC clearance on the transaction. We're moving forward to our time line. And the pace and progress of the separation and integration is certainly very much on track. If you look at the current Waters share price and obviously our percent ownership in the transaction, that translates to about $50 per BD share that's embedded in our current share price. And so obviously, what that means is that if you take that $50 of value that's just for that part of the business that's embedded in our price, the remaining piece then is trading at a 10x multiple. And obviously, as you think about the New BD, we have a presence in a wide range of attractive markets, there's 10% of the portfolio that's going through some cyclical dynamics that we made very clear they're contained dynamics. The other 90% of the portfolio is continuing to grow solid mid-single digits. We're #1 in 90% of the markets we play in, mid- to high 20s margins, mid-20s today going, we see continued expansion going forward and a strong recurring cash flow profile with a shareholder-friendly capital allocation policy. And we don't see that as a profile of a 10x stock, which is, to your point, why we're buying in with now in Q1, and we'll continue to do so, obviously, as cash proceeds come in, and it's an area that we've prioritized our capital allocation strategy for. So we certainly see from a BDX shareholder perspective, you've got New BD EPS, there's buyback accretion. There's some interest benefits. You've got the Waters ownership being very accretive, all while providing improving strategic clarity, capital allocation and a long-term value creation setup for our shareholders. So we appreciate the question and happy to provide additional color. Operator: Our next question will come from Larry Biegelsen with Wells Fargo. Larry Biegelsen: One on China, the expectation that fiscal '26 is down mid-teens was a little bit weaker than I would have expected. Just remind us of what China was in Q4 on an organic basis and full year '25? I apologize if I missed it in the slides. Thomas Polen: Thanks, Larry, for the question. We were down high single digits organic in the quarter in Q4. And again, we want to take a prudent approach to our guide going forward as we think about where VoBP could play out, continued primarily in the BD Interventional segment, as we've described before. And I think really that just continuing to watch that and recognizing it is difficult to really call China and how that market will evolve. And so we also still believe that it will have progressed through at least 80% of our portfolio will have gone through VoBP in '26. We also recognize that post separation China will be about 4% of our revenue, which sets us up in future years for an easier base compare there. So that's what we've built in, again, to our assumptions and haven't included any improvements in that macro environment in our prudent guide. Larry Biegelsen: One follow-up and also, I'd be remiss if I didn't say, Chris, congratulations on the new role. I enjoyed working with you and good luck. Tom, I'd love to hear your updated thoughts on the New BD strategy and the earnings algorithm because I think it's unique in MedTech. You talked a lot about it in the -- during the conference season in September. About the mid-single-digit growth, some leverage and at least 50% of free cash flow going to share buybacks, which I think is unique. Talk about the rationale and if the New BD can grow EPS double digits, you talked about 200 basis points faster than the current BD? Thomas Polen: Thank you, Larry. Really, really good question. And as I just described a little bit as part of Patrick's response, we're really excited about the New BD as a focused MedTech leader, again, with presence in a wide range of very attractive markets that you're seeing us lean into heavily in an up-tempo way, taking actions around our commercial excellence to really drive optimal performance in areas. We're putting additional sales force investments behind those, and we're doubling down, reallocating costs within our cost structure from corporate into the businesses into R&D, into fast-growing, high-margin spaces, areas like urinary incontinence, adjacent spaces to that Connected Care areas, Tissue Reconstruction, Biologic Drug Delivery, all markets that are attractive and that we also have leading positions in. And we do see -- we're very confident. I think we said that 10 times on the call, we remain very confident in our long-term mid-single-digit growth profile. We're delivering that in 90% of the business even in the near term. We have again, a portion of the business in a contained way that is going through dynamics, some of which are a result of our own success, Alaris. And we're continuing to increase our free cash flow conversion, as Chris shared in his remarks. And so we think that profile, as you mentioned is -- there's a really unique opportunity within the MedTech industry to take that profile and translate it into a continual compounder, utilizing that cash generation to continue to buy back shares, create compounding earnings growth, take on top of all of that, our BD Excellence business system, which you've seen us build over the last several years. And you've seen us start doing things that are setting records for the company, right? Record productivity, best-in-class productivity, not just in our industry but across most all industries at 8%. You're seeing us hit strides in our capital -- use of capital and getting more out of those investments. Again, we hit a more than 10-year high capital as a percentage of revenue. This past year, you're seeing safety at a record level. You're seeing quality at a record level. You're seeing our service levels at a record level, all because of BD Excellence. And we think we're still in early innings there from a margin expansion opportunity, which fuels that profile. So as you mentioned, we think we have a very prudent, thoughtful approach to value creation going forward that fits really well with who BD is, from a portfolio perspective, what that means from a margin and cash flow generation perspective and how we create maximum value in a steady, durable way for our shareholders. Operator: Our next question comes from Robbie Marcus with JPMorgan. Robert Marcus: I wanted to ask on Alaris. It's set to be over 100 basis point headwind in fiscal '26. How should we think about what kind of benefit it was in fiscal '25? Were there any quarters that it really benefited? And I remember $400 million to $450 million is the normal run rate. So is that still a good normalized run rate now that the installed base has pretty much been upgraded after the relaunch. And then I have a follow-up. Christopher DelOrefice: Yes, Robbie, it's Chris. Yes, thanks for the question. I guess as you think of '26, right, versus 2025, so 2 comments. One, as you think of how we relaunched Alaris, which has been extremely successful, right, when you look at this and it's given us the opportunity to not only lock up but enhance leadership position in the market, really proud of the team there. The relaunch really started progressing through '25, right? The beginning -- the front end of '25 has the more difficult growth comp when you think of the contribution versus '24, and then it moderates as you go back through the end of '25. So actually, that's part of the Q1 dynamic. Alaris is actually the -- one of the highest comps that we're cycling over in terms of contribution to growth in '26 because it was a favorable comp in '25. From a full year standpoint, I think just think of what we shared on the call around '26 is about a 100 basis point headwind heading into '26, that's kind of largely what played out in '25. With that said, as you think of Alaris' contribution to performance in '25, all the other market headwinds that we had experienced in '25 were actually slightly above the total benefits we got from Alaris. So hopefully, that helps give you some color as you think of one -- Q1 and '26 being the hardest comp with Alaris in terms of contribution of growth and then the full year impact. Thomas Polen: Yes. And Robbie, maybe let me give you a little bit of color on how we think about it going forward. So first off, as we shared, we're really pleased with how the team has executed. They've done an outstanding job remediating ahead of commitment, right, on a massive scale. We've locked in our installed base and leadership for many years to come, and that's really allowing us to pivot heavily to share gains and growth opportunities, not only in Alaris, which, of course, as the market leader, the remaining market is smaller, but we're going to be very focused on share gains there as well as driving -- using our sales team in MMS to drive growth in additional areas of the portfolio. And we've got the perfect timing with the launch of Pyxis Pro. Obviously, we've got pharmacy automation there, a number of new launches, including Incada that they'll be able to pivot focus to. And now with that success of refreshing our fleet, we will see that, of course, we've got the '26 headwind of about 100 basis points. And then for modeling purposes, as you think about beyond FY '26 given that will be the last year of remediation, and you'll see the comps then roll after, that would lead to about a 200 basis point headwind for Alaris in a sequential year. And then what happens is longer term then, you're now at a normalized run rate, and the fleet replacement cycle will turn into a tailwind again essentially as you move into the 2030s. And the fleet that we've just installed in the marketplace starts hitting that 8-year or so replacement cycle again, and we see it then more normalizing thereafter. Robert Marcus: A quick follow-up. And Chris, I'll also wish you the best at your new role. But I wanted to ask on margins, and I appreciate the slide and the bridge you got there. Historically, it's been difficult for medical device companies to show positive operating margin expansion when they're kind of 3% or below on organic growth. Just walk us through some of the levers you can pull to drive what feels like underlying operating margin expansion offsetting tariffs given there's not a lot of revenue growth to offset it? Christopher DelOrefice: Yes. Thanks, Robbie. I appreciate that. Look, this is the power of BD Excellence, right? I mean we just executed FY '25. We had 140 basis points improvement in gross margin, 80 basis points on operating margin, that included absorbing 40 basis points of tariffs. So this is what exactly we said would happen, it started at the end of '24 into '25. Importantly, that becomes an opportunity for us to compound earnings at an attractive rate, right? We almost delivered double-digit growth in '25, despite the absorbing the tariff impact, which was 2 points but most importantly, reinvest back in the business, right, and drive incremental investment in selling most notably, which we did delever in the back half of '25. You saw that. So as you think of '26, we're basically going to have 3 quarters of the year with a tariff impact in there. Despite that, we are still going to be about flat, it implies basically an 80 basis point improvement in operating margin. The significant majority of that is going to play out exactly the same way. It's coming from gross margin. And we're doing the same thing. We're going to invest. We're starting these investments, building on what we did in Q4. You're going to see selling deleverage in the first quarter, most notably and slowly moderate throughout the year as we cycle the investments we put in Q4. We will get a little bit of leverage in G&A and shipping is something that we consistently strive for with the incremental cost-out program that we announced as well, that will start in the front end of the year. But as we build through the year, that will become more prominent as we move through the back half of the year. So I do think you can look at this as a very attractive profile. The power of BD Excellence reinvesting back of the business. If you look at the midpoint of our EPS growth rate of our guide and take the 3.5 point plus tariff impact, the midpoint is basically high single digits, right, just about 7%. And so even as you think of '27, as we shared in the script, right, high single digit is the profile of earnings you should think about. And so we think this is one of the exciting things. It goes back to Tom's point around a great opportunity to invest in a company that can compound earnings despite macro environment. Operator: We'll take our last question from Rick Wise with Stifel. Frederick Wise: Chris, I was reflecting -- listening to you, Tom, just -- gosh, I think I've covered Becton now maybe 30 years. I mean, Becton has always done an amazing job on consistently reducing costs and you talked about the $200 million this year. But I'm more fascinated and hoping to dig in further on the 3 major initiatives, operating model change and the commercial team alignment or realignment, the targeted sales team focus, Mike Feld's new role. I was hoping you could expand on your comments and beyond just the cost reduction stuff, I mean these seem like meaningful moves and maybe with longer-term implications. Talk about the impact, if you would, for New BD as a whole? When do we start to see the benefits of these initiatives? And maybe talk us through the implications if there are by -- for divisional growth or margins. Just if you could dig into all of that and do you feel like I'm characterizing it right here? Thomas Polen: I do, Rick, and thanks for the question. Yes, I'd love to share a little bit more about those. And as I said, we're really focusing on up tempoing and leaning in heavily to the launch of New BD and capitalizing on the opportunities that we have there. So first, we're starting with a really strong foundation, having built multiple growth platforms and creating and embedding BD Excellence over the last several years in our operations as we executed our 2025 strategy. We want to take that excellence and that performance that you're seeing happen in our operations. We want to take that now into commercial and into innovation, right? We want excellence everywhere, every day, and that includes right, not only in our delivery side within our operations, but within our commercial side and our innovation agenda. And you're seeing us take action against that. And so as we think about the new BD post the Waters close, as I said, we're really up tempoing the New BD, moving at a pace and taking actions to accelerate that strategy, and reinforce our commitment to delivering long-term profitable growth. So building off of BD Excellence momentum and the success in operations, as I said, we're extending that core competency to the commercial side. That starts with expanding Mike Feld's role as we get to the close of the Waters transaction as he takes on the role of Chief Revenue Officer. First time we have had that role in the company. Mike brings deep domain expertise in Kaizen, in lean, in BD Excellence where he'll be using that and applying it to the commercial organization to accelerate our initiatives there. And taking what is a good organization today, you don't get to market leadership and 90% of your markets without being good commercially. But we think there's another level of world-class that we're going to be driving for just like we've done to build true world-class performance within our operations side. And so having a single point of responsibility and Mike, he's going to be working with our segments and our businesses, advancing commercial rigor and pace arming our teams with the latest tools and analytics. There's a lot of great technology to apply to drive that next level of world-class performance today and rearchitecting our commercial operating model moving sales direct line into the businesses like we talked about. We also talked about we're putting increased dollars, about $30 million more than the normal run rate behind selling in very specific targeted high-growth markets. They happen to be high-margin markets as well. And I shared some examples there. Markets like PI, APM, which is tracking well ahead of our deal model in '25. It delivered well ahead of our deal model. We continue to deliver well ahead of the deal model. In '26, we're doubling down there, 15% increase in their sales force, 15% increase in the PI sales force, and we're putting more money behind. We got a great win with the VA, the Veterans Administration now, fully reimbursing PureWick at home, the first big contract that we have with full -- at-home reimbursement, we're putting sales forces behind that to help make -- help veterans access that technology. We've got some great new launches in Surgery happening in Europe. We're putting investments behind those, doubling down to accelerate already strong high single-digit, double-digit growth areas of momentum. And then we constantly, as you said, look at our cost structure and say, are all the -- are we spending in the ways that give us the best return? And so we -- we went through that look and we said we're going to move $50 million of corporate costs into the businesses to further fund innovation in some of the really exciting areas that we have. In some cases, that's investing behind launches like Pyxis Pro or our PureWick Portable or HemoSphere Stream or others or in other situations and the majority of that money is going into the next phase of innovations. We see attractive spaces adjacent to PureWick that we want to capitalize on and create the next PureWick. We see opportunities to expand in tissue regeneration. We're having great growth in Biologic Drug Delivery. It's now more than half of Pharm Systems. We want to continue that innovation leadership in that category and double down on some innovation opportunities there. And with Bilal now on board, we've actually rotated all of our software development from the corporate team under Bilal, and he's got a whole series of innovations that he wants to really invest behind that we're excited by. So like most R&D investments, those will take a couple of years to bring new products to market. I think we'll see the commercial investments certainly start paying off within this year, starting to see some benefits of that, and scaling up into the next years. But I think what we're really focused on is balancing looking through a microscope to drive the quarter and the year in the very near term. We talked about some of those accelerated actions we're taking on the commercial side to do that. But we're also keeping our eye on the telescope to ensure that we emerge stronger from this near-term environment that we're navigating and drive a durable growth profile, it's led by commercial excellence, led by innovation to make sure that, again, we deliver a strong, durable long-term profile that we've talked about here on the call today. Frederick Wise: That's a great answer. I'll just say a quick follow-up more quickly. Just when you -- Chris highlighted the or I think you did the 25% operating margin targets. And you're not that far away. You said, "I think there's more room ahead" just maybe expand on your thinking there. I mean what are you dreaming longer term over the next, whatever, 3 to 5 years? Thomas Polen: Yes, thanks for the question. We won't certainly put out the number that we're heading towards on operating margin. But maybe some of the color I could share is we are at 25% or we ended 25%, just in line with our Analyst Day commitment that we made in 2021, we're really pleased to have delivered on that 25% by the end of '25 commitment. And that includes jumping over a -- kind of a last-minute 40 basis point headwind from tariffs and still delivering on that. And so great work by our team in that and BD Excellence had a really important role to play there. BD Excellence is going to continue to be a major driver of our margin expansion strategy. As we think about OP margin expansion, we do see room ahead, and we see that continuing to be driven by gross margin expansion. BD Excellence and the investments that we're making in our manufacturing network consolidation and our operational excellence and productivity improvements will continue to fuel that, but also our innovation pipeline and the markets that we're investing in, and it's not the accent, you're hearing me talk about investing in higher growth and higher margin spaces, both in where we're putting additional channel resources, but also where we're putting additional R&D dollars. So we see mix as having an important role as we think about margin progression continuing to go forward. And we see that as a real opportunity from a gross margin perspective. If we look at us versus peer groups, our portfolio in general has a lower gross margin profile. We have an extremely efficient cost base. But we see opportunities to continue to grow that gross margin line. We've been doing it the last 2 years. We see good runway ahead there. So really appreciate the question. Operator: That does conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing remarks. Thomas Polen: Thank you, operator, and thank you, everyone, for your questions and for joining us today. We look forward to updating you on our progress next quarter. Operator: Thank you, ladies and gentlemen. This does conclude today's audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.

159天前Insight Analytics约5分钟阅读

GSY.TO 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the goeasy Limited Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to James Obright. Please go ahead. James Obright: Thank you, operator, and good morning, everyone. I'm James Obright, Senior Vice President of Investor Relations and Capital Markets. Thank you for joining us to discuss goeasy Limited's results for the third quarter ended September 30, 2025. The news release, which was released yesterday after market close, is available on SEDAR and on the goeasy website. On today's call, Dan Rees, goeasy's Chief Executive Officer, will review key highlights for the third quarter and provide an outlook for the business. Hal Khouri, the Chief Financial Officer will provide an overview of our financial results as well as our capital and liquidity position. Jason Appel, the company's Chief Risk Officer will then provide an update on our credit and underwriting. Also joining us on the call today is Felix Wu, Interim Chief Financial Officer; and Patrick Ens, President, easyfinancial and easyhome. After the prepared remarks, we will open the lines for questions from analysts. The operator will pause for questions and will provide instructions at the appropriate time. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation, which will be referred to by our speakers today. Those dialing in by phone, the presentation can be found on the investor website. As a reminder, the slide presentation and our MD&A contain a disclaimer on forward-looking statements, which also applies to our discussion on this conference call. Business media are welcome to listen to this call and to use management's comments and responses to questions in any quarter-related coverage. However, we would ask that they do not quote callers unless that individual has granted their consent. I'll now turn the call over to Dan Rees. Daniel Rees: All right. Thank you, James. I'd like to begin by extending a personal welcome to all of those listening, including our employees, investors and the research analysts that follow our company. I would like to begin by first reflecting on how we began Q3. One week after we reported Q2, we launched a highly successful senior unsecured notes offering, which was upsized and which netted us CAD 796 million in gross proceeds with a 6.1% low coupon. By late August, early September, our shares were close to all-time highs. Less than a week later, our share price came under pressure following the publication of a misleading short seller report. We continue to be pleased with the confidence that so many have expressed in goeasy, our management team, our business model and our track record. We did hear from some stakeholders that they would benefit from a review of a few areas of our business and some of our financial reporting. And so today, we will be providing you with an analysis of our performance for the third quarter and our outlook, but we will also spend some time highlighting these topics, notably interest receivable and borrower assistance programs. As I've said on many occasions, I continue to be impressed by the longstanding track record of growth and profitability of goeasy as well as its commitment to invest and its ability to adjust. While the business is clearly performing well in many respects, we also recognize that being long-term minded is key to capturing our future potential. Given the persistently challenging macroeconomic backdrop and areas of uncertainty, it is especially important now to take a prudent approach. As stated previously, with increasing size comes both opportunity and responsibility. We will continue to bolster our operations to reflect the size and scale of our business and continue to look for better and more efficient ways to deliver products, service customers and manage the loan portfolio end-to-end. As you've seen this quarter, we will continue to be growth-minded and we'll do so in a deliberate and thoughtful way that both honors our mission and reflects the challenges of today's operating environment. With that, let's now get into the quarter. I'll ask you first to turn to Slide 4 of the Q3 2025 earnings presentation available, as James mentioned, on our website. I am pleased to report organic loan book growth of $336 million in the quarter, driven by originations of $946 million. This strong performance lifted our receivables to $5.44 billion at quarter end. Our growth helped to generate record quarterly revenue of $440 million, up an impressive 15% from Q3 of last year. Our portfolio yield of 31.4% reflects the expected ongoing transition from the rate cap as well as the impact from a higher composition of secured loans. In Q3, we reported a 30-basis point year-over-year decline in our net charge-off rate to 8.9% and our allowance for credit losses increased from 7.9% to 8.1%. This is in response to higher early-stage delinquencies attributable to persistent weak macroeconomic conditions. Our efficiency ratio at 23.4% was 30 basis points higher than last year and remains an area of continued focus for management. Our EPS at $4.12 was down [ $4.6 ] from the same period in '24. This is due to the impact of lower yields, an increase in allowance for credit losses and incremental financing costs associated with our successful high-yield notes offering in August, which provided important liquidity to fund our growth ambition. The 21-basis point increase in provisions equaled approximately a $0.50 impact to our adjusted EPS for the quarter. Turning to Slide 5, I would highlight the continuation in Q3 of many of the trends that have made goeasy such a successful company for so long. Applications continue to be high and are up 22% and loan originations up 13%. We delivered balanced growth in both secured and unsecured loans and delivered another milestone financing in the high-yield markets. Our continued strong performance in Q3 was made possible by the focus and dedication of our 2,600 employees. In recent months, my goeasy colleagues and I were proud to be recognized again as one of the best places to work in Ontario as well as one of Canada's top growing companies by The Globe and Mail's report on business. Q3 was another quarter of giving back to our communities. We hosted our 17th Annual Golf Tournament this September and raised well in excess of $400,000 in support of our Feed Their Future campaign at BGC Canada, which is Canada's largest and dedicated child and youth serving organization. I remain deeply impressed by how consistent and powerful our passion is for our customers and our culture, and also our communities. Rounding out my opening comments, I'm pleased to highlight how the goeasy team delivered against our objectives this quarter. We were fully on track. And as you can see on Slide 6, our performance in Q3 was in line with the outlook we shared with you in August despite the ongoing challenges posed by the weaker macro backdrop. Our continued loan book growth, resilient yield and stable net charge-offs underscore the resilience, strength and adaptability of our business model. With that, I will pass the call to our CFO, Hal Khouri to provide an update on our financial performance and balance sheet. Hal Khouri: Thanks, Dan, and good morning, everyone. I'm picking up on Slide 8. We experienced strong organic loan originations in Q3 at over $940 million, up 13% year-over-year. Growth was driven by record applications for credit across all product and acquisition channels, including unsecured lending, home equity loans, automotive and point-of-sale lending. We've been driving consistent growth in our gross consumer loans receivable for much of the year now, and there has been a focus on the increasing percentage of our portfolio which is secured. This quarter, while we continue to see strong originations in auto and home equity lending, we also delivered strong growth from the unsecured part of our business. As such, we grew our lending loan receivables by 24% year-over-year to $5.4 billion, and the percentage of our portfolio represented by secured loans remained at 48% over Q2, though it was up nearly 3 percentage points year-over-year. Turning to Slide 9. Total revenue in the quarter was a record $440 million, up 15% over the $383 million in the same period in 2024. At 31.4% for Q3, total yield on consumer loans declined year-over-year due to growth of our secured loan products, which carry lower rates of interest and implementation of the federal maximum allowable rate of interest of 35% at the beginning of this year. On Slide 10, our strong organic loan growth drove increased revenue generation and led to record reported adjusted operating income of $170 million, an increase of 4% compared to $163 million in the third quarter of 2024. That operating income translated into adjusted diluted earnings per share of $4.12, which was essentially flat quarter-over-quarter, but down 5% from the third quarter of 2024. As Dan noted in his opening remarks, the 21-basis points quarter-over-quarter increase in provisions had a negative $11 million impact on operating income and a negative $0.50 impact on adjusted EPS. Turning to Slide 11. We continue to experience the benefits of scale, including through greater operating efficiency and productivity improvement. During the third quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, improved over Q2 and remained relatively stable to the third quarter of 2024. In Q3, we reported an adjusted operating margin of 38.6%, down from 42.6% in the same period of 2024, primarily driven by the decline in total yield due to the new interest rate cap and the increase in allowance for credit losses. Provision impact had a 2.5% impact on our adjusted operating margin. Other operating expenses were up $15.1 million or 18.6% year-over-year. As we mentioned on our Q3 '24 call, this quarter last year benefited from below trend salaries and benefits as well as the accounting policy change to capitalize employee commissions and bonuses that are directly attributable to loan originations, making Q3 2025 a tougher year-over-year comparison. Before I get into the balance sheet, I wanted to spend a little bit of time addressing a topic a number of our investors have asked about recently. Slide 12 provides some information on our interest receivable line item. The interest receivable we carry on our balance sheet reflects interest accrued on all loans through the charge-off, including current and delinquent. In accordance with IFRS, it is stated net of allowance for losses. The net interest receivable balance was $142 million in Q3, up $11 million over Q2. The rise in the interest receivable balance can be attributed to a few key factors. The main driver is the record growth of loan portfolio requiring incremental accrued interest levels. Second is the mix shift to more secured loans, which can remain on books for longer and continue to accrue interest. Third factor is utilization of focused collections efforts and certain borrower assistance tools to support loan repayments. Lastly, optimization of certain collection efforts, including focusing on cash receipts, contribute to changes. We continue to monitor interest receivable as a percentage of our overall loan book. It was 2.6% in Q3 and flat relative to the prior quarter. As late stage delinquent balances decline and we continue to optimize borrower assistance tool design and usage, interest receivable will gradually decline relative to our overall gross loans receivable. Turning to our funding position, as outlined on Slide 13, we finished the quarter with a strong and fortified balance sheet with over $400 million in unrestricted cash. In the quarter, we added to our long track record of obtaining capital on attractive terms to support our growth plans. In August, we capitalized on favorable market conditions and issued USD 450 million in senior unsecured notes due in 2031 as well as reopened our existing Canadian senior unsecured notes due 2030 for $175 million. These offerings which raised approximately $796 million in gross proceeds for goeasy, upsized from the initial amounts targeted, reflecting a strong investor response. We also concurrently entered into a cross-currency swap agreement, which served to reduce the Canadian dollar equivalent cost of borrowing on the new U.S. dollar notes to 6.1% per annum. Last week, we also announced the 1-year renewal of our $1.4 billion securitization warehouse facility on substantially similar commercial terms. Based on existing facilities, we have approximately $2.3 billion in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.6% and the fully drawn weighted average cost of borrowing was 6.1%, largely consistent quarter-over-quarter. Our debt to tangible equity ratio for the quarter was 3.96%, at the high end of our targeted range, primarily due to higher cash and liquidity on the balance sheet following our recent unsecured notes offering. We remain confident that the capacity available under our existing funding facilities will be sufficient to fund our organic growth ambitions. That being said, the recent negative events that have been observed in the broader consumer finance credit markets, a reminder that we benefit from remaining highly proactive in pursuing opportunities to raise additional debt on attractive terms. Bolstering our strong funding position and as described in the bottom left of Slide 14, the business continues to produce impressive levels of free cash flow. Free cash flow from operations for the trailing 12 months before the net growth in consumer loan portfolio was $393 million. As a result, we estimate we can currently grow the consumer loan book by approximately $350 million per year solely from internal cash flows without utilizing external debt, while also maintaining a healthy level of annual investment in the business and maintaining the dividend. Reflecting confidence in our continued growth and access to capital going forward, the Board of Directors approved a quarterly dividend of $1.46 per share payable on January 9, 2026, to the holders of common shares of record as of the close of business on December 26, 2025. On Slides 15 and 16, adjusted return on equity landed at 22.6% for Q3, down 310 basis points year-over-year. The main driver was lower adjusted net earnings, as covered previously, as well as a higher level of shareholders' equity. That covers our financial performance. I'll now turn it over to Jason for further details on credit and underwriting in Q3. Jason Appel: Thanks very much, Hal, and good morning, everyone. I'm pleased to be able to provide some additional comments on our approach to managing credit and underwriting for the non-prime consumer and how it impacted our business in the third quarter. Key takeaways which I will leave for your reference can be found on Slide 18. I'll cover much of this in more detail on the subsequent pages. But before I move off the slide, I did want to call out that while the demand for credit has remained strong, we continue to maintain a conservative posture in our underwriting of new loans. In Q3, we funded 11% of the credit applications we received at a dollar weighted average credit score of 624 in the quarter. Q3 marks our 15th consecutive quarter with average scores above 600. Turning to Slide 19. Our net charge-off rate, as previously described at 8.9%, came in at the lower end of our guided outlook for the quarter. It represented a 30-basis point improvement over the prior year and a 10-basis point increase over the prior quarter. We continue to benefit from a shift towards secured lending now at just under 48% of the total portfolio and ongoing optimization of credit, underwriting and our collections practices. Total delinquent balance is at 7.3% of the portfolio declined 10 bps from the prior year, but increased 60 bps from the prior quarter. Late stage delinquencies, defined as loans more than 90 days past due at 2.8%, were in line with the prior quarter, reflecting our ongoing focus on collection and recovery efforts from these accounts. Early stage delinquencies, defined as those that are 1 to 90 days past due at 4.5%, were lower by 50 bps -- or sorry, 80 bps from the prior year and were up 60 bps from the prior quarter. As we have mentioned previously, the Canadian economy continues to operate under a degree of economic pressure not seen since the COVID pandemic. Unemployment at 7.1% is at its highest level since May 2016, excluding the volatile years of 2020 and 2021. GDP growth is absent, Q2's number coming in at negative 1.6% annualized. With over 70% of small and medium businesses impacted by tariffs and 18% of Canada's gross domestic product coming from exports to the United States, there remains a high degree of uncertainty about the future. And while the Bank of Canada has continued to inject stimulus into the economy with its second consecutive 25-basis point reduction in its overnight lending rate, these actions will take some time to work their way through the economy. As such, we can continue to expect to see elevated delinquency levels while we work to assist our customers during these periods of uncertainty, more about which I will speak in a moment. Turning to Slide 20. Our allowance for credit losses increased by 21-basis points from 7.92% to 8.13% in the quarter in response to higher early stage delinquencies attributable to persistent weak macroeconomic conditions. Reflecting the environment and our prudent approach to provisioning for credit risk, in 2025 year-to-date, $92 million was added to our allowance for credit losses, of which $61.5 million was due to our loan book growth. Our total allowance stood at $442 million as of the end of Q3. With our focus on the non-prime credit segment, we are often asked about our day-to-day approach to managing our customers when they encounter periods of economic stress brought on by adverse economic conditions or an unexpected life event that puts the repayment of our debt at risk. One of the ways we address these concerns is through the use of our borrower assistance tools. Slide 21 provides an overview of these tools and the circumstances under which they may be utilized by our customers. In a given month, approximately one in 10 of our borrowers will make use of one of these tools. These are designed to prioritize repayment of our loan while offering the customer the opportunity to maintain their credit profile. These tools are commonly used across the industry, both prime and non-prime, and our borrower assistance tools help customers stay on track with their payment obligations, reducing the need for immediate and often costly legal action for asset repossession and are governed by a range of policies, operational and system controls. We regularly analyze the payment performance of these tools, which has allowed us to further refine our targeting and optimizing of their use. They represent a key ingredient in how we are able to assist over 1/3 of our borrowers to successfully graduate back to prime within 1 year of starting a lending relationship with us. While the use of these tools can be an effective strategy in helping our customers overcome financial adversity while maintaining our focus on cash collections, by their very nature, they are intended for a riskier customer population. As such, the use of these tools can impact the customer's risk classification and often results in our having to increase the amount of provision for future credit loss. It is for these reasons that we continue to place a heavy emphasis on refining and optimizing these tools in response to changes in the macroeconomic environment and our evolving risk appetite. Our success in the coming quarters will continue to be dependent on striking the appropriate balance between growth and risk in a way that fully accounts for the best interest of both our customers and goeasy. You can expect us to remain disciplined underwriters of non-prime credit as we continue to navigate against the backdrop of a protracted period of macroeconomic weakness and its corresponding impact on the non-prime consumer. With those remarks complete, I'll turn the call back to Dan for our outlook. Daniel Rees: Great. Thank you, Jason. On Slide 23, we introduce our Q4 outlook. As you can see, we are signaling a continuation of the solid growth we've been delivering in our consumer loan portfolio, while consistently remaining focused on high-quality prudent underwriting. For Q4, we are targeting growth in our loan book of between $250 million and $275 million. You'll note some seasonality in our business, whereby gross loan adds in Q4 are often lower than Q3. This outlook reflects our current credit posture given the economic environment. Looking at yield and in keeping with our conservative approach, we are fine tuning our outlook for Q4 to be in between 30.5% and 31.5%. This adjustment largely reflects the rate cap changes moving through the portfolio. Our outlook range for net charge-offs remains the same as in Q3. Turning to Slide 24. In keeping with past practice, we will update our 3-year forecasts in February in connection with the release of our full year results. In terms of 2025, the ongoing strong customer demand provides confidence in our growth and revenue outlook and both yield and charge-offs continue to perform as expected throughout the first 9 months of the year. The slightly elevated provisions in Q3 did put some downward pressure on operating margin and ROE, so those 2 metrics remain in focus as we move through Q4. I want to thank the entire team for their unwavering commitment. We have terrific players across all levels of our organization. We are saying goodbye to one of those terrific players today. This is the last goeasy earnings call for Hal, who will be wrapping up his tenure with goeasy this week. On behalf of our entire organization and the Board, Hal, I'd like to thank you for your many contributions to the growth and success of the company. Shortly after Hal joined goeasy as CFO in July of 2019, we had announced at that time proudly that our loan portfolio topped $1 billion. Today, it is more than 5 times that size. Hal played a big part in our acquisition of LendCare in 2021 and in multiple unsecured notes offerings, raising billions of dollars in proceeds and the creation and growth of our 2 revolving securitization facilities. We wish you all the best, Hal, as you pursue your new role down south in the U.S. I would like to more formally welcome now Felix Wu as our Interim CFO. With CFO experience at KOHO, PC Financial and Capital One Canada, Felix brings a deep understanding of our industry, a depth of technical and operational knowledge and familiarity with our funding model. In the time since Felix joined our team, his impact has already been felt, and he and Hal now have had a full and complete transition. We are really pleased with Felix' arrival and Felix already in your substantial contributions. So thank you. We are very successful in attracting Felix, which I think provides us with a lot of confidence that the caliber of his profile is a positive reflection of the organization that we've built here at goeasy. And so thank you to Felix for joining. Throughout this period of change, I would also like to thank our Board for their ongoing support and commitment. Our governance model is strong, and the entire management team has benefited from the guidance and direction of David Ingram and all of our directors during the quarter. Looking ahead, my colleagues and I will continue to build on our market leadership and capitalize on the many levers at our disposal to do so. As we manage through the economic conditions here in Canada, we do so with a proven suite of products, services and a multichannel delivery model to serve the significant customer demand and opportunity in front of us. Through past business cycles, we have delivered profitable growth alongside prudent risk management, and we at goeasy will continue to do so. In closing, goeasy plays an essential role in the broader financial system and the overall Canadian economy by actively serving the millions of hardworking Canadians that rely on us to pursue their goals and live full lives. I'm very proud of the goeasy team. And so now, James, with our formal comments complete, we'll turn it over to the analysts for their questions. James Obright: Thank you, Dan. And with that, operator, we're ready for questions from the analysts. Operator: [Operator Instructions] Your first question comes from John Aiken from Jefferies. John Aiken: In the prepared commentary, you talked about the impact that the rate cap is flowing through in terms of the portfolio. Are you able to provide us with a little bit of metrics in terms of what the size of the portfolio are that are currently generating above the rate cap and what the average duration is remaining on those loans? Hal Khouri: John, it's Hal here. Yes. So the current portfolio in terms of loans receivable that's above the federal rate cap would be approximately 18%. Where we started off the year when the rates came into effect, we were approximately 1/3 of our portfolio at that time, was above the overall federal rate cap. So naturally, you're going to see that flowing through into our -- and as expected as part of our guidance into our overall interest and revenue yield contribution. John Aiken: And one other one for you. The buybacks that occurred in the quarter, obviously opportunistic. I'm assuming that you believe the share price is below what you feel intrinsic value is. What -- going forward, how should we be looking at the willingness to continue to do buybacks? Is this -- should we be looking at loan growth? And what type of guardrails do we have in place in terms of the leverage ratio that is currently as you mentioned, near the top end of your accepted range? Hal Khouri: Yes. Thanks for that, John. So we're fairly consistent in terms of our approach around looking at share repurchase activity. We have an overall capital allocation strategy that, as you've referenced, would be first and foremost targeted towards maintaining liquidity and cash needs to fuel the organic growth of the portfolio and required expenditures and capital expenditures as well. So that will be first and foremost. We have been fairly active year-to-date in terms of overall share repurchases, approximately $100 million year-to-date in terms of share repurchase activity. We'll continue to monitor the market conditions prospectively, managing that in conjunction with managing our overall covenants and overall leverage position and ensuring we have enough forward-looking liquidity to maintain and manage the overall business requirements. So steady state and we'll continue to be opportunistic, as you've referenced, but I want to ensure that from a capital standpoint, we have enough to continue to fuel the business. Operator: Your next question comes from Stephen Boland from Raymond James. Stephen Boland: First question, Dan, when you came in, you really talked about building up the collections group. I'm just wondering what actions have been taken since then in terms of processes, new employees, things of that sort? Daniel Rees: Yes. Thanks, Stephen. Yes, I think as I mentioned on prior calls, that's a big area of focus. Obviously, when you're granting credit, the money is made when there are repayments happening on schedule and also actively managing early stage delinquencies as we're seeing here with a priority balance between cash collection and curing so that those consumers don't roll through to late stage. And we're pleased to see the late stage kind of ratio stabilizing. And as an example of some of the investments in our LendCare business, we have a new leader in place. In the last little while we've added additional collectors there. We've made adjustments to employee incentives to prioritize those 2 dimensions I mentioned as well as frankly, just more active involvement from those of us here in the head office. So we've been pleased with the progress we've seen over the last number of months. And obviously, the -- we're working through the later stage delinquencies as a matter of priority. Collections is a complicated part of any business, and I'm pleased that we've set it as a priority here and with the progress we've made in the last number of months. Stephen Boland: Okay. And then second question, maybe a little bit little general. But during COVID, when there was economic volatility, the company slowed originations to kind of protect the balance sheet and prevent delinquencies. That doesn't seem to be happening this time, like your guidance has not changed and even Q4 looks to be very solid year-over-year growth. I'm just wondering if there's a thought of shifting that strategy to slow growth a little bit here while this volatility gets sorted out? Daniel Rees: Sure, Stephen. I'll start and then pass it to Jason, if you don't mind. I think you are seeing slower growth in Q4 than Q3. That's both, as I mentioned in my prepared remarks, a function of the seasonality as well as our credit posture, which I think I also referenced. We've obviously seen a lot of growth in our auto portfolio, which we've been fine tuning some of the originations appetite over the last number of months. And so on a relative basis, that has slowed somewhat. And at the other end of the spectrum, we're actively growing our home equity loan portfolio. So between the products, we're constantly making adjustments. And I know Jason wants to make some comments here as well. Jason Appel: Yes. I think it's a good question to ask, Stephen. The only comment I would add is obviously during COVID, we did some fairly noticeable tightening, mostly in the underwriting side of our business given that for a very short period of time, about one in every 3 Canadians have deferred loans from their job. So the overall slowing of demand was also precipitated by pretty weak economic conditions in addition to our tightening. In this particular instance, obviously, you still have weak economic conditions, but we are still being quite prudent. I think I mentioned on the call, we're only funding about 11% of the applications that are coming through the door, and that continues to move down, and that's deliberate as we tighten around the edges, which we continue to do in Q3, and we would expect to do going forward as economic conditions persist. Operator: Your next question comes from Gary Ho from Desjardins Capital Markets. Gary Ho: Maybe first question for Jason. Just on the ACL build this quarter, that's primarily driven by the higher early stage delinquencies. I'm wondering if you can share what are you seeing in October or post quarter so far? Has that 1 to 30 bucket delinquencies stabilize or moderate? Any quantitative or qualitative comments you can provide? Jason Appel: Gary, the other way I would take your question is just to think about how the ACL, the allowance for credit loss generally works. As you would know, Gary, it's a reflection of the overall health of the portfolio at a given point in time, and it moves in response to changes in customers' risk profile. And that's basically how they borrow and how they repay their debt over time. The allowance incorporates those changes in those movements and then forecast the level of expected loss that also includes the impact of the forward-looking indicators, or FLIs into the future. As our customers' profiles change, so too does the level of allowance that we provide against their loans. At the moment, at $442 million, we think the level of allowance is appropriate, as that's what's indicated by the model. And so far, as we think about what's occurred in the last 30 days, I would say, as I mentioned in the remarks, our delinquency levels remain elevated, but we haven't seen any significant shifts since the quarter end. Gary Ho: Okay. That's great. And then maybe just staying with the early delinquency bucket, are you seeing any concentration in terms of affected customer employment sectors, whether that's kind of tilted towards the trade and tariffs affected industries? Or is it fairly broad-based? Jason Appel: I would say it is fairly broad-based. As we've commented in past conference calls, no one industry sector represents over 10% of the concentration of the loan book. So -- and as I mentioned on the call remarks, a majority of Canadian businesses are feeling the impacts of tariffs. So when we look at where we're seeing delinquency increases, it's pretty much spread across the board because, again, we don't have an over concentration in any one given area. So broadly speaking, it isn't concentrated in any one specific industry in our book, and that's because we have that diversification that's built in. Gary Ho: Okay. And then maybe I can sneak one more in for Hal. The debt to tangible equity, fairly high this quarter at 3.97x. I know that includes an upsized cash balance. But if I assume that even normalizes, your debt to tangible equity probably is still up sequentially, correct me if I'm wrong. Just wondering if you can just remind me the upper end of your comfort level and if you've kind of stress test how much higher the ACL builds can be while staying within kind of onside your comfort level? Hal Khouri: Yes. Thanks for the question, Gary. Yes, as you've referenced, our overall leverage position is higher than what we would typically have it in large part due to the incremental proceeds that we took in as part of our successful high yield offering that was well oversubscribed. And -- so today, we're maintaining approximately $400 million on balance sheet of unrestricted cash. We will use that cash and have been using that cash to actually pay down our securitization facilities as we are able to. I would expect that, and our forecast is to have that leverage ratio come down significantly over the next quarter and 2. We do maintain a threshold of a 4x ratio. As you've noted, we are getting close to that, but our expectation and outlook for the fourth quarter would certainly be to be comfortably well within that targeted range and continue to improve as quarters unfold. Operator: Your next question comes from Graham Ryding from TD Securities. Graham Ryding: You mentioned that you would expect that interest receivable piece to trend lower as late stage arrears start to move lower. I presume if those late stage arrears cure or there's a successful collection, and that's a best-case scenario. If those late stage arrears are fully written off or partially written off, does that translate into writing off some of that interest receivable in future periods? And if so, is that baked in at all into your consumer yield outlook for 2026? Hal Khouri: Yes. Thanks, Graham. Yes, so it is contemplated as part of our yield outlook, certainly. And as you've noted, interest does continue to accrue on accounts right up until overall charge-off. We do maintain a robust allowance against expected credit losses for the interest receivables as required under IFRS 9. And we would expect to continue to work those receivables. And certainly, as they are cured, that would look to take in payments against the interest receivable. We've contemplated a percentage of those accounts charging off. And as you've noted, in the event that there is a charge-off net of provision, that would go against the overall interest income and revenue, but that's contemplated as part of our outlook and guidance that we've provided. Graham Ryding: Okay. Understood. And then just, Jason, on the ACL, your arrears are -- have ticked up somewhat. Your ACL currently 8.1%. That's been ticking higher since about mid-2024. Can you just talk about your outlook for the ACL ratio? Like is it reasonable to expect that this continues to grind higher? Or are you feeling like it should stabilize around this level given your outlook for macro conditions? Jason Appel: I mean, as I said before, not to dodge the question, the allowance is the allowance, and it will respond and how customers ultimately deal with the situation they're in, in terms of the backdrop of the macro economy. So I would say, as of right now, we feel that allowance is appropriately balanced and set forward. And depending on where those major indicators, unemployment, inflation and GDP move, whether they're positive or negative, the provision will take those factors into consideration and so will our borrowers in so far as prioritizing our loans for repayment. So, as much as I'd love to be able to provide you a crystal ball on what the future would look like, I can't do that. What I can tell you is that we're still confident that the methodology that underpins the allowance will pick it up and be an appropriate level of reserving that we think is prudent given the level of risk that may be in the portfolio in the future. Graham Ryding: Okay. Understood. And my last one, just the early stage arrears, would that be a combination of secured and unsecured? Or is it more biased in one of those areas? Hal Khouri: Graham, it would be in both portfolios. But as you can appreciate, it would be more felt on the unsecured side of our business where we don't have the benefit of collateral. Operator: Your next question comes from Jaeme Gloyn from National Bank Capital Markets. Jaeme Gloyn: First question, just on the borrower assistance programs and commentary that it is elevated today. Can you give us a sense of how elevated borrower assistance programs, or utilization of borrower assistance programs are today compared to perhaps last quarter, last year, other stress periods? Jason Appel: Yes. Jaeme, it's Jason here. I think we've commented on this prior, and I mentioned on the call, our customer utilization rate, if I can use that term, today is about 1 in 10. We've seen that trend at that level now for the last number of quarters. That obviously is below the peak that we experienced during the COVID period where economic uncertainty was at an all-time high. That would have seen that percentage about 12% or roughly 13%. And what I would say is in more benign economic times, where there's less uncertainty, we would expect to see that assistance level travel in and around the 7% to 8% range. So think of those as being the goalposts that we would have experienced over the last, let's say, half decade, that we think are still applicable depending on what the circumstances are on the macro side. Jaeme Gloyn: Okay. Great. And would you be able to share how much the interest receivable balance today is attributable to loans that are on a borrower assistance program? I understand growth in volume and just regular payments that are on accrual. I understand delinquent accounts that are accruing. Yes, just the piece that's tied to borrower assistance tools would be interesting to hear? And how that has moved over the last several quarters? Hal Khouri: Yes, Jaeme, it's Hal here. Just in terms of the overall interest receivable, while we don't necessarily have specifics on that particular number, what I'd say is that the majority, we're kind of looking at about 2/3 of that overall interest receivable, is just natural interest receivable on where customers and loans are and aging within their respective buckets and whether they're a monthly or biweekly payer, et cetera. The balance is really attributed to a couple of key factors there. One, where they're sitting in the delinquency cycle. We did make that change, the accounting policy change in Q4 of last year that allowed accounts to continue to accrue interest beyond 180 days where we still expect it to have cash flows and realize all value from those assets. So that's definitely a piece of that. And I'd say the other component, if you look at 2/3 of the balance being just the natural accrual. And then if you were to bifurcate between the delinquency and the borrower assistance tools, I mean, generally speaking, it's about a 50-50 split on balance there. That's how I would have you think about it. Jaeme Gloyn: And how would that have trended maybe, let's say, versus like 1 year ago or a couple of years ago? Hal Khouri: Yes. So, Jaeme -- Jaeme Gloyn: It would have been like -- yes, sorry, go ahead. Hal Khouri: Yes. No, it's a great question. I mean, certainly, it would have trended upwards and the overall interest receivable has been trending upwards year-over-year as we've noted. I don't have a specific number for you. I think what Jason referenced in terms of utilization and those percentages that he's quoted where we would have normally been somewhere in the 7% or 8% range, I think, in terms of borrower assistance tools, that's gone up by about 20% to 25%. So if you extrapolate that, I mean, generally speaking, that's how I would kind of look at it in terms of the numbers there. Good news is the overall interest receivable number has plateaued as we continue to collect cash and work through and tighten up our borrower assistance programs and collections tools, we expect that number to gradually decline over time. Jaeme Gloyn: Okay. I appreciate that. And I suppose just based on the commentary around -- I think it was Gary's question, the first month here of Q4 looks fairly similar to what we saw at the end of Q3. So we shouldn't see much deviation here from one quarter-to-quarter, assuming that the rest of the year goes the same. Is that fair? Do I understand that correctly? Jason Appel: I mean I don't think it's necessarily fair to say it's going to stay or is the same. I mean, as I said before, as we update the allowance quarterly, I would pay more attention to how things move through the quarter rather than just rely on any one given month. So I would just -- I would caution you to assume that just because we're seeing things maybe be stable, that necessarily means they're going to be stable going forward. That isn't necessarily to say that they couldn't improve or couldn't worsen. It's just we look at the allowance and true up the allowance at quarter end, and that's where we have a more informed picture of any changes in the customers' borrowing patterns because you can get volatility in any one given month. Daniel Rees: And I think -- it's Dan here. I would just turn you to Slide 23, which is we stand by the outlook that's in there, including the net charge-off range, which is clearly going to have an impact as we move through the next 2 months and the full quarter with regards to how we build ACL and how the models [ go ]. Jaeme Gloyn: Yes, of course. And if I could just sneak one last one in around the commentary on the slide around the additional underwriting requirements for auto and powersport verticals for new merchants. Can you describe what you were seeing there? What drove those changes? What are the changes? And is it a reflection of those portfolios perhaps underperforming the rest of the portfolio? Hal Khouri: Yes. I would describe these as changes we would do on a periodic basis. We just haven't made mention of them in the past only because we've become a little bit more comprehensive in the way we think about the way in which we would tighten our approach to underwriting, specifically as we onboard new merchants and expand into other categories. So it's in the earnings presentation as part of our overall comprehensive approach to risk management and governance, in laying it out. It certainly wasn't indicated that this was the only time we've done it. It is a regular part of our underlying process. We just happen to have set a new bar, if you will, in how we think about it and the data that we use to inform those levels of changes that we introduced in the quarter. Operator: [Operator Instructions] Your next question comes from Bart Dziarski from RBC Capital Markets. Bart Dziarski: I wanted to ask around the late stage delinquency. So I think you characterized the 3.3% in Q1 '25 as a peak. I'm just wondering what's giving you the confidence to label that a peak? And I know we're at 2.8% now, but I wanted to see what's driving that? Jason Appel: I can start, and Dan, if you want to add any additional comments. I think picking up on Dan's comments, that confidence level in the percentage is really a function of the ongoing investments we've made in collections and our ability to just notch up the operations and be more effective in how we approach and work through those assets, particularly those assets where we have collateral. And I think as we've mentioned in the past, we do that through 2 primary means. We do it through a vast network of individuals within the company that are responsible for things like asset remarketing and recovery. And we also do it through outsourcing work that we do with national providers who supplement that work. And as we've continued to strengthen our relationships with those providers, we've just been able to benefit from processes improvements, not only within the internal side of our business, but also with our partners as well. Dan, I don't know if you want to add. Daniel Rees: I think Jason covered that well. Bart Dziarski: Okay. Great. And then just a follow-up on the commentary around -- so you're taking a more conservative posture. That's great. How does that impact, if at all? There's management overlays within reserves and when setting sort of the base downside, upside case probabilities. And I think you guys generally are more conservative towards the base and downside case. So given the more conservative posture now, are those probabilities, have they changed to become even more conservative? Or are you keeping them kind of stable? Jason Appel: That's a good question. We've left those overlays stable now. I think this is either the second or the third quarter. Don't quote me, but it's at least 1, if not 2 quarters that we haven't changed them. They are significantly weighted toward neutral and pessimistic scenarios. The vast majority of that weighting sits in those categories. And I would point out that, you can certainly see this in the financial statements in the quarter, if you compare where those FLIs were sitting in December of last year to where they're now sitting as of September, most of them in all 3 of those types of scenarios, neutral, pessimistic that it's moderate, pessimistic -- that's quite pessimistic. Most of those metrics have become worse. So while our weightings have remained stable, the implications of those FLIs has actually increased if you reference back to Q4 of last year. So the management obviously believes that we continue to maintain that conservative posture. And as a result, we're picking up the impact of those FLIs moving slightly worse into the future into the provision model itself. Operator: Your next question comes from Jaeme Gloyn from National Bank Capital Markets. Jaeme Gloyn: I just wanted to just follow-up on the ACL and the trajectory for ACL. And just thinking about where borrower assistance programs are today at 10%. It's been 10% for a few quarters based on your commentary. That in theory should continue to flow through to, I guess, early stage delinquencies and increase in provisions given that those borrowers remain higher risk and the growth of the portfolio, right? So we should continue to see that ACL rate rise in future quarters, unless we see utilization of borrower assistance programs begin to decline. So I guess is that -- am I characterizing this fairly? And what gives you some confidence that borrower assistance utilization will decline in upcoming quarters? Jason Appel: Well, I'd make 2 comments. One is the confidence in that use declining would be obviously in relation to whether or not macroeconomic changes improve. That would be the first comment. The second comment I would say is, I wouldn't necessarily assume that all of the movement in the provision is being driven by borrower assistance tools. Certainly, that is a tool that we use to assist a select group of borrowers who encounter financial distress. But there are other borrowers who encounter other types of financial distress that we have no direct control over. The way in which the provision model works is it takes into consideration the overall customer profile. So if you take the most basic example of a customer who's paying us on time, but who may not be paying their other creditors, we'll still pick that up in their overall score because we score those customers monthly based on their bureau activity. That's an example of where we can have a very good customer on our books, but still have a higher level of risk, knowing that we're being paid, but they may not necessarily be paying other borrowers. But we have to take the total picture of the customer into consideration because that's how you have to think about it under a provisioning model. So it's not just simply a movement of whether the provisioning or -- sorry, the use of the tools are moving up and down. It's also the underlying state of the borrower themselves and what else they're going through with their other borrowings in addition to what they have with goeasy. Operator: There are no further questions at this time. You may proceed. Daniel Rees: Thank you. Since there are no more questions, we'd like to thank everyone for participating in the conference call. We look forward to updating you at our next call in February. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

159天前Insight Analytics约5分钟阅读

PBH 2026 Q2 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the Q2 2026 Prestige Consumer Healthcare, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Phil Terpolilli, Vice President of Investor Relations and Treasury. Please go ahead. Philip Terpolilli: Thanks, operator, and thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO and COO. On today's call, we'll review our second quarter fiscal 2026 results, discuss our full year outlook and then take questions from analysts. A slide presentation accompanies today's call can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today's webcast and presentation. Remember, some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in our earnings release and slide presentation. On today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on Page 2 of the slide presentation that accompanies the call. These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints, high inflation and geopolitical events, each of which have numerous potential impacts. This means results could change at any time, and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date. Further information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K. I'll now turn it over to our CEO, Ron Lombardi. Ron? Ron Lombardi: Thanks, Phil. Let's begin on Slide 5. Our Q2 results exceeded the expectations we communicated back in August, thanks to certain timing factors. Sales of $274 million declined versus the prior year, but were better than forecast due to the timing of Clear Eyes supply and accelerated e-commerce shipments late in the quarter that outpaced consumption. We expect these timing factors to come out of Q3 and still expect a second half improvement in eye care supply previously discussed that underpins our full year forecast. I'll review our Q3 and full year outlook in detail later. Aside from these timing factors, our base business continues to perform well, benefiting from diversity of our portfolio and channels. We continue to experience double-digit e-commerce consumption growth, thanks to the long-term investments previously discussed. Moving down the P&L. Gross margin was largely as anticipated. Adjusted EPS of $1.07 was similar to the prior year, but ahead of expectations due to the sales beat. Lastly, our financial profile continues to generate strong free cash flow, which was $134 million for the first half, up 10% versus the prior year. This valuable cash flow and our favorable leverage ratio enables multiple ways to create value for our business. For example, in Q2, we maintained our leverage ratio of 2.4x while repurchasing over 1.1 million shares. And we continue to see additional opportunities for capital deployment that can enhance shareholder value. Now let's turn to Page 6 for a review of our DenTek brand and how we are expanding the brand's reach in the dental care market. DenTek participates in the niche peg sections of a much larger oral care category. Our product offerings are diverse and include dental guards, floss picks, interdental brushes and numerous dental accessories such as temporary tooth fillings. The wide-ranging portfolio is geared towards the dental care enthusiasts offering technology-focused solutions to meet oral care needs. Like all of our brands, DenTek's emphasis is behind differentiated product offerings where we can use long-term brand building to drive sales growth at attractive margins. With that in mind, our largest focus within the DenTek portfolio is around dental guards, which today represents well over half of the brand's revenue. By leveraging the brand's #1 share in combination with innovation and proven brand-building tactics, we've been able to drive category growth and as a byproduct, our market share, which now exceeds 50% of the category. On the right side of the page, you'll see the most recent example of this proven marketing playbook, the Fantasy Guards marketing campaign. Fantasy Football consumes an estimated 1.2 billion hours of time annually with fierce rivalry and competition. This results in untold stress to players and fans experiencing physical symptoms, including teeth clenching and jaw pain. DenTek interjects itself in a witty way, allowing for fantasy football leagues to enter a sweepstakes and win an embarrassing grand prize fine for their lowest scorer. Launched in Q2 with the backing of former and current NFL players, the campaign is designed to connect DenTek with both new and existing consumers in a culturally relevant way. Engagement is broad-based across all the various marketing channels. The results are early, but showing solid success with an over 5 percentage point gain over last year in DenTek Guard's market share. So in summary, through brand building behind DenTek's most differentiated products like Dental Guards, the brand continues to grow sales and market share and is set up well for continued long-term growth. With that, I'll turn it over to Chris to discuss the financials. Christine Sacco: Thanks, Ron. Good morning, everyone. Let's turn to Slide 8 and review our second quarter fiscal '26 financial results. As a reminder, the information in today's presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q2 revenue of $274.1 million declined 3.4% from $283.8 million in the prior year. The revenue decline was mainly attributable to lower eye and ear care category sales, owing largely to Clear Eyes supply constraints, along with lower cough and cold category sales, which we expected. EBITDA margin remained in the low 30s. Adjusted EPS of $1.07 was down slightly versus $1.09 in the prior year with lower sales primarily offset by the favorable timing of A&M as well as improvements in interest expense and share count, thanks to the benefits of our capital allocation strategy. Now let's turn to Slide 9 for detail around consolidated results for the first half. For the first 6 months of fiscal '26, revenues decreased 4.8% organically versus the prior year. By segment, excluding FX, North America segment revenues decreased 6.1% and International segment revenues increased 2.7% versus the prior year. The first 6 months sales declines were due largely to anticipated impacts of the Clear Eyes supply chain constraints and were also impacted by the expected order timing of a certain e-commerce customer that benefited Q4 of the prior year. We have continued to see variability in this customer's order patterns, and Ron will touch on this when reviewing our updated outlook. In spite of this variability, we experienced impressive double-digit year-over-year consumption growth in the e-commerce business, continuing the long-term trend of higher online purchases. Our ongoing investments have paid off on a consistent basis, including during important large-scale e-commerce sales day events. Elsewhere, our International OTC segment business increased in the first 6 months, helped by higher Hydralyte sales. Although Q2 was affected by the timing of distributor orders, which we expected, we continue to have confidence in our long-term algorithm for 5% annual segment revenue growth. Total company gross margin of 55.7% in the first 6 months was up 60 basis points versus the prior year. Looking forward, we still expect a 56.5% gross margin for the year with a Q3 gross margin of approximately 56%. For tariffs, our latest full year potential cost forecast remains approximately $5 million. As a reminder, we have a diverse predominantly domestic supplier base and have only modest exposure to high-tariff countries as well as certain products that are currently exempt from tariffs under USMCA and other specific policies. Advertising and marketing was down as expected due to the timing of certain marketing initiatives coming in at 14.1% of sales for the first 6 months. For fiscal '26, we now anticipate an A&M percentage of approximately 14%, while Q3 A&M is expected to be the highest spend rate of the year at over 15% of sales. As expected, G&A expenses were up for the first 6 months versus prior year due to the timing of certain expenses. We still anticipate full year G&A of approximately 10% as a percent of sales. Finally, adjusted EPS of $2.02 compared to $1.98 in the prior year as improved gross margin, the timing of A&M and more favorable interest expense helped offset the impact of lower first half revenues. We continue to expect favorable interest expense through the balance of the year. Lastly, our Q2 normalized tax rate was 24.1%, resulting in a first half normalized tax rate of 23.7%. We still anticipate a tax rate of approximately 24% for the remaining quarters of fiscal '26. Now let's turn to Slide 10 and discuss cash flow. For the first half, we generated $133.6 million in free cash flow, up approximately 10% versus the prior year. We continue to maintain industry-leading free cash flow and are maintaining our outlook for the full year of $245 million or more. At September 30, our net debt was approximately $900 million, and our covenant-defined leverage ratio of 2.4x remained stable. Our strong financial position and consistent business performance continues to enable multiple uses of cash flow in fiscal '26 that add value for our shareholders. For the first 6 months, we've now repurchased 1.6 million shares for approximately $110 million. The majority of this was opportunistic repurchases during Q2, which we expect to continue through the remainder of the year. Next, we remain diligent around M&A, seeking leading brands and portfolios that can enhance our portfolio and business. Lastly, we still anticipate the strategic acquisition of our eye care manufacturer, Pillar5, for approximately $100 million, which we expect to close in Q3 based on the fulfillment of certain closing conditions. With that, I'll turn it back to Ron. Ron Lombardi: Thanks, Chris. Let's turn to Slide 12 to wrap up. Halfway through the year, we are reiterating the outlook offered in August and feel good about the performance of our business in the current dynamic retail environment. This confidence stems from our proven business strategy and well-diversified portfolio that is set up for long-term growth and success. For fiscal '26, we continue to anticipate revenues of $1.1 billion to $1.115 billion, with organic growth down approximately 1.5% to 3% versus the prior year. Most importantly, we are on track to improve Clear Eyes supply in the second half. For Q3, we're expecting revenue of approximately $282 million, down versus the prior year. The lower revenue versus the prior year is attributable to 2 factors. First, the receipt of Clear Eyes inventory late in Q2 reduces our expected Q3 revenue by an estimated $5 million. Second, we anticipate an e-commerce retailer order adjustment in Q3 due to their September order patterns above our stable consumption levels. We realized a similar trend in March and April earlier this year, where we saw sales shift into Q4 from Q1. For EPS, we now anticipate adjusted EPS of $4.54 to $4.58 for the full year, which is the higher end of our prior range, thanks to our share repurchase efforts. For Q3, we'd anticipate EPS of $1.14. Lastly, we continue to anticipate free cash flow of $245 million or more. We have ample capital deployment optionality that has a history of maximizing value for our shareholders. With that, I'll open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Susan Anderson with Canaccord Genuity Corp. Susan Anderson: Nice job on the quarter. I guess maybe just a follow-up on the Clear Eyes. So it looks like you guys are on track to return to shipments. I mean maybe if you could just give some color on how we should expect that to flow through, I guess, in the rest of the year? And then also just curious while you guys kind of were out of supply, if you lost any shelf space at any other retailers? And then also just the lower distributor orders in the year internationally, I assume has nothing to do with that, but just checking on that. And then I have a follow-up after that. Christine Sacco: Susan, it's Chris. I'll start and maybe Ron can chime in also. Just a reminder, right, back in August, we laid out the 3 elements of our long-term efforts that we're focused on best positioning our supply chain to support Clear Eyes growth. And first phase of this was to bring on 2 new suppliers to supplement our requirements. The first of these suppliers came up towards the end of Q1 and the second came up late in Q2 as we had planned. Pillar5, third continues to make progress with the new high-speed line we've talked about. We continue to expect some benefit in Q3 with more in Q4 when they're producing for the entire quarter. So while it takes some time to ramp a new line to full capacity, Pillar5 has already produced some commercial products that we expect to ship later in the quarter. So we continue to expect sequential improvement in Q3 over Q2 and then Q4 over Q3. And then maybe just -- I'll just take the third part of your question, and Ron can take. So yes, to your point, your question on international eye care, Pillar5 does produce some eye care products for our International segment. And so they are also feeling the effects of our constraints. Ron Lombardi: So Susan, to your question around lost share in shelf space, we certainly have seen a pretty significant reduction in share as we haven't been able to keep up with prior year's levels of product. And as we communicated to our retail partners what we would be able to supply, they made appropriate adjustments at shelf. So if you go to shelf and look, you'll see our base redness and max redness pretty much the main available product, which is what we have focused on because it was the most significant element of the product sales. So as we get the 2 new suppliers into full production, steady production in Pillar5, new high-speed lineup, we'll begin to look at recovering that shelf space and those SKU offerings. Susan Anderson: Okay. Great. And then maybe if you could just talk a little bit about the cold/cough season. I know you guys are not as exposed as some others. It's been pretty weak to start here and then over in Europe as well. It looks like your international, which is probably primarily Asia and Australia, though, was -- performed pretty well. And then if you could just talk about what you're expecting for the rest of the season here domestically. Ron Lombardi: Yes. So when we talk about the cold and flu category, we always like to remind everybody, as you stated, it's not a significant category with high single digits for us and we're primarily in the cold -- excuse me, in the cough segment. Our international business, right, which is in the Southern Equator, did have a good season. So that was good for us. But we're primarily in the saline nasal care segment there. But we just reported results through September, right? So 2 quarters, we haven't even gotten into the cough/cold season yet. We'll see how illness levels play out during the important Thanksgiving to New Year's time frame. So we'll see where it goes, Susan. Too early to predict, I guess, is my final comment on it. Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer & Co. Rupesh Parikh: So I guess just starting off with retailer inventories. So I know you went through the e-commerce volatility there. But just curious, outside of that, I guess, the e-commerce channel, how would you characterize the health of retailer inventories in the U.S.? Ron Lombardi: Yes. So I'll comment on our space within the store, which is what we focus on in general. Outside of the e-comm order patterns that we talked about, the rest of our inventory at retail has been steady or predictable is the way I would describe it. So there really hasn't been any significant impact on our performance in those channels. You are hearing other companies talk about it more broadly in CPG, like even in our space. But it seems to be more concentrated in the big categories where there's multiple brands or competitors fighting for shelf space or it's lots and lots of SKUs and big shelf space where retailers may look to reduce inventories in those spaces. So think about the cold and flu section of the store. Think about the analgesic section, right? Lots and lots of space where there's an opportunity to find ways to take cash out of the system. So for us, it continues to be steady with the exception of the e-com, as we've talked about. Rupesh Parikh: Great. And then maybe my one follow-up question. So women's health, you've had momentum in recent quarters. It looks like it was down this quarter in North America. So just curious what's happening there? I don't know if it's comparisons or -- just some additional color there. Ron Lombardi: Yes. So there's kind of a lot going on to take a look at 1 quarter's comp. So over the last 3 quarters or so, we've had a lot of noise in the order patterns, not only in women's health, but across that portfolio. In women's health, in particular, we had some funny comps going on last year as the Monistat VAF category changed from vertical product offering to horizontal. So it impacted retailer order patterns and inventory levels last year as they were getting rid of the old and bringing in the new. So if you go look at it over the 3 quarters ended September or the 4 quarters ended September versus the same comps, you'll actually see that women's health is up. So I always like to go back to we continue to feel good about the work that we've done to continue to position those 2 brands for long-term growth. Operator: Our next question comes from the line of Keith Devas with Jefferies. Keith Devas: I'm curious if you guys can actually just comment what you're seeing on the macro environment. It's been volatile for some time, and we're seeing consumption across a lot of consumer health categories kind of slow into the end of the year. So any color on how that's playing out in your business? And then as it pertains to the guidance, particularly on top line, is a lot of the difference between the high and low end of the range mostly related to eye care recovery? And how are you factoring the rest of the underlying performance into that? Ron Lombardi: Keith, let me make a few comments on the macro environment, and I'll let Chris comment on the sales outlook. So first of all, you don't have to look very hard to hear and see lots of news on slowing consumer trends and concerns about momentum in the consumer environment. So if you think about a retail store, right, the stores in general are under some pressure. For our part of the store, right, we sell needs-based products, right? You wake up, someone in your household is ill, you're going to reach for that trusted brand. So we have a certain moat around our categories that have us a little bit disconnected from the general macro environments that are going on. For us, we have broad offerings that are available in broad channels with many brands having multiple price points with either different kinds of technology or innovation or different pack sizes. So we're well positioned to catch the consumer with our trusted brand as they think about maybe shopping differently or looking for different price points. So for now, we haven't seen any meaningful impact on how we would think about the outlook for the business for the rest of the year. Christine Sacco: And Keith, this is Chris. So your question regarding the low and the high end of the range, yes, you're correct. Eye care is the primary driver behind those 2 numbers. As Ron mentioned, rest of the business, largely as expected back in August, no real change from those comments where we talked about an international step-up just for normal seasonality in the back half versus the first half and really just updating today for the timing of the early shipments on Clear Eyes and the retailer order patterns from Q2 to Q3. Keith Devas: Great. That's very helpful. If I could squeeze in a follow-up. Just on capital allocation and the deal environment. We saw a large consumer health player kind of taken off the board earlier this week. Curious how that plus maybe the potential for future consolidation changes, how you think about the deal environment and in terms of where to allocate capital between reinvestment, share repos and potential M&A, if any of the activity recently kind of changes how -- what your order of preference is? Ron Lombardi: Yes. So Keith, let me start, and I'll let Chris add at the end here. So for capital allocation, our priorities continue to be consistent. We would like to do M&A. We're sitting on historically low levels of leverage and M&A capacity. Again, over the next 4 years, we expect to generate $1 billion or more of cash flow that we'll be looking to do something with. And I think the quarter ended September is a great example of that. We were out in the market opportunistically buying back our shares. We bought back over 1 million shares, which is a great way to add value to the existing shareholders, right? That was about 2% of our float during the quarter. So we've got backups to do while we wait for those right M&A opportunities. In terms of the pipeline or the kind of opportunities that might pop up, we don't think this week's announcement really changes that. They're going to continue to look at their portfolio and make decisions about what they keep based on where they see opportunities and what fits their investment criteria. So really nothing changed there or with any of the other big spin-outs that happened -- that have recently happened or expected to happen. And again, over time, we bought from families. We bought from private equity. We bought from big pharma and/or big consumer companies. So we expect that we'll see more opportunities. And the important thing for us is we're going to continue to be disciplined and make M&A investments where it presents long-term growth and value creation opportunities. Operator: Our next question comes from the line of Jon Andersen with William Blair. Jon Andersen: Sorry, I jumped on a little bit late, so I may have a duplicate question. I apologize in advance. Really just 2 things. I was wondering if you could comment on taking kind of Clear Eyes out of the equation, the kind of consumption trends in North America that you saw across the balance of the portfolio, kind of where you came in? And then any particular strengths and/or weaknesses by brand and category would be helpful. And then I just -- back to Clear Eyes, I just kind of wondering what you're assuming around your kind of ability or visibility to reclaiming maybe some of the shelf space that you've lost during this supply constraint period and how that -- what kind of assumptions you're making around reclaiming that over what kind of time period? Ron Lombardi: Yes. So let me take those questions in reverse order, Jon. So for Clear Eyes, in terms of recovering our share, recovering shelf space, it will take a little bit of time as the retailers, quite frankly, get comfortable with our ability to sustain service levels. So we'll see how that plays out over the next 2 resets. But certainly, there will be a recovery as we get the retailers' inventories filled and the shelf filled. But the important thing to remember there is Clear Eyes in a lot of ways defined that segment of eye care. And if you go look at the categories, the categories have actually declined -- the eye redness section, the categories actually declined as Clear Eyes supply and share has declined. So that's where we're going to start with our discussions with the retailer about the importance of getting our SKUs back online because there's consumers out there waiting to buy the product, right, and looking to get back into the category. So you just don't get it. We're going to have to invest in marketing and get that flywheel going again. But we feel good about the historic positioning and brand recognition with consumers for that. Now back to your comment about the total company's performance. And as I commented a little while ago on women's health, over the last 3 quarters or so, there's been a lot of noise, right? Clear Eyes supply has had a big impact on company performance. And we've had these order patterns of roller coasters way up 1 quarter, way down the next, way back up again. So one of the things we're looking at here is kind of TTM performance. So if you take a look at the total company's TTM performance through September, take out Clear Eyes and adjust for FX, total company sales up about 2.5%, in line with our long-term organic expectations of 2% to 3%. The international business is up about 5%, which is what we would have expected for the international business. And then North America has been up 1-ish percent or so. Again, a little bit -- North America is a little bit below the long-term algo. But it's all pretty consistent with what we would expect over the long term. Callouts for areas that we've seen very strong performance, GI, not just Dramamine, but Fleet as well as Gaviscon up in Canada, in particular, has done well for us. But women's health has grown over that TTM period as well as we've continued to position those brands for long-term growth and consistency in the International business, but the list could go on and on. But I'll end my comment on this question that we continue to feel good about the position of the company and the brands as we manage through this environment, right? Lots of turmoil, lots of fluidity out there in the environment. Jon Andersen: Yes, makes sense. Maybe one follow-up. Given the gross margin rate in the first half of the year, I guess, was a bit depressed because of some of the mix dynamics. But the guide for the year implies a pretty meaningful step-up in sequentially second half to first half. What are the building blocks there? And how much -- how confident or what kind of visibility do you have in that happening? Or is it dependent on some of these ranges you've given around Clear Eyes outcomes? Christine Sacco: Jon, it's Chris. So just note, we have a 60 basis point step-up in the first half gross margin. So really just a continuation of the benefits of cost savings and mix. The implication to your point, is a bigger step-up in Q4 that's similar to last year, largely driven by the timing of cost savings. And when we look at our International segment, gross margin revenues were impacted by mix, but also in the quarter, we were carrying 2 warehouses as we transitioned facilities and the provider for our warehouse in Australia. So maybe a little bit of lingering cost in Q3, but we would expect to see a sequential improvement in that segment as well, which will impact the total company, obviously. Operator: Our next question comes from the line of Mitchell Pinheiro with Sturdivant & Co. Mitchell Pinheiro: So a couple of questions here. First, I saw inventories were up $5 million sequentially in Q2. And I assume, is that a Clear Eyes -- Is that attributed to Clear Eyes? And I didn't quite understand what's happening in the third quarter with Clear Eyes, if you could just clarify that... Christine Sacco: This is Chris, so the inventory step-up during the quarter, no, is not really Clear Eyes. I mean what comes in on Clear Eyes goes right out the door. So when you recall that we had a very large order from our e-commerce retailer in Q4, and we've kind of been correcting on that for several brands. So that's kind of not one particular thing, just across the board. And then for Q3, even with the about $5 million we received very late in Q2 that we kind of took out of Q3, we're still expecting sequential improvement in Q3 as we have longer periods with the 2 -- one in particular, but the 2 new suppliers that came -- have come online already for Clear Eyes and then some commercial product, the very beginning of commercial product coming out of that high-speed lineup pillar. Mitchell Pinheiro: Okay. And then -- so from the A&M point of view, it's going to be your highest spend in Q3. Any particular initiatives there that you're focused on? Christine Sacco: No, not particular, just really driven -- we built it from the brands up. So the timing of new product innovation could be impacting that. And there is some seasonality to some of our brands and our spend associated with that, but nothing in particular or one thing. Mitchell Pinheiro: And then on the e-commerce order variability, is that just something that you're just going to see going forward? Or is there something unusual happening sort of with your e-commerce customer? Or is it -- is there new buyers, new -- how is -- how should we think about the variability there? Ron Lombardi: Yes. So Mitch, it's hard to predict. We don't get any insight from our e-com customers around their planned timing of their orders or what they're doing with their inventory. So our focus is on being prepared to have high service levels during these peaks and valleys. So that's the way we think about it. We dig into consumption to understand what's going on with that element of it, managing our investments by brand to find opportunities to continue to do well there. So we always go back to, at the end of the day, we want to win with consumption and grow our share and grow with the customers who are showing up in increasing numbers in our categories and be positioned to just provide the best service we can based on when our customers no matter who they are when they decide to order. Christine Sacco: And Mitch, I would also just comment that through our distributor, we don't think this is unique to us, maybe a different size customer to some other larger companies that may not talk about it, but we certainly don't think it's specific to Prestige. Mitchell Pinheiro: Okay. And then sort of related to that, as you reflect on the Clear Eyes issue and the suppliers, like you have over 100 third-party outside suppliers. And I'm wondering whether -- as you look at this, are there any other areas or candidates that you'd consider bringing in-house to have sort of better control? Is that -- have you thought about that? And then -- and related to that -- and I know maybe this is a one-off incident to Clear Eyes, but is there -- do you have any -- do you think you need more inventory to carry higher levels of inventory going forward? Maybe not a lot, but do you think there should be increased emergency sort of inventories that would be sort of higher than historical levels? Ron Lombardi: So Mitch, let me start with your comment on the suppliers. Yes, we have well over 100 suppliers. It's really a function of our broad product offering, right? We offer everything from tablets to sterile eye care products and everything in between, we take advantage of our Fleet facility in Lynchburg, and we've brought in a couple of products over the last few years to take advantage of what they do to give us an advantage in the market. And eye care is a unique situation that's evolved, right? Available sterile eye care capacity over the last 10 years has just gotten smaller and smaller each year over the 15, 16 years I've been here, I've seen it just decline. So we got to a point where it made sense given our focus on sterile eye care, right? We added TheraTears. We've had meaningful growth on Clear Eyes. We've got a nice International business around sterile eye care. It made sense for us to invest and bring that technology in-house. But for the rest of our portfolio, there's plenty of external available capacity for the things that we need. So there isn't anything else, no other meaningful shoe to drop that we would expect that would drive a change in bringing stuff in-house. I'll let Chris comment on the inventory and service. Christine Sacco: Yes, Mitch, certainly, customer service is our #1 priority. So there may be little pockets, as Ron mentioned, where we'll look to increase safety stock for some of the other brands, but nothing material that you'll likely hear us talking about on a call like this. Mitchell Pinheiro: Okay. Yes, I have a couple of questions on the dental care enthusiasts, but I'll save that for offline. Operator: Our next question comes from the line of Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: So I wanted to follow up. I think, Ron, you said that as it relates to Clear Eyes, once the supply improves, you will need to invest more into marketing. So typically, Prestige has spent roughly 13% to 14% of its revenue on A&M. How should we think about that once we hopefully get into fiscal '27, things are kind of back to normal? Do you think that ratio for A&M will go up? Or how do we think about that going forward? Ron Lombardi: Yes. So going forward, I didn't mean to imply that we would be spending more as a company, if I did. But we'll get back to looking at reallocating A&M and spending the right amount compared to the opportunity. So spending marketing on Clear Eyes when we can't deliver enough didn't make sense. So it was reallocated to other brands to invest in anything from trying to accelerate NPD or innovation or take advantage of the momentum in the marketplace that's out there. So we'll get back to reevaluating what the right level of A&M versus the expected return on sales going forward. So we'll continue to be disciplined around having the right level of investment. Anthony Lebiedzinski: That's good to hear. And then as it relates to private label competition, are you seeing kind of more of the same? Or has anything changed meaningfully in the products that you guys sell? Ron Lombardi: Yes. No real change in market share or differences in impact from private label. You may get the private label players making comments that they're seeing share gains in this environment. As a matter of fact, this week, I think there was announcements out on that. But again, they're focused on different spaces than we are, right? Think tablet and analgesics, think about the cold and flu, smoking cessation. So it really isn't impacting us at this point. Operator: Our next question comes from the line of Doug Lane with Water Tower Research. Douglas Lane: Did you quantify the amount of that pull forward you think happened with the online retailer into the second quarter from the third quarter? Christine Sacco: We talked about -- Doug, this is Chris. We talked about the Clear Eyes timing of about $5 million, and the majority of the rest of the beat was attributable to that retailer order. Douglas Lane: Okay. Got it. And then you mentioned in Clear Eyes that third quarter should be better than the second quarter and the fourth quarter should be better than the third quarter. Are we all the way there yet by the end of the year? Are we still going to be catching up in 2027? Christine Sacco: By the end of the year, we should be producing at a level where we're kind of already there, right? The timing of how we get that through to retailers and get it #1 on their shelves and then back in their warehouses and then build our safety stock, that will probably flow into fiscal '27 a bit. Ron Lombardi: To just to add some color to it in a different way. We expect by the end of our fiscal year that all the changes that we've been making in the Clear Eyes supply chain will be implemented and in place. So the 2 new suppliers will be in place and the new high-speed line at Pillar5 will be in place, and we'll have control and ownership of the facility, Pillar5, at that point as well. Douglas Lane: Right. Pillar5 closes in Q3. Does anything change? Or are you already acting like you own it? Or you have to do more things that we don't know about once you own it? Christine Sacco: Yes. So we've been partnered with Pillar for a number of years, Doug, we're certainly involved at a very deep level in the organization there and been partnering with them even before the ownership change was contemplated. So what we talked about on the last call when we announced the acquisition was essentially just we want to run this for the long term. As Ron said, there's scarcity and availability for sterile eye care out there. And we just think our -- the needs of the business to better align with our long-term focus on the category made sense for us to acquire it. Douglas Lane: Okay. That makes sense. And just one last thing. Have you talked about how you're going to finance the $100 million? Christine Sacco: Primarily cash on hand. Operator: I am showing no further questions at this time. I would now like to turn it back to Ronald Lombardi for closing remarks. Ron Lombardi: Thank you, operator, and thank you to everyone for joining us today, and we look forward to providing further updates on our next quarterly call. Have a great morning. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

159天前Insight Analytics约5分钟阅读

ALL 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to Allstate's Third Quarter Earnings Investor Call. [Operator Instructions] As a reminder, please be aware that this call is being recorded. And now I'd like to introduce your host for today's program, Allister Gobin, Head of Investor Relations. Please go ahead, sir. Allister Gobin: Good morning, everyone. Welcome to Allstate's Third Quarter 2025 Earnings Call. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q and posted related materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then, we will open the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which the reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2024 10-K and other public filings for more information on potential risks. And now I'll turn it over to Tom. Thomas Wilson: Good morning. Thank you for investing time in Allstate today. Let's start with Slide 2. Allstate's strategy has 2 components, which are shown on the left, increased personal Property-Liability market share and expand protection provided to customers. Our strong operating results in the third quarter are shown on the right. So revenues increased to $17.3 billion. Policies in force increased to $209.5 million as we broadened our protection offerings and grew the Property-Liability business. Net income was $3.7 billion. Adjusted net income was $3 billion or $11.17 per share, and that resulted from a number of things, strong Property-Liability results, modest catastrophe losses, higher investment income and favorable insurance releases or insurance reserve releases. The return on equity for the last 12 months was 34.7%. The drivers behind these outstanding results include operational excellence, which is really good at protection. The transformative growth initiative is increasing profitable growth. Enterprise risk and return management for investments creates additional value. And then all of that just generates substantial capital. So let's cover transformative growth and how that positions us for continued success. Turn to Slide 3. Transformative Growth is the initiative we started about 6 years ago, and it was designed to increase Property-Liability market share. And it has 5 components in 5 phases, and we're now in Phase 4, which is rolling out the new system. The price protection is obviously critically important to customers, so we reduce costs so that we can provide more value without impacting margins. We've reduced the expense ratio by 6.7 points, but we're not done yet. To increase market share, we also need to expand customer access by broadening distribution beyond Allstate agents. This year, auto insurance new business is evenly split between Allstate agents, independent agents and direct from the company, and all 3 channels have increased, like we didn't get there by making one channel smaller. Increasing customer value with new affordable and simple connection products has also been a driver of growth. And significant progress has also been improving customer service. So we've improved over 46 million customer interactions this year. And a high priority for us is to further expand the [SAVE] program for auto and home insurance customers, which has helped over 5 million customers reduce their premiums by more than 5%. These 4 elements require increased sophistication and investment in customer acquisition, and we're really good at that and the new technology ecosystem. The new technology ecosystem enables us -- is going to enable us to use applied artificial intelligence, which is shown on Slide 4. This begins with generative AI, which helps improve the efficiency and effectiveness of operations. I'd like to describe this as the Keds sneakers commercial. If you might remember, it's run faster, jump higher, which is quite a good thing. As you can see, there are many examples where that's adding value today. It's being used to simplify billing explanations for customers and reducing the number of billing inquiries. In the claims operation, all adjust for e-mails are generated or reviewed by AI. 15% of our coding is done by AI, and it's also being implemented and used in actuarial and financial work to reduce costs and accelerate our go-to-market strategies. The next frontier is at the top of the slide, which is Agentic AI, and that holds even greater promise. It allows us to reimagine customer value across the entire business model from the offerings, the service, the communications, how we make growth investments and how we settle claims. Now to make that a reality, we're designing and building Allstate's Large Language Intelligent Ecosystem or ALLIE. We wanted to name it and personify because these agents are like employees. They're capable of reasoning and resolving tasks, lower costs and improve the customer experience. So ALLIE will position us for continued growth in market share and expansion of protection provided to customers. Now Mario will cover third quarter results in more detail. Mario Rizzo: Thanks, Tom. Let's turn to Slide 5 for an overview of third quarter results. Allstate's strong operating capabilities delivered profitable growth and excellent returns in the quarter and through the first 9 months of 2025. Total year-to-date revenues increased 5.8% from the prior year to $50.3 billion, driven by strong performance across the enterprise, including Property-Liability premiums that were up 6.1% in the third quarter and 7.4% for the first 9 months of the year, reflecting higher average premiums and policy in force growth. Protection Services profitably grew with premiums up 12.7% compared to the third quarter of 2024, driven by protection plans. Net investment income was $949 million in the third quarter, representing a 21.2% increase over the prior year quarter. Total policies in force grew to $209.5 million, an increase of 3.8% compared to the prior year quarter. In the third quarter, net income was $3.7 billion and through the first 9 months of 2025, net income applicable to common shareholders was $6.4 billion. Adjusted net income was $3 billion or $11.17 per diluted share in the third quarter, reflecting strong Property-Liability, underwriting profit and higher investment income. Adjusted net income return on equity was 34.7% over the last 12 months. Moving to Slide 6. Let's discuss our objective of consistently delivering attractive risk-adjusted returns for shareholders. As a reminder, we manage profitability by line and by market. In auto insurance, we target a mid-90s reported combined ratio. Over the last decade, outside of the unprecedented inflationary period, the industry experienced following the COVID-19 pandemic, Allstate has consistently achieved these targeted levels of profitability. We have responded quickly and decisively to periods of increased loss cost inflation, like higher auto accident frequency in 2015 and 2016 and higher post-COVID severity. As a result, the combined ratio has averaged 94.9% over the last 10 years. The homeowners business is a competitive advantage for Allstate. In homeowners insurance, we target a low 90s reported combined ratio and an underlying combined ratio in the low to mid-60s. We have a differentiated model with advanced risk selection, new products, pricing sophistication and efficient claims handling. While there can be short-term volatility associated with catastrophes, these capabilities have delivered sustained success, as you can see over the last 10 years with a recorded combined ratio of 92.3%. Turning to Slide 7. Let's discuss Protection Services. The Protection Services business is comprised of 5 businesses: protection plans, auto dealer, roadside assistance, Arity, and identity protection. It has 171 million policies in force, generates $3.3 billion in revenue and had $211 million of income over the last 12 months. Policy growth was 4.4% over the prior year quarter, led by protection plans. Protection plans continues to expand both domestically and internationally, as you can see on the lower right. Revenues increased by 15% over the prior year quarter with a 10% increase in domestic revenue and a 32% increase in international revenue. The business generated $34 million in adjusted net income this quarter, a decrease of $5 million from the prior year quarter due to increased claims. Year-to-date, however, earnings increased by 8% from 2024. Now I'll turn it over to Jess. Jesse Merten: Thank you, Mario. Moving to Slide 8, you can see the impact of transformative growth execution on Property-Liability growth. The map on the left side of the slide shows the 38 states where Allstate is growing policies in force in dark blue. Investments in expanded distribution, pricing sophistication, marketing and technology are generating policy in force growth in the auto and homeowners insurance businesses. To the right, we provide more detail by brand. We underwrite auto and homeowners insurance business through Allstate agents and direct to consumers using the Allstate brand. For higher-risk direct channel customers, we also use the direct auto brand, which we acquired with National General. We provide those same products in the independent agent channel using the National General brand. Collectively, these represent what we call our active brands in market. Auto policies in force in active brands increased 2.8% compared to the prior year quarter. National General and Direct Auto continued to grow at 12% and 22.9%, respectively, reflecting our capabilities in the nonstandard auto insurance market in both the direct and independent agent channels. As part of transformative growth, we decided to sunset the Esurance brand and use the Allstate brand in both the exclusive agent and direct channels. In the independent agent channel, as the new National General Custom360 product is made available, we stopped offering the Encompass policies for new business. While some customers of the inactive brands end up in new business of active brands, growth in the active brand shows the strength of those customer value propositions. Homeowners policies in force in active brands increased 3% compared to the prior year quarter. We continue to see steady growth in policies in force in the Allstate brand as Allstate agents continue to bundle at historically high rates, and we've delivered strong new business growth in the direct channel. Transformative growth is delivering profitable policy growth. Turning to Slide 9. Customer retention remains a key focus. On the left, you can see auto insurance shopping is at historically high levels. Through the first 9 months of the year, shopping activity across the industry has increased 9.3% compared to the same period in 2024, driven by higher advertising and industry-wide rate increases in 2022 and 2023. In this high shopping environment, Allstate is capturing a higher proportion of shoppers with new business increasing 26.2% for the same period in 2025 compared to 2024. Allstate's market share gains in nonstandard auto insurance, largely through the independent agent and direct channels also has a negative impact on overall retention even though these policies are attractive economically. To improve retention, we're lowering prices while maintaining attractive margins and reaching out to customers through the SAVE program. In addition, customers are being transitioned to our new auto and home insurance products, which have higher retention levels. Finally, product bundling is increasing, particularly through Allstate agents supporting deeper customer relationships. Increasing retention will be additive to growth created through higher increases in new business. Now I'll turn it over to John. John Dugenske: Thanks, Jess. Turning to Slide 10. Let's discuss how we proactively manage our investment portfolio to deliver meaningful shareholder value. This chart shows net investment income and portfolio growth over 5 years. Since Q1 2021, the portfolio's book value has increased by 39% or $23 billion. Since 2021, asset growth in part reflects a large increase in average auto and homeowners insurance. Growth in assets and higher yields have benefited net investment income. Net investment income for the last 12 months equates to $10 per share, up from less than $9 in 2021. Moving to Slide 11. Let's discuss how Allstate takes a proactive approach to managing its investment portfolio within the context of overall enterprise risk and return. The table on the left illustrates how investment decisions consider enterprise factors and market conditions. The blue boxes indicate favorable conditions and the orange boxes indicate unfavorable. For example, in 2022, the Property-Liability combined ratio was elevated and both macroeconomic and market dynamics were unfavorable. We had adequate capital to handle this, but decided to reduce the capital supporting investment risks. As you can see on the right-hand graph, this was implemented by lowering interest rate risk by reducing duration shown in the green line. This was a good decision because we then increased duration as rates increased in 2023 and 2024. The combination of these actions protected portfolio values as yields rose and then captured those higher yields to support higher income. We use the same approach to equity holdings, which were reduced in 2023 and 2024, primarily reflecting an outlook for higher inflation. By year-end 2024, when profitability was restored and economic and market dynamics were more favorable, we increased the economic capital allocation to investment risk and have selectively been adding growth exposure back to the portfolio. Moving to Slide 12. The chart on the left shows the change in GAAP shareholders' equity from year-end 2024 to the end of the third quarter. At the end of 2024, shareholders' equity was $21.4 billion. Strong income, gains on the sale of voluntary benefits and group health businesses and an increase in unrealized net capital gains on investments further strengthened capital. This was partially offset by common share repurchases and dividends to shareholders. This year, Allstate has returned $1.6 billion to shareholders on a GAAP basis through common shareholder dividends and share repurchases. Overall, GAAP shareholders' equity increased to $27.5 billion as of the third quarter of 2025. Over the last 12 months, adjusted net income return on equity was 34.7%. Increasing Property-Liability market share at target levels will create additional shareholder value. In addition to growth initiatives, Allstate deploys capital through the investment portfolio, which generates attractive returns and provides a diversified source of income. Allstate has a long history of returning cash to shareholders through both dividends and share repurchases. Over the last 12 months, Allstate has returned $1.8 billion to shareholders, which is 3.5% of the average market value of common equity. Over the last 5 years, $11.5 billion has been returned to shareholders, representing approximately 22% of common outstanding shares. Now let's move to questions. Operator: [Operator Instructions] Our first question comes from the line of Robert Cox from Goldman Sachs. Robert Cox: So just the first question on capital. Obviously, a significant amount of capital generated this quarter, and you all stated in the presentation, you're in a favorable capital position. Can you just talk us through how you're thinking about holding company liquidity and how quickly we could see you guys normalize that level of deployable assets at the holdco? Thomas Wilson: Sure. Let me start at the top. First, we have a very sophisticated way that we -- we think sophisticated in the way which we manage capital. So it's not as simple as sort of your premium to surplus ratio. And it served us well for a long period of time. And so we keep doing that. And our assessment will be similar to yours, which is we have plenty of capital today. Let me -- the list of options are pretty straightforward as to what we could do with it. But let me maybe address your specific question and come up to the more contemporary assessment of what the options are. As it relates to the holding company, we leave -- we put as much money as we can into the holding company because it's flexible. We can put it back into the insurance company if we want, we can use it for share repurchases. We use it to buy a company. We can use it to do a variety of different things. So we prefer the flexibility to have it up in the holding company as opposed to in the insurance company. So the movements from one to another tend to be really related to where we are with our regulatory approvals on moving it and what the rules are moving it up as opposed to, oh, we took money out of the insurance company because we thought we had enough down there. We've always had enough down there. We have plenty of capital there, so we're not worried about that. As it relates to the uses of capital, it's the same options that you all know. But if you sort of said, well, where are we today and what would be the best uses for it. Obviously, with the kind of returns we're getting in our business, just growing that business and keeping investing in that business is a great return and a good way to go. To the extent we can further grow the business, we get the 2 for not only of higher income, but earnings multiple rerate. So that's our key and primary focus. John talked about what we could do in investments and what we do with investments as to how to make extra returns. So that's another option for us. We obviously could buy other companies which leverage our skills and capabilities, whether that's National General, SquareTrade, which were both terrific transactions. We still have some work to do on identity protection. But I feel confident. We'll see -- we still have work to do to make that one be what it can be, and it will get there. And then obviously, there's all kinds of things you can do with shareholders. There's dividends or share repurchases. John talked about that, too. We've never held back on that, but we prioritize stuff where is the most return for shareholders. Robert Cox: Okay. Awesome. And then just on pricing, I appreciate that you guys back out the New York, New Jersey growth from your new PIF growth, which is very helpful. But just wondering if you could talk about where pricing was excluding New York and New Jersey and maybe just more broadly, where you think pricing is headed into 2026? Mario Rizzo: Yes. So Robert, in terms of overall pricing, obviously, you can see how strong the margins are in auto insurance. So the rate need has certainly diminished. And I would say the book is broadly rate adequate at this point. In the quarter, we did implement some rates in New York and New Jersey that were approved earlier in the year, but implemented in the quarter. So that shows up in what we show you in the supplement, which is not a meaningfully high number. I think it was 0.6 points. So you take those 2 out, and it gives you a real sense for how little rate is needed in the book. As we look at loss trends, the loss trends in pure premium, look good. Our margins are strong. Frequency is a big contributor to that, and that's a bit of a wildcard. So as we think about 2026, what I'll tell you is we'll respond accordingly to whatever the trends are. That means they continue to be benign and book doesn't mean rate, then we won't take rate. But to the extent we see loss costs pick up, we're going to stay out ahead of it and target that mid-90s combined ratio that we've been able to achieve over the last decade. Operator: And our next question comes from the line of Gregory Peters from Raymond James. Charles Peters: So I'm going to start. First of all, in the slide deck on Page 4, you provided an interesting slide regarding your approach to artificial intelligence. I feel like there's probably a lot of information behind that slide. So when we've asked other companies, they've given us some ideas about what their tech budget looks like, how much is going to [maintenance] systems versus new initiatives. But when I look at this slide here, I guess what I'm particularly interested in is where are you in this life cycle? You introduced ALLIE. I'm just curious what that looks like when you get to a more complete phase. And just additional color on what's going on and what your end goal is with the technology? Thomas Wilson: Let me start at the end, Greg. it's like a fancy. Let me start with the end and come back into some of your questions, not all of which we have answers to at this point. So to be open and transparent about that. First, I think this technology has the opportunity to help us really reimagine the whole way we go to market and do a terrific job for our customers at a lower price with better service. And in fact, I believe it can help us add things that we don't currently do because they're too expensive. So not only will it help us reduce costs, I think it will help us improve the value proposition. Now that's easy to say and hard to do. So what we're doing is working with generative AI today to do -- mostly get more effective and more efficient at what we currently do. So I'll give you an example, not on the list, but when somebody sues our customers, there's a bunch of work they have to do to keep your customers safe and not have to lose a bunch of money and include things like reading a 900-page medical file that used to be done by doctors. Today, that is done by a computer. So it's helping us be better and more effective and both reduce our just administrative cost for doing that, but also then presumably make us smarter and give us better decisions with a human in the loop. The Agentic AI really is a chance to do it completely differently. So for example, how we communicate to you, what mode of communication we use, what we communicate to you is dependent on who you are and what your relationship with us has been. And that's hard to put all that knowledge in the brain of one individual who's on a phone at that point in time. It's not that hard to put it in the hands of an agent, which can process stuff with advanced computing power very quickly. So we believe there's -- throughout the whole business chain, there's ways in which we can do it. So we've come up with a plan to try to build ALLIE. It's got -- just like we did transformative growth, it's got components and it's got phases. We're not ready to roll that out to everybody because we're in the, what I would call, design and build phase. But it's our belief that the opportunity is so large that we should move quickly on this as opposed to wait to see if somebody else can develop it first. As it relates to cost, it's going to cost more, and we're just going to manage our way through it. Charles Peters: I guess related to that, you talked about on retention on Slide 9, personalizing experiences. You also mentioned how your business mix is changing a little bit. How is technology going to help you improve your retention? And when I read this bullet point is of personalizing experiences, to me, that sounds more labor-intensive, not less labor-intensive. Thomas Wilson: I actually think it's -- to do it well, it will be less labor intensive. So the computer can help you do it. Today, for example, if you get on our website, we have 3 offerings that we give you good, better, best. We could -- it's possible with technology to help figure out exactly what should Greg's offers be. Today, it's not done that way, but it could be done that way. So I believe there's plenty of opportunity to improve this. Retention, I would say retention, we have just other things we can work on. I mean -- just can give you some sense of what we're doing on retention because that's -- I would say that's not really ALLIE. ALLIE is really redoing the whole business model. Retention is something we just need to work on each and every day. Jesse Merten: Yes, Greg. So it's Jess. We are very focused, as I said in the presentation, on the S.A.V.E program and reaching out in the point of customization to make sure that we're providing customers with the opportunity to tailor their coverage and save money. And as you saw, we've saved more -- a significant number of customers more than 5% and that's going and looking for opportunities for discounts like EasyPay or paid in full, encouraging customers to use telematics and truly tailor their coverage options to best meet their needs. And so I think technology allows us to do that and to better reach out and identify where customers have needs where opportunities exist for us to save them money, which naturally improves retention. So I think that we're continuing to focus on what we can do to increase value for our customers as it relates to lowering prices and enhancing experiences. Operator: And our next question comes from the line of Andrew Kligerman from TD Cowen. Andrew Kligerman: My first question is around the exclusive agent channel within Allstate brands. And I'm wondering how that has progressed in terms of agent count and retention year-to-date. How has that played out? And how do you see that playing out over the next couple of years? Thomas Wilson: Andrew, it's a good question. Let me give you an overview of where we've come from or 2, and I'll give Mario an opportunity to talk about where we are going. So when we started Transformative Growth, we had over 10,000 Allstate agents. And today, we have 6,000. We are writing more business today than we were then. So productivity is way up. And that's not just because we're doing more advertising, they're actually doing a terrific job of leaning into this. And the team we have in place is doing great work. They're also extremely good at bundling auto and home, which builds in sustainability. So we feel like there was some question from some shareholders and analysts when we got started on TG, what will happen with the Allstate agents. We think the Allstate agent network is stronger today than it was then. And we've added independent agent and direct response and expanded that. So we're feeling good about where we are. Mario can talk about where we're going. Mario Rizzo: Yes. I think, Andrew, I would plus up what Tom said in terms of the performance of the agency system. When you look at our production and the fact that it's pretty equally distributed across all 3 channels. The agency -- the Allstate agency channel is a core part of that. So this is not about not wanting to grow in that channel. We're very much interested in continuing to grow in the Allstate agency channel and the productivity of the channel is off the charts, and they continue to invest in their businesses. In terms of where we go from here, number one, it will continue to be a key part of our strategy because we believe there's a significant percentage of people that are going to want to interact with a human on the other side. And in our case, that would be an Allstate exclusive agent. But we're going to ask our agents to continue to adapt going forward just as they've adapted over the last 5 or 6 years as we've implemented Transformative Growth with a real focus on continuing to build new relationships, which you see through productivity, but also to cultivate those relationships, leveraging the tools that Tom talked about with artificial intelligence and data and analytics to be able to engage with their customers more frequently to deepen relationships and sell a broader array of protection products and services going forward. So Allstate agent is a key part of our growth strategy going forward. We will continue to expand their role going forward, and we're bullish on the future. Andrew Kligerman: Got it. And my follow-up goes back to Slide 4. And it's certainly the Transformative Growth seems pretty awesome. And Tom's comment that ALLIE is an opportunity so large that you don't want to wait to see if someone else can do it. And so my question is around if you could share this because I haven't seen slides like this with a number of your competitors. Where are you versus the competition? Is there any way that you can share a benchmark with us that kind of puts Allstate in one place and the large bulk of the competition elsewhere? Thomas Wilson: Nobody knows, really. I can't speak for where they're at. I'm guessing most people are using generative AI. It's almost -- it's easy to do -- and so I'm sure even if it's not an organized program like ALLIE, I'm sure our competitors are using that. I can't speak for what they're doing strategically to try to redo the business model. We've been working on this for a while. We kind of felt like now it's about time to start talking about what we're doing without going into specifics because nobody wants to give somebody else a roadmap as to how you're going to do it. But -- so I'm guessing they're all good -- we have good competition. They're smart people, good companies. I'm sure they're working on it and doing it. Everybody has different outcomes. I would say I was with a group of CEOs who were talking about the problems they have with data. In Transformative Growth, the target state architecture that we put in place has a particular way in which we move and use data. And that's really set us up to do this. If you ask me, did we know exactly that was going to work that way 5 or 6 years ago? No. Did we think it made sense? Yes. Does technology follow the rules of logic? Yes. So like we couldn't have predicted that you're going to have Agentic AI, but we're really happy we have what we have. Operator: And our next question comes from the line of Paul Newsome from Piper Sandler. Jon Paul Newsome: A couple of big picture questions I was hoping you could address. So the biggest pushback I get for Allstate is concerns from investors that competition is going to lower prices quickly in response to recent profitability and it all savings lowering prices, and those will squeeze margins such that you're sort of at peak earnings. So 2-part question, and I'll leave it at that. Could you just talk a bit about how you see the market dynamic evolving over time? You guys have been through a number of years and seen a lot of history. And then relatedly, can you talk about how you sort of really think about the trade-off that you're talking about between pricing and PIF growth and mechanically, how you do it and why we can be confident that it's a good trade-off? Unknown Executive: Let me go up for a minute, and then I'll come down your specific question around trade-off between -- maybe I'll start with growth and economics. Well, first, we make money, okay? So like we want to increase policies in force. We know that, that generates increased returns for shareholders. We know that it could lead to a re-rating of the PE. But unless we're making money, we're not doing it, whether that's advertising or anything else. So we treat our shareholders' capital dearly, and we make money on it. Let me go to the overall competitive stuff, and I'll give you some observations. Just we're one team on the field and in the league, so I can give you some observations in there. And then I'll give you some specifics about our performance. So it's already a highly competitive environment. It's not like it's about to become a highly competitive environment. We're banging it out every day in the marketplace, whether that's competing for leads, getting the right pricing sophistication, doing our claims well, like it's a highly competitive market. And you can -- and my answer to the people who doubt it would be like, well, you can see how we've done in that market for the last decade. Can I predict every play is going to be -- we're not going to give up more than yard? Thomas Wilson: No. But in the end, when you look at our combined ratios and the value we've created for shareholders in a bunch of different ways, we've done quite well. And when you look at the specific competitors, Progressive is a really strong competitor in auto. They have great capabilities. I expect them to stay strong in auto. I think State Farm has picked up share in the last couple of years in which their capital position to do that, which meets their objectives. So I think they achieved what they set out to do. They don't seem to be dialing up advertising as much as Progressive, but that's anecdotal. I don't have a set of facts from some TV watching service to prove that. GEICO lost a couple of points of share because they had written a bunch of business prior to that, which was not profitable. So they decided to not have that business anymore. They've turned on the old model. Whether that works in the current competitive environment with the current set of defenses out in the field, it's not clear. I'm not saying it's not. It's just they seem to be turning on the model that they've used historically, which did enable them to pick up share. So I think they're on the field. Others, I think, they are struggling to keep up. So if you look at Allstate's performance, in that environment and let's just make it contemporary. Jeff showed you some numbers. Our new business is up higher than the shopping stuff. So we're able to compete there in customer acquisition. And that's a highly competitive and sophisticated market. Like we're already working on some new plays for next year on what we're going to do in the lower funnel stuff. So that's highly competitive. Pricing in auto insurance, we're good. We continue to rollout new programs. We'll continue to rollout new programs. Retention, it's kind of flat over the -- it depends which channel and which risk category and stuff, it's kind of flat over the last couple of quarters. We have an opportunity to increase that by competing for customers that are already in-house as opposed to going out and competing to get new customers. So that's a different kind of competition. We're kind of competing against ourselves and their expectations. If you move beyond auto insurance, we have lots of other ways to grow, too. If you look at our homeowners insurance business, we believe it's picking up share because we don't think there's more than 3% new homes in the United States when you just look at PIF. And that's just a really strong business. If it was a stand-alone company, and I'm not suggesting it is, by the way, if it was stand-alone, people would be like rocking about that business. Specialty lines, we got one of the best renters products in the market. We have some work to do on auto, on motorcycle and boats and stuff like that. That said, our share is below what it should be, so another place to grow. If you go beyond that to protection plans, we have a terrific position in embedded insurance in the retail channel. In the United States, we're not taking that internationally. We've struggled to find a way into the big cell carriers to get into cell phone insurance. So we've been kind of fighting a way. That said, we're not going to give up. There's a way to find those customers. We haven't figured out how yet, but we're at it. So we have lots of ways to grow. There are some things we have that other people don't have. So if you look at our growth, just talking about growth in nonstandard share. We took the National General capabilities, and we put that into the Allstate Floral business. And you can see that we've picked up real share in the nonstandard auto customers. So we like that. Now what we do is have to flip that and take that same approach and pick up standard customers in the independent agent channel for standard auto and homeowners. We'll have to see whether we get that done, but we have plenty of ways to grow the business. Operator: And our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is on auto retention. I was hoping to get some more color on how it's trended for just active brands and when we should think about retention inflecting up both for your active brands and just also on an overall basis? Thomas Wilson: Okay. Elyse, so -- it's a good way to split the question between active and inactive brands because some of those inactive brands, the decline in retention is intentional because we want to move them from those brands to the other brands. Another thing that will impact retention as we're going forward, and Jess can talk about some of the specific things we're doing, but we didn't really highlight a lot is I think just talking about moving people from classic to the ASC products would be some additional insight that you haven't given already. Jesse Merten: Yes, absolutely. So in addition to what I mentioned earlier, Elyse, we are going through and we give our customers an opportunity to move into the affordable, simple and connected product as we roll that out by state. So you've seen how many states that we've rolled out for the ASC product, and we are able to have our agents and both in the call center and in the exclusive agencies reach out to customers and give them an opportunity to move into our most contemporary products with the most contemporary pricing. And we think that's a real opportunity to improve retention. It does 2 things. One, it gives them an opportunity to save money, but it also allows agents to engage differently and add value and deepen the relationship by offering our best products. And so we will continue to implement that and move folks to our best and most contemporary products in this quarter and into the coming year, and we think that will have a real impact on retention. Elyse Greenspan: And then my second question is just on capital. You guys -- I think it's building upon one of the earlier questions, right, there's excess of parent. You guys, given the strong results this year, right, did start to take dividends out of AIC in the quarter. I guess given that, I mean, I was a little bit surprised the buyback perhaps wasn't higher given that there's more capital at parent. So if you could just help me think about just balancing the buyback versus, I guess, now having more excess at parent? And are you guys holding on to capital there for M&A? And if that's part of the answer, where would potential M&A transactions be concentrated? Thomas Wilson: So the share buyback program is -- was an approved $1.5 billion and had a set time on it, and we're just buying it back according to the period of time we had it and the amount. So there's nothing magic. It's not like we have a good month, we decide we're going to buy more shares back or something of that because we've always had plenty of capital. When we put up $1.5 billion share repurchase program, that means we think we have more than $1.5 billion of additional capital. So we don't set the target based on what we will earn. We set the share buyback on what we have -- factoring in that maybe the future won't be as good as you think it is. So we've always felt great about that program. When that program is done, then we'll decide what we do with the next one, and that will be done sometime next year. And so that's still come. In terms of like what we use the money for, it's like organic, and we're like on the open field. We find something we like to do, we do it. There is -- on the open field, we do know that trying to grow our Property-Liability business faster is the cleanest and best shot to improve shareholder value. Other than that, we just -- we make a decision when we get to that point in time. So we don't kind of like sequester it and hold step back. It's just -- it is what it is. And we're -- with this kind of return on equity, there's no harm, no fault. Operator: And our next question comes from the line of Vikram Gandhi from HSBC. Vikram Gandhi: My first question is around the auto PIF, where it appears that the growth was, to a large extent, driven by nonstandard customers. Just wondered if you had any updated thoughts on how we should be thinking about the longevity and more importantly, the profitability of this cohort, so expense ratio and loss ratio impact from this cohort. Thomas Wilson: I don't think I can give you specific attribution to help you do a loss ratio or expense ratio forecast. I think the numbers just move around too much. What I can say, which is maybe the underlying question there is it's all economic. Like we like the business. It doesn't last as long, but we make good money on it. We make good money on it relative to what it costs us to get it even though it has a shorter life. So we don't have a targeted only get this customer if they last for 7.2 years or something like that. We just say, can we make money on this customer for the period of time they will have us. And so we like what we're doing, it's all economic. It does because it has -- they shop more higher-risk customers because they pay more. That's why they shop more. It does have a negative impact on retention, but that's not a negative economic impact. That's just a math problem in terms of trying to give the overall retention number. Vikram Gandhi: Okay. That's very helpful. And the second question I had was a really simple one on commercial lines. It's something that we don't talk about quite often. But are we at a definitive inflection point? And can we comfortably say that the adverse prior year development is highly unlikely going forward? In short, have we sorted most of the back book issues? Thomas Wilson: Well, in commercial lines, in all our reserves actually by category, we think we're adequately reserved when we put the quarter up. Sometimes we get surprised. You're right, in commercial lines, we've had some negative surprises over the last couple of years, and we didn't this quarter. So we feel good about that. But we think we're always appropriately reserved. Operator: Our next question comes from the line of Bob Jian Huang from Morgan Stanley. Jian Huang: First question is revolving around Slide 11, where you provided some outlooks in terms of various key metrics. Curious is your view on inflation going forward. I think if we had this conversation 6 months ago, inflation and tariffs potentially would have been a larger topic. But just curious how you think about inflation as we go forward? Is it much more under control in your view today? Do you think that will become evolving to a bigger problem? Just curious your thoughts on that. Thomas Wilson: Let me make some comments and then toss it to John to give you his perspective. So inflation impacts many parts of our business, right? So there's inflation in what it costs to fix and repair a car, which is -- could be driven by tariffs, could not be driven by tariffs, all depends what happens there. There's inflation in bodily injury costs, which is driven more by litigation environments, which if anybody wants to talk about Florida, have we talked about that at some point. Then there's inflation just in our operating expenses, what it costs to have people and stuff. And then there's inflation, which has a large impact on our investment portfolio. So we think about it from an enterprise standpoint. So John can give you an answer as to how we think about inflation where we are today relative to our risk and return profile. John Dugenske: Yes. Thanks, Bob. Great question. What I would say is let's start with the investment portfolio and the use of it. One of the takeaways from today's presentation is really how it complements the rest of the business and how we can use it as an additional tool to help balance out risk that we might be seeing across the business. And as you've seen, we've done that by adjusting our interest rate exposure, and that allows us to buffer other things that might be taking place, as Tom just mentioned. In terms of what's going on with inflation, let's take a market view right now. If you go back coming out of COVID, there was a lot of changes in supply chain, a lot of uncertainty. You get into the beginning of this year, there are some changes in policies in Washington, and that created a lot of uncertainty. What we've seen play out throughout this year is not that inflation has completely gone, but some of what we would call the left tail risk or the uncertainty associated with that has gone. Therefore, markets have calmed down a little bit. We think it's a little bit more understood. This can be evidenced somewhat by even the posture of the Fed. The Fed has moved from a tightening cycle to an easing cycle. So they too are seeing more of a balance between growth and inflation. And we're acting accordingly. We've -- as you noted in the quarter, looking at the investment portfolio, we've extended duration a little bit. That's a sign that we think maybe some of the big increases in yields are over and we can capture that additional income for the benefit of shareholders. But we'll keep a watchful eye on it. We just don't know for certain. This is a pretty big stone that was thrown in the pond, and you're not quite sure how all the ripples will play out. So we're watching it carefully. We've got a lot of monitors, both on the underwriting side and the investment side, and we'll stay tuned. Thomas Wilson: Let me also jump into bodily injury inflation because I've noticed some of our competitors have talked about changes there. And just let me give an example of talk about Florida. So we really applaud the political leadership in Florida for taking on an important issue. That's a difficult issue, which is how do you lower suits against our customers for fender bender accidents. And their courage is really helping Florida consumers save billions of dollars a year. And we're happy, of course, because our customers are saving money, like we will charge them less, but we're very happy with the fact that they're having to pay less. And at a time when voters are clearly voting with their pocket books, this is really a golden opportunity for other states to lean in on that. You've seen Georgia recently picked up and join the parade. So tort reform may seem arcane from an inflation standpoint, but it has the potential to really help consumers deal with increased inflation and other stuff. So it's just a terrific way to help customers. Jian Huang: Great. Really appreciate that detailed answer. Staying on Slide 11, which, by the way, is a wonderful slide. If we think about just interest rate and the duration of your fixed income portfolio, right, it feels like kind of like in your prior remarks, you made a strategic move to increase that duration. As Fed fund rate potentially comes down more, is there a need to move further to the higher duration part of your fixed income portfolio? Or do you feel that your current duration is pretty good? And then regardless of what the interest rate environment goes, 5-year duration feels appropriate. Thomas Wilson: Let me just deal with one word and then let John pick up on that. There's never a need to do anything on one specific piece of the portfolio, whether it's duration, equity ownership or anything else. But there's opportunity is the way we look at it as to how we scope risk trust the company. Do you want to talk about how you're looking forward? John Dugenske: Yes. Bob, again, I would look at the kind of the mosaic that you see on the left-hand side of the page. And these are the things that we will consider when that time comes. One of them is market posture, but there are a bunch of other things that we'll consider, too, in terms of what's ultimately in the best interest of the entire enterprise and our shareholders. I'll also focus a little bit on your word need. I think sometimes people think when they think of insurance asset managers and portfolio management, there's a need to kind of chase yield in a portfolio. And we fundamentally look at it differently. We're really trying to find the best economic overall return for our shareholders. And that doesn't always mean chasing -- having to maintain a certain book yield level in the portfolio. So we're going to look at all the things that we can do in the portfolio, whether it's public fixed income, private fixed income, public equity, private equity, figure out at a point in time in concert with what's going on at the enterprise, what's the best combination of actions to take to position the portfolio. And I think you've seen that play out over time as we move things around in response to all these factors. Thomas Wilson: When you look at competition, I would say we're unique in this way. But one of the big firms comes in and does here's what everybody else has done. And here's what they've changed. And I think their comment was, if it wasn't for you guys, we wouldn't have to come in every year because not other people don't change that much. That doesn't make us always right. It doesn't make us -- we're not a hedge fund or anything like that. We just look at it in total and say, how do you manage risk, you manage it for the whole enterprise. Operator: And our next question comes from the line of David Motemaden from Evercore ISI. David Motemaden: I just had a question just how you guys are thinking about advertising spend. When I look at the efficiency of ad spend in the third quarter, it looks like it went down quite a bit, if I just looking at new auto apps versus just dollars spent on advertising. So clearly, you guys are gaining your fair share of the shoppers out there. But just wondering how you're thinking about continuing to ramp that, especially as efficiency looks like it's declining a bit. Thomas Wilson: David, that's probably not the best measure of efficiency, I would say. So let me dissect that a little bit. So you have both upper funnel and lower funnel advertising. Upper funnel is really more mass streaming, TV, stuff like that where you're getting brand consideration. Our brand consideration is up substantially this year or significant and substantial, but it's up, and we like it. On the lower funnel, our efficiency is actually up this year versus last year. Last year, in the fourth quarter, in particular, we were a little heavy and our efficiency dropped a little bit, but we're still liking -- so I'm not sure exactly the math you're looking at, but we think our economic returns on our advertising were terrific. We like them. They're up from last year. In that sense, but it's -- as I mentioned earlier, this is a game. It's a highly analytical scale game, like you're buying leads in sub-seconds and making decisions, the computer making decisions to do that. So we feel good about the system we have. That said, it's just like pricing in auto insurance, like every year, there's some new plan you got to do. And so we're working right now, Elizabeth and her team spent 4 hours yesterday working on a new plan to take it -- to add some new stuff to take it to a new level. David Motemaden: Got it. Okay. Understood. And then just my follow-up, where are we just in New York and New Jersey on the new product filing and maybe opening that up to new business? I think -- it's obviously -- you guys are putting through rate increases there implemented in the third quarter. So that's going to continue to work through the book. And I think you guys put through another increase in New Jersey. So you guys are obviously getting hit on that, but -- and I guess you guys are still not in the market for new business. So I'm wondering, is there a point where you just say, hey, like we're just not going to wait for this new ASC product to get approved and just continue with our existing product and try to open up to new business? Thomas Wilson: I'll make a general comment that Mario can jump in on the specifics of where we are standing right today. I would say we are hopeful that we hope that the regulators see that this is a better product for customers. Just like Florida took stand to do something good for customers. We'd like to see New York and New Jersey take a stand for customers by approving it as opposed to thinking they're doing some sort of favor. Mario? Mario Rizzo: Yes. So first thing, David, what I'd say is we're making money in both of the states. So we're generating underwriting profits, both in New York and New Jersey. So that's a great place to start. And we've already gone beyond the point that you referenced. And we actually are writing some new business, not as much as we were, but we're not completely shut down in both of those states because we're not waiting for the ASC approval to open back up. We're going to continue to look at our risk appetite with our existing product. If it makes sense for us to open up underwriting guidelines even further, we'll do that. Our agents are continuing to invest in their agencies to have capacity. And then we're hopeful that the approval of ASC will just take us to the next level in terms of our ability to write even more in New York and New Jersey. But we've started that process. It's obviously -- those 2 states are still a drag, and you saw that on the slide to overall policy counts, but we're profitable, which is a much better position to be in. We are writing some new business. We'll evaluate if we can and should be writing more. And then as Tom said, we will continue to work with the regulators to get ASC approved and then open back up fully. Thomas Wilson: Thank you for your time this morning. We'll keep working on shareholder value by embracing change and being the best of what we do. We'll talk to you next quarter. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

159天前Insight Analytics约5分钟阅读

KMP-UN.TO 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen. Welcome to the Killam Apartment Real Estate Investment Trust Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on November 6, 2025. I would now like to turn the conference over to Mr. Philip Fraser, President and CEO. Please go ahead. Philip Fraser: Thank you. Good morning, and thank you for joining Killam Apartment REIT's Third Quarter 2025 Conference Call. I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Erin to read our cautionary statement. Erin Cleveland: Thank you, Philip. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operations, strategy, financial performance, conditions or otherwise. The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements. Such statements involve numerous inherent risks and uncertainties. And although Killam management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online at SEDAR+. All forward-looking statements made today speak only as of the date which this presentation refers, and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws. Philip Fraser: Thank you, Erin. We are very pleased with our strong financial and operating results for the third quarter of 2025. Killam delivered FFO of $0.34 per unit, a 3% increase from $0.33 per unit in Q3 2024. This quarter, we achieved 5.5% same-property NOI growth across the portfolio, which included 5.5% same-property NOI growth in our apartment portfolio, 7.5% same-property NOI growth in our manufactured home community portfolio and 3.2% same-property NOI growth in our commercial properties. The multifamily fundamentals in Canada are still strong, and our same-property apartment occupancy for the third quarter was 97.2%, slightly lower than 97.7% in Q3 last year. During the third quarter, we made meaningful progress towards our strategic targets listed on Slide 3, and we are on track to meet these targets by the end of the year. We remain optimistic about the future of the Canadian economy and the need for more housing in every province, even as some markets continue to see declining market rent due to low levels of immigration. We will continue to focus on growing our earnings, cash flow and the underlying value of our assets. Dale will now take us through our financial results, followed by Robert, who will provide an update on our operational results. I will conclude with an update on our current and recent developments and our capital allocation strategy. I will now hand it over to Dale. Dale Noseworthy: Thanks, Phil. Key highlights of Killam's Q3 financial performance can be found on Slide 4. Killam achieved solid earnings growth, including a 5.5% increase in same-property revenue. Net income in the quarter was $41.9 million compared to $62.7 million in Q3 2024. The quarter-over-quarter reduction is attributable to a $4.5 million fair value loss on investment properties compared to a $50 million gain in Q3 last year. During the third quarter, we achieved a combined weighted average rental increase of 4.7%, as seen on Slide 5. The gains in Q3 included a 9.2% rent lift on units, which turned in the period and an average 3.4% increase on renewals. This is in line with what we expected based on the trending of market rents from their peak in mid-2024. We remain confident in our ability to meet our 5% to 6% revenue growth target for this year. Slide 6 presents the mark-to-market spreads for the portfolio broken down by region. Halifax and Kitchener Waterloo remain leaders, each with spreads of approximately 20%. The overall estimated mark-to-market spread across the portfolio stands at 12%, a figure that has moderated in recent quarters due to a slight decrease in asking rents and incremental quarterly rental rate increases. In the third quarter, total operating expenses for the same property portfolio increased by 4.7%, as outlined on Slide 7. Property taxes represented the largest cost pressure, rising by 6.2% during the period. Utility costs remained stable with a modest increase of 0.8% in Q3. General operating expenses grew by 5.1%, primarily due to elevated salary expenditures associated with the timing of new hires related to prior year as well as variations in the timing of repair and maintenance activities. Year-to-date, Killam's net operating income for the same property portfolio has grown by 6.6%. The projection for NOI growth in 2025 is approximately 6%. As Phil noted, we generated FFO per unit growth of 3% in Q3, driven by our strong same-property NOI growth and contributions from development. AFFO per unit was up 3.6%. We expect AFFO growth to continue to exceed FFO growth looking forward as capital from selling older properties is reinvested in newer, more efficient buildings. Partially offsetting FFO gains in Q3 was higher interest expense, up 6.7% compared to Q3 '24. Looking out to 2026 and beyond, we are through the biggest headwinds from refinancing at higher interest rates than the rates on maturing debt. We expect year-over-year interest expense increases to begin moderating as early as 2027. As early as next year, we expect the weighted average interest rate on CMHC insured mortgages refinanced to be relatively close to our 2026 weighted average interest rate of 3.32%. Slide 8 includes average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. As part of our debt management strategy, we have also actively increased our use of CMHC insured coverage. At the end of Q3, 88.3% of all mortgage debt across the portfolio was CMHC insured, up from 81.5% coverage this time last year. I will now turn the call over to Robert, who will discuss what we are seeing in the current rental market in more detail. Robert Richardson: Thank you, Dale, and good morning, everyone. Over the past year, the rental market has continued to evolve as it reverts to historic norms in terms of rental growth and unit turnover. Across the country, market rents for apartments are more competitive for both renewals and new leasing with new rental supply moderating demand pressures and giving renters more options. Gone are the unsustainable years of immigration fuel population growth that peaked from 2022 to 2024. The multi-residential market is now transitioning to a more typical and predictable environment, one where Killam is very adept at navigating. Occupancy remains a key performance metric for Killam and our teams prioritize balancing high occupancy across our portfolio with the pursuit of optimal rental rates. Slide 10 shows our occupancy levels by quarter for the last 10 years. During Q3 2025, Killam's occupancy was 97.2% compared to 97.7% in the same period last year, indicating a slow reversion back to Killam's long-term average of 97% occupancy. As expected, with increased apartment supply, turnover rates are rising, and we expect Killam's turnover rate to finish 2025 at approximately 22%, as shown at the bottom of Slide 10. This slide also highlights the notable impact the population surge that began in 2020 had on suite turnover, which dropped from 29% in 2020 to 18% by 2024. As with occupancy, Killam is on track to return to a more sustainable level of turnover, again, likely closer to the turnover rate in the past. Slide 11 highlights Killam's trend in rental rate growth by quarter since 2018 for suite turns and lease renewals. As is evident in the chart, the rental growth on suite turns is experiencing the largest correction from double-digit highs of 20% in 2023 and 2024. This rental growth speaks to Killam's ability to capture mark-to-market opportunities when available and was further bolstered by rental increases earned from Killam's suite renovation program. From Q3 2025, the combined weighted average rental growth rate was 4.7%, 50 basis points higher versus the 7-year weighted average rental growth rate of 4.2% shown in this chart. On Slide 12, the top chart looks at the use of rental incentives on new leases signed. Killam's primary focus remains consistent to provide exceptional service while maintaining high-quality properties and competitive pricing. To remain competitive, we use incentives strategically, targeting incentives where they are most effective in meeting market demand. For Q3 2025, Ontario and Alberta accounted for the majority of same-property rental incentives with Ontario at 47% of incentives and Alberta at 34%. Slide 12 also demonstrates that incentive programs are predominantly allocated to suites with monthly rents exceeding $2,000. However, it is important to highlight that although there has been an increase in the use of incentives, the value of incentives offered for Killam's same-property portfolio remains less than 1% of revenue in Q3 2025 at only 66 basis points. As shown on Slide 13, the average in-place rent for the portfolio in Q3 was $1.83 per square foot. The blue line shows the achieved rent per square foot in Q3, net of incentives was $2.19, reinforcing that despite the use of incentives in certain markets, Killam continues to benefit from strong mark-to-market spreads due to the robust demand for our product offering, which balances quality, affordability and value for our residents. Looking ahead, we expect positive net operating income growth to continue, driven by proactive management, strategic investments and the ability and adaptability of our skilled leasing teams. Killam will continue to deliver stable results. I will now hand you back to Philip to provide an update on our capital allocation strategy. Philip Fraser: Thank you, Robert. During the third quarter, we completed the disposition of $110.6 million of apartment buildings and purchased $168.8 million of apartment buildings. On July 3, Killam sold a 60-unit townhouse complex in PEI for $9 million. On July 30, we sold a 50% interest in a development site in Ottawa for $2.68 million. On August 7, we closed the sale of a portfolio of properties in PEI containing 526 units for $81.9 million with net proceeds of $41.6 million. On September 8, we sold a 99-unit complex in St. John, New Brunswick for $17 million with net proceeds of $10.3 million. During the quarter, we were very busy on the acquisition front. On July 22, Killam purchased 3 buildings containing 114 units in Fredericton, New Brunswick for $28.7 million. On July 30, Killam completed the purchase of the remaining 50% interest in Frontier, Latitude and Luna apartment buildings located in Ottawa. The combined purchase price was $138 million, which included the assumption of debt. Related to this transaction was the purchase of a commercial property on July 28 and a development site on July 30 for a combined price of $4 million from our former JV partner. On October 9, Killam hosted a property tour in the Kitchener, Waterloo, Cambridge area and highlighted a number of our buildings, including 2 developments, which are shown on Slide 16 and 17. The Carat, which opened on June 1, 2025, is now 80% leased and the Brightwood and 128-unit woodframe development we started in January of 2025, adjacent to our existing Northfield Garden property. Completion is scheduled for May 2026 and pre-leasing has commenced. Also highlighted on the tour was our solar panel installation program. We have installed solar panels at 5 different property locations, which currently has a 1.2 megawatt of power capacity with an average electric rate of $0.13 per kilowatt plus HST. The projects are expected to yield over $170,000 in utility cost savings annually. We have 5 additional solar panel installations underway at the other 4 buildings at Northward Gardens and Brightwood, shown on Slides 18 and 19, increasing our total Kitchener Waterloo Cambridge capacity to 1.9 megawatts, producing approximately $260,000 in electricity cost savings annually. As shown on Slide 20, construction continues at Eventide, our 55-unit building in downtown Halifax. Completion is expected by Q3 2026, and pre-leasing is about to start in the next week. Slide 21 shows a recent picture of the construction site for Nolan Hill Phase II, our 296-unit JV development in Calgary that we have a 10% ownership interest. Completion is expected to be in Q4 2027. We remain optimistic about the future and our ability to deliver earnings growth. Our results this year have highlighted the tremendous value of having a diversified portfolio, both geographically diversified and in terms of average rent and property age. Throughout Killam's history, we have consistently invested in our portfolio, our employees and our service offerings. As Robert noted, we are now back in a more normalized rental environment, one of which we have a proven track record. We have built a well-diversified portfolio to create long-term value for unitholders. It is gratifying to see the resilience of the portfolio, and we are excited about the continued earnings growth it will provide in the future. To conclude, I would like to acknowledge and thank all of our employees for their hard work and dedication. I will now open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Mike Markidis from BMO Capital Markets. Michael Markidis: Your slides are great, thanks, and I appreciate that the resilience of your portfolio, I would actually even say strength at the lower rent side of things. I'm just curious on your thoughts heading into 2026, especially as we're kind of going through this sort of seasonally slower period of Q4 and Q1. Do you think that the pressure at the high-end of the market will continue just given the supply in the various markets? And given that, despite the strong performance of your lower rent apartments, do you think that incentives continue to go up and leasing spreads will continue to trend lower as we progress through 2026? Dale Noseworthy: Overall, we expect leasing spreads to be trend perhaps slightly lower, but quite consistent to what we have seen over this last quarter. Certainly, we're looking at October and that trend has stayed stable. From an incentive front, we are seeing seasonality come into play as we had historically with this time of year off the peak of July, August and early September. So, we may see a continued uptick in incentives, but they continue to be on in select regions and select assets. So overall, relatively stable with maybe a little bit on the downside, but still feeling the ability to capture positive rent growth similar to what we've seen recently. Michael Markidis: And I mean I don't have it in front of me, but is the increase in turnover, is that starting to accelerate across the portfolio? Or is it just kind of modestly ticking higher each quarter? Dale Noseworthy: It is. We are seeing it. It really is across the portfolio. So, we expect that to be -- we will end the year, we expect at approximately 22%, up from 18%. And we think -- we expect that will continue to grow again next year. Michael Markidis: Last one for me. It looks like you started off Nolan Hill Phase III, not expected to be completed until 2028. But I guess just a 2-part question. One, just if you could comment on the timing given the fundamentals you're seeing in Calgary today, number one. And then part 2 would just be, if you could remind us, I think you would have a I don't know if it's an option or a put to purchase the rest of the 90%. And if you could remind us on what the economics would look like going forward if it's a fixed price or based on a cap rate on rents. Philip Fraser: Yes. I mean it's -- the timing is been in the planning for about 2.5 to 2 years. It's a larger project. But again, from a balance sheet point of view, it's only 10% throughout this period, and we do have an option to purchase it. It's just slightly over the cost of the project. Michael Markidis: That's an option at just slightly over cost. Operator: Our next question comes from the line of Dean Wilkinson from CIBC. Dean Wilkinson: Phil, I want to come back to something we've talked about a couple of times before, the MHCs. At just under 6,000 sites, I think it might get lost that Killam, I think, could be one of the larger MHC operators in the country. So, when you look at the formal launch of the Build Canada homes and the focus they put around there, do you think that could open up some opportunities around that asset class? Or how are you thinking about that longer-term? Philip Fraser: The way we're thinking about it is that as a percentage, it's 5% or 6% of our sort of revenue or even our balance sheet. And last year, we started to sell a couple of the products ones that were sort of outliers in Newfoundland. And as we look at it, I mean, there are some of these assets that I truly believe we would never sell. Some of them we might look at in the next year or 2. And I think that it's basically just like our complete disposition program has been for the last 3 years, we are looking to sort of see which assets we could recycle the capital from them and put it in a better use in the next couple of years. Dean Wilkinson: So that would suggest that, that MHC portfolio probably shrinks over time, doesn't grow? Philip Fraser: Yes, it shrinks over time. And really, when you -- the other part of your question was like where is the upside in terms of what the government is trying to sort of do in terms of creating new housing. And it is still a very -- it's not easy to build a new one. It's the cost of the land. You're competing with all the other types of housing sort of multifamily, high-rise. They're typically outside the core urban areas where their own -- or they're going to have to be on their own water and sewer systems. So, it's -- you can take your own parks and expand them if they have surplus land, but it's really hard to start a new one from like greenfielding it. Dean Wilkinson: Might not be as cheap as advertised, I guess, is the point there. Philip Fraser: And we're finding that it's almost up to $70,000 a pad to service it with water and sewer and prep it these days. Operator: Our next question is from Jonathan Kelcher from TD Cowen. Jonathan Kelcher: First question, just on the outlook on NOI. I guess you've now sort of narrowed it to 6% for 2025, and that implies about 4% or just over 4% for Q4. Should we think about 2026 NOI growth at around that level when you say in the MD&A that you expect steady same-property NOI growth into '26? Dale Noseworthy: We'll provide more details with our Q4 results in terms of outlook. But at this stage, that is a reasonable assumption. Jonathan Kelcher: And when you're talking about steady same-property NOI, are you including the upcoming vacancy at Westmount? Or is that separate and you're talking more of the apartment portfolio? Dale Noseworthy: That would be looking at the apartment portfolio. Jonathan Kelcher: And then secondly, just on the Kark, 80% seems pretty quick. I'm sure you guys are happy with that. How would that compare to the pro forma? And what about on the rent levels that you're getting there? Dale Noseworthy: It's close to our pro forma. We have a couple -- this time last year, leasing started a month or 2 later than we had originally anticipated. So, the actual lease-up speed is in line. And from a rent perspective, we've been very close to our pro forma. Operator: Our next question is from Mario Saric from Scotiabank. Mario Saric: Just the first one, not necessarily asking about '26 guidance, but it did seem like in the MD&A, the tone or the verbiage used was a bit more conservative than it was last quarter. So, is that a fair statement? And if so, what's changed in the last 3 months to maybe temper those expectations a little bit? Robert Richardson: Mario, it's a combination of a few factors. We're seeing the turnover start to increase a little more. So that's happening. And we're hearing from our leasing team that it's more of a negotiation than we were doing this time last year in terms of trying to find the right rate for the unit. So, it's just being cautiously optimistic. And it is -- the year is going very well. But that tone, you didn't run it through the CP bought, did you? Mario Saric: No, that was me. In Halifax, what percentage of the renewals are you still hitting kind of the 5% maximum? Has that changed? Unknown Executive: I would say it is the majority. Mario Saric: And maybe just my last one. The distribution was increased with Q3 results last year. It wasn't this year. Can you just maybe give us a bit of color in terms of the thought process there? Philip Fraser: Well, I mean, I don't know -- I wouldn't read too much into it. I mean it's discussed at every quarter, every Board meeting. And I think that what we really want to sort of see is just digest a little bit more from the federal government to see if they actually get this budget passed and just like a little bit better clarity on the overall economy of the country. So, I think it will be discussed at the next -- the fourth quarter, the first year. Mario Saric: And just on the budget Phil, any incremental thoughts on that in terms of surprises, either to the upside or the downside in terms of the impact? Philip Fraser: Well, I mean, one that I found interesting, if you dig through it, is this generational infrastructure investment. And the program is $17.2 billion over 10 years. So just simple math, it's $1.72 billion. And it's funding that the federal government will give down to probably the municipalities if the provincial government matches it. And so -- and the funding is going to support housing enabling infrastructure, which is place water, sewer, health-related infrastructure, roads. So, if you think about it, everybody wants growth, but we still need an infrastructure right across the country in terms of lots of basically water and sewer plus the ability to have grids with electricity that can sort of support all this growth. And so, the interesting thing is that access these funds, the provinces have to match, what I just said, but they also have to agree to substantially reduce development charges and not levy any other taxes to hinder the housing supply. So that's a long way to say that you know what, there's all this money available, the province has to match and the cities have to come on board and reduce these large development charges. So, I find that quite interesting. Operator: Our next question is from Kyle Stanley from Desjardin. Kyle Stanley: Just wondering how -- in your view, how the student leasing season went this year in some of your more student-heavy markets, thinking more like Halifax and KCW. And would you say your exposure has maybe changed to students since the federal government initially implemented the caps on foreign students last year? I guess, put another way, how important do you think the student segment is to Killam today versus maybe prior years? Philip Fraser: Well, I'll give a couple of comments. I think it's becoming less and less. And so, the big sort of leasing period in this September, I mean, we really saw some good leasing activity right across the board, and we're talking about cities like Fredericton and St. John's Newfoundland and the Kitchener Waterloo. So, is it an impact for the overall vacancy in all the markets that have students and universities? Yes. But I think it's -- again, if you're diversified, it's just something that you quickly sort of look for other tenants that aren't students, and we're doing that. It's a little bit -- there's a little bit of a catch-up, but it's going to happen, and it looks like it's going to continue over the next couple of years and that there's going to be less students around foreign students in all the markets. Kyle Stanley: And then just secondly, on Westmount, you've highlighted the strategy to get in the office space leased. Obviously, we recently toured. I guess 2 questions. Any updates since we were there last? I don't suspect there were, but figured I'd ask. And then secondarily, can you remind us of what maybe the CapEx profile would be to do some of the conversion of the office space to multi-tenant and maybe ground floor retail? Philip Fraser: Sure. So, the inquiries continue to come in. They're quality inquiries. We're encouraged by the activity in terms of size of the square footage and also the quality of the potential tenants. So, we probably have on a list 20 solid ones, 30 in total, a few there you wouldn't want, but happy with the way we're going. I'm just trying to think what else for you. Kyle Stanley: Well, and I think our sort of goal is to actually have serious paper between now and the next 2 to 3 months on a number of these. Philip Fraser: Right. And then -- but on the capital spend, it's probably going to be $4 million to $8 million in terms of all the work, including putting the tenants in. So we're -- the building itself now, Sun Life has removed all of its furniture that it had there, which was quite a bit, and we're getting it ready for demolition the parts that we're going to do, so we can make the elevators more accessible and accommodate a couple of tenants who have indicated they need some changes. Operator: Our next question is from Jimmy Shan from RBC Capital Markets. Khing Shan: Yes. I just have one quick question. On the incentives, the fact that they're concentrated in the $2,000 a month bucket or higher, has there been any other times in the past where you've had to offer incentives in the more affordable rent buckets? Like is this something normal that has over time been the case? Philip Fraser: I could go back 20 years. I remember that there was a time when the vacancy has gone higher. But generally speaking, no. With the affordable ones, they can afford to take the smaller gains, especially in rent-controlled markets. So that's typically not where we find ourselves giving incentives. And for the most part, the incentives really relate to a lot of new leasing and new product coming on. And in order to lease successfully in a market like that, you do have to give incentives. That's very typical and it's been kind of the way for the industry. Khing Shan: And then on Halifax, I know you had mentioned before that you really haven't had the need to offer incentives in that market yet. Is that still the case? Unknown Executive: Yes, that would generally still be the case. Operator: Our next question is from Matt Kornack from National Bank Capital Markets. Matt Kornack: Just quickly in terms of the nature of the turnover that you're seeing, has the increase been in markets where maybe the rental conditions are a bit looser? Or is it across the board? Unknown Executive: It's across the board, but I do believe it's a little bit higher where those markets that we've highlighted where there has been more new supply, for example, and where we have new assets that we've leased up in the last couple of years. For example, Civic 66 is one asset. We know that the turnover of that asset has been much higher than average. The nature of leasing that up at peak rent. Robert Richardson: And that's a phenomenon of new lease-up that what you'll find is that some people move in, they would be leaving their house. They haven't lived in an apartment for a very long time. If they ever lived in one, they get there and they realize within that first year that it's really not the setup that they are liking. So, we do have -- that will be it, and that happens in the first and sometimes might go into the second year. But by the time you're making your way to the third year, everybody settles down and the turnover -- that impact on turnover goes away. Philip Fraser: And then of course is Alberta. Matt Kornack: Makes sense. And then just maybe quickly on the CAGR. It was transferred into IPP. I know it was probably not 80% -- well, it wasn't 80% leased during the quarter. So, was it actually a drag on results just given fixed cost versus the NOI generated -- or sorry, the revenue it generated? Dale Noseworthy: Yes, it would have been a drag specifically in Q3, but we would expect that to change for Q4. Matt Kornack: And then when would be the anticipated, I guess, full stabilization Q2-ish of '26 or? Dale Noseworthy: Yes, I think that's reasonable. Operator: There are no questions at this time. I would like to hand the call back to Mr. Fraser. Please go ahead. Philip Fraser: This concludes Killam's Q3 2025 Analyst Call. Thank you for listening and participating today. We look forward to reporting our Q4 2025 financial results on February 11, 2026. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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ONIT 2025 Q3 财报电话会议

Operator: Good day, and welcome to the Onity Group's Third Quarter Earnings and Business Update Conference Call. [Operator Instructions] Please be advised today's program will be recorded. It is now my pleasure to turn the program over to Valerie Haertel, Vice President, Investor Relations. You may begin. Valerie Haertel: Thank you. Good morning, and welcome to Onity Group's Third Quarter 2025 Earnings Call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil. As a reminder, our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These statements may be identified by reference to a future period or by use of forward-looking terminology and address matters that are uncertain. Forward-looking statements speak only as of the date they are made and involve assumptions, risks and uncertainties, including those described in our SEC filings. In the past, actual results have differed materially from those suggested by forward-looking statements, and this may happen again. In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP measures should be viewed in addition to and not as an alternative for the company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures and management's reasons for including them may be found in the press release and the appendix to the investor presentation. Now I will turn the call over to Glen Messina. Glen Messina: Thanks, Valerie. Good morning, everyone, and thank you for joining our call. We're looking forward to sharing our third quarter results and reviewing our strategy and financial objectives to deliver long-term value for our shareholders. Let's get started on Slide 3. Our third quarter results again demonstrate the effectiveness of our strategy and the strength of our execution. Our balanced business delivered sustained results with lower interest rates driven by originations profitability offsetting MSR runoff. Record origination volume and steady servicing profitability drove increased adjusted pretax income versus the second quarter and continued book value growth. Adjusted ROE exceeded our guidance for the quarter and year-to-date, and we're expecting to exceed our guidance for the full year, underscoring our commitment to strong shareholder returns. Let's turn to Slide 4 to review a few highlights for the quarter. We delivered adjusted pretax income of $31 million and annualized adjusted return on equity of 25%, driven by strong originations performance and favorable fair value gains on reverse buyout loans and servicing. GAAP net income and earnings per share of $2.03 reflect a $4 million or $0.48 per share tax provision expense related to tax planning strategies to support future utilization of our deferred tax asset. Average servicing UPB continued to grow steadily, fueled by year-over-year volume growth, which exceeded total industry originations growth for the same period. And finally, book value increased to $62 per share, up 5% versus prior year. We believe our third quarter results demonstrate our effectiveness in navigating changing market conditions with a balanced business model working as designed. Let's turn to Slide 5 for more about the capability of our balanced business. We believe our scale in both servicing and originations enables us to perform well with high or low interest rates. You can see on the left, our total business is delivering improved performance as we have grown servicing and improved overall productivity. Originations is responding well to changing market conditions with profitability increasing as rates have generally declined in the second and third quarter. If interest rates were to materially decline like in 2021, we believe industry origination volume and margins would increase while higher MSR runoff would reduce servicing earnings. In this scenario, we would expect originations to again deliver most of our earnings. Regardless of interest rates, we're always maintaining agility to capitalize on asset management and other opportunities consistent with our strategy to create value for shareholders. Let's turn to Slide 6 for more about our growth focus and actions. We delivered servicing portfolio growth versus the prior quarter and prior year, driven by double-digit originations growth in the same period. We've increased our owned MSR portfolio, consistent with our objective to retain more MSRs to grow earnings and book value as well as reload our portfolio for recapture opportunity. Ending total servicing in the third quarter is up $17 billion or 6% year-over-year with $39 billion in servicing additions net of runoff more than offsetting planned transfers to Rithm and opportunistic client MSR sales. With MSR demand keeping prices elevated, several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry origination volume increases. I believe our ability to replenish and grow our portfolio while our clients execute opportunistic MSR sales highlights the power of our origination capability and the success of our growth strategy. Now please turn to Slide 7 for some highlights on our originations performance. In the third quarter, our originations team delivered volume growth of 39% and 26% versus prior year and prior quarter, respectively, in both cases, exceeding the industry and many of our public peers. Consumer Direct is demonstrating strong growth driven by declining rates in the third quarter and improved execution. In business-to-business, we leverage an enterprise sales approach to deliver our wide range of products, delivery methods and services, coupled with a strong focus on client service. We've continuously invested in technology and process optimization to enhance the customer experience, reduce cost and improve scalability and competitiveness in both business-to-business and consumer direct. We're launching new and upgraded products and services to expand our addressable market and access higher-margin market segments, create alternatives for our customers and manage operating capacity for surges in refinancing activity. To highlight how far we've come in origination, our third quarter funded volume was the highest we've recorded with a market size that's only 41% of the 2021 market peak. Let's turn to Slide 8 to discuss our recapture platform. Our consumer direct team is delivering top-tier recapture performance to enhance MSR returns for us and several of our subservicing clients. As you can see on the left, funded volume was 1.8x the prior year level with an interest rate environment that is comparable between the 2 periods, reflecting the success of our investments. Based on our refinance recapture benchmarking, our third quarter year-to-date recapture performance, excluding home equity products, is better than several of our peers and the ICE reported average. In addition, our refinance recapture rate where the previous loan was originated by our consumer direct channel is 85%, on par with other retail originators. This points out the significant upside in recapture as we continue to improve our first-time recapture capability. We continue to invest in talent, AI tools, predictive analytics and leverage internal and external data sources to help us better understand our customers, proactively identify opportunities and further improve our capability and the customer experience. Let's turn to Slide 9 to discuss our near-term expectations for subservicing. We continue to see a high level of interest amongst prospective clients to explore subservicing options and alternatives. We've signed 9 new clients so far this year and have 6 new agreements under negotiation. We expect subservicing additions in the second half of $32 billion or over 2.5x the first half level, driven by these new relationships, our existing clients and synthetic subservicing with our MSR capital partners. And we expect that momentum to continue into the first half of 2026 with subservicing additions from these clients of over 2x the first half of 2025. One area where we are seeing attractive growth opportunities is the small balance commercial segment, where our subservicing UPB is up 9% versus the second quarter and up 32% year-over-year. While the requirements are more complex than performing residential servicing, the returns are better, we have the expertise, and we're investing to drive continued growth here. Overall, we're excited about the growth potential in subservicing, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline. Regarding our subservicing relationship with Rithm, we have received notice of nonrenewal and expect to transfer this portfolio to them starting in the first quarter of 2026. Approximately $8.5 billion of UPB requires trustee and other consent, the timing and success of which are uncertain. We appreciate the opportunity to have served Rithm and its customers for nearly 10 years. The Rithm subservicing is a shrinking portfolio of mainly low balance pre-2008 subprime loans and accounts for over half our delinquent loans and borrower litigation. The portfolio attributes result in a high cost of servicing and declining profitability. For the third quarter of 2025, the Rithm subservicing was less than 5% of our total adjusted revenues and one of our least profitable portfolios before corporate allocations. After corporate allocations, it lost money in the last 2 quarters with third quarter loss increasing over the second. For the past several years, we've assumed in our planning the subservicing would not be renewed for the coming year, and our plans for 2026 assume the same. We expect to adjust our cost structure and replace the earnings contribution with more profitable business that are aligned with our current growth focus and not our past. We do not expect the removal of these loans to have a material financial impact for the full year 2026. Let's turn to Slide 10 to talk about our continued investment in technology. We've been investing across 4 categories of AI. Robotics, natural language processing, vision and machine learning to improve business performance and competitiveness on several dimensions. We've cultivated our own award-winning robotic process automation center of excellence and technology innovation lab, which support projects of increasing size and complexity. These projects typically focus on 4 desired outcomes: drive cost leadership, accelerate revenue growth, maximize customer retention and deliver superior operating performance. I'm proud of what the team has accomplished through focused and purposeful investment to enable a highly competitive platform, top-tier recapture performance and an improved customer experience. We continue to utilize this 4x4 approach to technology innovation and to ensure our investments are aligned with delivering outcomes that matter most to our stakeholders. Let's turn to Slide 11 to see what we've accomplished and where we're taking our technology program. We believe our AI investments have been an important enterprise-wide performance enabler, creating value for all Onity stakeholders. Our past investments in AI have been focused on improving cycle times, processing cost, customer access and self-service, scalability of operations, customer opportunity identification and reducing delinquencies. The outcomes of these efforts are reflected in the center column of this slide. And as you can see, they've had a profound impact on our business. Today, our focus is continued integration of robotics, large language models and machine learning across all operations to empower our people and processes where every process is optimized, every decision is data informed and every outcome is superior. For our people, our goal is to provide them with enhanced tools and data-enabled intelligence that drives heightened responsiveness, real-time decisions and superior outcomes. For our customers, our focus is increased personalization, enhanced self-service, continuous improvement in ease of use and anticipating their needs. The opportunity here is exciting, and the potential impact is incredibly powerful. Now I'll turn it over to Sean to discuss our results for the quarter in more detail. Sean O'Neil: Thanks, Glenn. Let's turn to Slide 12 for a recap of the key financial measures. 2025 continues to be a strong year for us as evidenced by the following third quarter results. Revenue grew by double digits, both year-over-year and over the trailing quarter. This was driven by both the servicing and origination operating units. Our third quarter adjusted return on equity was 25% and exceeded our full year 2025 guidance, both for the quarter and year-to-date. Our ability to deliver steady net income added over $2 to book value per share in the quarter. Please turn to Slide 13 for a historical trend of our adjusted pretax income, which is positive for the 12th straight quarter. We posted a strong quarter for adjusted pretax income of $31 million. This shows the strength of our balanced business where originations and servicing each support growth in a diverse range of interest rate environments. The year-to-date adjusted ROE was 20% above the upper end of our guidance. And as mentioned, we expect to exceed our full year adjusted ROE guidance of 16% to 18%. GAAP ROE was 14%, and the appendix has a walk from net income to adjusted PTI to help you understand the differences. Please turn to Slide 14 for the pretax income results for the Originations segment. Originations adjusted pretax income was significantly higher year-over-year and versus last quarter. This was driven primarily by strong execution of recapture and improved performance in our B2B channel, which drove record funding levels and improved margins in most channels. Consumer Direct continued another strong quarter, driven by recapture performance, resulting in elevated funding volumes. We also benefited from stronger closed-end second volumes. Business-to-business saw elevated volumes and margins as well with growth in our Ginnie Mae mix. Reverse originations maintained profitability with higher margins on lower volumes. This was a breakout quarter for originations as we were able to post margin gains amid record volume. Please turn to Slide 15 for the Servicing segment. Servicing remained a solid contributor to adjusted pretax income with $31 million for the quarter. Forward servicing again experienced growth in average UPB with higher revenue both sequentially and year-over-year. The revenue lift from servicing growth was offset by higher runoff in the third quarter. This was driven by a greater amount of owned MSRs as well as higher prepay speed. The ability to capture some of this runoff is measured in the recapture metric. Reverse servicing pretax income rebounded to a positive $4 million in the quarter, driven primarily by stronger gain on sale on the reverse assets. Regarding delinquency, our owned MSR portfolio exhibited improved delinquency statistics again this quarter. For example, our Ginnie Mae MSR portfolio had better delinquency metrics than the broader Ginnie Mae market. Please see the MSR valuation page in the appendix for more details on delinquency by investor type. Page 16 will give you an assessment of our continued strong hedging performance. The hedge strategy on the MSR continues to perform well and as intended. As a reminder, our strategy is designed to mitigate interest rate risk and our hedge has been effective in minimizing the impact of interest rates on our MSR valuation, net of hedge, as you can see on the graph. Over the last 2-plus years, we have increased our hedge coverage ratio such that by the end of 2023, we were seeking to hedge most of our interest rate exposure. When we compare our results with information in the public domain, we believe we provide an effective MSR hedge at an efficient cost relative to our peers. Given that an MSR hedge is dependent on the interest rate and relative derivatives market, we frequently review and assess our hedge strategy to manage risk and optimize liquidity as well as total returns. Please turn to 17 for commentary on our guidance for full year 2025. As mentioned, following the strong quarter of net income, we now expect to exceed our 2025 adjusted ROE guidance. Note that this guidance on ROE is not dependent on the release of some of the valuation allowance, but is rather driven by our view of the strength of the operating businesses. Our UPB growth for the full year is now estimated to be between 5% and 10% versus the prior guidance of 10-plus percent. We don't believe the positive but smaller growth will have an adverse effect on our '26 forecast as we are generating growth in higher-margin servicing areas that need less UPB to deliver comparable pretax income. Consider Glen's earlier comments on commercial subservicing as an example. Overall, I'm pleased to report another good quarter that grew book value per share and delivered a continued strong return on equity for our shareholders. Back to you, Glen. Glen Messina: Thanks, Sean. Let's turn to Slide 18 for a few comments before we open the call for questions. We're focused on accelerating profitable growth and creating value for all stakeholders. I'm proud of the team's relentless focus on delivering on our commitments. Our strong third quarter results led by record originations volume validates our balanced business and its ability to perform through market cycles. We've built a technology-enabled award-winning servicing platform that is efficient, delivers differentiated performance and service excellence. We're delivering profitability comparable to our peers at a more attractive valuation, and we expect to exceed our adjusted return on equity guidance for the full year, underscoring our commitment to strong shareholder returns. All this comes together to suggest a share price that we believe has significant upside. And we intend to continue to take the necessary action and maintain agility in a dynamic market to harvest that value for the benefit of all stakeholders. Overall, we could not be more optimistic about the potential for our business. And with that, Aaron, let's open up the call for questions. Operator: [Operator Instructions] And we will go first to Bose George with KBW. Bose George: Just on the Rithm, the transfer that's going to happen. When you look at that portfolio, just based on your commentary, what's the -- like the present value of that, was it basically flat or even negative? Just how do you think about that? Glen Messina: Yes. To put it in context for you, Bose, look, that portfolio is about 25% of the size it was about 5 years ago. So it's really run down quite a bit. From a contribution perspective, look, we said it was one of our lowest margin portfolios. Look, if you compare it to Ginnie Mae owned servicing, for example, Ginnie Mae owned servicing has about 4x the profit margin of the Rithm portfolio. And looking at it on a dollar value basis, our $5 billion commercial subservicing portfolio generates a multiple of the dollar profit before corporate overhead. So it's really run down quite a bit. We -- the portfolio probably had maybe another year of marginal profit contribution associated with it. Again, that has a lot of assumptions baked in it and stuff like that. But look, it's gotten to the point where the portfolio is so small, delinquencies are high, cost of servicing is high. I'm sure for the Rithm team, they've got servicing oversight responsibilities. It's just at the point where it's pretty much getting to where it's uneconomical for us and our clients to maintain the current relationship. And I've said it throughout the course of this year and even last year, this was an eventuality. It was inevitable, and we're at that point. And yes, so we're going to get on with it. We'll transfer the portfolio, adjust our operations accordingly and feel good about the growth pipeline we have to replace the business. And again, there's many areas of our business have a much higher profit margin than the Rithm portfolio. And we've got a strong team that is demonstrating incredible growth, outpacing the industry and many of our peers. Bose George: Okay. Great. And then just your ROE guidance, I assume it's based on your current capital, but by the end of the year, your DTA gets reversed and your capital goes up, I guess, as that happens and the ROE on that, obviously, I guess, will be a little bit lower because of that. Is that right? Or if you can -- you'll have a GAAP tax rate that will run through next year as well. So where does that kind of shake out after that? Glen Messina: Yes, Sean, I'll turn it over to you. Sean O'Neil: Sure. Bose, Yes, generally speaking, the directional changes you indicated are what will occur. It's all dependent on the amount of the valuation allowance that we do release at the end of the year. But you are correct, that will flow through. It will increase equity. And therefore, all else being equal, we'll have to generate a higher return to maintain the same ROE. And then the tax rate -- the effective tax rate will go up once we release the VA. If we release all of the VA, it would look in line with any other normal corporate taxpayer. I think 21% federal and a couple more for states. And then if we do a partial release, it will be somewhere in between. Operator: [Operator Instructions] We can go next to Eric Hagen with BTIG. Eric Hagen: With the valuation allowance expected to be released, can you comment on how that drives the appetite to hedge the portfolio? I mean, do you feel like that changes the interest rate risk profile of the capital structure in any way? Glen Messina: Yes, the bottom line is the short answer is no, we don't, right? Look, we -- our decision of hedging -- our hedge strategy and approach and hedge coverage ratio, instrument selection and all those things is really a function of protecting book earnings, I should say, GAAP net income, book equity. And as well, we do have secured MSR financing. So we take into consideration the pluses and minuses of margin calls on our derivative instruments as well as margin calls on our debt obligations. So when we take all those factors into consideration and as well the recapture -- performance of our recapture platform as well, too, and that's done on a portfolio basis, agency versus government and the like. Yes, whether or not we -- how much of the valuation allowance gets released, I don't expect will have a material impact in terms of how we think about hedging our MSR. Eric Hagen: Okay. Got you. Any perspectives on prepayment speeds through September and October? I mean, can you share how flow MSRs are pricing over these last 6 or 8 weeks? And has the cash balance changed since the end of September as you guys have backfilled or presumably backfilled some of the MSR portfolio? Glen Messina: So from a speed perspective, Sean, (sic) [ Eric ] when we release the Q, there'll probably be some information in the Q where we can go and calculate speeds. I mean, obviously, speeds are up. I think if you look at Slide 24, which is our MSR valuation page, you'll probably notice that speeds -- the presumed life of portfolio prepayment speeds and the valuation have increased versus periods when they were lower, the interest rate environment was higher and the coupon was lower relative to current market conditions. So yes, we did see an uptick in prepayments in the third quarter. We did see an uptick in MSR runoff. But again, the balanced business, originations performed very, very well and frankly, more than offset that, which was really pretty good. In terms of the fourth quarter and what we would expect, look, we -- I don't think anybody's crystal ball on interest rates is magically correct. When we look at the MBA and the Fannie Mae industry forecast, they are expecting origination volumes for the fourth quarter to be roughly consistent with where they were in the third quarter. Mix shift is a little bit different, though. They are expecting a little bit more or some growth in refinancing volume and a decline in purchase volume. So if you look at that and parse that data, it would suggest that perhaps speeds may pick up a bit in the fourth quarter. But again, it is going to be highly dependent upon where the average 30-year fixed rate mortgage rate settles in for the fourth quarter. Eric Hagen: Yes. That's good color. I appreciate you guys. Can I sneak in one more? I mean, do you guys ever shock the MSR portfolio for changes in interest rates? And what is sort of the max drawdown, if you will, you think you guys can tolerate on the MSR portfolio? And aside from a change in rates or like speed assumptions, what are the variables that you feel like could lead to a correction in the MSR valuation? How do you harness that risk? Glen Messina: Yes. Yes, Eric, we do a fair amount of benchmarking to bulk trades in the MSR marketplace as we think about our valuation of the MSR. We use that as benchmarks to make sure that our portfolio fair value is stated correctly. We look at market transactions in the secondary market or bulk market to support that. As you know, we have historically from time to time, sold portions of our MSR either on a subservicing retained or servicing release basis to take advantage of what we believe are valuations in the market that are better than what we see as intrinsic value in the mortgage servicing rights. Last year, we did a couple of trades like that. This year, we haven't largely because our recapture platform is performing so well. I don't want to give up the recapture opportunity in the portfolio, right? So that's not necessarily a focus for us. And from a portfolio balance perspective, we may from time to time consider synthetic subservicing trades with our capital partners to balance our 50-50 mix of owned servicing and subservicing. So Look, we are -- we take a dynamic approach to asset management and our MSR management. We don't fall in love with any of our assets. But we do like that 50-50 mix and think that serves best for us to optimize earnings growth, dollar earnings growth and return on equity. In terms of the MSR sensitivity to interest rates, the chart that Sean talked about showed the effectiveness of our derivative hedging program on the MSR. It's performed very, very well. Super proud of our CIO and his team and the work they're doing to manage the MSR interest rate risk. And a good portion of that is our originations team and how they're doing from a recapture -- how well they're doing from a recapture perspective. So the combination of the operational hedge and the financial hedge really gives us, we believe, nice protection on fair value changes to the MSR. As a matter of our -- when we look at our hedging performance, we do rate shock analysis for plus or minus 100 basis points. We do target a hedge coverage ratio. And I think we've talked about all those things in the past. So really pleased again with how the MSR is performing, how our hedge program is performing. And we'll continue to take a very dynamic approach to managing MSRs. And if there's an opportunity to sell at a value above what we believe is intrinsic value, as we have in the past, we'll harvest that opportunity. Operator: [Operator Instructions] At this time, there are no additional questions. I'd like to turn the program back over to Glen Messina for any closing remarks. Glen Messina: Thanks, Aaron. I'd like to thank our shareholders and key business partners for supporting our business. We also would like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. I look forward to updating all of you on our progress at our next quarterly earnings call. Thank you for joining. Operator: Thank you for your participation. This does conclude today's program. You may disconnect at any time.

159天前Insight Analytics约5分钟阅读

MCN 2025 Q3 财报电话会议

Jared Hagen: Hello, everyone, and welcome to the XAI Madison Equity Premium Income Fund Third Quarter Webinar. Thank you for joining us today. Before we get started, I do have some disclosures. We may reference performance throughout the presentation. Certainly, past performance does not guarantee future results, and current performance may be higher or lower than the performance quoted. Additionally, the materials or discussion may contain forward-looking statements. Investors should not place undue reliance on forward-looking statements. Before we begin, we do want to hear from you. If you have any questions about the fund, please enter them into the Q&A box below and we will do our best to address them at the end of the presentation. Lastly, please check out our website at xainvestments.com for more information about XA Investments and MCN. I'm excited to introduce you to today's speakers, Ray Di Bernardo is a portfolio manager and analyst on MCN. He joined Madison Investments in 2003 and has managed MCN since its inception in 2004. He is also responsible for managing all other option-related mandates at Madison Investments. Kimberly Flynn is the President of XA Investments and is responsible for all product and business development activities at the firm. This includes the firm's proprietary fund platform and consulting practice. My name is Jared Hagen, and I'm a Vice President at XA Investments focusing on product management and development for our proprietary fund platform. The fund is managed by Ray Di Bernardo and Drew Justman. As mentioned previously, Ray has managed the fund since its inception in 2004, and Drew has been with Madison since 2005. MCN recently celebrated its 20-year anniversary this past year and was one of the first covered call strategy funds in the market. The portfolio management team is supported by over 15 equity research analysts that span market caps and sectors. As a quick reminder, XA Investments took over as the adviser to MCN in December of 2024. Madison Investments continues to manage the portfolio as the fund sub-adviser. The fund's strategy and objective remain the same, and the fund continues to trade on the New York Stock Exchange under the ticker MCN. Turning to the current market landscape. Equity markets are being shaped by several key macro forces, including the Fed's -- Federal Reserve balancing act between inflation control and economic growth, including rate cuts in September and October, ongoing geopolitical tensions impacting supply chains, a federal government shutdown adding uncertainty to the policy outlook and an AI-driven tech rally now facing valuation scrutiny. Meanwhile, resilient U.S. economic data has continued to defy recession expectations even as corporate earnings remain under pressure from elevated costs. This environment has created a more selective market where active management, stock selection and sector positioning are increasingly critical to performance. Jared Hagen: Ray, with that broader backdrop, if we dive into the fund's performance in this past quarter, what were some of those drivers that you saw? Ray Di Bernardo: Well, Jared, it was a quarter that was very similar to what we experienced in the second quarter, at least once we got through the first week of the second quarter. So since the so-called Liberation day in early April when there was a lot of angst over the tariff regimes that turned out to be more draconian than expected, that quickly kind of went away when many of those tariff levels were brought down or delayed. And I think the impact of tariffs since then has been minimal. And I think going forward, any kind of noise around tariffs will continue to be minimal because of the expectation that they'll get resolved relatively quickly after a phone call or 2. So since that April low, the market has rallied significantly and has had very little in the way of any kind of correction. The market is up 35% since that first week of April through the end of September. So it's been a very uninterrupted move higher. And it's been driven by some of the factors that you mentioned, Fed cut in September and most recently, just in late October. Interestingly enough, those cuts have not had much of an impact on longer-term rates. The 10-year treasury is actually higher now than it was at the time of either of those cuts. So we're not having an across-the-board decline in rates as many had expected. A couple of other data points during the quarter that drove returns and particularly within the fund, gold was up 17% during the third quarter and oil was down 4%. And I might touch on that a little bit later, but those impacted some holdings in the fund. The key driver in our view was the focus on -- again, we talked about this for quite a long time now, the mega cap growth stocks, which are really impacted mainly via the AI revolution. And that really was the key driver in our view that have been pushing markets to high valuations and driving the overall market returns, whereas we're seeing in many of the underlying stocks, much lesser returns. the Magnificent 7 stocks, the large growth -- mega cap growth stocks out there, they did reasonably well. Not all of them did well in the third quarter, but they continue to be an important driver of returns. Tesla is up 40%. Google is up 38%, Apple 24%; NVIDIA up 18%. So these clearly had a big impact on overall performance. The market was up 8%, just a little over 8%, the S&P 500. But others such as Microsoft, which was only up 4%, Meta, Amazon, which were flat. So not all of the mega caps contributed, but they had enough of a contribution to make a significant difference. Overall, the style breakdown was that high beta stocks significantly outperformed most other styles and high-risk stocks, in other words, stocks with no earnings or -- and/or a high short interest also outperformed. So it's clearly been a risk on market, and I think we could have said the same for most of the second quarter as well. So it's really been more of the same as the markets continue to make new highs through the end of September. And we've only just in recent weeks in October, starting to see some shakiness come out because valuations have gotten so high. So some concerns about valuation risk are starting to permeate through the market now. But those were the key drivers. From a fund perspective, the fund did reasonably well in such an environment where a hedged equity fund utilizing covered writing wouldn't be expected to keep up in such a raging bull market. But the fund was up 4.8% in a market that was up 8.1%. So we participated in approximately 60% of the upside. Our primary benchmark is the S&P BuyWrite Index, the BXM index, and that was up 3.5%. So we outperformed that benchmark in the third quarter, and that's the third consecutive quarter that we've been able to do that. So relative to that benchmark, we're performing quite well. Overall, with the market, it's been more challenging as we are giving up some of the upside in the portfolio in order to provide more downside protection. Sector allocation has been a headwind for the fund because the leading sectors, again, are the sectors that hold these mega cap growth funds, so the tech sector, communication services, consumer discretionary, they all vastly outperformed. And those 3 sectors alone made up 81% of that S&P 500 return. So all of the other 8 sectors combined only made up 19% of the return. So if you weren't in those sectors and overweight, you really had a hard time keeping up even if you were long only. On the flip side, the laggards were some of the more defensive sectors out there, as you would imagine, consumer staples was the only sector that was negative. And then laggards such as health care, materials, real estate, more traditionally defensive areas that one would expect to lag in such a strong market. So we have been underweight from a fund perspective in those high flying higher-risk sectors. And that was one of the reasons we weren't able to keep up with the overall market. Obviously, holding any cash in the fund causes a bit of a drag when markets are going up so much. The option overlay was the biggest drag on the fund, which is typical in a strongly rising market. And the stock selection was quite positive. It was quite a significant positive contributor during the quarter to offset some of those headwinds. So overall, we're quite pleased with the way the fund performed from an NAV basis. And we continue to be positioned for what we think is going to continue to be a very volatile period going forward. Jared Hagen: Very, very helpful. Moving maybe a little bit into kind of some of those specific holdings and maybe looking at the top 10 holdings here. Can you kind of describe your conviction in the top 10? Obviously, the portfolio is relatively concentrated on the equity side with 40 total holdings, equity holdings and the top 10 accounting for 33% of the portfolio. So I think it might be good to describe to investors what positions -- what makes these positions attractive to MCN strategy? And then if there were any notable additions or removals from the top 10 this quarter? Ray Di Bernardo: Yes. The top 10, clearly for us, we operate on a conviction basis with larger positions being our most -- the areas where we have the greatest conviction. And this conviction stems from a number of underlying factors, market leadership, free cash flow generation, strong balance sheets and valuation. So in all of these cases, those are the commonalities between many of these holdings, even though they may operate in various sectors of the economy. So the majority of the top 10 -- now I should mention that in this kind of strategy where we do have option assignments occurring on a regular basis month-to-month, you'll see a lot more movement around the top 10 than you would in a long-only fund where you can simply just buy and hold individual holdings. So you'll see a little bit more movement. But by and large, the companies that are -- that were in the top 10 at the end of the last quarter, the top 5 in particular, are the same or very, very similar with Las Vegas Sands, AES, the utility company, Danaher, American Tower and Conoco remaining in the top 10 compared to the June quarter. There are a few change -- there were a few changes over the quarter and particularly the bottom half of the top 10 usually gets moved around a little bit more because you have some stocks that perform well in a quarter, and they get bumped into the top 10 and others may lag a little and get bumped out. So you have some small movement there. So for example, Hershey was up 14% during the quarter, and it edged up into the top 10. Agilent, the health care company, was up almost 10%. It edged up into the top 10. And we had a few that moved down. Matador Resources, Permian oil and gas, E&P company moved down. As I mentioned earlier, oil prices were down during the quarter, 4%, and it affected most of the energy complex. So it moved out of the top 10. And then we have others where we're adding to existing positions that may not have been in the top 10 that move into the top 10. And examples of that during the quarter would be Pepsi, which we added to our position in September. We think it's a terrific globally branded company and the valuations have come down to a level where we feel very comfortable adding to it for future growth, and it bumped into the top 10 as well as Honeywell. A portion of our Honeywell position was called away in July at $230 a share. By September, the stock had weakened down to around $210, and we bought back not only the shares, the amount of shares that we had previously, but we added more to it. So our position in Honeywell actually increased at a lower price, and we bumped that into the top 10 as well. You always have some stocks that get called away completely. In our case, Barrick Mining was our second largest holding in the fund at the end of June. During the quarter, with gold prices rising significantly, Barrick Mining was up 55% in the quarter, and it got called away in 2 separate transactions, one in July and one in September. So that's no longer in the portfolio. And on the flip side, we added CME as a new name, a new holding to the portfolio. It's a name we've owned many times in the past, but we re-added it during the quarter. CME is in the financial sector. It's an index, essentially a derivative index company. They own Chicago Mercantile Exchange, the New York Mercantile Exchange, the Chicago Board of Trade, the COMEX, the Commodity Exchange, and they're the most active player in the interest rate and commodity futures market. And it tends to do well in volatile environments. So it's a stock that we would expect as volatility continues, more players out in the market, not only speculators, but industry players are looking to hedge and particularly with the volatility as related to tariffs. Hedging activities have increased and CME benefits from that kind of environment. So even in a volatile environment, we expect CME to hold up very well. So that was added and that new addition brought it into the top 10. So those are the changes. But generally, our larger positions have remained there, and our conviction levels remain very high there. Jared Hagen: Thank you, Ray. Maybe just talking a little bit about valuations. You mentioned it in your -- as you were talking about your conviction levels and kind of the underweight to some of those high-flying sectors. Obviously, valuations are near historic highs and the S&P 500 is highly concentrated in those largest stocks, very top heavy compared to historical numbers and kind of weights in those -- in that top -- those top holdings in the S&P 500. Do these market dynamics concern you? And how does that shape your outlook for covered call strategies heading into 2026? Ray Di Bernardo: Yes, it is quite concerning, both the valuation levels and the concentration levels that are really unprecedented at the current time. Valuations right now in the market, looking at a 12-month forward-looking earnings projections is near the levels that we saw at the peak of the dot-com bubble back in 1999. Not quite there. It's within 4% or 5%. It's very, very high. I think the peak was somewhere around 24 -- a little over 24x. We're right now just under 23x forward earnings on the S&P. So that's -- there are a number of similarities that are starting to creep in about comparing the dot-com bubble with the current AI, I guess, call it a bubble, if you will. And that's one of them. One of them is that market valuations have been driven to historically high levels, primarily by these large companies. So not just on that measure, but on almost other -- every other quantitative measure, we're at or above all-time highs currently. Price to sales, for example, which was really elevated back in the dot-com bubble, we're 60% higher now than we were at the peak of the dot-com bubble. Operating margins are at or near all-time highs. There just doesn't seem to be a lot more that can be squeezed out of the market in terms of getting higher and higher valuations. Now that doesn't mean that valuations can't remain high for a while. But at some point, the risk reward or the balance between risk reward, in our view, has to be shifted toward protecting at these levels. So if you -- if we get to peak valuations, maybe there's another 5% until we get there. Maybe we go a little bit higher than peak valuations, but there's just not a lot of room. However, if we go back to just valuations, if we look into the early 2000s when the market sold off after the dot-com bubble blew up, the market started trading back toward 14 -- 13x or 14x earnings from that 23x earnings level. So that compression in valuation, if that similar thing would happen -- were to happen now, that would be a 40% decline just based on valuation. Even if we get back to a 17x or 18x multiple, which is still -- it's an average level multiple. We're looking at a 20% to 25% decline as a result of PE compression. And that's assuming earnings levels stay the same or earnings projections stay the same. If you have earnings [ degradating ] at the same time, it could be worse than that. So when you have a little bit of upside potential, but significant downside, we think it makes sense, at least for part of investors' portfolios to start getting a little more cautious and start thinking about protecting all of the money that they've earned in recent years and start protecting in case we do have some sort of valuation correction. So that really is concerning. The thing that makes it worse in our mind is the concentration. And there are so many different measures. We see them almost every day. The 3 largest stocks in the S&P 500 make up over 22% of the index. That's NVIDIA, Microsoft and Apple, just those 3 stocks alone. At the dot-com peak, the 3 largest stocks made up 12% of the market. So we're almost double that level now. And back then, interestingly enough, Microsoft was one of the top 3 back then as well, Microsoft, Cisco and General Electric. The largest 10 holdings in the S&P right now make up 41% of the market relative to back in the dot-com area, the maximum was 26%. So the level of concentration at the top end is extraordinary. We all know that the tech sector alone makes up over 34% of the S&P 500. That's a record high. During the third quarter alone, just 3 stocks represented half of the S&P return, Apple, Google and NVIDIA. So of that 8.1% move in the market, half of it was attributed to just those 3 stocks. So it works really well for investors when these stocks are doing well, but the reverse will happen if we have some sort of hiccup in the AI environment that causes a correction, not necessarily blowing up the AI as a technology and the future potential, but just from a valuation perspective, and you're starting to see some concerns creep in now that if this -- if we do see some sort of negative impact with valuations, then the concentration will start working against everyone. So while we're starting to see much of the S&P 500 hasn't performed nearly as well as the market, those stocks may continue to hold up reasonably well, but the ones that have been driving performance may underperform dramatically. And that's what we want to protect against. And that's why we have been underinvested in those. So we've missed some upside. There's no question, but our job here is managing a defensive strategy is to always be looking for what could hurt on the downside. So concentration really is making the overall environment much riskier than it otherwise would be. Jared Hagen: Thank you, Ray. Yes, it certainly seems to be in historic times in terms of that concentration in those top names, 40% in the top 10 of the S&P 500 is very concentrated, and I think there's a lot of scrutiny there in terms of how sustainable that is on a going basis. And to your point about AI, seems like there's a circle, there's a web of payments being promised between both private and public companies on future AI usage and data centers that is really interesting, especially since some of those companies aren't making any profit yet, right? How can you make guarantees for hundreds of millions or billions of dollars when you don't have any revenue. So definitely something we'll keep an eye on. Maybe switching to a holding highlight. Let's talk about Las Vegas Sands. It's been a top 10 holding for some time. Can you explain why this holding has been such a large part of MCN and why you guys like the name? Ray Di Bernardo: Yes. Las Vegas Sands was a unique situation. We have followed the name for many, many years, but we really started to get interested when they sold their Las Vegas property. And I believe that was in 2020. And so Las Vegas Sands, it has nothing to do with Las Vegas anymore, essentially. And they focused their operations on the Asian gaming market. So they -- not only by doing that, they brought in a significant amount of money to basically shore up their balance sheet, which had been a little on the risky side, but when they sold the Las Vegas property, their balance sheet improved dramatically because most of that money went to pay down debt. So the balance sheet was fixed to a large extent. And they then focused on Macau and Singapore as their 2 primary markets. And they've always had a very large presence in both of those markets. In fact, they've been in Macau for over 20 years, and they spent upwards of $15 billion over the years in building properties and expanding and renovating properties. They're the largest player individually in Macau. Macau is the largest Asian gaming center. So they've got a market leadership position in the largest market in Asia. And they have multiple brands within that market. So they have The Londoner, The Venetian, The Parisian, The Four Seasons, The Sands Macao. And underneath The Londoner, they have The St. Regis, the Conrad, various other Londoner brands. They used to have the Sheraton and that was just renovated last year and just finished earlier this year, that was renovated, and the name was changed to the Londoner Grand. So they have been spending us some money in renovating and upgrading their current hotel spaces and their gaming properties. And they're just competing very, very well as a market leader in that market. They also are the single largest gaming operation in Singapore with their ownership of the Marina Bay Sands. They have -- and Singapore is the second largest gaming market in Asia. So they are the -- they have 60% market share in Singapore in gaming, so dominant market share there. If anybody knows anything about Singapore, if they're a Formula One fan and they watch the Singapore Grand Prix, the huge triple tower in right downtown Singapore, where the race is raced around it that is connected at the top with restaurants and swimming pools and whatnot, that's the Marina Bay Sands complex. So it's quite an impressive property. It's not only hotel and gaming, but shopping and other retail as well. So it's really the kind of the center of the universe in terms of tourism in Singapore. The problem that the gaming market had not only in Asia but around the world was COVID. It basically shut everything down. Now that's when we started looking at Las Vegas Sands, and we started taking a position in mid-2021. And clearly, with a strong balance sheet, they had the ability to withstand being shut down for a period of time. As we were starting to look at everything reopening, North America and Europe reopened earlier than Asia. So there was a delay in reopening, particularly China. Singapore opened first and then China opened about 9 months to a year later. And -- so the thesis around all of this was we have a market leader with tremendous properties that isn't currently making much money. They were -- had negative free cash flow because they weren't able to service any customers. That was going to change once the markets opened up. And that was kind of our initial premise for starting a position in Las Vegas Sands. And it's been a bit of a choppy ride because there were always some delays in fully opening up. Singapore opened up, but then Singapore, approximately 25% to 30% of their gaming patrons are Chinese and Chinese couldn't -- we were not allowed to exit the country for another 9 months to a year. So it took a while for the opening to started opening in Singapore. And then when Macau opened, it really started to gather steam. And it's really been quite nice to see the return of gaming in those markets. And what we had hoped would happen with free cash flow coming back has happened. And the company is operating very, very well. It's been bumpy because it is based on the Asian and the Chinese economy. So whenever there's a concern about the Chinese economy slowing, it does impact virtually every other Chinese-related company. So there's been a little bumpy along the way. But generally, the trend has been very, very positive. And -- and particularly after the most recent earnings release, the stock is trading near its highs, and it's been a very -- quite a profitable investment for the fund. We continue to believe that it's going to continue to move higher. The free cash flow is growing by the quarter. The balance sheet looks good. The vast majority of the renovations that they were undertaking have been completed. So there's not a lot of capital requirements going forward. And it just ticks off all the boxes in terms of what we like to look at. They're returning a lot of money through share buybacks and dividend increases. They only just reintroduced the dividend in 2023, and they've been increasing it significantly since then. The most recent quarter, just 20% increase in the dividend. So -- it's operating right now quite well after obviously a difficult time, but we felt very comfortable back then investing in a market leader, which had this kind of potential bottled up, but just needed the markets to fully open up. So that's been the story with Las Vegas Sands. It's been a very good holding for the fund, and I think it's going to continue that for the foreseeable future. Jared Hagen: Ray, yes, I totally agree. It's a great story. I think it just goes to show in many aspects, your guys' diligence that you do on these holdings, identifying kind of that entry point and your thesis and seeing the long-term vision in the stock and taking that opportunity and being willing to hold it throughout that time period, not short-term investors in that sense. And I think that's appreciated by investors. Kim, maybe switching to you. The fund changed its distribution policy in April of this year from quarterly to monthly distributions. As distributions continue to be an important factor for many closed-end fund investors, can you describe how this change in the distribution frequency has benefited investors? Kimberly Flynn: Sure. So this may be old news for some, but it's really important because the listed closed-end fund market is really an income buyer-focused marketplace and having a monthly distribution really supports potential demand generation in the secondary market. And what we're looking for is the opportunity to get in front of new potential investors in MCN and a monthly payout really opens this fund up to a broader audience of potential income buyers, income investors. And the listed closed-end fund marketplace because of this strong preference for monthly cash flows has really shifted. It used to be that there were more quarterly pay, but most listed closed-end funds are now monthly pay, and we plan to continue with that monthly declaration and monthly payment. Jared Hagen: Thank you, Kim. Yes, very helpful. And I think it's been a positive development, obviously, helping with investors' cash flow needs, having that more frequent cash flow. Ray, turning back to you. With tariff downturns in early Q2 that really tanked the market for a short stint there and now strong equity performance in Q3 if that market volatility were to change meaningfully in either direction, how might that change your option writing strategy and equity exposures? Ray Di Bernardo: Yes. I think a lot of it depends on the events that causes volatility to change. Over the past year or so, if we look at the VIX index as a kind of a general view of market volatility, for the majority of the time, it's been between 15 and 20 that level. Right now, as of today, it's right around the upper end of that range because we've had some choppiness in the last few weeks. But not long ago, just a few weeks ago, it was at 15. And for most of the third quarter, the VIX was quite low in the 15 area. Back in April, when we had the tariff concerns, as you noted, the VIX spiked above 50. But that was very, very short-lived because the event was very short-lived. The market started recovering within a week or so. So a lot depends on what causes volatility to go up. If volatility were to go down from here, it would mean that the market is probably continuing to move higher. So we would not change our stance in any significant way because we're already very defensively positioned. We have a high level of option coverage right now. For a number of quarters, we've been in that 90% coverage neighborhood. We're already defensively positioned from a sector standpoint. So we're prepared for more volatility. And if it doesn't come, we're just -- right now prepared to continue holding the fort, waiting for something to break in the market. So from our perspective, the only thing that could change that would be an event of some sort that would cause volatility to spike, but that event would be longer lived, such as we saw after the dot-com bubble where we had a good 2.5 years of markets steadily declining or just a prolonged period of decline. In 2022, it was 10 months, for example. So it's very -- we really, in April, we saw the market corrects, we didn't get immediately bullish because our feeling was that, that could have been the beginning of a much more significant correction. That didn't happen. Now we've had the market rebound significantly, and we're still concerned about some sort of negative reaction. So we're more concerned about a volatility spike in the market going down. If that were to happen, then we would perform quite well in that environment. We would protect well on the downside. The portfolio is defensively postured. We very well covered. And then at some point during that period, if we have more of a prolonged event in the market, then it really depends on where valuations sink down to at a certain point, we feel more comfortable reentering the market and getting more aggressive with our underlying sector allocations, for example, we would begin moving out of those defensive sectors more into some of those higher beta sectors like discretionary and technology, for example, where we've been underweight for quite some time. So that would be dependent on what happens within those sectors and what valuations look like as the market corrects. And at that time, in all likelihood, volatility will still be relatively high, and we'll be able to write further out of the money at reasonable option premiums. So we'd be able to buy stocks lower, still participate if they rebound in more of the upside than we otherwise could do in a low volatility environment. So that would be really a terrific environment for us to be able to buy stocks cheaper, get a little bit more aggressive with our underlying stock selection and sector allocation and then continue writing possibly not in the 90% neighborhood, bring that back down to what we typically view as average is around 80%. So get more upside participation and write further out of the money because volatility will remain stickier for longer if we have a longer downturn. So that's kind of the way we approach things. Most of what we do is driven by our -- how we position the underlying portfolio. So when we make those shifts, it's all about comfort levels with the underlying holdings and their valuation levels at that time. And that's typically why we're not chasing stocks at these high valuation levels because we just don't have that comfort level. Jared Hagen: Thank you, Ray. Very helpful as always. Kim, shifting to you. Looking at the current market environment kind of as Ray was talking, can you describe some of the reasons that investors may look to covered call strategies? Kimberly Flynn: Yes. I'm going to quote Ray here, who's our expert, which is that for equity investors, it may be the time now to start protecting. And a lot of equity investors have benefited from the run-up in equity prices over the last few months. So I think covered call strategies for equity investors are basically allowing you to participate in that growth, but you're also generating cash flow from option premiums, which is, I think, for folks that are sort of growing concern, this is a good way, a lower risk way to approach equity investing. And we think that there's a lot of benefits, especially for retirees or income-oriented investors who haven't -- who are concerned about current pricing in the market. I think when Ray spoke about the concentration in the S&P 500, it is quite surprising. And so we're deviating from historical norms. And I think that's why investors like what covered calls have been able to do in various market environments. And MCN has over a 20-year track record, and Ray has been involved from the beginning. And so that consistent approach is, I think, helpful in the context of a manager who's seen a lot of different cycles. So that's why we think there's a natural appeal for covered call strategies. And Jared, we saw it in 2022, 2023 after both stocks and bonds didn't work the way they were supposed to in 2022, we saw a huge increase in demand for hedged equity strategies and covered call strategies were among those. So I think that's why it's worth considering how covered call strategies can be incorporated into the portfolio and potentially play a role where we are today in the market. I think there's a compelling case. Jared Hagen: Thanks, Kim. Yes, I totally agree. And maybe we dive in a little bit on Madison's approach to managing covered call strategies. Kim, could you just briefly describe how MCN's active management approach, both on the active option, active equity selection side is differentiated from some of the other options in the market? Kimberly Flynn: Yes. I think you said it, it's active, active, active both on stock selection, active on single-stock option selection. And so that's always been Madison Investments approach in MCN. And over the last 20 years, there's been quite a new hedged equity strategies that have come to market, many of which are not highly transparent. So when you look at the schedule of investments, there are derivatives, you're unsure of what's going on. So we like the active stock and the active option approach because we have that transparency exactly what the portfolio management team is doing. And I think it adds value to a covered call portfolio to take this approach. And it's -- I think in an age now where there's a lot of different options or choices among different hedged equity strategies, investors should be mindful of some of the differences between these product sets. So we like the approach that Madison Investments takes here in terms of the active thesis development on the underlying stocks. And then they're able to set strike prices in line with where they think full value is in that particular stock. So they're able to be much more precise in terms of the execution of their thesis and as you hear Ray talk about Las Vegas Sands, that's just one example in a diversified portfolio where he's able to express a view in both the underlying option -- or excuse me, the underlying stock and then the option that fits how he's thinking about that stock in the portfolio. So that's why we like the approach that they take. Jared Hagen: Thank you, Kim. Ray, as Kim started to describe there, Madison is very active on ensuring the equity portfolio is covered by call options. Could you just discuss maybe a little bit the portfolio is 88% covered. Do you think this appropriately reflects your views on the equity market today? And how do you determine when to adjust the amount of the portfolio that's covered and the benefit it might provide? Ray Di Bernardo: Yes. We start off from the stance that we are a covered call writing strategy. And so we should be maintaining that discipline. So rather than moving around significantly and being 40% or 50% covered when we think the markets are going to go up and then 80% or 90% covered when we think the markets are fully valued. We've always believed that we're being paid to be a defensive hedged equity, income-oriented strategy, and we have to maintain that discipline. So on average, I think we're going to be -- we're very comfortable being approximately 80% covered, give or take, in kind of a neutral market environment. We may go slightly below that if we feel the markets are attractively valued so that we can get more upside. And then as I noted earlier, in the current environment where we think the markets are overvalued, we would move as close to 100% as we can get. And we -- I get asked a lot, well, why aren't you at 100%? And there are always individual reasons for -- with individual holdings that we may not want to write on every name or fully write on every name. And an example is one of our biggest holdings is AES, the utility. AES is a combined regulated utility and an unregulated wind and solar utility or power generator. And there has been for a couple of months now, some talk that because the stock is so fairly valued and is very attractive with its holdings, it's the second largest alternative energy wind and solar generator in the country that there have been some infrastructure funds like BlackRock and Brookfield that have been sniffing around in terms of potentially buying the company. And so if that's the case, and we think they are -- we think those are actually reliable so-called rumors, I suppose, then we want to be able to participate in that. We're already getting paid a pretty nice dividend on the stock. And if we were to have some sort of bid come in, we would like to participate as much as we can. So we're not fully covered on AES at the moment. So that's one of the reasons why we're not into the -- well into the 90% range. So there's always going to be 1 or 2 of those kind of situations that we don't necessarily want to be fully covered on everything. But being around 90% covered is well more -- is much more defensive than we typically are. And that's just a reflection of how concerned we are with valuations. And we'd rather be early in being defensive than being late. As Kim mentioned, on when markets correct, they become -- there's a lot of interest in hedged equity funds. Well, the interest should be before markets correct because once they correct, it's kind of late to be jumping into a hedged equity fund unless you really believe the markets will go significantly lower. So we're kind of in the same mindset. We want to be defensive before the markets correct rather than try and catch up, take the brunt of the downside initially and then try and get more hedged later. So we're staying relatively higher level of coverage and a level of coverage that's closer to the money with each option, which simply means that the deltas are higher the hedge value of each option is higher, and we're getting more downside protection and collecting more option premium as a result. So that's how we kind of manipulate the option portfolio to our view of the underlying stocks. If we think there's more upside in the stock, then we'll try and write further out of the money or not write fully on the position like the AES position. If we think the stock is getting more fully valued and we're prepared to trim or sell a stock, we will write very close to the money, collect a bigger premium and then let the stock get called away or a portion of it get called away because we were likely going to want to trim it anyway at the higher valuations. So most of the sell discipline that we have, we utilize options as our selling vehicle and assignments as the selling vehicle. So that's how we're managing the active portion of the options. Ultimately, everything starts with the foundation of the portfolio, which are the individual holdings. That's where you can protect the most by owning high-quality companies that are not going to blow up when the market doesn't do well. And so you have to start out with that solid foundation. The options provide the next level of protection and then we can change the level of protection depending on our view of each individual holding. Jared Hagen: Thank you, Ray. Very helpful. [Operator Instructions] I know we're coming close on time. Kim, I do have another question for you, and it's regarding kind of the secondary market dynamics. The fund has relinquished its premium this year, but it does continue to trade well compared to its peers. Can you describe a little bit on how XA Investments works to promote a strong secondary trading market with its listed closed-end funds? Kimberly Flynn: Yes. So I think what we're trying to do is make information available to research analysts, to advisers and then ultimately to the income buyers themselves in terms of allowing you to speak with Ray, who has been the long-time portfolio manager is really an opportunity that's not typical for most listed closed-end funds. And so we're trying to drive awareness for MCN in the secondary marketplace. We're -- I'd say we're okay with how things are trading in the secondary market. MCN typically trades differently than its peer group, which is not too surprising, I guess, given its long history. The market-wide average discount, if you're looking at all listed closed-end funds, which is a mixed bag of different asset classes, it's about negative 4.5%. And so MCN is in line with that market-wide average discount. And so through our proactive secondary marketing, we're trying to drive volume in the secondary marketplace. And maybe, Jared, if you could just show Slide 21, I just wanted to comment on the trading in the secondary market over the last year. On the right-hand side, you'll see we note that in the last -- in 12 months, we've seen average daily trading volume of about 70,000 shares per day. And that's in contrast to last year in 2024, where that volume was about 50,000 shares per day. And this is what we want to see. We're coming up on the 1-year anniversary of the collaboration between XA Investments and Madison Investments. And what we wanted to do was support the fund in the secondary market, help drive demand in the secondary market and a healthy level of trading volume is really important for the overall health and wellness of a listed closed-end fund. And so I think that if we will continue to monitor what's going on in the secondary, the volume is -- if it's a high level of volume, that means people can buy shares, but it also means people can exit their position. And in a listed closed-end fund, most of these listed closed-end funds trade like small cap stocks because they have relatively modest market capitalizations. So it's really important that this volume is there for investors to be able to come and go as they see fit. So we will continue to work on this. We will continue to support the secondary market, and we appreciate feedback and questions. So please do be in touch with me and Jared to the extent that you want to hear more from Madison or if there's -- I know we're working on a white paper too, Jared, that we're going to be publishing soon, which is going to further educate investors. I think the people who've already been long-time shareholders, appreciate the thesis of a covered call strategy. But what we're trying to do is expand the knowledge to a broader base of potential investors. Jared Hagen: Absolutely, Kim. Yes, definitely be on the lookout for that white paper. You can always sign up on our website, xainvestments.com to get those updates, and we will make sure you get it also reaching out to info@xainvestments.com, that e-mail address will get you right in touch with Kim or I. One last question, Ray, for you and maybe looking into the future a little bit here. Equity markets have performed strongly in Q3, as we've discussed. What's your outlook for the last quarter of 2025? Obviously, we're a little bit over a month into the fourth quarter, but also into 2026? Ray Di Bernardo: Yes. I'll keep it brief because we're running up against time, but it's -- the strategy, we're comfortable sitting where we are. Again, we've been very defensive, and it's caused us to lag the overall market but perform well against our benchmark. We're going to continue to stay where we are because in our view, there will be, at some point, a crack in valuation. And I could go on and on about AI and some of the concerns out there, but we're starting to hear more and more of them almost on a daily basis, just even this morning and yesterday, there were -- there's some -- a lot of people within the industry, Sam Altman at OpenAI, Jeff Bezos have come out and said, yes, there's a bubble in AI right now. It doesn't mean the whole thing is going to blow up or the technology isn't transformational, but valuations have gotten well ahead of themselves. And the market seems to be react -- starting to react to that. How this evolves, we'll see. But we are concerned that valuations have gotten too high. So from our perspective, it's kind of like starting a roller coaster ride when you're going up that first big, big climb. And the closer you get to the top, the more white knuckle you get, you grab on tighter, and you prepare yourself for what you know is coming. And we've got white knuckles right now. We're holding on tight, and we're going to continue to maintain our defensive posturing because we think that we're going to see some pretty significant ups and downs and volatility. Whether it happens in the fourth quarter of this year, we slide into 2026, we fear that it's in front of us, and we just want to make sure that we're prepared for it now rather than trying to catch up later. So we're trying to be realists about all of this. And we've all been through cycles before. I know I have over 35 years in the market. You have to remember that there are cycles and that sometimes it doesn't take a lot when you're near the top to cause the cycle to turn. And we just want to -- it's incumbent on us to maintain our discipline and maintain that defensive structure, particularly now. And I think we're just going to maintain that. So our outlook is be prepared, and we certainly are. And I think nothing changes from our perspective for now. Jared Hagen: Thank you, Ray, and thank you, Kim, and everyone, for joining us on the call for the third quarter 2025 MCN webinar. If you have any questions about the fund or XA Investments, please don't hesitate to reach out to Kim or myself. As always, for more information on MCN, please visit xainvestments.com. Thank you and have a great day.

159天前Insight Analytics约5分钟阅读

LNZNF 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, welcome to the Lenzing AG Analyst Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rohit Aggarwal, CEO. Please go ahead. Rohit Aggarwal: Thank you very much. Ladies and gentlemen, welcome to the presentation of Lenzing's results for the first 9 months 2025. With us today is also Nico Reiner, our CFO. Let's go through our agenda for today. I'll start with a summary of the key developments, followed by the market update as well as our refined strategy. Nico will then guide you through the financials, and I will talk about our investment highlights as well as the outlook. And as usual, at the end, we are looking forward to your questions in our Q&A session. Let's start with the overview of the key highlights for the first 3 quarters. The market continued to remain challenging, and it's even more important that we have refined our strategy with a clear focus on premiumization and excellence. Revenue and EBITDA continued to improve in the first 9 months, supported by a strong first quarter. However, market headwinds impacted us continuously in quarter 3. The market environment is marked by geopolitical uncertainty and especially the aggressive customs policy. EBITDA was additionally negatively impacted by restructuring one-offs. Operational excellence continues to be key for us, and we are further raising the bar on our agility and flexibility. Liquidity is one of our key priorities, and we made great progress. After this year's refinancing, our liquidity cushion reached a very solid level of EUR 1 billion. What remains unchanged are our core strengths, innovation and sustainability, where we were just confirmed as worldwide leader. This leads us to a confirmed EBITDA outlook by year-end. However, it needs to be said that visibility remains quite limited. International tariff measures have very much characterized the last couple of months globally. In Q1, markets were impacted only in a very limited way by tariff developments and Lenzing achieved a strong result. However, the escalation from reciprocal tariffs followed in early April. This has led to both supply and demand shocks impacting global value chains. Ongoing and repeatedly changing international tariff measures and the resulting uncertainty led to tangible stress along the textile value chain and impacting consumer confidence negatively. The direct impact for Lenzing is limited, however, leads to indirect effects on both demand and prices. On a more positive side, I can say that the nonwoven markets were less affected by these tariff developments. To mitigate the tariff impact, Lenzing took actions in 4 ways. Number one, we maintain very close contact to our customers and regional value chains to handle the situation in the best possible way and to strengthen demand visibility. Number two, we believe that we are better positioned than other fiber manufacturers given our global footprint, which allows us to shift fiber volumes between our production sites in order to manage cost and trade impact. Number three, we further strengthened our operational efficiency, which includes the target to reduce around 600 jobs in Austria, mainly in administration. Number four, we decided to start a review of strategic options, including a potential sale for the Indonesian production site, which supports our strategic focus on branded, high-performance fibers with higher margins. Let's look now in more detail how the markets have developed. The relevant markets for Lenzing are textiles, nonwovens on the fiber side as well as dissolved wood pulp. When adjusted for inflation, demand for apparel worldwide was up 2% in the first 9 months of 2025 versus a year ago. Consumer sentiment remains low, which is negatively impacting discretionary spending with elevated saving rate and a wait-and-see attitude. Growth driver was the U.S., which was driven by consumers pulling forward purchases in quarter 2 and quarter 3 in response to tariffs, while Europe and China were mostly flat in a challenging macro and cost of living environment. Let's turn our attention to nonwovens. Here, end markets show higher resiliency with a relatively stable consumer demand. Compared to previous years, the seasonality period with weaker demand lasted a bit longer into September. However, I can say that the development in October was promising given also a more positive sentiment towards 2026. The trend towards less plastics is ongoing, and the carbon footprint and other sustainability credentials are increasingly becoming a differentiator for nonwoven manufacturers and brands driven by consumer awareness and retail commitment, especially the U.S. and regulatory pressure in Europe. DWP demand is mostly driven by the production of regenerated cellulosic fibers. The production cuts we have seen in the viscose industry in quarter 2 were negatively impacting DWP demand and prices accordingly. As operating rates in viscose plants increased in quarter 3 and paper pulp prices stabilize, DWP prices saw some support, at least in U.S. dollar terms. Let's have now a look at the fiber prices on the Chinese market. Please keep in mind that prices shown on this slide are generic market prices. Generic viscose prices in China increased gradually in the third quarter in U.S. dollar terms. In July and August, demand improved and inventories fell as peak season was on the horizon. However, the pace of price increases remained cautious. At the end of September, the price of medium-grade generic viscose fiber stood just 2% higher compared to the end of second quarter at RMB 13,050 per ton. However, due to the weakened U.S. dollar, prices have decreased in euro terms, which is impacting Lenzing negatively. The situation on the cotton market did not change much in the third quarter, and international cotton prices fluctuated on a low level within the range. Dissolving pulp prices stopped falling in the third quarter with support from improved demand from viscose plants and some temporary supply constraints. In the third quarter, imported hardwood DWP prices went up by 2% to USD 818 per ton. Here again, prices in euro terms have decreased due to the weakened U.S. dollar. Lenzing prices are mainly traded at a premium compared to generic prices as the current share of specialties is at around 90%, and we are gradually withdrawing from the lower-margin commodity segments. Let us now turn to the development of costs. Energy and chemical costs remain significantly higher than historical levels, especially energy prices in Europe, but at least they decreased somewhat in quarter 3 compared to the second quarter. Geopolitical conflicts such as Russia, Ukraine and the Middle East continue to fuel the volatility of European gas prices. Lower demand due to warmer weather led to somewhat reduced gas prices in summer. Caustic soda prices remain high across regions, but reduced in general compared to Q2 due to weaker seasonal demand. Even with a slight improvement in the second quarter, both energy and chemical costs remain a major challenge for fiber production. As the relevant markets for us still show no signs of a sustainable recovery, it is even more important that we continue to keep our full focus on cost excellence, which remains a key pillar of our performance program. In 2024, we already realized over EUR 130 million in cost savings, and we do expect cost savings to further increase to annual cost savings of more than EUR 180 million for this year. We are clearly well on track to meet this target as well. To make it clear, we're talking about our recurring targets with an ongoing impact beyond this year as well. We can certainly be satisfied with our success so far, but there are still improvement areas ahead of us in order to maximize our full potential. As communicated about a month back, we are refining Lenzing strategy. Our refined strategy is built around 4 strategic priorities that together unlock value and prepare Lenzing for the future. Unlocking value happens in the first 2 pillars, premiumization and excellence. Premiumization means that we will concentrate more strongly on our branded and innovative fibers like TENCEL, VEOCEL and ECOVERO and gradually step back from less profitable commodity segments. By doing so, we improve margins and position Lenzing in areas where we can truly differentiate. The second is excellence. We are embedding a culture of efficiency and discipline across the group, not just through one-off savings, but by institutionalizing cost control, optimizing our footprint and streamlining structures. This makes us leaner, more agile and more resilient. We are implementing tough but necessary measures. By the end of 2025, around 300 positions will be reduced in Austria, mainly in overhead, supported by a social plan and with full assistance for those affected. This is expected to result in annual savings of over EUR 25 million from 2026 onwards. By 2027, another 300 positions will be reduced through internationalization as we strengthen our footprint in Asia and North America. Both measures will lead to total annual savings of more than EUR 45 million, latest fully effective before end of 2027. The third pillar is innovation. Now here, we will focus resources on fewer but higher impact projects, accelerating time to market and ensuring that our pipeline continues to provide the next generation of premium fibers, whether in textiles or nonwovens. And finally, sustainability. This has always been part of Lenzing's DNA, but going forward, it will be leveraged even more as a value driver. With growing regulation and customer demand for sustainable products, our leadership in this area is a true competitive advantage. Taken together, these 4 priorities, premiumization, excellence, innovation and sustainability ensure that we just don't react to changes in the market, but actively shape them, creating long-term value for customers, employees and shareholders. Innovation and sustainability remain the foundation of Lenzing's long-term strategy that they are what sets us apart from our competition. Even as we streamline, we will not compromise in these areas. On the innovation side, our pipeline continues to create real opportunities. One example is our new TENCEL HV100 fibers. The fiber features variable cut lengths designed to mirror the irregularities of natural fibers and brings undefined rawness of nature into TENCEL Lyocell portfolio for woven products such as denim. On the sustainability side, our leadership is recognized worldwide. We have just been reaffirmed our EcoVadis platinum status. And with this, Lenzing is now in the top 1% of companies in sustainability performance. We've also just been confirmed as a global leader in the Canopy sustainability ranking as we have taken once again first place in this year's Hot Button Report published by the Canadian nonprofit organization, Canopy. These achievements are not just certificates, they are an asset that strengthens our brand, enhances customer partnerships and increasingly drives premium pricing. And with this, I hand over now to Nico for an update on financials. Nico Reiner: Thank you, Rohit, and a warm welcome from my side as well. The third quarter was negatively impacted by weakened fiber demand in continuously challenging markets with revenues decreasing by 3% year-on-year. EBITDA decreased by EUR 27 million to EUR 72 million. This was partially driven by the decrease in revenue just to mention. In addition, one-off restructuring costs for the headcount reduction program to mitigate market impact in the amount of EUR 13 million have also negatively impacted EBITDA. Additionally to that is to mention that we had the annual maintenance shutdown of LDC in the third quarter. Looking at the first 9 months in total, both our revenues and our margins increased, thanks to the measures that we have actively taken. Revenue increased by EUR 14 million in the first 9 months compared to the 9 months of 2024 and reached EUR 1.97 billion. EBITDA increased by EUR 77 million to EUR 340 million as the number of CO2 certificates held continued to increase, we decided to sell some of them in the amount of EUR 37 million in the first 9 months of this year, which positively impacted the EBITDA. Depreciation was at EUR 320 million, including an impairment of EUR 82 million, which I will talk about on the next slide. This led to an EBIT of EUR 21 million, which compares to EUR 38 million in the first 9 months of '24. Income taxes amounted to EUR 6 million compared to EUR 78 million in the first 9 months of '24, and the financial result was minus EUR 119 million compared to minus EUR 72 million in the first 9 months of '24. As a result, there was a loss of EUR 169 million for Lenzing shareholders, which compares to a loss of EUR 135 million in the first 3 quarters of 2024. Let's make it clear. Even though Q3 was negatively impacted by one-offs such as the restructuring costs, we are not satisfied with the result. However, on a positive note, we saw some stability in fiber demand in September compared to July and August. And October looks also more promising with a currently quite stable order book situation. Let's move to the next slide. As communicated, our refined strategy also addresses reviewing selected sites, including the Indonesian plant where potential sale is under consideration. In this context, noncash impairment losses on noncurrent assets, in particular, property, plant and equipment of EUR 82.1 million were carried out. The impairment losses have a negative impact on EBIT, but not effect on EBITDA. EBIT, excluding the impact of the impairment, would have been slightly negative at minus EUR 6 million, which compares to minus EUR 88 million reported EBIT. Please note that this impairment amount is not audited for Q3 closing and therefore, subject to change. Looking now at cash flow. Trading working capital further decreased and was down by 6% compared to the end of the second quarter due to lower inventory levels. With regards to CapEx, Lenzing continues to put a clear focus on maintenance and license to operate projects as part of its performance program and CapEx remained on low levels of EUR 32 million in Q3. As you can see, we continue to have a very disciplined approach to capital allocation. As a result, unlevered free cash flow more than doubled to EUR 103 million in Q3, and we clearly continue to have a very clear focus on free cash flow generation. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Even though the markets were challenging in the third quarter, net financial debt continues to move into the right direction and came further down by EUR 35 million to about EUR 1.4 billion by the end of September. On the right side, you see the development of our liquidity cushion, it increased by EUR 23 million compared to the end of last quarter and reached a very solid level of EUR 993 million. Let us look at our debt maturities on the next slide. Let's have a short recap on the refinancing measures we have taken recently. In October last year, we have converted the project financing of our Brazilian joint venture of USD 1 billion into a stand-alone corporate finance structure with a further shift of debt maturities. The successful placement of the new hybrid bond in the amount of EUR 500 million in July this year followed the EUR 545 million syndicated loan secured in May. Those measures marked further milestones in the professional and forward-looking management of our capital structure. With this, we have proven to have access to capital markets despite challenging times, and we have essentially secured our financing through 2027. We can now continue to fully focus on executing our successful performance program aimed at improving margins and free cash flow as well as implementing the refi strategy. With this, I hand over back to you, Rohit. Rohit Aggarwal: Thank you, Nico. Let me summarize now why Lenzing represents a compelling investment case today. First, we are recalibrating our asset base. That means moving away from a volume-driven model towards one that prioritizes economic value creation. We are reviewing underperforming assets, including the Indonesian side and focusing investment where returns are highest. Second, we are refocusing the organization. With leaner structures, institutionalized cost discipline and a stronger international footprint, particularly in North America and Asia, we are aligning resources with future growth opportunities. Third, we are resharpening our market focus. We are withdrawing from commoditized fibers and concentrating on premium branded products and resilient nonwoven applications. This makes our business less cyclical and more predictable. Finally, we are positioned to regain valuation. We combine a proven ability to execute, whether it's savings, refinancing, EBITDA growth with unique differentiation through innovation and sustainability. This is how we will restore investor competition and create long-term value. We now come to the outlook. I can clearly say that thanks to our performance program, the operational performance in the first 9 months 2025 was solid despite the still challenging market environment in the third quarter. In terms of fiber demand, I expect that we have already passed the low point with a positive development in September compared to July and August. As Nico also mentioned, we have seen continued promising developments in October and the order book situation looks currently quite stable. We assume relatively stable demand in pulp and have a cautious outlook on the generic fiber market development in the fourth quarter of 2025. We expect energy and raw material costs to remain on elevated levels. However, market visibility remains still on relatively low levels. While the market has not helped us so far, we continue to take the future in our own hands. We expect operational results to continue to be positively impacted by the performance program, and we keep the expectation for EBITDA for 2025 financial year to be higher than in the previous year. By 2027, we target approximately EUR 550 million EBITDA, assuming stable market conditions. With this, I will hand over back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian Faitz: Two questions, please. First of all, your free cash flow continues to be on a nice good trajectory. Congrats on that. Would you be able to provide us a free cash flow guidance for the few months remaining in the year? And then second of all, can you tell us a bit about the capacity utilization? I note, obviously, your statements that things in terms of order income have improved, I guess, from September also into October. But where are your capacity utilizations at this point in time versus historical trends? Rohit Aggarwal: Thank you, Christian. First question with regard to potential outlook on the fourth quarter for the free cash flow, Nico, please? Nico Reiner: Yes. Thank you. So overall, as we have communicated now since, I think, meanwhile, 7 or 8 quarters, we are very much focused on generating free cash flow. And we are continuing this journey. So we overall will still work heavily to improve our free cash flow generation, and we are also clearly positive to have a positive further continuation of that story. But nevertheless, don't forget in the fourth quarter, there are always some one-timers, especially in regards to interest payments and so on. But overall, I think we will clearly continue the journey with a positive free cash flow for 2025. Christian Faitz: The second question with regards to the utilization, capacity utilization, can you give us some indication there? Rohit Aggarwal: Yes. Thanks, Christian, for that question. What I can say is the year has been a bit of a roller coaster given what we spoke about from a tariff leading to a lot of uncertainty in the value chain. So we've seen movements through the year, which were pretty strong starting quarter 1. We did see the books getting a bit slowdown in quarter 2, quarter 3, and then we are seeing now a recovery. At this point in time, I can say that we are running fairly back to normal capacity utilization. Of course, based on plants and products, it could vary slightly. But by and large, I would say we are recovering almost back to a full normalized state. Operator: [Operator Instructions] The next question comes from the line of Patrick Steiner from ODDO BHF. Patrick Steiner: Patrick Steiner speaking. Two questions from my side. Firstly, on your annual expected cost savings of EUR 45 million due to the personnel reduction of the roughly 600 jobs in Austria. You said it will take full effect by the end of 2027. What can we expect for 2026 and '27 in absolute terms? That's the first one. And the second one, in your Q3 report, you wrote that you expect that the passing of higher costs related to tariffs will lead to falling demand in the U.S. by next year at the latest. Could you please elaborate further on this and how this might hit you in terms of timing and so on? This would be nice. Rohit Aggarwal: Thank you, Patrick. So the first question with regards to the [ wave ] or how does EUR 45 million personnel cost reduction savings will be reflected in 2026 and 2027. This one for you, Nico, please. Nico Reiner: Yes, Patrick. So we do have our program here separated in 2 waves. So there is wave #1. Wave #1 would mean the first 300. And as already mentioned and commented during the presentation, there will be a EUR 25 million ticket jumping in 2026 and then as a continued improvement also going forward. And for the second phase of cosmos, here, we see further improvement starting already in 2027 and then fully being embedded in 2028. So in 2028, we see the additional EUR 20 million. So if you would sum it up EUR 25 million plus the EUR 20 million, that's the EUR 45 million ticket we have been talking. I think that gives a relatively clear picture. Unknown Executive: Then the second question from Patrick is with regards to the expected falling demand that we expect in the U.S. in terms of overall apparel demand. Rohit, please. Rohit Aggarwal: Yes. Sure, Patrick, thank you for that question. We've seen a bit of consumer behavior in Americas, which has been largely trying to circumvent or delay. And therefore, they have been doing -- putting forward their purchases in terms of apparel. So there have been a lot of pre-purchasing that has happened, and therefore, that we saw impact on the value chain kind of playing out through quarter 3. The prices are going to be looking to move up in the U.S. market. We expect that most of the retail would be affected. And we are continuously monitoring that very, very closely. Now if you look at and compare that to overall other supply chains outside textiles, we have seen that, by and large, those demands have stayed pretty flat in terms of -- and consumer behavior has not been impacted that significantly. But again, it's too early at this stage to make any prediction on how that will play out because it will be the scale of what level of price increases the retailers are able to put on the shelves and also how much of efficiency gains will happen in the supply chain through managing the cost mitigation around the tariffs. So -- but on our side, we are looking to continue to move our product into nonwovens and then we are able to find ways to offset our tariffs and then pass price increases where the contracts allow. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Rohit Aggarwal for any closing remarks. Rohit Aggarwal: Well, thank you very much for joining us today, and we appreciate the questions. We hope to be able to see you again on March 19 when we will disclose our full year results for 2025. So look forward to interacting that time. Thank you very much for joining us again. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

159天前Insight Analytics约5分钟阅读

NVAX 2025 Q3 财报电话会议

Operator: Good morning, and welcome to Novavax's Third Quarter 2025 Financial Results and Operational Highlights Conference Call. [Operator Instructions] Please note this event is being recorded, and I would now like to turn the conference over to Luis Sanay, Vice President-Investor Relations. Please go ahead, sir. Unknown Executive: Good morning, and thank you all for joining us today to discuss our third quarter 2025 financial results and operational highlights. A press release announcing our results is available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Please turn to Slide 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including, but not limited to, statements related to Novavax's corporate strategy and operating plans; its strategic priorities; its partnerships and expectations with respect to potential royalties, milestones, cost reimbursements; its expectations regarding manufacturing capacity, timing, production, and delivery for its COVID-19 vaccine; the development of Novavax's clinical and preclinical product candidates; the timing and results of our clinical trials, the timing of regulatory filings and actions, its APA agreements and related negotiations; full year 2025 financial guidance and revenue framework; full year 2026 revenue framework preview; and Novavax's future financial or business performance, including long-term growth, savings, and profitability targets. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the presentation we issued this morning and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission, available at sec.gov and on our website at novavax.com. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to Slide 3. This presentation also includes references to non-GAAP financial measures, which are total adjusted revenue, adjusted licensing, royalties, and other revenue, combined R&D and SG&A expenses, less partner reimbursements, and non-GAAP profitability. Please turn to Slide 4. Joining me today is John Jacobs, our President and CEO, who will highlight our growth strategy and provide an update on our progress during the quarter; Dr. Ruxandra Draghia, Head of R&D, will discuss our R&D updates; and Jim Kelly, Chief Financial Officer and Treasurer, will review our financial results and 2025 financial guidance and revenue framework. I would now like to hand over the call to John. John Jacobs: Thank you, Luis. I'm excited to be here today with members of our executive team to share our third quarter results. During Q3, we progressed our corporate strategy of driving growth and value by continuing to strengthen existing partnerships and build new collaborations while advancing R&D innovation and our early-stage pipeline. Please turn to Slide 5. We've been on a steady path to transform Novavax since I joined the organization in 2023. With our new corporate strategy as our guide, we have an exciting opportunity to drive value for our shareholders and the communities we serve for decades to come. Let me take you through how we intend to get there and the progress we've already made. When I joined the organization in 2023, we were a fully-integrated commercial organization, primarily focused on sales of our COVID-19 vaccine. Our imperative at that time was to stabilize the company financially. And to that end, we removed more than $1 billion of current liabilities by year-end 2024 compared to 2022. During that same period, we also reduced almost $1 billion in operating expenses. In addition, in 2024, we announced a significant and multifaceted partnership with Sanofi, which has now allowed us to accelerate the next phase of the company's planned evolution. This year, we relaunched Novavax as a company, focused on partnerships and R&D innovation. Our new strategy is centered on amplifying the impact of our technology platform through collaborations with other biopharmaceutical companies and a new diversified pipeline. And this represents a strategic and thoughtful departure away from a single focus on the resource-intense commercialization of 1 product, our COVID vaccine. To date, we have made significant progress on this strategy. For example, over the past 8 quarters, we've achieved approximately $1.1 billion in nondilutive cash flow to the company, including $800 million from our partnerships in the form of upfront payments and milestones earned to date. We also just recently expanded our Sanofi partnership to include use of our Matrix-M adjuvant in their pandemic flu vaccine candidate, for which Sanofi received a U.S. BARDA grant. We renegotiated our agreement with Takeda, which enhanced our revenue opportunity from their activities with Nuvaxovid in Japan, one of the world's largest health care markets. On the R&D front, via a lean strategic investment approach, in Q1 of this year, we launched a new early-stage portfolio, including programs targeting C. diff, shingles, RSV combination, and pandemic flu, and initiated an exploration of our Matrix-M technology platform to assess its applicability in oncology. And finally, on our financial profile, we continue to improve the financial strength of the company while maintaining our capabilities. For example, most recently, we brought in $60 million in near-term cash and anticipated long-term savings of approximately $230 million by consolidating our Maryland campus footprint. With this steady progress since 2023 to transform our company, we are now in a new phase of opportunity for Novavax. As we look ahead, the work we are doing now is intended to position the company well for a period of long-term growth and profitability. The intent is for this growth to be driven by a growing and diversified revenue base that stems from multiple partnerships, milestones, royalty streams, and our emerging R&D portfolio. Assuming continued execution of our plan and by our partners, both existing and new, we are executing toward a future for Novavax in which we have the potential to achieve non-GAAP profitability as early as 2028. During this time of transition, before we reach our intended goal of profitability, we expect our revenue mix to change as we rely on milestone payments in the midterm to bridge to an increased emphasis on licensing and royalty revenue, which we expect to grow over time, both in magnitude and in the number and diversity of our royalty streams. With this as our focus, our 2025 priorities to advance our strategy and grow shareholder value are threefold: number one, optimizing our partnership with Sanofi; number two, enhancing existing partnerships and leveraging our technology platform and pipeline to forge additional partnerships; and number three, advancing our technology platform and early-stage pipeline. Across all 3 of these priorities, we have made significant progress in the third quarter. In our partnership with Sanofi, we have achieved all milestones expected for 2025, securing a total of $225 million for the year from the BLA approval for Nuvaxovid and including $50 million from the successful transfer of our marketing authorizations in both the U.S. and the EU. We also completed the transfer to Sanofi of lead commercial responsibility for the U.S., allowing us to fully discontinue our own sales and marketing efforts this year for Nuvaxovid. On their recent earnings call, Sanofi stated that 2025 marks an important transition year for Nuvaxovid with their full commercial launch in the U.S. and select other global markets expected for the '26-'27 season. Beyond Nuvaxovid, Novavax is also eligible to receive milestones and royalties associated with the development of new combination vaccines that include Nuvaxovid. Recently, Sanofi indicated preliminary positive Phase I/II safety and immunogenicity data for both of their combination products featuring Nuvaxovid and their approved flu vaccines and are planning to engage with regulators on next steps. And finally, the agreement with Sanofi enables them to develop new vaccines using our Matrix-M adjuvant. Though we cannot speak for our partners regarding any specifics on their plans and activities here, we can say that they are exploring the potential of Matrix-M across several early-stage pipeline programs, and we look forward to any potential opportunities emerging over time from these efforts. In addition to our partnerships with Sanofi and Takeda, our partnership with Serum and Oxford University on the R21/Matrix-M malaria vaccine continues to make an impact on global public health. Through September of this year, approximately 25 million doses of R21/Matrix-M vaccine have been distributed to about 24 countries in Africa, with the most recent launch in Zambia announced a couple of weeks ago. This is a much-needed option for a region where malaria continues to be one of the continent's most persistent public health threats with economic and social impacts, historically killing over 600,000 people annually, and disproportionately impacting children under 5 in sub-Saharan Africa. We are very proud that our technology is a critical component of this important solution for global public health. Our strong performance as a partner helps to set the stage for future potential collaborations to generate additional meaningful royalty streams for Novavax for years to come. In the global vaccine market that is expected to grow over the next 10 years, we believe that Novavax is well positioned to capitalize on this growth by continuing to leverage our technology and expertise to tackle some of the world's most significant health challenges. Finally, during the quarter, our R&D team continued to make progress in advancing our early-stage pipeline. So at this point, I'd like to turn the call over to Ruxandra to share more. Rux? Ruxandra Draghia-Akli: Thank you, John. Please turn to Slide 7. I'm excited to share more about our progress in R&D. I'm just returning from several of the quarter's key medical meetings during which I've had the opportunity to discuss and reflect on the current trends in vaccination. As you know, infectious diseases know no borders and the need for vaccination is no different. While the need for vaccination globally remains constant, we know that regional differences in actual vaccination rates as well as vaccine confidence can fluctuate greatly. This is a phenomenon known since the introduction of the first vaccine, the smallpox vaccine. Vaccine confidence is a leading indicator of vaccination rates and varies worldwide, influenced by political, historical, cultural, and socioeconomic factors, with highs and lows, sometimes varying as much as 50% to 60% in the same region or country year-to-year. This is something we have seen in the flu and other vaccine markets over the years and to some degree, more recently in the United States with RSV, shingles, measles, COVID-19, and other vaccines, so it is reasonable to expect that vaccination rates could improve in the future. Additionally, many recent reports, such as those from McKinsey and others, have estimated that the global vaccine market could steadily grow at an average annual rate of 6% to 8% to reach a size of over $75 billion by 2030. Coming back to recent medical meetings, I had the opportunity to speak more about our technology and its incredible potential. I am energized by the reception received from colleagues, researchers, and industry participants at this meeting. Like us, they see the potential of our technology in both new and existing vaccines and are excited to watch our early-stage programs evolve. One of the key topics we have been presenting on has been the continued assessment of the tolerability profile of Matrix-M-containing vaccines, a key differentiator of our vaccine platform. For example, active comparator studies of Nuvaxovid versus mRNA COVID vaccines revealed lower frequencies and intensities of local and solicited adverse effects and lower impact of reactogenicity on quality-of-life measures among our vaccines recipients. These findings are consistent with systematic review and meta-analysis which are expected to be published in the near future and are important because we expect that, that improved tolerability associated with comparable, if not better efficacy and durability, is likely to lead to higher rates of vaccine uptake. Please turn to Slide 8. During the quarter, we have been making continued progress on our 4 current early preclinical vaccine candidates: C. diff, shingles, RSV combination, and pandemic influenza. We are continuing to refine these candidates, investing smartly and using AI and machine learning to rapidly and cost effectively inform design, create new antigen, and then test to help prepare the assets for clinical work as programs progress. I will provide a brief update of each program. Our C. diff vaccine candidate targets a major pathogen responsible for antibiotic-associated diarrhea, frequently observed in hospital settings. The incidence and severity of C. diff infections are rising across the world with no approved vaccine. For our work on the shingles program, we are advancing 2 different activated protein antigens with Matrix-M. Early preclinical results suggest both induced immunogenicity and, as anticipated, potentially a better reactogenicity profile. Finally, we believe that our RSV combination program has the potential to meet the desire of both the public and health care providers for combination vaccines that can address multiple respiratory viruses at once. For all 3 programs, we have exciting preclinical data that is beginning to emerge and further indicate the potential of our technology platform to make a difference in these critical areas of unmet need. We look forward to sharing more with you in the coming quarters as our initial datasets from these early programs begin to crystallize. Our Matrix-M adjuvant in pandemic influenza vaccine candidate shows promise in potentially being able to deliver a single-dose vaccine option that can be given either intramuscularly or intranasally to protect against pandemic influenza infection in individuals who had a previous exposure to seasonal influenza or received a seasonal influenza vaccine. This benefit may be critically important in the context of a future public health emergency given options for administration and fewer doses needed for protection. We are actively seeking funding from government programs to test our vaccine candidates in clinical trials. Matrix-M has been proven to provide positive clinical benefits in infectious diseases, and we are excited about our early progress with the new pipeline of programs in both viral and bacterial applications. As noted earlier, a key component of our corporate strategy is to leverage our technology platform and to diversify both within and beyond infectious diseases. For example, since January, we have begun early work to explore the potential utility of our adjuvant, including new formulations, in oncology. Our early clinical work is aligned with our corporate strategy and is supportive of ongoing discussions with both existing and potential partners. We continue to progress these relationships with the goal of developing new partnerships, and in doing so, new vaccines or improving existing vaccines, that could have a positive impact on global health for decades to come. I look forward to continuing to update you on each of these exciting programs as more data becomes available. I'll turn the call to Jim now. James Kelly: All right. Thank you, Rux. Please turn to Slide 9. This morning, we announced our financial results for the third quarter of 2025. Details of our results can be found in our press release issued today and in our Form 10-Q filed with the SEC. Please turn to Slide 10. I'll begin with key highlights from our third quarter 2025 financial results. We reported total revenue of $70 million, and importantly, Sanofi has now taken on the lead commercial role for Nuvaxovid in the U.S. and select ex-U.S. markets. Sanofi recorded $23 million in Nuvaxovid sales in the third quarter of 2025 and reiterated that 2025 is a transition year as they establish their commercial capabilities in the U.S. Novavax has recorded $4 million in royalties related to these sales in the quarter. During the third quarter of 2025, we continued to transform Novavax into a more lean and agile organization. For example, this quarter saw an 18% reduction in our combined R&D and SG&A costs compared to the same period last year. And of note, we reduced SG&A by 55% as we reduced commercial and general infrastructure spending. In October, we announced a set of transactions that enable Novavax to further consolidate our Maryland sites and is expected to result in $60 million in cash proceeds by the first quarter of 2026 and approximately $230 million in cost avoidance over the next 11 years. Investors will see $126 million in noncash charges in the current quarter related to this Maryland site consolidation and the convertible debt financing transactions, emphasizing that these are noncash in nature and each transaction serves to materially improve our financial strength as we execute on our growth strategy. Novavax ended the third quarter with $812 million in cash and accounts receivable. This is prior to factoring in an additional $110 million earned for MAH transfers and Maryland site transactions announced in the fourth quarter. Year-to-date, Sanofi milestones earned of $225 million is consistent with our 2025 revenue framework and includes the $50 million earned related to the U.S. and EU MAH transfers. Please turn to Slide 11 for a detailed review of our third quarter revenue results. For the third quarter of 2025, we recorded total revenue of $70 million compared to $85 million in the same period of 2024. Product sales for the third quarter of 2025 of $13 million comes from COVID vaccine and Matrix-M supply sales to our license partners and reflects a change to our business model as we now primarily support our license partners who market products that leverage our technology platform. Licensing royalties and other revenue of $57 million in the third quarter of 2025 was primarily from our Sanofi agreement and includes $46 million of R&D reimbursement and $4 million of royalties from the sales of Nuvaxovid. Please turn to Slide 12 for a detailed view of our third quarter financial results where I'll focus on our operating expense results and trends. Third quarter 2025 combined R&D and SG&A expenses were $130 million and reflected an 18% reduction from the same period in 2024. While our R&D spend of $98 million exceeds the prior year, $46 million, or almost half, is subject to reimbursement by Sanofi. Importantly, our SG&A expenses were 55% lower than the same period last year and are driven by the transition of lead global commercial activities to Sanofi plus strong execution on our broader cost reduction plan. x During the third quarter of 2025, we incurred noncash charges totaling $126 million, inclusive of a $97 million asset impairment related to our Maryland site consolidation and $29 million related to loss on debt extinguishment for the convertible debt refinancing. The convertible debt refinancing in August extended the maturity of the majority of the 2027 notes to 2031 with improved terms. This transaction supports Novavax's financial strength during a key transition period for the company. And finally, we reported a net loss of $202 million, or $1.25 per diluted share, for the third quarter of 2025. Please turn to Slide 13. We're committed to streamlining our operating expenses to enable value creation. We are reaffirming our full year 2025 financial guidance for combined R&D and SG&A expenses of $520 million at the midpoint and narrowing the range to $505 million to $535 million. On a non-GAAP basis and net of partner reimbursement, we now expect full year 2025 R&D and SG&A to be approximately $450 million at midpoint. This reflects an approximately $15 million improvement versus the prior estimate of approximately $465 million. We are also reaffirming our multiyear targets for 2026 and 2027 combined R&D and SG&A expenses, net of partner reimbursements, of $350 million and $250 million, respectively. We believe that providing both the gross spend and net of partner reimbursement views provides investors with a better understanding of our core operating cost structure. We are awaiting our license partners to complete their 2026 planning processes to better understand if there are any new updates to our R&D support. We do not expect potential updates to impact our core spend targets net of reimbursement outlined today. Please turn to Slide 14 for a recap of sources of 2024 and 2025 cash flow earned through November 2025. During 2024 and 2025, we significantly improved Novavax's financial strength by securing $1.4 billion in new cash for the company while in parallel reducing our cost structure and liabilities. $1.1 billion or 78% of this cash came from nondilutive sources, including partner upfronts and milestones plus sale of assets. Important to note, we have not raised equity capital from our ATM facility since the second quarter of 2024 as we prioritize nondilutive funding sources and cost reductions. Please turn to Slide 15. Now turning to our 2025 revenue framework. Today, we are raising our prior revenue framework by $25 million at the midpoint and now expect to achieve adjusted total revenue of between $1.040 billion to $1.060 billion. Our 2025 revenue framework excludes Sanofi supply sales, royalties, influenza COVID-19 combination and Matrix-M-related milestones. This means there may be revenue in 2025 that is additive to our expectations for adjusted total revenue for the year. At midpoint, the $25 million increase to our 2025 adjusted total revenue is driven by a $7.5 million increase to adjusted supply sales related to increased demand for Matrix-M from Serum for the R21/Matrix-M malaria vaccine, a $12.5 million increase to Sanofi cost reimbursement related to ongoing R&D activities, and a $5 million increase to other partner revenue related to Serum and Takeda royalties. Please turn to Slide 16 for a preview of our 2026 revenue framework. For 2026, we are following an approach similar to the 2025 revenue framework, in that our non-GAAP adjusted total revenue excludes Sanofi royalties, CIC milestones, COVID-19 supply sales, and Novavax COVID-19 APA sales. This means there may be revenues in 2026 that are additive to our expectations for adjusted licensing, royalty, and other revenue. That said, we believe that the '26-'27 season Nuvaxovid royalties will grow significantly as compared to 2025 as next year reflects the first full year where Sanofi will have the opportunity to prepare for its marketing and contracting efforts and build upon the learnings from the current transition year in the U.S. and markets outside the U.S. This preliminary preview is intended to help investors better track the Novavax transition period revenues under our Sanofi agreement. Investors should not anticipate a similar update at this time next year as these activities are expected to be materially completed by the end of 2026. For 2026, we expect to achieve adjusted total revenue of between $185 million and $205 million. This includes: a $75 million milestone from the completion of manufacturing technology transfer expected to be earned in the fourth quarter of 2026; $30 million to $40 million in R&D reimbursement as we complete our R&D support and technology transfer activities for Sanofi; $30 million to $40 million of adjusted supply sales to our license partners, which primarily reflect sales of Matrix-M; and finally, $50 million of noncash amortization related to the previously received upfront and R&D milestone payments from Sanofi. In the case of both R&D reimbursement and adjusted supply sales, these preliminary ranges are subject to the completion of our license partners' plans for 2026. When comparing our non-GAAP adjusted total revenue for 2026 to 2025, please note that 2025 includes $610 million in noncash product sales related to the settlement of APA agreements. While currently excluded from our 2026 adjusted total revenue, there is the potential for a $125 million milestone linked to the initiation of a Phase III CIC program and its addition is pending feedback from Sanofi regarding clinical plans for their CIC programs. We are encouraged by the recent Sanofi announcement of preliminary positive results from both of their CIC Phase I/II programs and their intent to engage with regulatory authorities to advance development. As Novavax drives towards our goal of non-GAAP profitability, we expect this could occur as early as 2028. Key to the timing of our path to non-GAAP P&L profitability are the successful development and regulatory approval of the Sanofi CIC program and successful commercial execution by Sanofi on both the COVID and CIC programs. This could be further supported by our expectation that we will add additional cash flow from new business development agreements. We look forward to sharing additional updates as we improve Novavax's financial performance, cost structure, and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks. John Jacobs: Thank you, Jim. In summary, we're proud of the continued progress being made on our corporate strategy with a consistent track record of execution to date. We are seeing continued success across our strategic priorities for the year, including optimizing our partnership with Sanofi, enhancing other existing partnerships, and working to forge new potential collaborations. We've been advancing our early-stage pipeline and working to expand the utility of our technology platform. This is all underpinned by a continued focus on further improving our financial foundation while ensuring we have the right capabilities to successfully execute our strategy into the future. We remain committed to our growth strategy and believe that it puts us on the best path to deliver long-term sustainable value for our shareholders. Our progress to date has set us on the right path heading into the year-end and into 2026, and we remain excited about the future of Novavax. Thank you to our shareholders for their support. And as always, we appreciate all of the hard work and dedication of our employees without whom the success would not be possible. I'd now like to turn the call over to our operator for Q&A. Operator? Operator: [Operator Instructions] We'll take our first question today from Roger Song with Jefferies. Nabeel Nissar: This is Nabeel on for Roger. Maybe 2 from us. How do you see the 2025 COVID season as compared to last year? Are you getting any feedback from pharmacies on stocking and consumer preference for the product? And then could you provide some more color on that BARDA grant? And does it reflect any attitude from the FDA? John Jacobs: Thank you for your questions. Jim, did you want to take that? James Kelly: Certainly. Why don't I begin -- and thanks for the question about the COVID season. And by the way, a lot of credit to Jefferies. You put out an exceptional COVID [ tracker ] every week. And so what I'll do is, for all your customers, I'm going to reference it. I know it's a lot of IQVIA data, but you do exceptional work. And then on the BARDA piece, which I think is referencing the new pandemic flu BARDA grant to Sanofi, I'm going to speak -- have Rux speak to that and some of the latest on the pandemic flu front. All right. So beginning with the COVID season, as folks know, especially in the U.S., we had a policy update this year, certainly more restrictive in the below-65 age groups. When we look at the year-over-year, and I think folks know we started 1 week late, so if you adjust for that, the season in terms of Rxs are down about 20% compared to last year. That's fairly consistent, at least, I'll say, with our internal analytics and expectation for how ours and actually others in this market, how their labels have been altered. So when you think about the label for COVID then in the U.S., it's beginning to become far more aligned to Europe and global markets. So when we think about the COVID market this year and its go-forward expectations, there's just a bit of a resetting occurring in the U.S. and then our expectation is you build from there with a sound footing. So that's some of the feedback on the COVID market. And we're really looking forward to Sanofi and what they're going to be able to do with Nuvaxovid, especially starting next year when they get their full year. But with that said and talking about Sanofi, perhaps, Rux, some feedback on the new BARDA announcement. Ruxandra Draghia-Akli: Yes. Thank you, Jim, and thank you for the question, Roger. So we are talking here about a BARDA grant that has been awarded to our partners to Sanofi for early-stage work with their vaccine candidate for pandemic influenza, but including our Matrix-M adjuvant. The companies have announced previously that we've amended our collaboration agreement to include Novavax's Matrix-M adjuvant in this Sanofi's pandemic influenza vaccine candidate. So this candidate is going to go through Phase II. And as you are, we are very keen in seeing the results and obviously eventually contributing to pandemic influenza preparedness in the United States and elsewhere in the world. Operator: Our next question will come from the line of Mayank Mamtani at B. Riley Securities. Mayank Mamtani: Appreciate the detailed R&D updates today. On the Sanofi collaboration, it seems like that's progressing well, including the preliminary positive CIC data they talked about. Could you talk to your awareness and next steps there? And I also ask since you may have some of your own guidance regarding your CIC program, and it seems from Moderna's earnings this morning, they're still awaiting the FDA feedback on their Phase III CIC package? And also was curious where you stand with your wholly-owned stand-alone flu program? And then I have a quick follow-up. John Jacobs: Mayank, thank you for your question. We were very excited to hear Sanofi's announcement in their recent earnings call that they had positive data on both of their combination programs, including their world-leading flu vaccines and our Nuvaxovid. And as our investors, I hope, are well aware, Novavax is eligible for significant future potential royalties and milestones as they initiate a Phase III program, should they do that, and then start to sell that product and market it or [ product ]. Both of those products were fast-tracked by FDA about a year ago. So we're very excited. We can't comment on where they are, but what they did say, we can reference you and our investors to their public commentary that they're approaching the regulator for next steps on that. So we look forward to hearing updates and to them advancing that program, hopefully, to Phase III and beyond. Regarding our own program, what we've said consistently about that, Mayank, is that we intend to outlicense our CIC, our combination COVID flu program that's Phase III ready as well as our flu program, both of those assets and that we continue to seek partners for that and have dialog about that. Not much we can say about that. If we get a partner and do a deal and we sign it, we'll be able to announce it. But that is the intention. And look, we have good data on both of those assets and programs. We think our technology, and believe and have seen it's proven over time, can make a big difference on global public health, and we'll be excited to hopefully see those assets in the hands of another organization someday in the future. That's our intention. We'll keep you posted. Mayank Mamtani: And then on the rollout of some of the preclinical data that, Rux, you talked about on C. diff, shingles, RSV. Was just curious if these experiments were done, keeping in mind head-to-head comparisons with current available vaccines could be interesting. And was also curious, we've seen some mixed updates, for example, the Pfizer C. diff vaccine not playing out in terms of events after initial immunogenicity data was strong a couple of years ago. Was curious if you could talk to how we can think of the 3 programs as investors obviously want to start ascribing value there. And then lastly, just quickly for Jim. On the non-GAAP profitability goal now targeted for 2028, can you just clarify if anything has changed to what you had communicated previously? John Jacobs: Thank you, Mike. Rux, do you want to take that first question from Mike on our pipeline? Ruxandra Draghia-Akli: Yes. Thank you, John. So in our experimentation -- in all our experiments, we are always introducing a negative control and a positive control. For the positive control, we are typically using either approved vaccines, which will serve as, if you want, the guidepost for our experiments, if such vaccines already are approved and on the market, or in the case of, as you were pointing out, C. diff, where an approved vaccine is not yet on the market, we are actually using positive control constructs that are very similar with what competitors have used in their clinical trials. So every good scientist has to include these negative and positive controls in the experiment. If not, one would not really have the right type of information. So that's from my side to respond to the first part of your question. John Jacobs: Thank you, Ruxandra. And Mayank, thank you for pointing out our 3 programs, and we're making progress in the lab, early-stage, preclinical, and we're looking forward to in the coming quarters, unveiling some of the learnings. We have some exciting information we're learning internally here where the teams continue to progress that quarter-on-quarter, and we're excited about what we're seeing so far. Beyond the 3 programs you mentioned, we also have our own pandemic flu initiative. And our team has been working with both the European and U.S. governmental authorities to seek funding for our own pandemic flu. That's above and beyond what Sanofi may do with our Matrix-M and their flu product. We're also looking at intranasal application potentially for that asset. And so we'll keep you posted as that progresses. And in addition, very importantly, we're working on Matrix-M itself to expand its utility, expand the IP around Matrix-M, and its applicability we're exploring in things beyond infectious disease. So we branch beyond just viral antigens to also explore in bacterial, which you mentioned today, and thank you for that. In addition, we're looking to go beyond infectious disease and see what Matrix-M can do. And so Ruxandra and her team are deep into the early exploration of some of those other avenues. And again, we're excited about the potential and excited to unveil in the coming quarters what we're learning there good. Jim, did you want to take the profitability question from Mayank? James Kelly: Yes, certainly. Mayank, I think you and the investors have heard from us consistently that driving this company to non-GAAP profitability and beyond, throwing off cash as a company, delivering shareholder value, is a critical priority for the company, the timing of which, our goals to how we get there, you're watching us control what we can control, which is driving down our costs, seeking nondilutive funding along the way, making sure we have that strong balance sheet. But we also recognize we're, in many ways, reliant on our partners, Sanofi, in particular now, but heck, we're moving to bring more partners online as well. New information since last we spoke, great news on CIC, 2 positive Phase I/II studies. But what we also learned, hey, Sanofi is going to be working with the regulators to get those programs advanced. This new information leads us to view the more likely time frame to potentially initiate a Phase III or get to market with CIC to have shifted out probably at least 6, 12 months just based on the timing of this update. Therefore, we updated the timing for the as-early-as estimate from 2027 to 2028. All said, though, when you look at all the pieces to what can drive us to profitability, we're seeing positive trends across the board. You heard our feedback on how we view the market. You heard from Rux and John how we view our technology, the advancement, and therefore our abilities to partner, including not just early-stage pipeline, but also our late-stage assets. And then you're hearing what I think is exceptional news, like I said, from Sanofi on their preparations for next year and beyond with COVID. So we are certainly going to continue to endeavor and drive to this non-GAAP profitability and beyond. Just providing the latest update on that today. John Jacobs: Yes, Jim, and it's our intent to take a conservative position on that as we communicate with investors, toggle to what we know is in front of us as we learn related to the Sanofi deal itself. Just that one vehicle can lead to that with our base business that we already have, not including anything new we may do. So right now, that's what we see in front of us based on that latest update, and we'll work really hard to do even better than that. Operator: Our next question today will come from the line of Eric Schmidt at Cantor. Eric Schmidt: It's Eric filling in for Pete today. First, John and team, just congrats on the complete makeover of your company. You guys were way out ahead of the curve here and far larger companies in the space could certainly learn from your lead. John Jacobs: Thank you, Eric. Eric Schmidt: It's been fun to watch. Question on Matrix-M and some of the MTAs you got exploring use of this with potential partners. What's the cadence of time lines and milestones, deliverables that a partner would need to go through in order to convert some of these evaluations to more formal arrangements. What time scale are you thinking about? John Jacobs: It's an excellent question, Eric. I'd love to be able to put a clock on that for you, but I cannot hear today. Obviously, there's more we know than we'd be able to say theoretically in any of those types of situations, right? The good news is that we have, to your point, multiple MTAs signed with organizations, a couple of large top 10 pharmaceutical global organizations that have an interest in this technology in this space, as well as a smaller company outside of infectious disease, even. So very, very interesting. That work is ongoing. Those companies, in general, I think the way to frame it in that type of arrangement, when you're working with a technology like we have, and this isn't Novavax specific, but I'll give you a framework to think about, company would take that type of technology, put it into the lab, do some experiments, they've done some thought experiment before that, obviously had communications with our team, business development team. We have data we share. We do experiments in our lab. They get interested. They duplicate those and do their own experiments in their lab. But these are not years. These are experiments that are shorter than that. They're in animal models in the lab. And if that's confirmatory, that would be the potential type of early pivot point in that journey where they might consider an arrangement with us. That's the type of framework to think about. So I won't put a clock to it, but I will say it's not years and years and years down the road. They'll know whether or not they'd like to do something with it as they get results out of their lab on early experiments. And then obviously, it takes a certain period of time, if we were to get to that point, to then negotiate deals. But our team has shown we're able to negotiate deals, whether it's selling real estate and downsizing certain areas that no longer support the new strategy, and thank you for recognizing how we've reshaped the company, or do something like a Sanofi arrangement and even these MTAs. So lots ahead is our intention. We're really excited about the potential, and there's a lot of interest in our technology outside of Novavax. So we'll continue to work to mine that and hope in the near-term to have some updates for you that are exciting. Eric Schmidt: Maybe another question on Nuvaxovid. Realizing that this is a transition year and that maybe traditional benchmarks like market share and sales don't really apply, are there things that would make this a successful transition year in terms of distribution channels and maybe softer metrics that you're looking for your partner to achieve? John Jacobs: Yes. I think a lot of that already happened, Eric, and I think Jim Kelly will comment as well here. But certainly, the transition from an EUA to a BLA to a full U.S. license was a critical first step, and that's a first for Novavax. So we handed the baton off on the EUA and picked it up for Sanofi on a BLA. And that happened mid-calendar year, and after initial retail negotiations begin. So you're halfway into the cycle. But that was very important, though, that, that BLA was approved. Also prefilled syringe, also competitive shelf life approved at the same time as mRNAs by the regulatory authorities. It's an even playing field now. For the first time since I came here to Novavax, it's now an even playing field. And it had not been, as you know, through the pandemic and those things. But we've got it there, and it's in the hands of a world leader in vaccines on an even playing field. So we're very excited. Jim, anything to add to that? James Kelly: Well, John, really 2 things I'd add. So while this year set the table with an even playing field, then what do you do with it? Well, we're seeing a couple of things. One is you got a full 12-month cycle time to get the contracting right. And what we know is Sanofi is an infinitely better contractor than we ever were with that full vaccine portfolio. So really looking forward to that piece of it. And then we also know, given the transition here, Sanofi is doing some piloting right across the country on different marketing techniques in submarkets. Excellent. That means their marketing capability toolkit is going to be optimized as they go into next year. And that's what we meant when we said, hey listen, we're really excited to have Sanofi as our commercial partner, and we're really happy at what the table has been set to enable them to do moving forward. Operator: Our next question will come from Chris Lobianco at TD Securities. Christopher LoBianco: Congrats on all the progress this quarter. So we've seen the competitors' Phase II shingles vaccine data, which showed comparable immunogenicity and better tolerability than Shingrix. Can you remind us what Novavax thinks the clinical bar for success for a novel shingles vaccine is? And how might your vaccine platform be differentiated from some of the competitive data we've seen in Phase II? John Jacobs: Ruxandra, were you able to hear the question from Chris? Ruxandra Draghia-Akli: I think that -- Chris, thank you for the question. I think that you have asked if we have looked at other competitors' data when it comes to the efficacy and tolerability of their shingles candidates. Is that so? Christopher LoBianco: Yes, that's correct. And just how Novavax's platform might be differentiated. Ruxandra Draghia-Akli: So again, coming to the response that I gave at the previous question, we do actually have positive comparators and multiple comparators in all our preclinical testing using, obviously, for nonapproved vaccines. It is really based on the scientific endeavor and on the published data. This being said, in all the experiments, we are including groups that are treated either with shingles, yes, or with the type of vaccines that could mimic whatever is happening in other people's hands. So we are very confident that the data that we are generating is actually very informative, and it's potentially going to compare well in human clinical trials. Obviously, we need to get there with our experiments, and we are actually looking forward to sharing with you more data when that is becoming available. John Jacobs: Yes. It's a really good question, Chris, because -- and Rux, let me build upon what you just shared, and thank you for that, Rux. It's a good question. Obviously, the shingles vaccine, we've seen data that up to potentially 40% or so in certain markets of consumers may not get their booster shot on the current shingles vaccine because they're concerned about side effects. So obviously, Chris, the bar on efficacy with the current marketed shingles vaccine is very high. That's an excellent vaccine when it comes to efficacy, and we're glad it's there to protect all of us as consumers. The baggage on the side effects piece is an area for opportunity there for competitors to come in and improve. So we're glad to see other companies are investing there. It's one of the top 5 or 6 areas of vaccine investment, actually, according to McKinsey and other sources because of this opportunity that's there. Let me just say this, there's no guarantee, as you well know, in biotech -- this includes Novavax, right -- that anything coming out of your laboratories will go all the way to success. We're excited about early results we're seeing, but it's early. It's preclinical. Like Rux said, we have to go through all of the different studies and tests to get there, so do competitors. So it's good to see other programs advancing. How many of those may go all the way through full Phase III and meet that high efficacy bar that's out there or come close enough to it and deliver on the tolerability in the end in a final product, that's a difficult bar to achieve. We'll be glad -- we'll bet on our technology every time because we believe in Matrix-M and what we're doing, and we believe that we've got a strong shot to have a competitive product. Again, we're not promising on anything, future deals, things coming out of the clinic. There's risk in biotech. You have to execute. It's our intention to do so. We've got a great technology platform we're confident in, and we're excited to bring it forward. Operator: Next we'll go to the line of Alec Stranahan at Bank of America. Alec Stranahan: Congrats on the continued progress in the quarter. First, good to see the second $25 million milestone come in a few days ago. So we've got that for 4Q. Looking to next year, appreciate the preliminary guidance for '26. Could you maybe walk us through the $75 million milestone estimate? I guess, what does this entail? And assuming this is fairly high conviction given the preliminary guidance, any other high conviction items that you maybe single out beyond the Sanofi milestones next year? And then I've got a follow-up. John Jacobs: All right, Alec, thank you for your question. And you're certainly right. We're very pleased with the progress we've made to date across both pipeline advancement and also supporting our partners. In particular, as we look at the milestones for next year, the $75 million milestone that we've included in the 2026 adjusted revenue framework relates to completion of manufacturing tech transfer with Sanofi. So specifically, what that means is we knew when we signed our CLA with Sanofi that we'd be supporting them with commercial manufacturing while they learned what it would take to be self-sufficient to manufacture on their own. And we believe we're right on track to be able to complete that manufacturing tech transfer by the fourth quarter next year. So what that's going to mean for our financial statements is not just the milestone hits, but that 2026 will be the completion of when we act as a bit of a middleman on getting supply for Sanofi for them to market. And as you know, Serum Institute is who we've been working with for multiple years to do so. So that's the transition period, that's the milestone, and the conviction to complete it really just comes from the methodical work we've been doing to date with a great partner. Alec Stranahan: And then maybe just a quick follow-up, Jim, on the supply sales piece. Is it right to assume this is essentially just reimbursement for the COGS on Nuvaxovid production as you manage through the transition of manufacturing? And I guess, is it for the most part, on-time production? Or do you still maybe manufacture some number of doses at risk? James Kelly: All right. Excellent. So our supply sales, so that's a new component this year to our product sales, has 2 primary pieces. One is COVID vaccine that we provide for Sanofi for them to sell. So that's part one. And next year, that's anticipated to be the final year we do that because we would have completed the tech transfer I described. Under our agreement with Sanofi, the intent is to have just a little bit of margin on top of our cost there. So think of it more as a just over breakeven proposition. Then when you look at the other component of supply sales, well, it's Matrix-M, and it's Matrix-M to all of our partners. And that's going to be a more durable stream of revenue, but with the same concept. The intent that -- and listen, we're really just trying to support our partners. There's a small margin there. And what you're witnessing with that part, and this is the Matrix supply sales in particular, is that as our partner unit volumes grow, and the example I'll give you here that is really going great in volume is R21 malaria vaccine. And you heard that since launch last year, approximately 25 million doses. Well, what that's doing is that's driving us to a critical mass, economies of scale for our Matrix manufacturing. And so what it does is it allows us to be efficient, to be right there for our partners. You also asked a question about just in time. So the way this works, the cycle time, and I'll speak just to the COVID right now, is that manufacturing effort really begins in the first quarter, when you're working through the different variants, you do PPQs and you do a lot of that DS production early in the season. The more or closer to just in time is the DP fills. And you do this so you can maximize shelf life. And those really begin to occur over the summer leading into the season. So that's the cycle time. That's how production works. Operator: Our next question today will come from Tom Shrader at BTIG. Thomas Shrader: Quick one on the Sanofi pandemic effort. Is there any guidance on the size the government stockpile would be? And would that be meaningful to you? Is there one royalty for Sanofi? Or because this is a different type arrangement, is that a very different royalty back to you? And then I have a COVID follow-up. John Jacobs: Yes. Very good question, Tom. No, we don't have guidance on what the government may be targeting from a stockpiling perspective. I know there's some historical precedent there that you and our investor base could reference if needed. But what we can say is it wasn't part of the original agreement on our partnership with Sanofi to include our Matrix-M in the pandemic flu because we were working on our own as well. We did agree -- we worked with Sanofi to expand our agreement to now include the ability for them to use our Matrix-M with their flu vaccine. And look, frankly, it's good for business, and even more importantly, it's good for global public health to have options there if that were to hit. So we think it's our responsibility, and it's also a very good strengthening of our partnership and could provide a very lucrative opportunity should something like that hit. Now that being said, what we've left open and what we said on the last earnings call is should Sanofi move forward and bring that forward and reach a certain point with it, there's a point where we would then negotiate the terms in good faith with them around how the economics would work around that. So let's hope for global public health's sake that, that opportunity is not there for these vaccine companies, including us. If it does come, we intend to stand ready, hopefully, with -- through partnering our own assets, should we achieve a partnership there with our own flu, and secondarily through Sanofi, of course. So we'll keep you posted. Thomas Shrader: And then a raging piece of the COVID world is the duration of protection of the mRNA vaccines. People are bashing this number all over the place. And you could be a lot better. And the question is, is that -- do you see that as a place you might do more clinical work to show your duration is really better? There are hints of it. But is that something you think you might do? And conversely, do you think it's something that might be thrust upon you? I know it's forward-looking, but thank you. John Jacobs: No, very good question. We'll hand that over to Ruxandra. Rux? Ruxandra Draghia-Akli: Yes. That's a very good question. So there are some ongoing real-world evidence studies that are undertaken. Obviously, these are studies that last a little bit longer than just one season that are looking exactly at that, at the durability of protection. And as the data is coming in, us and partners, we are sure that, that type of data is going to be published. As that entails large populational studies, they are typically undertaken by third parties, academic investigators, research institutes, your Centers for Disease Control because they do impact large swathes of the population. So to make a long story short, that type of studies are ongoing, and we hope to see the results soon. Operator: Our next question will come from Geoff Meacham at Citi. Unknown Analyst: This is Mary Kate Davis on for Geoff this morning. We'd love to talk through a little bit more of the strategy behind your early-stage pipeline and the impact here. And thank you for giving great detail so far this morning. It's super helpful. You walked us through the progress towards IND and would love to dial in on the opportunities for early data updates and what they could look like. And then as a follow-up, just given the public health burden of these diseases, how are you looking at the opportunity of these chosen targets? And would you consider partnerships in this space as you move these programs forward? John Jacobs: Thank you for the questions, and I'll let Rux dive in here in just a moment. We took a lot of time as a leadership team. As you know, we're in transition with our company, and we're in really chapter 2 of that transition, having moved away from a fully-integrated commercial organization to an organization that has a great technology platform, is looking to out-license that, to partner that, and to generate additional opportunities to do that via our pipeline R&D innovation. That's very important. We see it -- we see our technology platform and our efforts through Ruxandra and her team in R&D as an engine that could generate additional and future ongoing opportunities to further partner our tech, to further expand it into new areas even beyond infectious disease. So you make a good point by saying, would you consider partnering those assets out of your pipeline. It's actually our intention to do so. And what we have said in the past is that we retain the right, the ability to decide for ourselves, and we'll do that through continued economic stability, strengthening our P&L, strengthening our cash runway, and our financial framework for the company, which will be ongoing through this transition. We continue to do so to be able to have the choice if we do get a home run coming out of the pipeline, and we want to keep that ourselves, we'll consider that. But our model now is based on partnering with other pharmaceutical companies, keeping a lean and focused infrastructure, leveraging our technology and our assets to generate those revenues and those partnerships, and then the engine in R&D and innovation to create even new future opportunities, part 1. Part 2, you asked about our strategy behind the pipeline. Obviously, we looked at where the most significant unmet need lies around the globe, where our technology, we believe, could have the best chance to help address those unmet needs and generate with good odds, in our opinion, competitive assets coming out of those efforts. Obviously, like any biotech company, there's never a guarantee that anything or everything you do out of your pipeline will succeed. But you deal with probabilities of success. So we put a lot of time into placing the bets where we feel we have the best chance to win, the best odds to see one or more or multiple assets coming out in the future that could succeed. We stage-gate those things. This is typical for an organized, efficient, and professional biotech company to have stage-gate markers where you have go/no-go decisions based on outcomes each step of the way. Our entire philosophy on this is lean, intelligent investment to keep derisking one step at a time, and each step as we continue to succeed, we continue to approach the target product profile that we believe will be competitive, constantly assessing the competitive landscape to see if that needs to change. We got some questions from Chris and others on that today, very good questions. We're thinking about that as a team. We're paying close attention. We're very careful with any dollar we put down on that bet. And we'll be willing to walk away at any time from an asset that's not delivering. We don't have pet projects here. We're running a business. And we also want to have, secondarily to that but very important to our employees and to us, our mission, to impact global public health in a positive way. Hopefully, that addresses your question. Operator: And our final question today comes from Sean Lee at H.C. Wainwright. Xun Lee: I just have a higher level one on the longer-term projections that you guys had. Looking at the 2027 expense numbers, we see that the expenses are expected to come down by almost 50% compared to this year's levels. So I was wondering if you can provide some color on which areas you feel that you can cut the most from? And what -- maybe what other areas you feel deserves additional investments. James Kelly: Sean, appreciate the question. The primary step-downs in changes to our cost structure as we look at 2026 and 2027 are the following. 2026, what you're seeing is that many of the transition activities that we're doing with Sanofi, actually virtually all of them, are completed in 2026. So you're seeing that as we support Sanofi's both commercialization through the form of manufacturing support, strain change, and continue to support their clinical efforts, completion of certain R&D and clinical study activities, those are hitting our financials, and our team is working on them through 2026. But they're becoming smaller year-over-year, '25 versus '26. As we move into 2027, and these are virtually complete, you're seeing the next step-down in activity. And so, it's that $250 million net, which is our target, because you never know, maybe one of our partners might come back and say, do you mind doing some incremental work for us? We'd say, certainly, just cover our cost. So it's that net number, which is our core spend target. It is that number that we're driving towards, and we think we have excellent line of sight to get there. Operator: This concludes our question-and-answer session for today. I would like to turn the conference back over to John Jacobs for any closing remarks. John Jacobs: Thank you, everyone, for joining us today. We appreciate it. Look forward to speaking with you next time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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MRNA 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the Moderna's Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lavina Talukdar. Please go ahead. Lavina Talukdar: Thank you, Kevin. Good morning, everyone, and thank you for joining us on today's call to discuss Moderna's third quarter 2025 and financial results and business updates. You can access the press release issued this morning as well as the slides that we will be reviewing by going to the Investors section of our website. On today's call are Stéphane Bancel, our Chief Executive Officer; Stephen Hoge, our President; and Jamey Mock, our Chief Financial Officer. Before we begin, please note that this conference call will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please see Slide 2 of the accompanying presentation and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. With that, I will turn the call over to Stéphane. Stéphane Bancel: Thank you, Lavina. Hello, everyone. Thank you for joining us today. I will start with a quick review of the quarter, Jamey will present our financial results and outlook, Stephen will review our commercial progress and clinical programs, and then I will share our key value drivers as we look ahead before we take your questions. In the third quarter, our revenue were $1 billion, driven by sales of our fully approved vaccines, Spikevax, mNEXSPIKE, mRESVIA. The net loss for the quarter was $200 million. We ended the quarter with $6.6 billion in cash and investments. We remain highly focused on financial discipline. I'm pleased to announce that continued cost reduction efforts across the company in the third quarter of 2025 led to a 34% reduction of cost of sales, R&D and SG&A combined compared to the third quarter of 2024. During the quarter, we made good progress across our 3 strategic priorities. Our first priority is driving use of our commercial products. For Spikevax, our original COVID vaccine, we received approval in 40 countries for the seasonal 2025-2026 train update. And mNEXSPIKE, our new COVID vaccine was approved this year by the FDA. We also filed and received approval for the 2025-2026 strand update in the U.S. making this the first season that mNEXSPIKE is available in the United States. We also received approval for mNEXSPIKE in Canada. For RSV vaccine, mRESVIA, will continue to gain regulatory approval and mRESVIA is now approved in 40 countries. We have a strategic partnership with 3 countries, Canada, the U.K. and Australia, where we have established manufacturing facilities and secured a multiyear offtake agreements. In each of these countries, we have achieved important milestones. In Canada, we delivered the first made-in-Canada mRNA vaccines to the Canadian government for use this season. In the U.K. and Australia, our facilities were granted licenses by their respective regulatory agencies. Second priority, advancing our pipeline to grab sales growth. We announced in July, positive Phase III flu efficacy data which we believe will advance both our flu vaccine program, mRNA-1010 and our flu plus COVID combination program, mRNA-1083. For the flu plus COVID combination program, our filing continues to be under review by the European Medicines Agency. In Oncology portfolio at the European Society of Medical Oncology, ESMO, Congress in October, we presented encouraging Phase Ib data for cancer antigen therapy, mRNA-4359. Unfortunately, we also announced recently that despite the progress made by the scientific community in understanding the CMV virus, our CMV program did not meet its primary efficacy endpoints for congenital CMV. We will discontinue the development of our CMV vaccine in this indication. Third priority, executing with financial discipline. The team continues to diligently advance our cost improvement program. Over the last 4 quarters, Q4 2024 to Q3 2025, we delivered a $2.1 billion improvement in costs across cost of goods, SG&A and R&D versus the prior 4 quarters. I want to thank the entire Moderna team for this great achievement, and we continue to work on prioritizing our R&D pipeline, driving productivity, including by the use of more digital tools, including a large number of GPTs, but also better pricing with our suppliers across the entire company. Thanks to this good progress and momentum, we've reduced projected 2025 cash cost by approximately $500 million since just the last quarter investor call in August 2025 and by approximately $900 million since the beginning of the year. With this, I will hand over to Jamey. James Mock: Thanks, Stephane, and hello, everyone. Today, I will provide an overview of our financial results for the third quarter and share our outlook for the remainder of 2025. Let's start by reviewing our commercial performance, which you can follow on Slide 7. Year-to-date, total revenue was approximately $1.3 billion with $900 million from the U.S. and the remainder from international markets. In addition to product sales, revenue also includes collaboration, grant and stand-ready revenue associated with our strategic partnerships. For the third quarter of 2025, our total revenue was $1 billion. U.S. revenue was $800 million in the third quarter, the vast majority of which was from our COVID vaccines, which included the successful launch of our new COVID vaccine, mNEXSPIKE. Stephen will give more detail on the U.S. COVID vaccination season in a moment. Revenue outside the U.S. was $200 million. Approximately half of international revenue in Q3 was delivered to Canada where we began executing on our strategic partnership through our in-country manufacturing facility. As a reminder, we have similar strategic partnerships with the Australian and U.K. governments and expect to begin shipping locally manufactured product in 4Q '25 and 1Q '26, respectively. For the full year 2025 outlook, we are narrowing our revenue range to $1.6 billion to $2 billion from our previous guidance of $1.5 billion to $2.2 billion. For the U.S. market, we expect fourth quarter sales of $100 million to $400 million. This would bring our updated full year U.S. revenue guidance to $1 billion to $1.3 billion versus our prior guidance of $1 billion to $1.5 billion. Our original guidance assumed year-over-year revenue to be flat to down 33%, excluding onetime items. Our updated guidance now assumes a year-over-year decline of 15% to 33%. COVID vaccination rates remain the largest variable to this range, which Stephen will walk through in a moment. For international markets, we now expect revenue to be between $300 million and $400 million in the fourth quarter, bringing the full year to $600 million to $700 million versus our previous guidance of $500 million to $700 million. We have a tighter range on our international sales as most of these sales are for contracted volumes leaving delivery timing and file vaccination rates as the only remaining variables. Moving to Slide 8, I will review our 3Q financial results in more detail. Total revenue was $1 billion in the quarter, as I just discussed on the prior page. We had net product sales of $973 million and other revenue of $43 million from grants, collaborations, royalties and stand-ready fees. The 45% year-over-year decline in revenue was expected and primarily reflects lower COVID vaccine demand. It's also worth noting that last year's third quarter included approximately $140 million from a true-up adjustment to prior period sales provisions. That benefit did not repeat in Q3 this year. Cost of sales for the third quarter was $207 million, representing 21% net product sales for the quarter. This was a 60% year-over-year decrease in our cost of sales from $514 million in Q3 last year. The improvement was driven by lower inventory write-downs, reduced unutilized manufacturing capacity and lower volume. Overall, these results reflect the productivity gains and the efficiency improvements we've achieved in our manufacturing operations. R&D expenses in the third quarter were $801 million, a 30% decrease from last year. The reduction mainly reflects lower clinical trial costs as we completed several large Phase III studies in our vaccine portfolio as well as efficiency gains across the organization. Last year's results also included an expense related to the purchase of a priority review voucher. SG&A expenses were $268 million in the third quarter, a 5% decrease year-over-year. The decline mainly reflects lower consulting and external service costs across multiple functions, along with reduced digital and facility spending. These savings reflect the cost discipline we've built into the organization and our continued focus on streamlining how we operate. Our income tax provision for the quarter was immaterial, consistent with the prior year. We continue to maintain a global valuation allowance against the majority of our deferred tax assets, which limits our ability to recognize tax benefits from losses. Net loss for the quarter was $200 million compared to net income of $13 million in Q3 2024. Loss per share was $0.51 compared to earnings per share of $0.03 last year. We ended Q3 with cash and investments of $6.6 billion, down from $7.5 billion at the end of Q2. The decrease was primarily driven by seasonal impact to working capital. With that, let me take a minute to share the progress we've made on our cost reduction goals. As a reminder, our original target this year was to reduce our GAAP operating expenses from $7.2 billion in 2024 to $6.4 billion in 2025. On a cash cost basis, excluding stock-based compensation, depreciation and other noncash charges, that represented a decrease from $6.3 billion in 2024 to $5.5 billion. I'm happy to report that we are now on track to beat our 2025 cost plan by over $1 billion on a GAAP basis and by $900 million on a cash cost basis, both at the midpoint of our projections. During our previous 2Q call, we have lowered our GAAP and cash cost by $400 million each, with GAAP costs lowered from $6.4 billion to $6 billion, and cash costs lowered from $5.5 billion to $5.1 billion. Today, we are further lowering our 2025 expense guidance due to additional progress across the company to drive efficiency gains and continued investment prioritization. Our GAAP operating expense guidance is being reduced by another $700 million from $6 billion to $5.3 billion at the midpoint. This reduction is $500 million of cash costs, plus $200 million of noncash reductions in stock-based compensation and depreciation. The $700 million GAAP reduction from prior guidance is split evenly between cost of sales and R&D. We are lowering our cost of sales forecast by $300 million to $400 million from $1.2 billion to a range of $0.8 billion to $0.9 billion, which reflects an acceleration of the efficiency programs we are targeting as part of our multiyear cost-out plan. We are also lowering our R&D expense range to $3.3 billion to $3.4 billion and approximately $350 million improvement due to continued investment prioritization and efficiency gains in the execution of our clinical trials. In just 2 years, we expect to reduce our cash cost by approximately 50% from nearly $9 billion in 2023 to $4.6 billion in 2025. We are now ahead of our plans, and we'll update improvements to our 2026 and 2027 targets at our upcoming Analyst Day on November 20. Importantly, we continue to target cash breakeven in 2028. I would like to take this moment to thank all my Moderna colleagues for their hard work and commitment to improve the financial profile of our company. Moving to Slide 10. I will share our updated 2025 financial framework. For total revenue, as I mentioned in my earlier remarks, we are narrowing our range to $1.6 billion to $2 billion from our previous guidance of $1.5 billion to $2.2 billion. For cost of sales, our updated guidance is $0.8 billion to $0.9 billion, an improvement from our previous guidance of $1.2 billion. This updated range assumes a higher cost of sales in 4Q versus 3Q, which factors in similar sales volume and higher unutilized manufacturing charges. Newly introduced tariffs are not expected to have a material impact on our business, but we continue to monitor changes to global tariffs. Our revised R&D range of $3.3 billion to $3.4 billion projects an increase in 4Q spend due to the seasonality of vaccine trial spend as well as studies in support of regulatory approvals. SG&A expenses are expected to be $1.1 billion. Similar to last year, we expect SG&A expenses in the fourth quarter to increase primarily due to commercial related activity. We expect taxes to be negligible in 2025. We expect our capital expenditures are also supposed to be approximately $300 million. We are increasing our year-end cash guidance to $6.5 billion to $7 billion, an increase of $0.5 billion to $1 billion from our prior guidance of approximately $6 billion. This increase is projected to increase year-end cash due to the reduction in our operating expense for the year. In summary, we have made strong financial progress against our 2025 financial objectives. We have tightened our sales range because of increased visibility into our seasonal sales. And we have lowered our 2025 cash cost estimate by $900 million from $5.5 billion to $4.6 billion, resulting in a higher projected year-end cash balance of $6.5 billion to $7 billion. With that, I will now turn the call over to Stephen. Stephen Hoge: Thank you, Jamey, and good morning or good afternoon, everyone. Today, I'll review our current commercial positioning in the U.S. as well as our progress across our pipeline. As you know, COVID vaccine sales still represent the vast majority of our revenues. And as Jamey pointed out earlier, the U.S. is our largest market in 2025. Slide 12 reviews the U.S. COVID vaccination market during the fall of '24 and the cumulative vaccinations to date for the retail channel for the fall of '25 as reported by IQVIA. As a reminder, the retail channel represented 72% of the total vaccinations in the fall of 2024. We expect this segment will represent a similar proportion of the market in 2025. As Jamey noted earlier, our U.S. revenue guidance is $1.0 billion to $1.3 billion. This range is based on our preseason expectation for a 20% to 40% decline from fall 2024 retail vaccinations of approximately $26 million. As of October 24 of this year, cumulative retail vaccinations were $13.2 million, down approximately 30% year-over-year and well within the 20% to 40% decline we had assumed in our 2025 U.S. revenue outlook. Moving to Slide 13. Our COVID retail market share is 42%, up 2 percentage points from last year. We are most pleased by the strong market uptake for mNEXSPIKE even given a midyear launch. mNEXSPIKE now makes up 55% of our COVID vaccination volume. Slide 14 is a summary of our prioritized pipeline. This pipeline now consists of 3 approved products, 2 programs with positive Phase III results and 5 more candidates in clinical studies with registrational potential. Moving to Slide 15, which outlines the latest developments in our late-stage respiratory portfolio, I think to start with our COVID vaccines. As mentioned earlier, Spikevax updated 2025-2026 Formula is now approved in 40 countries. For mNEXSPIKE, we received approval for the 25-26 Formula in the U.S and we are also approved in Canada. We have also applied for approval in Europe, Australia, Taiwan and Japan and would expect to launch in those countries in the '26, '27 seasons. For mRESVIA, our RSV vaccine, it has been approved for adult age 60 and older in 40 countries and also approved for high-risk adults aged 18 to 59 in 31 of those 40 countries. We recently presented multiple data sets from the mRESVIA clinical program at ID Week. For our flu vaccine candidate, MRNA-1010, we expect to complete regulatory submissions for approval in the United States, Canada, Australia and Europe by January 2026. The positive results from our Phase III vaccine efficacy trial were presented at both ID Week and the European Scientific Working Group on Influenza or ESWI this past month. Moving on to mRNA-1083, our combination flu COVID vaccine candidate. Our filing for approval is under review with the European Medicines Agency. And we expect to refile with Health Canada by the end of 2025. In the U.S., we are awaiting further guidance from the FDA on our plans to refile. We presented Phase III immunogenicity subanalyses for our flu COVID combination program at ESWI. Now turning to our nonrespiratory vaccine and rare disease portfolios. Our ongoing Phase III norovirus study has not yet accrued sufficient cases needed to conduct the interim analysis after the first season. And as a result, we will proceed to enroll a second Northern Hemisphere season this winter. As before, the timing of the Phase III readout will be dependent upon accruing sufficient cases to trigger the interim analysis. For mRNA-1647, as we announced in late October, we did not meet the primary endpoint for prevention of infection in our Phase III CMV efficacy study. We are discontinuing development in congenital CMV. However, we will continue to evaluate mRNA-1647 in an ongoing Phase II trial in patients who are undergoing bone marrow transplantation. In rare diseases, I'm happy to announce that we have reached target enrollment of the registrational study for our propionic acidemia or PA program. We also had the opportunity to present data from our ongoing Phase I/II study at the International Congress of Inborn Errors of Metabolism medical meeting during the quarter. For methylmalonic acidemia, or MMA, we presented interim data from the Phase I/II trial at that same meeting, and we expect our MMA registrational trial to start in 2026. Turning now to our oncology portfolio. We continue to make significant progress in advancing our programs. For intismeran, which is partnered with Merck, we have several late-stage studies underway. Our Phase III trial in adjuvant melanoma is fully enrolled and accruing events towards its interim analysis. Our Phase II adjuvant renal cell carcinoma trial is also fully enrolled. And as we have disclosed previously, we have 2 Phase III studies in non-small cell lung cancer and multiple randomized Phase II studies, including a Phase II study in high-risk muscle-invasive bladder cancer and a Phase II study in high-risk non-muscle invasive bladder cancer, all of which are still enrolling. We've also expanded our intismeran program into the metastatic setting with a Phase II study in first-line metastatic melanoma and a recently opened Phase II study in first-line metastatic squamous non-small cell lung cancer. Both these studies are randomized trials. Neoantigen from neoantigen analysis from our Phase II adjuvant melanoma trial was presented at the Society for Melanoma Research Meeting in October. Now moving to mRNA-4359, which is enrolling a Phase II study in first-line metastatic melanoma and first-line metastatic non-small cell lung cancer patients. The decision to proceed to that phase -- into those Phase II was based on encouraging Phase Ib data, some of which was presented at the recent ESMO Medical Congress. In early-stage oncology, we are dosing patients in a Phase I trial for our cancer antigen therapy program, mRNA-4106. For our T-cell engager program, mRNA-2808, I'm happy to announce that the first patient was dosed in the Phase I trial during the quarter. Finally, the IND for our cell therapy enhancer, mRNA-4203 is open, and we look forward to enrolling and dosing the first patient in that study. We're pleased by the growth and breadth of our clinical stage oncology pipeline and the continued strong momentum of the multiple Phase III and randomized Phase II trials within our intismeran clinical trial program conducted in partnership with Merck. With that, I will hand the call over to Stephane. Stéphane Bancel: Thank you, Stephen and Jamey. Looking at the 3 value drivers of our business; commercial, pipeline and financial. Commercially, we are seeing the benefit from market share gains of mNEXSPIKE, which we believe will continue in 2026 and beyond. Next year, our commercial business will benefit from the full year contribution from our strategic partnership in Canada, U.K. and Australia. From a pipeline standpoint, we look forward to potential approvals of our combination flu plus COVID vaccine in Europe. The file is currently being reviewed and in Canada, we expect to refile soon. In the U.S., we look forward to refiling pending further guidance from the FDA. Later this year, we will file our seasonal flu vaccine, mRNA-1010, for approval in the U.S., Canada, Australia and the EU. We also expect to see 2 clinical milestones from our intismeran program. First, the 5-year follow-up data from our Phase II adjuvant melanoma study; and second, the efficacy data from our Phase III adjuvant melanoma study. We look forward to the Phase II data from our cancer antigen therapy, mRNA-4359. We also look forward to a Phase III efficacy data from norovirus vaccine and the registrational efficacy study data for our PA program, propionic acidemia in rare disease. We have exercised strong financial discipline so far this year. We are ahead of our initial 2025 cash cost production by $900 million. We will continue to improve our cost structure and drive productivity. For the year-end cash balance projection, we have increased our year-end projection to a range from $6.5 billion to $7 billion, up $500 million to $1 billion from our prior guidance of around $6 billion. We know that a higher cash balance to exit 2025 and a much lower cost structure when we enter 2025 is the right strategy as we transition from a single pandemic product company to a large diversified portfolio of commercial products in seasonal vaccines, oncology medicines and rare disease medicines. In closing, I want to recognize the entire Moderna team for their relentless dedication to our mission. Our progress, scientific, clinical, commercial and operational is focused on our mission, delivering the greatest possible impact to people through mRNA medicines. With this, operator, we'll be happy to take questions. Operator: [Operator Instructions] Our first question comes from Salveen Richter with Goldman Sachs. Salveen Richter: As we look to the expense management on the forward here, can you help us understand what's being deprioritized or changed to allow for these changes? And then secondly, in accordance with kind of Roivant and the IP dynamics that are playing out here, can you just frame your strategy here on the forward as we look to 2026? James Mock: Sure. Salveen, thanks for the question. So I'll take the first one. So it depends on your reference point in terms of what you talk about from a cost-out perspective. Over the last few years, as I mentioned, we're down 50% from a cash cost basis. But if I'm more recent in our recent $500 million to $700 million reduction, that's split evenly across R&D and cost of sales. So cost of sales is purely driving efficiencies. Everything that the teams are hard at work and have been hard at work doing, they're just accelerating and getting it done faster. So that's unutilized manufacturing capacity, that is all the waste that we saw in materials, they're doing a great job reducing that, driving productivity within the labor force. So that's not really a deprioritized investment. On R&D, it's a bit of both. The execution of our clinical trials has been much more efficient. We've talked in the past about the fact that we were operating for speed and this time, we are operating for cost as well and efficiency. So a lot of this is just the execution of our trials. But we are making decisions here and there to not continue to advance to Phase II or Phase IIIs or even out of Phase I here and there. Broadly, we're taking down our -- just big picture story from the last couple of years. Our large Phase III vaccine trials are really running down and winding down, including CMV recently and flu combination vaccine. And after that, we are moving into oncology, which is a different amount of patients that are under those trials. So there is some prioritization in there, as we've always said, but a lot of it is also execution, but we still have prioritized our pipeline. So we are excited about the 9 or 10 late-stage programs that we have that Stephen highlighted in his prepared remarks, and we look forward to continuing to take out additional costs, and we do see that coming down over the coming years, and we'll update you more at Analyst Day. Stéphane Bancel: On Arbutus, the trial in the U.S. is scheduled for March 9, 2026. We remain confident in the groundbreaking technology we pioneered, including our lipid nanoparticle delivery system. We are vigorously defending the case and responding to new filings outside the U.S. We believe that our technology does not infringe any valid patents asserted by Arbutus. Operator: Our next question comes from Gena Wang with Barclays. Huidong Wang: Maybe 2 very quick questions. First one is regarding the U.S. COVID revenue, $781 million. I assume majority of this basically is the inventory buildup or delivery to the pharmacists. So maybe how often do you track pharmacies to maintain their inventory? And what additional color you can share regarding your estimate of the revenue for the remaining of this year? And then second question is regarding the CMS -- sorry, CMV vaccine. So what is the learning there? Why immunogenicity data did not translate to clinical benefit? James Mock: Okay. So thanks, Gena. Good to hear from you. I'll take the U.S. sales. Yes. So ultimately, the end measure is vaccinations in the U.S. that is shots in arms. And so in the third quarter, yes, we ship a lot of our product into wholesalers and then they take it down to our end pharmacists, whether that's a retail pharmacy or an IDN network, a doctor or a physician's office. And so we track that almost daily. And really, what we put -- what Stephen shared with you on the screen is that's why we show shots in arms. We believe that's the ultimate measure. And if you look at season to date through October 24, shots in arms are down in the U.S., 30%. There's a lot of reasons for that, some of which we anticipated. And if I take this back to our guidance, when we originally guided at the beginning of the year, we said $1.5 billion in the U.S. sales, $1 billion to $1.5 billion. The $1.5 billion was essentially flat year-over-year for all aspects, whether it's market share, competitive dynamics, vaccination rates, et cetera, excluding a onetime item from the prior year. And the $1 billion, as I said, is down 33%. So we obviously anticipated that the vaccination rate, which is the largest variable here, could go down. And so now we've seen that go down, and we've reduced our range. So we said we believe vaccination rates will now be down 20% to 40%. And we are in the heart of the vaccination season, we're probably half to 2/3 of the way through. So we have good visibility to this. We are measuring shots in arms. We talked about our share as well. And we also look at every single day and every single week, is there more pull down? Is there more pull down to the physicians? Is there more pull down to retail? Are there more shipments even in the fourth quarter? So -- and we feel very comfortable with our range now of $1 billion to $1.3 billion, but we do not see vaccination rates in the U.S. getting back to flat, which is the change from the high end from going from $1.5 billion to $1.3 billion. Stephen Hoge: And Gena, I'll take the CMV question. So first, we really only have, at this point, the top line data from that trial. And over the coming weeks and months, we will get a tremendous amount of more information, including detailed information on a bunch of other on immunogenicity and potentially even correlative protection and have the ability to generate hypotheses on what maybe didn't work. What I can say at this point is, as you know, going into the trial, we and the field had high hopes that a pentamer neutralizing antibody response, which had not been a part -- a strong pentamer neutralizing antibody response, which had not been a part of previous intismeran vaccine was going to be the missing piece for being able to prevent infection with a CMV vaccine. Prevention of infection with the herpes virus or in CMV was an incredibly high bar. It was a difficult bar to go after. But ultimately, the only one we thought that we could test that had a chance at meeting our target product profile for prevention of congenital CMV. So I guess what we can say at this point until we get that additional data is it looks like pentamer neutralizing antibodies weren't the missing piece and that it wasn't sufficient by itself to drive a dramatic improvement in the prevention of infection with CMV. Now we'll dig into the data as we get it over the coming months. Obviously, look forward to publishing it, sharing it at medical conferences and hopefully, the entire field can learn where vaccine development in CMV might need to go next. But ultimately, pentamer wasn't enough. Operator: Our next question comes from Cory Kasimov with Evercore. Cory Kasimov: I shift gears over to the pipeline. I want to ask about your norovirus program. Are you surprised at all by the low case accruals here? Or is this kind of anticipated? And do you believe this offers any sort of reflection on the commercial opportunity or potential demand for the product should it be approved? Stephen Hoge: Thanks for the question, Cory. So predicting epidemiology and norovirus is still an early space. And so we had always designed the study as a potential 2-season study. In fact, we're -- we'd always expected that it was possibly going to be necessary. That happens in flu vaccines. That has happened in other respiratory vaccines, other vaccines based on case accrual happened to us here. I think we believe we're getting better at predicting where that epidemiology will be, where we cite the trials and ultimately being able to accrue cases that are matched to the vaccine composition. And I think we are hopeful that with this additional second season, which was always a possibility, that we'll be able to show -- accrue enough cases to conduct that IA and ultimately demonstrate the efficacy of the vaccine. The impact on commercial target product profile moving forward, I would say, we don't believe that there's been a change to that. At the end of the day, what matters here is hopefully a highly effective vaccine against preventing norovirus. It is a well-established burden of disease globally, and we do believe that the health economic benefit of prevention of severe to moderate infections with norovirus will be clear, particularly those that are at highest risk, including those that live in long-term care facilities or other for other occupational reasons might be at risk. So we still feel strongly about that target product profile and think that the epidemiology challenges of the last season will be addressable with the second season of enrollment. Operator: Our next question comes from Luca Issi with RBC. Luca Issi: Great. Congrats on the progress. Maybe, Jamey, can you just talk about what gives you confidence that you can reiterate your cash breakeven guide for 2028? I appreciate you're making some fantastic progress in terms of like managing the OpEx and the CapEx, but still your cash cost at the midpoint this year is $4.6 billion. So I think in order to breakeven in 2028, you really need your top line to reinflect quite materially from here. So can you just talk about that? I mean it looks like COVID is still declining. RSV, maybe it's one and done for now. CMV did not make it. INP initially is going to be just for adjuvant melanoma. So what are the near-term products that you think can really inflect the top line in the foreseeable future? And then maybe second, Stephane, quickly, I think a few media outlets have reported that Moderna is working on potential large deals with pharma. So wondering if you can comment on that. And then maybe bigger picture, what's your latest thinking on DD these days? James Mock: Thanks, Luca. There's a lot in there. And we recognize it's on everybody's mind, and we're going to lay this out at Analyst Day, just so you know. But I'll mention a couple of things here. When we say and we all commit to breaking even, it is both a mix, to your point, of revenue growth and cost reduction. And so on the cost reduction side, as I mentioned earlier to Salveen's question, we see ample opportunity. And I mentioned that we will update our 2026 and 2027 framework at Analyst Day, but there's still plenty to do on that front. On the revenue side, we have -- we see a lot through geographic expansion through our strategic partnerships that I mentioned in my prepared remarks, through new product introductions. We'll get -- we'll lay that out in a more fulsome way at Analyst Day, but we remain committed. But yes, it is a mix of both the revenue side growing as well as the cost side reducing, and we still feel confident in our plan. Stéphane Bancel: Thank you, Jamey. And on the deal side, as we spoke about in several of our last calls, we really want to get products like the latent vaccine like EBV, for example, to patients. As we've said, part of our prioritization of our portfolio, we'd not want to fund a Phase III by ourselves. And so we are talking to pharma companies. We are talking to financial sponsors. As you know, we have a partnership with Blackstone that we did on flu, mRNA-1010. So those discussions are ongoing. And when we have something to communicate, we will. Operator: Your next question comes from Tyler Van Buren with TD Cowen. Gregory Wiessner: This is Greg on for Tyler. It looks like mNEXSPIKE is already taking the slight majority of your COVID vaccinations over Spikevax. So how do you expect the split between these 2 vaccines to continue to evolve? And I'd also be interested to hear what feedback you're hearing from pharmacists and other clinicians about mNEXSPIKE so far? Stephen Hoge: Thanks for the questions. So we're obviously really pleased with that launch. It has become our leading product in the overall COVID franchise. And that's been, frankly, exceeded our expectations in a positive way. It really speaks to the profile, we think the clinical data as well as the overall sort of momentum in the market towards higher-risk populations. Some of that as a result of changes in recommendation in this country toward -- in the United States towards higher-risk individuals and those over the age of 65. We're continuing to build out that medical story, and the data has been shared, obviously at ECIP, but in medical meetings. And we hope to continue to build momentum behind the mNEXSPIKE brand as our leading product in the franchise. Now Spikevax will always have a place. And as you know, Spikevax is the only approved product in pediatrics down to 6 months to 4-year-olds. And that is an important population, particularly for those with high-risk factors, those with lung disease or those with underlying comorbidities even in the young population. So we will always expect some portion to be at Spikevax. But over time, we would hope that the older adults and higher-risk populations might migrate to mNEXSPIKE. That's consistent with the feedback we've been getting. And in fact, if you look at many of our large customers, both health systems and pharmacies, that is how they are thinking about the products and using them. We'll be working with governments around the world as we move to not launch mNEXSPIKE -- sorry, as we move to launch mNEXSPIKE outside of the U.S. for the next season, and we hope to continue to see growth in that brand as a part of our overall franchise. But as I said, we will always have both. I don't have specific guidance on the split because at the end of the day, this is a decision made by health care providers and customers about what's the most appropriate choice for their patients. Operator: Our next question comes from Jessica Fye with JPMorgan. Unknown Analyst: This is [indiscernible] for Jessica. How is the U.S. COVID vaccine demand tracking this season relative to your projections? And what about the ex U.S. season? And also, can you orient us around the potential annual revenue contribution tied to the manufacturing sites in the U.K., Canada and Australia? James Mock: Yes. So yes, I'll break it down the U.S., OUS and then the manufacturing contribution. So it's track -- I think I mentioned this a little bit already. So our revised guidance is $1 billion to $1.3 billion in the U.S. We anticipate that vaccination rates are going to be in the range of down 20% to down 40%. That's not too different than what we thought at the outset of the year that it could be flat to down. We definitely incorporated a scenario where vaccination rates could be down. But we feel good about it. We are mostly -- we're halfway through the season and feel good about and have confidence in our U.S. range. Outside the United States, we actually raised the bottom end of our revenue guidance. So we used to be $0.5 billion to $700 million. Now it's $600 million to $700 million. That's due to everything is now contracted. A lot of it has been delivered. And as we look to the last couple of months of this year, what's really coming down to the only variables left are delivery timing, whether some of this falls into the first quarter of 2026 or remains in 4Q '25. And then there are a couple of markets that are predicated upon vaccination rates. So the demand is still tied to vaccination rates. So we feel very comfortable with our range outside the United States as well. Then in terms of the strategic partnerships, if you remember, in, I think, the second quarter, we said that the deliveries for our U.K. strategic partnership has already shifted outside the year, which was the reason we dropped the high end from $2.5 billion at that time to $2.2 billion. So we do not expect any revenue inside this year. That will be pure growth in the year 2026. I mentioned in my prepared remarks that half of our international revenue was in Canada in the third quarter. So Canada is up and running. We believe Australia will be up and running from a revenue perspective, that is in the fourth quarter and then the U.K. in the first quarter of next year. So we feel good heading into next year that we should be able to see some revenue growth from our strategic partnerships. Operator: Our next question comes from Geoff Meacham with Citigroup. Geoffrey Meacham: I have 2 for you. So the first one on the cost reduction and just looking at the 2028 breakeven target. I was curious if your pipeline evaluation process has evolved just to look at maximizing ROI on your R&D investments. And then on the rare disease platform, what's the capacity in this TA to add more programs? It does seem like it could be quicker to get the proof-of-concept data, but I just maybe wanted to compare that to oncology and how you guys are thinking about it. Stephen Hoge: Thanks for both those questions. So first on R&D, I think it was a couple of years ago and reiterated last year that we said as far as large Phase III programs in our infectious disease pipeline, that we would defer further Phase III investments until we cross breakeven -- cash breakeven in 2028. And that as a result of that, there would be this substantial downshifting in our R&D expenditures over last year and this year and the next year ahead as the large Phase IIIs for flu, for COVID, for CMV and even norovirus run off. And so we've maintained that position all the way through how we've been constructing our pipeline, which I would say is not necessarily ROI maximizing. It is cash and investment optimizing. We do believe we have several compelling Phase II programs. EBV is one example of a vaccine against infection mononucleosis and perhaps multiple sclerosis, but one that we are not moving forward with in terms of investment. I believe that ROI is attractive and positive, we do, but we will wait to make investments until we've shown we can break even based on the current products. And so that's the way our portfolio has been evolving from a construction perspective. Now there are instances, for instance, in our oncology space, where we do see an opportunity to make cash investments within our prior guidance, whether that's with the intismeran program or with 4359 that we think are -- have a very attractive ROI and again, can fit within our breakeven guidance for '28. And so those are instances of where we will continue to move forward. And maybe that's a natural segue to that last part of your question, which is that is also true to some extent in the rare disease space. We have the 2 programs, PA and MMA that are moving towards or in the case of PA fully enrolled in their potential registrational studies. And it is a platform where we do believe we can do much more. There is a very large number of diseases for which we think the technology can work. But again, we want to demonstrate discipline. And so we are not prioritizing making further investments in the rare disease space until we have PA and MMA through those registrational studies and ideally until we also achieve our breakeven targets for '28. It is a lower cash investment to move those programs forward. And so as you alluded to, it might be a place that naturally as we get more comfortable over the next year or 2 that we start moving perhaps a third or a fourth program through. But that will have to be balanced against further investments in oncology like the 4359 programs or potentially the reinitiation of pivotal investments in our infectious disease portfolio. And at this point, we'll make those decisions in the future and haven't got a strategic view one way or the other right now. Operator: Our next question comes from Courtney Breen with Bernstein. Courtney Breen: Just wanted to probe a little bit more on the R&D cuts, perhaps kind of in contrast to Salveen's question, perhaps a little bit more forward-looking. As you think about kind of the efficiencies that you've garnered and the new approach, are there more cuts that you can make going forward to that R&D plan? Or would that require actually stopping of programs or changing kind of your prioritized list of assets that you have in the pipe? Stephen Hoge: Yes. Thank you for the question. So we do expect further reductions in costs. We've previously communicated how we were moving towards breakeven. And so today's cash costs for 2025, while they are better than our guidance, they are not done. And we expect further reductions in our GAAP cost for R&D over the coming year and 2, purely based on the sunsetting of our existing prioritized investments. And so we believe that those reductions will happen without further program stops and we will continue to do investment in the early-stage space as well, which, as you know, is a less cash-intensive, capital-intensive area. So at this point, we believe we can continue to drive efficiencies and further cost reductions in our R&D investment in the coming years simply by completing the work that we had started several years ago in our infectious disease vaccines portfolio. Operator: Our next question comes from Myles Minter with William Blair. John Boyle: This is John on for Myles. So maybe a follow-up to an earlier question on the CMV program. I know that you're still going through the data, but I was wondering if you could speak to any read-through from the CMV trial missing to any of your other latent vaccine studies or if you view the CMV miss as an isolated event? Stephen Hoge: Thanks for the question. So CMV was unique in our pipeline in that it is the only pivotal study, a Phase III study that we are running against a latent virus and the only one that was going after prevention of infection. So we do believe that prevention of infection was unfortunately the only way to try and demonstrate a potential for the vaccine against congenital CMV, but it was by far the highest bar. Vaccines generally don't prevent infection. They prevent diseases from the viruses. And even in the case of CMV, we still believe that there's an opportunity for mRNA-1647 to have an impact in patients undergoing bone marrow transplant where they are already infected, but they see a reactivation of their CMV that can have serious potential morbidity and mortality. And for that reason, we think there's an opportunity for a vaccine to help control that reactivation, even a vaccine against CMV. So I guess I would say we don't have other programs in our late-stage or prioritized pipeline that have a similar read-through or read-through from the CMV results because we are not trying to prevent infection with any of them. We're trying to prevent diseases. And even in the case of CMV, we see a potential opportunity in an indication like bone marrow transplant CMV reactivation, where, again, the target product profile is going against prevention of a disease, not prevention of infection. Operator: [Operator Instructions] I'm not showing any further questions at this time. I'd like to turn the call back over to Stephane for any further remarks. Stéphane Bancel: Well, thank you, everybody, for joining today. We look forward to talking to many of you in the coming days and weeks, and we look forward to seeing many of you here on campus on November 20 for Investor Day. Have a great day. Thank you. Operator: Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

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PHARM.AS 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to Pharming Group N.V. Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Fabrice Chouraqui, Chief Executive Officer. Please go ahead. Fabrice Chouraqui: Thank you, operator, and good morning and good afternoon, everyone, and welcome to the Pharming's Q3 2025 Earnings Call. I'll be joined on this call today by Steve Toor, our Chief Commercial Officer; Anurag Relan, our Chief Medical Officer; and Kenneth Lynard, our new Chief Financial Officer. On this call, we will be making forward-looking statements that are based upon our current insights and plan. As you know, these may well differ from future results. As you saw in our press release earlier today, we delivered another very strong quarter. Total revenues grew by 30% in the third quarter of 2025 versus the same quarter last year, and operating profit jumped to $15.8 million, nearly 4x last year's result. Operating cash flow came at $32 million, putting our cash position almost back to where it was at the end of 2024 before the acquisition of Abliva. Our strong top line growth was fueled by the continued significant growth of our 2 commercial assets, RUCONEST and Joenja. RUCONEST grew 29% year-on-year, fueled by continued strength in new prescribers and in new patient enrollments, even amid the launch of a new oral on-demand therapy in July. This reflects RUCONEST's unique value proposition for severely affected HAE patients, which Steve will elaborate upon in a minute. Joenja third quarter revenue increased by 35% reflecting the 25% year-on-year growth in patients on treatment and our increasing success in finding new APDS patients. The drug continues its uptake in the 12-year plus APDS segment. And when looking ahead, we anticipate adding new sources of growth with the pediatric indication, the reclassification of the U.S. patients and our geographic expansion. The strong momentum for our 2 commercial assets support an upgrade to our full year 2025 revenue guidance to $360 million -- to $365 million, $375 million from the previous $335 million, $350 million, for which Kenneth will provide more details later in the call. Finally, the recently announced significant reduction in G&A headcount follows through on our plan to optimize capital deployment to high-growth initiatives to fully capitalize on our significant growth prospects. Before we review our commercial and financial results in greater detail, I'd like to highlight that our Q3 performance reflects our strong growth foundation. In just a few years, Pharming has transformed from a single asset company into a fast-growing biotech with 2 high-growth commercial products and a late-stage pipeline with 2 programs with over $1 billion sales potential each. As we've seen, RUCONEST continues to grow double digits after 10 years on the market. Its unique value for severe HAE patients and specific manufacturing process make it a reliable cash engine to fund our future growth. Joenja is just at the beginning of its life cycle with multiple growth catalysts. The recent data published in sales suggests significantly higher APDS prevalence and the expansion in larger PIDs and CVID could unlock a much larger market. KL1333 for primary mitochondrial disease is another $1 billion-plus opportunity with a positive futility analysis in the ongoing registrational study. So this combination of durable revenues, first-in-disease innovation and late-stage pipeline positions Pharming well for substantial value creation in the near and long term. With this portfolio and pipeline as the foundation, we can leverage our strong rare disease capabilities to build a leading global rare disease company and deliver on our vision. I'll now hand over to Steve, who will discuss our commercial progress during the quarter and elaborate on the continued strong growth of RUCONEST and Joenja. Stephen Toor: Thank you, Fabrice. Good morning, everybody. As Fabrice said, RUCONEST has delivered another very successful quarter with high double-digit growth of $82 million in revenue, which is up 29% on Q3 of last year. The strong growth is being driven by the continued increase in prescribers quarter-on-quarter. New prescribers are recognizing the value RUCONEST brings to patients suffering with moderate to severe HAE, and this underpins our consistent prescriber growth over the years. In fact, we've added an average of 22 new prescribers in the past 6 quarters, which leads directly to the high level of new patient enrollment and the vial volume increase over prior year, which is at 28% versus the first 9 months of 2024. Pharming's sustained success unabated by the recent launch of the oral product reflects RUCONEST's unique profile and strong differentiation in the acute on-demand HAE market. RUCONEST remains an important treatment option for moderate to severe patients who experience more frequent attacks, which explains the continued strong momentum and our confidence in the product's long-term growth prospects. As a reminder, RUCONEST is a highly effective product serving all patient types, type 1, type 2 and normal C1, specifically those patients suffering from frequent moderate to severe debilitating HAE attacks. They've also typically failed other single pathway-specific targeted acute therapies such as Icatibant, which have not been effective for them, often leading to the need to redose to stop their HAE attack. As the only recombinant C1 protein replacement therapy, RUCONEST uniquely addresses the root cause of HAE, providing strong differentiation versus single pathway targeted therapies. This differentiation is why RUCONEST is a cornerstone treatment for HAE attacks. You can see in the photographs on this slide an actual RUCONEST patient, and this is exactly the type of patient I mean, with a more severe course of disease attacking frequently and having to redose on other therapies along with her recovery as she resolves the attack. HEA patients with the disease profile I've described need RUCONEST on hand, which through its IV mode of action delivers a bolus of C1 straight in the vein, which is critical for them. As a result, by using RUCONEST, patients get complete resolution in a single dose for 97% of their attacks. Half of those patients actually get complete attack resolution in 4.5 hours with the vast majority within 24. That efficacy is both critical and reassuring, and that is direct feedback from the patients we serve. Switching gears to Joenja. As with RUCONEST, we've delivered another strong third quarter. We achieved high double-digit year-over-year revenue growth of plus 35%, generating $15.1 million in revenue for the quarter. The number of U.S. patients on paid therapy is up 25% versus Q3 2024. And importantly, we've identified 13 additional APDS patients in Q3 alone, which shows our ability to keep building the patient funnel in this ultra-rare disease. We're finding patients faster than we did in 2024 with a total number of APDS patients in the U.S. now at 270. Importantly, the resulting significant increase in patients versus 2024 on patients consistently high adherence to therapy is driving this strong revenue growth. The launch of Joenja in the U.K. is also going well, and this is an important first step as we execute our focused geographic expansion plans. Let's now review the next significant inflection point, which is the pediatric launch in the U.S. for patients aged 4 to 11. The FDA has granted priority review of our application to expand the label and assigned a PDUFA date or an approval date of January 31, 2026. Our preparations for launch after the expected approval in January are on track. As we approach the U.S. pediatric launch, the team has already identified 54 patients diagnosed with APDS aged 4 to 11. 1/3 of those patients are already on therapy through Pharming's early access program and with many others likely to go on therapy soon after launch. So this represents an important growth driver for Pharming, which starts in just a few months. I'd like to now hand over to Anurag, who will discuss our development programs and the forthcoming data presentations at the American College of Allergy, Asthma and Immunology later this week in Orlando. Anurag Relan: Thanks, Steve. In addition to the commercial successes in the quarter, we continue to advance our pipeline in the past 3 months. In APDS, as you mentioned, Steve, the FDA granted priority review for our sNDA for 4- to 11-year-old children, underscoring the seriousness of the disease and the potential to offer a new treatment option with leniolisib. We also have regulatory filings under review in Europe, Japan and Canada with approvals anticipated in 2026. We have 2 Phase II proof-of-concept studies for PIDs with immune dysregulation, and these are also on track for readouts in the second half of '26. And then our newest addition to the pipeline is also progressing nicely, KL1333 in a registrational study for primary mitochondrial disease, where enrollment and site activation are advancing, and we continue to expect to read out in late 2027. As you recall, there was an important publication in Cell in June. This work has implications for the variants of uncertain significance or VUS reclassification work, which is ongoing by the labs. The publication in Cell, however, also opens another potential avenue to expand the APDS population. Specifically, the paper found more than 100 new gain-of-function PI3K delta variants. What surprised the researchers was that these gain-of-function variants were much more commonly found in population databases, suggesting an APDS prevalence up to 100x higher than current estimates as well as a broader set of clinical symptoms. This raises a number of key questions to determine how these variants may cause disease, including which variants cause clinically meaningful gain of function, what symptoms and diseases do these variants cause and how do we find patients with these variants. We started a number of activities now to help answer these questions. First, we're convening a global KOL at [ AG Board ] this month to address how these variants can cause disease. In parallel, we're sponsoring work to build a predictive AI-driven model that could identify patients who could benefit from targeted PI3K delta inhibition with the goal then to be able to apply the model to large EMR databases. And given the significant findings, we can actually identify more gain of function variants with newer base editing technologies. Generating additional variants will be important not only to understand the broader prevalence, but also for the ongoing VUS resolution project. So much more to come on this exciting work. We also have new data being presented at the American College of Allergy, Asthma and Immunology. There are 5 posters on RUCONEST where we performed a reanalysis of our clinical trial data with recently used definitions of key endpoints. These data highlight the key symptom benefits in HAE patients experience with RUCONEST across a number of clinically relevant outcomes. In addition, an indirect treatment comparison with sebetralstat will be presented, providing additional evidence for the unique benefits that RUCONEST offers HAE patients. On the APDS side, we have posters describing the treatment burden of the disease on both patients and caregivers. We also have a number of posters on Joenja with real-world data highlighting key benefits, including a reduction in infections. Lastly, ahead of our expected pediatric approval, we have new data in this 4- to 11-year-old APDS population, showing important outcomes, especially on quality of life improvement seen in the study. I'll turn it over now to Kenneth, our newest member of the team, to review our financials. Kenneth Lynard: Thank you, Anurag. As the new CFO, I'm excited to have joined Pharming at such an exciting time and have the opportunity to provide more color on our strong financial performance and outlook. Q3 was an excellent quarter with revenues at $97.3 million, up 30% versus the same quarter last year. We saw double-digit revenue growth for both RUCONEST and Joenja. Gross profit grew by 33% to $90.2 million, mainly due to the higher revenues. And accordingly, we recorded a gross margin of 93% versus 91% same quarter in 2024. Our operating profit with a slight adjustment, as it's noted here on the slide, almost increased to 4x to $16.0 million compared to $4.1 million last year. That came from growth in revenues, the improved gross margin and well-managed operating costs. Cash and marketable securities increased from $130.8 million at the end of the second quarter to $168.9 million at the end of Q3. This increase was driven by significant cash flow from operating activities with $32 million. And as Fabrice mentioned, the total balance of cash and marketable securities is now back in line with the end of 2024 prior to the Abliva acquisition. Our year-to-date consolidated financial numbers for the first 9 months show continued strong execution of our strategy. Total revenues grew by 32% to $269.6 million due to strong double-digit revenue growth for both products and gross profit grew by 35%. Operating expenses increased by $29.2 million, excluding $20.4 million of Abliva-related acquisition expenses and our operating expenses were up by only 4%. Adjusted operating profit, excluding nonrecurring Abliva acquisition-related expenses compared -- was $29.7 million, which compared to a loss of $15.3 million for the first 9 months of 2024. Cash flow from operating activities was $44 million in the first 9 months of the year. Following the strong results for the first 9 months, we are raising our 2025 total revenue guidance to $365 million to $375 million, up from $335 million to $350 million. This implies full year revenue growth between 23% to 26%. The increase is due to continued strong performance and outlook for the remainder of the year. We continue to expect total operating expenses between $304 million to $308 million, this assumes constant foreign exchange rates for the remainder of the year, includes $10.2 million of nonrecurring Abliva acquisition-related transaction expenses and excludes approximately $7 million in onetime restructuring costs related to the implementation of our G&A reduction plan. We continue to expect that our available cash and future cash flows will cover the current pipeline and related prelaunch costs. Going forward, we'll further accelerate setting the foundation for strong financial discipline with investments into areas that matters the most to spark near- and long-term value creation. On a personal note, I came to Pharming given my deep belief in its mission to bring life-changing therapies to rare disease patients and so the strong potential to develop a leading global rare disease company. I see great opportunity to sharpen our focus on profitable growth, effectively allocate capital to maximize return on investments and improve transparency and predictability in our financial reporting. And with that, let me hand back now to Fabrice for closing remarks. Fabrice Chouraqui: Thank you, Kenneth. So in summary, we are really pleased to report yet another strong quarter, reinforcing the strength of our business for sustainable growth and long-term value creation. As you heard from Kenneth, as a result of this performance and our outlook for the remaining of the year, we are raising again our full year guidance. Looking ahead, RUCONEST is poised to continue to grow and to remain the cornerstone treatment for severe HAE patients, underpinning a strong revenue base. Joenja is well positioned to generate a significant portion of our revenues in the future given strong growth and the additional opportunities we are actively unlocking. Our high-value pipeline is advancing rapidly with a clear objective to deliver 2 potential blockbuster assets, creating a meaningful value creation catalyst for shareholders. And we are also taking decisive steps to enhance financial discipline, including optimizing G&A headcount to ensure efficient capital allocation and maximizing our return. I'd like to end this call by expressing my sincere gratitude to Steve Toor for his contribution to Pharming over the past 9 years. We look forward to his continued support as an adviser to the company, and we are very excited to welcome Leverne Marsh as our new Chief Commercial Officer to drive the next phase of commercial growth. Let me now open the line for questions. Operator: [Operator Instructions] First question comes from Jeff Jones of Oppenheimer. Jeffrey Jones: Congrats on a really strong quarter. Two questions from us. With respect to RUCONEST, can you speak to any impact you're seeing from the new oral that has come on to the market? Where do you see it being adopted? Do you anticipate any pressure on your patient base? And then for Joenja, you mentioned that 1/3 of the pediatric patients already identified are currently on therapy through early access. Any impact on revenue from these patients when the product is formally approved next year? Fabrice Chouraqui: Thank you so much, Jeff, for your question. So on RUCONEST, I mean, clearly, we don't see RUCONEST competing head-to-head with sebetralstat. And so that's why I cannot comment on how sebetralstat is doing. As I mentioned, I believe we have a highly distinctive value proposition that serves a different type of patients, more severe patients. And this is due to a unique mode of action that replace the missing, the deficient protein underlying the biology of the disease and a very specific mode of administration. As such, I believe that many more patients could benefit from RUCONEST, many more patients who are not yet well controlled on an on-demand treatment. And that's the vast majority of the RUCONEST patients. These are patients who have not been able to be controlled appropriately with other treatments and ultimately got the efficacy that they needed with a treatment with RUCONEST. When it comes to the pediatric, the question on Joenja and pediatric, as you rightly said, we have identified already 54 pediatric patients in the U.S. and about 1/3 of them are on our early access program. We expect to convert these patients, those patients who are already on the drug fairly quickly. And as such, which is typically what you see in rare disease, in ultra-rare disease, we expect somehow a bolus of patients to come on drug. This will then add to the patients that are already identified that we will strive hard to ensure that they can benefit from RUCONEST. And then will come additional patients, pediatric patients that we are committed to identifying. So the normal sequence where you have, first, patients who are on access program that will convert, second, patients who are already identified that will probably come on drug if the doctors decide so. And then new patients that you identify. So really, that sequence will probably happen next year. And given the number of patients that we have already identified, 54, it's a large number, we believe that pediatric, the expansion of the pediatric -- the label to the pediatric population will be a significant growth driver that will add to the current source of business in adults in the 12-year plus segment. Operator: Next, we have Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: I've got a few, if I may. So just following then on RUCONEST, and apologies if I missed this at the beginning of the call, I was late joining. The plan to stop RUCONEST outside of the U.S., have you given a time frame on when that will become effective? And then just in terms of the competitive threat from Ekterly, given -- I'm totally understanding your -- the different positioning of the drugs. But how often are typically HAE patients seen by their specialist for them any -- if there were to be any switching for that to potentially become apparent? And then moving on to Joenja. In terms of the VUS opportunity, are you happy with the rate at which the -- this -- I mean, my understanding is we might start to see VUS patients in the second half. And I noticed that the guide no longer -- the kind of details with your outlook no longer kind of suggest that. So is that something that you think is now more likely to be pushed into 2026? And what is the process for VUSs outside of the U.S.? And then if I may, 2 more. Just in terms of the compliance rates on Joenja, I think before it's been roughly around 85%. Is that something you're still happy with? And then just in general, your rate of progress identifying patients, what do you think the anticipated peak could be within the U.S.? Sorry for so many. Fabrice Chouraqui: Thank you, Lucy. I'll try to cover all your questions. So I'll start with RUCONEST and your questions related to the delisting of RUCONEST in some countries in Europe. We plan to complete this by the first half, first quarter -- end of the first quarter, first half of next year. When it comes to -- and again, this is really driven by the fact that we don't see the commercialization of RUCONEST in these countries that's financially sustainable. Given the number of growth drivers that we have, we hope to be financially disciplined and ensure that we deploy our capital appropriately. Obviously, we are working with all stakeholders in those countries to ensure that those patients will be able to access the right treatment and if needed, ensure continuity of supply of RUCONEST through compassionate use access mechanism. When it comes to Ekterly, I mean, I said that clearly, for me, the RUCONEST and Ekterly are serving 2 different types of patients. And as such, I don't see a second threat for RUCONEST. I mean, RUCONEST is a drug that has a unique mode of action that replace the missing or deficient protein underlying the biology of the disease. RUCONEST has a very unique mode of administration that allow a very fast onset of action. And as such, it has a unique value proposition for more difficult-to-treat patients. That's why the vast majority of patients on RUCONEST are more severe patients, are patients that often have failed other treatments, are patients that need actually that level of efficacy, that speed of onset to really address their more frequent and more severe crisis. All right, moving to Joenja and your question about the U.S. as Anurag said, test labs are in ongoing conversations with the researchers, which published this paper in Cell. And we expect that over time about 20% of the U.S. patients to be reclassified as APDS. We have obviously to remain arm length, obviously, to what's happening and hope that the discussion will progress well and that we will see some patients being reclassified. Outside the U.S., the process will be the same. Test labs will have to, again, understand the data, incorporate the data, identify patients who are carriers of those newly identified variants. And if those test labs feel that those patients needs to be reclassified, then they'll call the doctors and then the doctors will probably reach out to the patients. The adherence rate is -- we don't see any change actually in the adherence rate for Joenja. It is actually remains extremely strong and around the magnitude that you have mentioned. When it comes to patient identification, you're right that we're very pleased to see that our efforts continue to pay off and that we have added 13 new APDS patients in Q3. We have identified 13 new APDS patients in the U.S. in Q3. That shows our capability to identify patients in this ultra-rare -- suffering from this ultra-rare disease. You asked about the peak. I mean, there are in the U.S., if you consider the prevalence, at least 500 patients suffering from APDS. On top of it, we've said that we expect that 20% of the U.S. patients actually could be reclassified as APDS, and that could increase the potential of this population by 50%. And then on top of that, Anurag mentioned the efforts that we are making to really leverage the work that has been published in sales and which suggests that APDS prevalence may be far higher. And that could be actually an upside. So again, I think there are some very concrete numbers I've shared with you. And on top of it, the potential upside, which we cannot quantify today. The authors suggested up to 100x. Again, this needs to be verified, and you can see that we have a very concrete and solid kind of action to be able to come back to you with more next year. I hope I addressed your question, Lucy. Operator: Next we have Sushila Hernandes from Van Lanschot Kempen. Unknown Analyst: This is [ Maridith ] for Sushila from Van Lanschot Kempen. I have 2 questions. First, given your more disciplined approach, what are your priorities for capital allocation? Can we expect another M&A transaction similar in size to Abliva? And second, how is your basket PID trial progressing? And when can we expect top line? Fabrice Chouraqui: Hi, thank you, Sushila. Thank you for calling out the disciplined capital allocation. That's true. And hopefully, it was very apparent. And with Kenneth joining, clearly, I'm extremely happy that given his track record, I'll be able to really embed that mindset, which is absolutely essential if you want to run a high-performing organization. I think as you see, we have a number of growth catalysts in our commercial portfolio in the short term. We also have a number of pipeline catalysts next year and the year to come. So when it comes to value inflection point, growth catalysts, we have a lot, and we are committed to showing that we can execute. Now it is true that we have higher ambitions, but there is no rush actually in doing any M&A. Obviously, given the strong growth platform, our ability to generate cash, the very strong capability platform that we have built over the years in clinical development, in supply chain, in commercial, in access, I believe we can be much more ambitious, and we should be looking at the continued expansion of our portfolio and our pipeline. And as such, we are continuously looking at potential opportunities to expand our portfolio and pipeline. So there is nothing planned. There is no rush. Anything that we would want to do will have to be value accretive for our stakeholders and shareholders. But clearly, this is something that we keep in mind. It is part of the work that we're doing. And if we find the right opportunity, obviously, we will engage with our shareholders. Anurag Relan: And I think you had asked also about the basket PID trial. And if you remember, this is a study with multiple genes that can drive the PI3K pathway, a Phase II proof-of-concept study. And this study is actually progressing very nicely. We continue to expect readout from the study in the second half of '26. So a very exciting program, along with the CVID program, both on track for second half '26 read out. Operator: Next we have Joe Pantginis from H.C. Wainwright. Unknown Analyst: This is Josh on for Joe. So I just wanted to ask a question about the new formulation. If you could give any more color on this new pediatric formulation for the 1- to 6-year-old group? And if there's any specific manufacturing hurdles that you may need to clear for this formulation? Anurag Relan: Josh, so we have indeed a new pediatric formulation for the youngest population, again, because this youngest population of children wouldn't be expected to be able to follow a tablet, which we currently have available for the older kids as well as the adolescents. For this youngest population, the formulation is granules. And so these granules, we've manufactured them, we've done PK work on them, and we're going through the -- we've actually completed the study with this 1- to 6-year-old population. So we expect to follow a similar process in terms of the regulatory path. And obviously, we've engaged with FDA, both with discussions on the formulation, but as well as on the study design. So I think all of it remains on track. Operator: Next, we have Natalia Webster from RBC. Natalia Webster: Firstly, I just wanted to ask around your revenue guidance uplift, just confirming how much of this comes from better-than-expected RUCONEST versus Joenja. And then in particular, for RUCONEST, how you're expecting that to develop into Q4 and 2026, given that you're not seeing much pressure from competition and also continue to see increases in prescribers and patients there? My second question is on Joenja and the international rollout. It seems that this is contributing around 11% this quarter. So curious to hear a bit more about how that's evolving and how you expect that mix to evolve over time? And then thirdly, just around the RUCONEST withdrawal from ex U.S. markets. Are you able to comment a bit on the savings you'll make from this and where you plan to redirect those resources? Fabrice Chouraqui: Thank you, Natalia. So when it comes to our revenue guidance, as Kenneth said, it was driven by the continued strength of our business that we've seen in Q3 and throughout the year in 2025. So obviously RUCONEST plays an important role because of the size of the drug, of the RUCONEST revenues in the total size of the revenues. But this upgrade is driven by both, obviously, the continued performance of RUCONEST and also the continued performance of Joenja. As Kenneth said, the new guidance suggests a growth for the year between 23% and 26%. We have not yet provided guidance for next year. But as we mentioned during the call, we expect RUCONEST to continue to grow as it's serving a differentiated population and has a unique value proposition for these more severe patients. And obviously, the acceleration of the growth of Joenja. Acceleration because until now we were able to source patients from only a unique source of business, the 12-year-old plus APDS patient population and that tomorrow we'll be able to unlock new source of business with the expected expansion of the label to the pediatric population that will add a significant number of patients. We have already identified 54 patients. That's a large number of patients. 1/3 of whom are already on drug, which we'll be able to convert, I hope, and fast. And then obviously, having already identified patients, these patients are more likely to be put on drug, and we will continue our efforts to identify more patients. And then we have other growth opportunities that we have elaborated upon in detail, the U.S. and then the geo expansion. That was actually one of your points. I think the launch in the U.K. is going very well. So we are very encouraged to see this. I think that shows our ability to launch a drug like Joenja in other countries. We have selected 8 markets outside of the U.S. where we believe we can develop a significant business for Joenja. And so we will roll out this strategy. Obviously, we are -- we will be -- we will make sure that reimbursement authorities in these countries reimburse the drug at the right price. It's absolutely. So the goal is not to launch just for the sake of launching. We have access program in place to allow patients to benefit from the drug at the present time. Obviously we are not a philanthropic company, and we need to have our drug reimbursed, but it cannot be done at any cost, and we will be working actively on this. When it comes to the RUCONEST withdrawal, as I said, we have to be more disciplined in the way we allocate our capital. We felt -- clearly we felt that maintaining the commercialization of RUCONEST in these countries was not financially sustainable. We'll take great care to ensuring -- great attention to ensure that patients can continue to access the right treatment. In terms of financial implication, it's difficult to quantify. It's going to be minimal. I mean you know that actually the vast majority of revenues came from the U.S. So I don't expect meaningful impact whether on the top line and in the bottom line, this is actually combined with our financial discipline efforts to really manage our cost structure more tightly. Operator: Our last question comes from the line of Simon Scholes from First Berlin. Simon Scholes: I've just got 2 questions. So you recorded a gross margin of 92.7% in the third quarter, which I think compares with 90% in H1 and 89% in '24. I was just wondering how we should think about the gross margin in your existing markets going forward? So do you think this 93% is sustainable going forward? And then you also say in the presentation, I mean, you said you've got -- you've seen an increase in more severe frequent attack patients. Does that mean that these more severe frequent attack patients are actually increasing as a proportion of the overall number of patients? Fabrice Chouraqui: So I'll start with the latter, and I'll let Kenneth actually elaborate on the gross margin point. So it is true that RUCONEST is serving a quite distinctive population in the on-demand market, more severe patients. And by more severe patients, I mean, patients who are having more severe crisis, often life-threatening crisis and more frequent crisis. And so that's basically the bulk of the patients. And so as the sales of -- as the revenue of RUCONEST developed, we see that pattern being reinforced. So RUCONEST is a drug that is primarily used on more severe patients, patients who are having more severe crisis, more frequent crisis. And I don't think that, that will change. I think there will be other treatment options for other type of patients. And RUCONEST will be able to continue to serve those patients, leveraging, again, the reliability that is built among this patient category and with prescribers. And I think that also illustrates the fact that quarter after quarter, although 10 years on the market, we see more prescribers using the drug. When it comes to the gross margin, I'll let Kenneth elaborate. Kenneth Lynard: Yes, thank you. Thank you, Fabrice, and thanks for the question. It's obvious that we have a high gross margin and it's impacted also by the mix of sales and across different geographies. As you see, so to say, the Joenja share growing and faster growing than RUCONEST, we're having a benefit coming from that. So we don't want to kind of give specifics in terms of the forward-looking performance, but I think you have seen kind of a slight increase on a continuous basis as we start to build out the Joenja sales to a larger extent. So I think Q3's performance is very encouraging, but we are not at this point of time giving the specifics around forward-looking, but think about it in that context of the Joenja share growth. Operator: That concludes the Q&A session. I will now hand back to Fabrice for closing remarks. Fabrice Chouraqui: Thank you very much, operator. Thank you all for attending this call and for your continued interest in our company. With that, I'll close the call. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

159天前Insight Analytics约5分钟阅读

WEF.TO 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen. Welcome to Western Forest Products Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] During this conference call, Western's representatives may make forward-looking statements within the meaning of applicable securities laws. These statements can be identified by words like anticipate, plan, estimate, will and other references to future periods. Although these forward-looking statements reflect management's reasonable beliefs, expectations and assumptions, they are subject to inherent uncertainties, and actual results may differ materially. There may be -- excuse me, there are many factors that could cause actual outcomes to be different, including those factors described under risks and uncertainties in the company's annual MD&A, which can be accessed on SEDAR and is supplemented by the company's quarterly MD&A. Forward-looking statements are based only on information currently available to Western and speak only as of the date on which they are made. Except required by law, Western undertakes no obligation to update forward-looking statements. Accordingly, listeners should exercise caution in relying upon forward-looking statements. I would now like to turn the meeting over to Mr. Steven Hofer, President and CEO of Western Forest Products. Mr. Hofer, please go ahead. J. Hofer: Thank you, Gary, and good morning, everyone. I'd like to welcome you to Western Forest Products 2025 Third Quarter Conference Call. Joining me on the call today is Glen Nontell, our Chief Financial Officer. We issued our 2025 3rd quarter results yesterday. I will provide you with some introductory comments and then ask Glen to take you through our financial results. I will follow Glen's review with our outlook section before we open the call to your questions. Despite challenging markets and increases in lumber duties, we continue to focus on our operational controllables and maintaining a strong balance sheet. In the third quarter, this included reducing working capital and reducing our debt by $15.7 million compared to the second quarter. In our Timberlands group, we continue to focus on cost and inventory management with log inventory turnover improving 11% since 2023. However, ongoing permitting challenges in BC and a strike at our La-kwa sa muqw Limited Partnership continue to challenge harvest levels. In our Manufacturing group, our mills achieved above target uptime levels of 87% in the third quarter, an 11% improvement in lumber inventory turnover year-over-year. We were also proactive in staging lumber inventory into the U.S. ahead of duty increases, leading to approximately $3.3 million in duty savings. In our sales and marketing group, we continue to grow strategic customers and advance opportunities to grow our domestic and international customer base as we actively navigate the effect of tariffs and increased duties. In the first 9 months, U.S. lumber shipments accounted for 21% of total shipments from our Canadian operations, compared to 25% in the year ago period. We achieved ahead of target on-time shipping performance of 92% in the quarter. We continue to advance progress on 2 continuous kilns at our value-added division with construction commencing and commissioning of the first kiln expected in early 2026. These investments will increase the production of value-added kiln-dried lumber products, lower our drying costs and help support the diversification of our global customer base. With significant increases in softwood lumber duties and softness in the North American lumber demand, we expect challenging market conditions to persist in the near term. However, through the successful repositioning of our balance sheet in 2025, we are prepared to navigate near-term uncertainty. I'll now turn it over to Glen to review our key financial results. Glen Nontell: Thanks, Steven. Third quarter adjusted EBITDA was negative $65.9 million as compared to negative $10.7 million in the same period last year. Our results for the quarter included a noncash export duty expense of $59.5 million related to the finalization of duty rates from the sixth administrative review. As compared to the prior year, results in the third quarter were negatively impacted by softer macroeconomic conditions, U.S. trade tensions and an ongoing strike at our La-kwa sa muqw Limited Partnership. This resulted in lower lumber shipments, a weaker specialty lumber sales mix and reduced log harvesting and lower external log shipments. This was partially offset by higher average realized lumber prices in most markets and improvements in realized log prices due to a stronger sales mix. We closed the third quarter with approximately 53 million board feet of lumber inventory and 602,000 cubic meters of log inventory. Turning to CapEx. We have reduced our planned 2025 capital expenditure spending to between $30 million to $35 million. We will continue to rigorously evaluate our planned CapEx spending and adjust proactively. From a balance sheet perspective, we ended the third quarter with an improved balance sheet, reducing debt by $15.7 million compared to the second quarter and ending with a net debt to capitalization ratio of 2%. Our available liquidity also improved to $234 million, supported through working capital reductions and a new $30 million letter of credit facility. With respect to softwood lumber duties and U.S. trade, the U.S. Department of Commerce announced its final determination for countervailing and antidumping duty rates related to the sixth administrative review. The combined effective rate increased to 35.16% and compared to the prior combined rate of 14.4%. In addition, on September 29, U.S. President, Donald Trump, imposed a 10% tariff on imported lumber products through Section 232 of the Trade Expansion Act. The incremental 10% tariff became effective on October 14. We continue to prioritize diversifying our shipments into other jurisdictions to minimize our U.S. exposure. Turning to fourth quarter seasonality. Typically, in fourth quarters, lumber consumption declines in North America as construction slows with the onset of winter. In our timberlands, harvest volumes decline as we lose daylight operating hours. In addition, winter weather can negatively impact operations and further limit production. The combination of weather-related curtailments and reduced operating hours can put upward pressure on harvest cost. Steven, that concludes my remarks. J. Hofer: Thanks, Glen. Turning to our market outlook. North American markets are expected to remain weaker in the near term. U.S. channel inventory levels remain elevated and the incremental U.S. tariff of 10% has further complicated an already weak demand environment. However, with the anticipation of further Central Bank interest rate cuts and the 30-year mortgage rate approaching 3-year lows, this may support improved housing affordability and modestly stimulate U.S. housing demand in 2026. Markets may start to improve towards the end of the fourth quarter of 2025 or into early 2026, as supply decreases and as distributors start to build inventories ahead of the spring building season. However, in the near term, distributors, pro dealers and home centers continue to buy on an as-needed basis. In Japan and China, housing demand continues to trend downwards, but market lumber inventories remain low, resulting in near-term stable pricing. Overall, we have a fourth quarter order file of approximately 87 million board feet and on track to meet our Q4 operating plans. From an operational perspective, given seasonal market conditions combined with U.S. -- with high U.S. duties and tariffs, we plan to reduce lumber production by approximately 35 million board feet in the fourth quarter. We will continue to align our operating schedules to market demand and available log supply. Looking ahead, we remain focused on maintaining a strong balance sheet while also executing on our strategic priorities. With that, Gary, we can open up the call to questions. Operator: We'll now take questions from the telephone lines. [Operator Instructions] The first question is from Kasia Kopytek with TD Cowen. Kasia Trzaski Kopytek: Kasia on the line. First question is around the strike of the La-kwa LP. Can you provide an update on that? And also your outlook for log availability, not necessarily on the back of the strike action, but also just more broadly across the platform? J. Hofer: Good morning, and thanks for the question. I'll share a couple of comments on the strike. So obviously, as everyone knows, that continues to play out. We completed a 6-year agreement with the USW, which was ratified in January of this year. And while Western encouraged contractors, including La-kwa sa muqw to do a me-too to our agreement, not all did. La-kwa sa muqw has a right under labor laws to negotiate their own agreement, and they decided to exercise that right. And while Western is a majority shareholder, the governance structure is constructed to ensure that the views of the other partners are not unilaterally overruled by Western. So we can't comment on the specific issues in detail, but can say they are related to the unionization process when new First Nation-owned contractors are engaged. And so we're hoping for a resolution of this in the near future and look forward to having that business unit come back online. And with respect to your question on overall log inventories, at this point in time, we ended the quarter -- end of Q2 at 602,000 cubic meters. They are -- our inventories are lower than they would be historically. We do continue to have some permitting delays on certain tenures and continue to work very closely with government and the respective First Nations to help alleviate those. But overall, as we look at our operating plan in Q4 and into Q1, we do see adequate inventories to execute on our operating plan. Kasia Trzaski Kopytek: I appreciate it. You touched on working capital reductions already. I just wanted to ask, is there any additional opportunities to reduce working capital further? Glen Nontell: Yes. Kasia, it's Glen. Maybe making a more broad comment. I think we've done a lot this year to reposition our balance sheet to navigate through the near-term uncertainty, including monetizing some significant noncore assets earlier this year. In the third quarter, we also closed an incremental USD 30 million letter of credit facility, which helped to further bolster our liquidity to approximately $234 million at the end of the quarter. I'd say we've taken steps to manage and reduce our working capital, improving turnover metrics related to our working capital. I'd say we probably have come -- are approaching what we can achieve on further reducing working capital levels just given Steven's comments where we are around log inventory. So all that said, we continue to access other available liquidity alternatives to some of the government programs that have been announced federally as well as advancing other strategic priorities, including limited partnership opportunities that we've demonstrated success on previously in TFL 44 and 64 as potential sources of additional liquidity. So overall, I'd say we remain focused on maintaining a strong balance sheet and adequate liquidity as we navigate through the uncertain environment here in the near term. Kasia Trzaski Kopytek: Final question for you or Steven. Stepping back and looking at the competitive landscape for your decking product into the U.S., what is what is the profile of that right now, just given the higher value nature of your product versus your competitors? J. Hofer: Well, that's -- as you can expect, the knotty cedar decking profile has come under significant price pressure. So we've tried to push as much of the incremental tariffs through to the end user. While we have been able to see some modest gains, we have not been able to achieve the entire amount. And I guess the piece that I would say is that, no product line is immune from the current downturn in both the R&R market as well as in new home construction. And that includes cedar decking and all the substitutes that are on the shelf alongside cedar. The good news is that there is an element of consumers who are very discerning and continue to want to have the highest quality decking available, and that is where cedar fits in. So we have seen some replenishment take place in the last 10 to 14 days as distributors start to reposition for the spring and that does provide some comfort that there is an opportunity for cedar to continue to have a place in the U.S. decking market. But we shouldn't kid ourselves that there are some -- there are ceilings on where a consumer is prepared to pay for decking, whether it be cedar or any alternative. So our teams are working very aggressively alongside all of our key distributors in the U.S. We have a group in the U.S. this week actively discussing strategic partnerships for next year and what that demand curve looks like. But yes, you're correct on saying that there is some price pressures on cedar. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Hofer for any closing remarks. J. Hofer: Well, thanks, everyone, for joining our call today. We certainly appreciate your continued interest in our company and look forward to our next call in February. Have a great day. Operator: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

159天前Insight Analytics约5分钟阅读

MDU 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for joining us, and welcome to the MDU Resources Group, Inc. Q3 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Jason Vollmer, Chief Financial Officer. Jason, please go ahead. Jason Vollmer: Thank you, Nicole, and welcome, everyone, to our third quarter 2025 earnings conference call. You can find our earnings release and supplemental materials for this call on our website at www.mdu.com under the Investors tab. Leading today's discussion with me is Nicole Kivisto, President and CEO of MDU Resources. During our call, we will make certain forward-looking statements within the meaning of federal securities laws. For more information about the risks and uncertainties that could cause our actual results to vary from any forward-looking statements, please refer to our most recent SEC filings. I'll provide consolidated financial results later during the call, but we'll first turn the call over to Nicole for her remarks. Nicole? Nicole Kivisto: All right. Thank you, Jason, and thank you, everyone, for joining us today and for your continued interest in MDU Resources. This morning, we reported income from continuing operations of $18.4 million or $0.09 per share for the third quarter of 2025, an increase of $2.8 million or $0.01 per share over the third quarter of 2024. Strong performance at our Pipeline segment drove results for the quarter. Typically, this is a less impactful quarter from an earnings perspective at the utility as we approach the beginning of the heating season. Increased operating costs across our business segments did impact our third quarter results. Continued strong customer demand at our Pipeline segment and progress in our utility regulatory schedule should provide opportunity as we move forward. In addition, our utility experienced combined retail customer growth of 1.5% when compared to this time last year, which is within our targeted annual growth rate of 1% to 2%. This demand and growth provides investment opportunity for customer-driven growth projects at our pipeline and in our utility infrastructure to meet the demands of our growing customer base. I'm extremely proud of our employees whose dedication to our core strategy continues to drive our business and to deliver exceptional performance while positioning MDU Resources with compelling long-term growth prospects. At our Electric segment, the North Dakota Public Service Commission approved the advanced determination of prudence filing for the proposed acquisition of a 49% ownership interest in the Badger Wind Farm, which equates to 122.5 megawatts of the project's total 250 megawatts of generation capacity. As a result, we will complete the acquisition of this investment upon commercial operation, which we expect to be around year-end. This investment is currently in our 2026 capital budget. We also filed a general rate case in Montana during the quarter, requesting an increase of $14.1 million annually that includes recovery of Montana's share of our investment in the Badger Wind Farm. This filing included a request for a systems management cost adjustment mechanism for cost recovery of transmission and wildfire-related costs. Interim rates were requested to be effective January 1, 2026, and the Montana PSC has up to 9 months to issue its decision. Recently, we also filed for recovery of our investment in Badger Wind in North Dakota through our annual update filing to our renewable resource cost adjustment and in South Dakota through our annual update filing to our infrastructure rider. On our wildfire mitigation plans, those remain on track for filings in North Dakota, Montana and Wyoming before year-end. At our electric utility, we currently have 580 megawatts of data center load under signed electric service agreements. Of that total, 180 megawatts is currently online with an additional 100 megawatts expected to start ramping online late this year and continue into 2026. An additional 150 megawatts is expected online later in '26 with the remaining 150 megawatts expected online in 2027. Our current approach is to serve these large customer opportunities with a capital-light business model, which not only benefits our earnings and returns, but also provides cost savings to our other retail customers. We do continue to pursue additional discussions with potential data center customers. And should these discussions progress to signed agreements, we would consider investing capital into new generation and transmission assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand as well as grid resiliency. An example of this would be we recently signed a nonbinding memorandum of understanding for a potential investment in the North Plains Connector project. At our Natural Gas segment, a Settlement agreement was approved in our Wyoming general rate case for an annual increase of $2.1 million with rates effective August 1, 2025. Additionally, in Wyoming, we filed for a mechanism to recover pipeline replacement costs during the quarter. A Settlement in our general rate case in Montana was also approved on October 7, finalizing a $7.3 million annual increase with final rates effective November 1, 2025. Moving to Idaho, a general rate case Settlement agreement was filed on October 20 for an annual increase of $13 million. The hearing on this case is scheduled for November 18 and 19 with rates expected to be effective January 1, 2026. Looking ahead, we also plan to file a general rate case in Oregon before the end of this year. Moving on to our Pipeline segment. Our Minot expansion project was placed in service earlier this month and added approximately 7 million cubic feet of natural gas transportation capacity per day. We also continue to make progress on required surveys for our Line Section 32 Expansion Project, which will provide natural gas transportation service to an electric generation facility being constructed in Northwest North Dakota. We anticipate filing our FERC application in the first quarter of 2026 for this project and are targeting construction to be complete in late 2028. In regard to our proposed Bakken East pipeline project that could run approximately 350 miles from Western North Dakota to the eastern part of the state plus additional pipeline laterals, the project was selected by the North Dakota Industrial Commission for firm pipeline capacity commitments of up to $50 million annually for 10 years. We continue to actively market this project and engage with all interested parties to further define the project scope, time lines and commercial terms. This project would provide natural gas transportation service for additional industrial, power generation and local distribution companies, growing demand and also provide much needed takeaway capacity to meet forecasted natural gas production growth in the Bakken region. This project is currently not in our 5-year capital forecast and would be incremental should we determine to proceed. The final route, time line and cost of this project will be determined later as we finalize discussions with potential shippers, including delivery points and contracted volume commitments. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partners and various other options. We currently plan to conduct a binding open season during the first quarter of 2026, and we'll continue to provide updates on this potential project as we learn more. We also signed an agreement to support the early-stage development of the potential Minot Industrial Pipeline project, which would be an approximate 90-mile pipeline from Tioga, North Dakota to Minot, North Dakota. The project would provide incremental natural gas transportation capacity for anticipated industrial demand. We will provide updates as the project progresses to final investment decision. With the performance we have experienced during the third quarter and our view for the remainder of the year, we are raising the bottom end of our earnings per share guidance to a new range of $0.90 to $0.95 per share from our previous range of $0.88 to $0.95 per share. This, of course, remains dependent on normal weather and operating conditions in the fourth quarter. We remain confident in our ability to execute on our long-term growth strategy and believe our operational focus and financial discipline continue to position us well for delivering safe and reliable energy, customer value and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8% while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call back over to Jason for the financial update. Jason? Jason Vollmer: Thanks, Nicole. This morning, we announced third quarter earnings of $18.4 million or $0.09 per share compared to third quarter 2024 earnings of $64.6 million or $0.32 per share. Third quarter income from continuing operations was $18.4 million or $0.09 per share compared to $15.6 million or $0.08 per share in the prior year. Income from continuing operations excludes the impacts of Everest, which was separated in a spin-off transaction on October 31, 2024. Turning to our individual businesses. Our Electric Utility reported third quarter earnings of $21.5 million compared to $24.3 million for the same period in 2024. Higher retail sales revenues positively impacted results for the quarter, but were more than offset by higher operation and maintenance expense, primarily from higher payroll-related costs and higher contract services related to electric generation station outages this year. Higher depreciation expense associated with capital projects placed in service further impacted the results. Our Natural Gas utility reported a seasonal loss of $18.2 million in the third quarter compared to a loss of $17.5 million in 2024. Increased operation and maintenance expense, primarily, again, higher payroll-related costs as well as higher depreciation expense related to capital projects placed in service drove the loss in the quarter. Higher retail sales revenue due to rate relief in Washington, Montana and Wyoming partially offset the seasonal loss. The Pipeline posted record third quarter earnings of $16.8 million compared to third quarter earnings of $15.1 million last year. The increase in earnings was driven by higher transportation revenue from growth projects placed in service in late 2024 and customer demand for short-term firm natural gas transportation contracts. Higher operation and maintenance expense, along with increased property taxes and depreciation, partially offset the earnings increase. And finally, MDU Resources continues to maintain a strong balance sheet with ample access to working capital to finance our operations. While we have no equity needs in 2025 based on our current capital plan, our capital investment program moving forward will require access to the equity capital markets. As such, we reestablished an ATM program during the quarter to meet those needs. We will update our forward-looking capital investment plan later this month, and we'll provide further details around the size and timing of the near-term equity needs at that same time. That summarizes our financial highlights for the third quarter. We appreciate your interest in and commitment to MDU Resources and ask that we now open the line for any questions. Operator? Operator: [Operator Instructions] There are no questions at this time. I will now turn the call back to Nicole Kivisto for closing remarks. Nicole Kivisto: Thank you, everyone, for joining us today. We certainly appreciate your continued interest and support of MDU Resources and look forward to connecting with you as we finish out the year. And with that, I'll turn the call back over to the operator. Operator: This concludes today's call. Thank you for attending. You may now disconnect.

159天前Insight Analytics约5分钟阅读

ACHV 2025 Q3 财报电话会议

Operator: Greetings, and welcome to the Achieve Life Sciences Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Nicole Jones, Achieve's Vice President, Strategic Communications and Stakeholder Relations. Thank you. You may begin. Nicole Jones: Thank you, operator. Good morning, everyone, and thank you for joining us today. From Achieve Life Sciences, we are joined by Rick Stewart, Chief Executive Officer; Dr. Mark Rubenstein, Interim Chief Medical Officer; Jamie Xinos, Chief Commercial Officer; and Mark Oki, Chief Financial Officer. The management team will be available for Q&A following the prepared remarks. A replay will be available later today using the information in the earnings press release or by visiting the Achieve Life Sciences website. Today's conference call will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations and future potential operating results of Achieve. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the SEC. Achieve undertakes no obligation to update or revise any of these forward-looking statements. Please refer to Achieve documents available on our website and filed with the SEC concerning factors that could affect the company. I'll now turn the call over to Rick. Richard A. Stewart: Thank you, Nicole, and good morning, everyone. This has been another truly significant quarter for Achieve in our mission to get a new treatment for nicotine dependence into the hands of patients. Our priorities of NDA submission, NDA acceptance and ultimately NDA approval for cytisinicline as a treatment for nicotine dependence in smoking cessation have advanced significantly this quarter. These priorities have now been reinforced by the recent announcement that the FDA has awarded Achieve a Commissioner's National Priority Voucher or CNPV for the e-cigarette or vaping indication. This is a significant recognition of the importance of cytisinicline in addressing the emerging public health crisis caused by vaping. The CMPV is designed to provide enhanced FDA communications and an expedited NDA review time line, reducing the potential NDA approval to 1 to 2 months from a standard 10 to 12 months. The implications are enormous for patients and physicians and are significantly value enhancing for our stockholders. A rapid approval of the vaping indication means cytisinicline could be launched 8 months earlier than expected. This would allow Achieve to potentially pioneer the first and only FDA-approved treatment for the 60% of people who want to quit vaping. During the quarter, we hit several regulatory milestones related to our smoking cessation indication. Most notably, the FDA acceptance of our new drug application for cytisinicline for review and set a PDUFA or approval date of the 20th of June 2026. Additionally, we submitted the 120-day safety review to the FDA on time. All interactions with the FDA remain normal and timely. To put our progress into perspective, nearly 29 million adults in the United States smoke cigarettes and more than 15 million people attempt to quit every year. Smoking remains the leading cause of preventable death in the U.S. Approximately 0.5 million deaths annually are attributable directly to smoking, costing over $600 billion each year in smoking-related U.S. health care costs and lost productivity. Numerous comorbidities, including respiratory, cardiovascular and metabolic disease and of course, cancer result from cigarette smoking and countless lives are impaired. This is the urgent need Achieve is focused on and cytisinicline is designed to address. Smoking cessation is an immense addressable market that has no new FDA-approved treatment options for nearly 20 years. Patients and physicians are frustrated by the lack of adequate tools to help drive success in their quit journey. The message is clear, Achieve is not quitting on you. With cytisinicline, Achieve is on the threshold of delivering a potential game changer for the millions hoping to quit. Fundamentally, it is clear that the narrative surrounding smoking and vaping has to change. Nicotine dependence has to be acknowledged as a medical condition in much the same way as obesity is now recognized with the advent of GLP-1s. There are clear similarities between the obesity and nicotine dependent market dynamics. Nicotine dependence is a neurobiological condition resulting from an overabundance in the number of nicotinic receptors in the brain and needs to be treated as such. As I mentioned in the introduction, comorbidities are a significant life impairment as a result of smoking, anything from COPD, asthma, cardiovascular disease, cancer, type 2 diabetes. The list is long. We decided to specifically investigate the impact of cytisinicline in smokers with COPD in ACHIEVE 2 Phase III clinical trials. Our recent publication in Thorax highlighted cytisinicline's potential to help individuals with COPD who remain smokers. As a reminder, approximately 6 million of the 16 million Americans diagnosed with COPD continue to smoke today. In our 2 Phase III trials, we saw the smokers with COPD had higher quit rates on cytisinicline compared to placebo. COPD smokers on placebo did not quit at all. We were thrilled to see this outcome within this subgroup as these patients are often amongst the most difficult to treat due to the severity of their progressive illness. We know that quitting smoking improves the effectiveness of COPD treatments and helps reduce exacerbations and hospitalizations since smoking worsens symptoms and increases disease progression. These findings underscore psytisinicline's potential impact in offering meaningful benefits to one of the most vulnerable patient populations. Dr. Mark Rubenstein will discuss the findings in more detail in a minute. Jamie will also discuss Achieve's data-driven digital commercialization strategy and provide an update. I'd like to set the stage by noting that many large and specialty pharmaceutical companies have embraced AI as a powerful tool to advance precision targeting of both physicians and patients. What differentiates Achieve's commercial strategy is the integrated nature of our ecosystem and platform. Achieve leverages AI and machine learning to drive next best action orchestration, omnichannel marketing and audience activation across health care professionals, patients and payers. By utilizing a unified HIPPA compliant data warehouse and generative AI, Achieve is able to optimize campaigns, enhance engagement and measure ROI across all channels. For Achieve Life Sciences, this represents a scalable model for deploying AI-powered commercialization at launch while minimizing infrastructure investment. Without getting into too much technical jargon, the benefits of an AI or data-driven approach include channel sequencing, determining the next best action, e-mail, social ad, webinar invite or rep visit for each audience, message optimization, using AI-driven models to tailor messaging to behavioral and conceptual data. dynamic measurement, real-time KPI or performance monitoring and tracking, allowing optimization mid-campaign. These powerful AI-driven tools allow integrated payer, HCP and patient activation through a single HIPAA-compliant environment. The integrated platform is cost efficient, ensuring resources are applied with targeted precision to providing improved revenue outcomes. I'm sure you will share Achieve's excitement with the commercial buildup prior to launch in the third or fourth quarter next year. Turning to updates on our team. We had 2 promotions and 1 new hire. Dr. Mark Rubenstein became our Interim Chief Medical Officer, and Craig Donnelly was promoted to Chief Operations Officer. Eric Atkinson joined us recently as Chief Legal Officer. Dr. Rubenstein is a seasoned physician and executive with deep experience in patient care, clinical development, scientific research and medical affairs leadership with a strong focus on nicotine cessation and preventative medicine. Having served as our Head of Medical Affairs since 2024, he brings a strong understanding of our programs, pipeline and strategic objectives, along with real-world experience treating patients who are eager to quit nicotine. Dr. Rubenstein is steeped in the world of smoking cessation and nicotine dependence. In his academic career, he led a clinical and translational research program focused on nicotine addiction and smoking cessation as a professor at UCSF. Prior to joining Achieve, Dr. Rubenstein served as the Head of Medical Affairs at Blick, where he spearheaded the company's strategy to help smokers and vapors quit through FDA-approved medications and digital support tools. His deep understanding of the nicotine dependence landscape positions him to seamlessly lead our clinical and medical efforts as we move toward potential approval and commercialization. It's been great to work with Dr. Rubenstein in his new role. We promoted Craig Donnelly to Chief Operations Officer. Since joining Achieve in 2022, Craig has shown outstanding leadership in manufacturing and regulatory. In his new role, he will align our supply chain and commercial strategy as we prepare to launch cytisinicline. With over 25 years in biopharma, his expertise will be key as we build the infrastructure to deliver cytisinicline to patients and move achieve into a commercial stage company. Lastly, in October, we welcomed Eric Atkinson as our new Chief Legal Officer, who will oversee our legal strategy, corporate governance, compliance and risk management. With over 25 years' experience in the pharmaceutical and biotech industries, specifically in legal, regulatory and M&A, Eric has already been a tremendous asset as we move cytisinicline through regulatory review and get ready for a potential launch. Thanks to our world-class team and relentless focus on execution, we continue to deliver on our milestones and move confidently towards bringing a much needed new treatment to market. With that, I'll now turn it over to Dr. Rubinstein. Unknown Executive: Thank you, Rick, and good morning, everyone. As a clinician who spent much of my career helping people overcome nicotine dependence, I'm honored to serve as Interim Chief Medical Officer during this pivotal time for the company. I'm also excited to continue to build on the solid foundation we have established thus far. Since last quarter, we have met several important milestones and our regulatory process remains on track. Most notably, the FDA has accepted our NDA for cytisinicline, initiating the review process and setting a PDUFA action date of June 20, 2026. All interactions with FDA remain normal and on track. We submitted our 120-day safety update, ensuring that the most current and comprehensive long-term safety data are available for review from the ORCA-OL trial. In this submission, we included data on 411 individuals with at least 6 months of cumulative cytisinicline exposure and 214 with at least 1 year of cumulative cytisinicline through the submission cutoff date of June 4, 2025. In October, our ORCA-OL long-term exposure study received its fourth and final comprehensive safety review from the Data Safety Monitoring Committee. The DSMC found that adverse events were mostly mild in severity and no serious adverse events were deemed to be treatment related. Additionally, there were no safety concerns with the drug. Furthermore, we were pleased to report that our last ORCA-OL participant completed the study in October, marking 334 participants who completed 1 full year of the trial. The final site closeout visit took place at the end of October, representing an important milestone in our long-term development program. We are thrilled with the outcomes from ORCA-OL. Long-term studies can be challenging when it comes to retention of participants for 1-year treatment requirements. So it is encouraging to see so many participants choosing to stay on treatment well in excess of what the FDA requested. As someone who's treated countless patients struggling with nicotine dependence, I know firsthand how difficult it is for people to remain engaged in any quit attempt. Seeing participants stay committed for a full year truly underscores the tolerability and appeal of cytisinicline. We believe their willingness to remain on cytisinicline speaks to its favorable side effect profile and possible efficacy benefit and is a strong signal of the potential impact cytisinicline could have in clinical practice. In terms of patient experience in the OL trial, we collected exit survey responses from participants and are encouraged by their feedback. Over 97% of respondents believe cytisinicline helped them quit or reduce their nicotine use. In addition to reduced cravings, our respondents reported that they believe the lack of side effects and withdrawal symptoms help them quit. Many described the treatment as the added push they needed and something that gave them the confidence to quit. Nearly all respondents indicated they would recommend cytisinicline to a friend or family member trying to quit. We remain on track to lock the ORCA-OL database by year-end and are preparing for presentations and further publications in 2026. Our entire team is energized by the progress and the real-world impact we are poised to deliver. As Rick mentioned, new post-hoc data from an analysis of the ORCA-2 and ORCA-3 trials were published in PHLX, demonstrating that cytisinicline significantly improved quit rates compared to placebo in adults with COPD. Despite having more severe tobacco use histories and greater prior prescription treatment exposure, participants with COPD achieved quit rates with cytisinicline comparable to those without COPD. These findings support cytisinicline as a potential new pharmacologic option for people with COPD who continue to smoke despite their progressive disease. Lastly, we are thrilled to have received the Commissioner's National Priority Voucher for cytisinicline and vaping cessation. This is a significant recognition of the public health importance of our work and positions us well to advance cytisinicline as the potential first FDA-approved treatment for nicotine vaping dependence. We are now preparing to initiate our ORCA-V2 Phase III trial for vaping cessation, including finalizing the study protocol, selecting trial sites and identifying the principal investigator. The CNPV allows us to have enhanced engagement with FDA to shorten the time frame for NDA submission and approval. That concludes my remarks, and I'll now turn the call over to Jamie to provide updates on our commercial strategy. Jaime Xinos: Thank you, Dr. Mark. This quarter, our team continued to make great progress in preparation for the U.S. commercial launch of cytisinicline. Our mission is to deliver this transformative therapy to the millions of Americans who want to overcome their nicotine dependence using the most advanced tools and strategies available. Our team remains focused on 3 strategic imperatives: availability, access and awareness, each underpinned by a rigorous data-driven approach and a commitment to maximizing efficiency and measurable impact. Starting with availability. Our first priority is ensuring cytisinicline will be available to patients nationwide. To this end, we have made progress on several key fronts. We've selected our third-party logistics provider and will begin the implementation process in Q4, well ahead of potential approval. I'm pleased to report that our home state licensing application was accepted in Washington State. We are now in the process of working on licenses for states that will allow us to submit prior to product approval. Additionally, we have further evaluated specialty distribution options and have selected our specialty light hub partner. Administrative and logistical initiatives will begin this quarter and continue through launch. We believe these foundational steps will be critical to ensure patients can access cytisinicline and that prescriptions written are prescriptions filled. On the access front, our focus remains on securing rapid, broad and affordable coverage for cytisinicline. Our pricing and payer research accelerated significantly in Q3, culminating in a comprehensive segmentation of payer organizations. The work identified distinct payer profiles, which will guide the alignment of our target list and inform tailored engagement strategies. We have also completed both the quantitative and qualitative phases of our pricing and contracting research. This effort provides critical insights into market access dynamics, optimal price positioning and payer expectations, laying out the foundation for a strategy designed to maximize reimbursement potential at launch. Importantly, payers continue to recognize cytisinicline's differentiated profile and the importance of having a new treatment to help people overcome nicotine dependence. Beginning in Q1, we will start proactive engagement with prioritized payers to deliver pre-approval information exchange communications. Feedback from these interactions will be critical in finalizing our access and contracting strategy as we move closer to launch. Turning to awareness. Building product-specific awareness and establishing Achieve's reputation as a trusted science-driven partner continues to be a cornerstone of our strategy. In Q3, we significantly advanced our patient and HCP targeting initiatives. We have finalized patient journey mapping, communication frameworks and decile segmentation to prioritize HCPs on a series of key treatment, prescribing and engagement behaviors, allowing us to deeply understand and motivate our key targets. Our partnership with Omnicom remains highly productive. The martech and data work streams have now an established foundation infrastructure, and we are progressing towards a unified data ecosystem to power our AI-enabled commercial platform. This will allow us to continuously optimize targeting, messaging and performance across all channels. Turning to our team. We have continued to build out our internal commercial organization, which includes new talent leading commercial development, market access, supply chain and communications. While we have added key new hires, we are maintaining a lean, efficient internal team. Our collaborative approach with partners ensures we benefit from their deep expertise and scalable resources across every critical function. In summary, I want to emphasize that our progress is guided by a clear and focused commercial strategy centered on precisely targeting the highest impact audiences, both patients and providers, ensuring our efforts are concentrated where they will make the greatest difference, reaching the right audiences at the right time with the right message to deliver adoption and successful quitting and leveraging our partnership with Omnicom and deploying advanced AI-powered tools that will enable us to optimize segmentation, personalized messaging and measure engagement in real time. As we look ahead to our potential launch in 2026, our path is clear. We are committed to delivering cytisinicline to the millions of Americans seeking a better path to quit nicotine. We remain confident in our ability to execute efficiently, scale effectively and deliver long-term value for patients, providers and shareholders. I look forward to updating you on our continued progress as we move closer to launch. And I will now turn the call over to Mark. Mark Oki: Thank you, Jamie, and good morning, everyone. We ended the third quarter with a strong balance sheet, supported by our recent capital raise and continued financial discipline. As of September 30, 2025, cash, cash equivalents and marketable securities totaled $48.1 million. As we noted last quarter, our current cash runway is expected to fund operations into the second half of 2026. Total operating expenses for the 3 and 9 months ended September 30, 2025, were $14.7 million and $40.1 million, respectively, reflecting our ongoing investment in regulatory, clinical and pre-commercial activities. With respect to net loss for the 3 and 9 months ended September 30, 2025, it was $14.4 million and $40 million, respectively. We remain focused on disciplined capital allocation as we advance toward key regulatory and commercial milestones. With that, I'll turn the call back to Rick for closing remarks. Richard A. Stewart: Thanks, Mark. The progress discussed today underscores the momentum behind Achieve and our unwavering commitment to addressing the critical unmet needs of nicotine dependence. Our recent receipt of the FDA Commissioner's National Priority voucher for cytisinicline for vaping cessation is truly a landmark event. Being selected as 1 of only 9 therapies in the programs in inaugural year demonstrates the urgent national need for effective treatments and the FDA's recognition for nicotine dependence in the public health crisis. Cytisinicline is uniquely positioned to address both of these significant public health challenges. For smokers who want to quit, it represents a potential new standard in smoking cessation at a time when it's been nearly 2 decades since the new treat trials have shown compelling results with cytisinicline's potential efficacy and safety profile continuing to generate excitement among both patients and clinicians. For those who vape and want to quit, cytisinicline could become the first ever FDA-approved treatment, opening a nicotine-free path to quitting for the 17 million adult e-cigarette users in the U.S., about 60% of whom want to quit but currently have no approved options. The CMPD design means we can accelerate our efforts to bring this life-changing therapy to those who vape. As we look at the 3 key value drivers for the company, we're focused on: firstly, executing on the NDA approval and product launch with a PDUFA date set for the 20th of June 2026 and a launch in the third or fourth quarter of 2026. Secondly, driving the progress on our innovative data-driven commercial platform to enable a successful launch, allowing us to precisely target both patients and physicians. And finally, the growing recognition of value in our second indication, vaping, where we recently were awarded the CNBV by the FDA. This highlights the urgency of the public health crisis in the U.S. and enables a shortened review process of just 1 to 2 months. At Achieve, our message is simple. We are not quitting on you. We remain committed to providing evidence-based solutions to help you succeed. I'm grateful to our patients, partners, investors and the entire Achieve team for their ongoing support and dedication. We are energized and excited about the opportunities ahead and confident that our efforts will deliver meaningful benefits for patients and long-term value for our stockholders. I also want to thank Cindy Jacobs again for her many contributions and are pleased to have her as an ongoing consultant. Thank you for joining us today, and we look forward to sharing more updates in the quarters ahead. With that, operator, we're now ready for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Thomas Flaten from Lake Street. Thomas Flaten: A couple of quick follow-ups from the call itself. Jamie, I know you mentioned a specialty distributor. Does that -- should I presume that you're going to go specialty only? Or is there a retail strategy in place as well? Richard A. Stewart: Thomas, this is Rick here. Jamie has actually had to step away to address an urgent matter, and she's not going to be available for the Q&A. But the rest of our executive team are here, and we're happy to take your questions. I'll turn to Jerry for any questions you might have on the commercial front. Jerry Wan: Okay. So could you just repeat your question, Thomas? Thomas Flaten: Yes. So in the prepared remarks, there was a comment made that you selected a specialty distributor. I was wondering if there was also a complementary retail strategy in place or are you going specialty? Jerry Wan: No, no, there's going to be a complementary retail strategy in place as well. But the specialty route is one of the quickest and I think the optimal route at least in the initial stages, and then we'll build out from there. Thomas Flaten: Got it. And then a follow-up for Mark. The cash runway into the second half of next year, just to confirm, that does not contemplate funding the vaping study. Is that correct that we need separate funding? Mark Oki: Yes, to complete the vaping study, we'll need to raise additional capital. That's correct. Thomas Flaten: Got it. And then, Rick, anything that you can share with respect to the protocol you anticipate having for the vaping study? I don't know what conversations you've had with FDA or how far along that is, but any insight there would be great. Richard A. Stewart: Yes. Thomas, it's a very similar protocol to the ones that we used for the smoking cessation trials. So it is a 2-arm study, placebo for 3 milligram 3 times daily for 12 weeks. And then it is active. It cytisinicline 3 milligrams 3 times daily for 12 weeks, roughly 400 patients in each arm. There is a difference between the smoking cessation trials and the vaping trials. And we believe that the vapors are actually more nicotine dependent than necessarily the smoking population was. So they are only treated for 12 weeks, whereas in the smoking cessation trial, we had the flexibility of 6 or 12 weeks. But other than that, they're very similar. Thomas Flaten: And the endpoint will be what because you can't do any kind of objective breath analysis, right? Richard A. Stewart: Correct. So it's simple. It's going to be overall quit rates at end of 12 weeks of treatment and then with a 24-week follow-up. Operator: Your next question comes from the line of Gary Nachman from Raymond James. Gary Nachman: Congrats on all the progress. So first, with the priority voucher for vaping, you said you're preparing to initiate that Phase III. How are you looking for ways to accelerate it and maybe started on the earlier side of the first half of next year? Could you clarify that? And you mentioned the Phase III design. That's just going to be the same as what you've talked about previously. Just wanted to confirm that. Richard A. Stewart: I'll take the first part of it, Gary, and then I'll hand over for a bit more detail to Dr. Mark Rubinstein. Yes, I mean, the CMPV allows us a once 2 months of approval. So the NPV or ROI on that 8 months that we're potentially benefiting from accelerating the product launch, that's substantial. And whereas the CNPV doesn't allow the transfer of the actual voucher itself. We strongly believe that the acceleration, both in the launch period, but you also got to launch -- look at the acceleration of peak revenues by 8 or 9 months. So yes, it's extremely valuable. And yes, we are going to go back to the agency because I think we need to take advantage of the benefits under the CNBV to see where we could streamline the agreed clinical trial design. You remember that we got breakthrough designation originally. Now that is reinforced by the CNBV. So we do see that there's potential for some kind of streamlining of it. I'll hand over to Dr. Mark. Unknown Executive: Yes. So just to clarify, you wanted to hear a little bit more about the study design. And so as Rick has said, it will be a 12-week trial of cytisinicline with behavior versus placebo with behavioral treatment with follow-up at 12 weeks and 24 weeks. We will be biochemically confirming I understand the prior caller's question about confirmation with J B CO and he is correct that is only to detect cigarette smoke. However, we will also be employing blood analysis and/or saliva. We're looking to see which we can do more rapidly to look for coin, which is a biomarker of nicotine exposure so that we can confirm self-report. Does that answer your question? Gary Nachman: Yes. And I guess just in terms of size, it sounds like you're going to try and streamline that the way that Rick described and will it be the same dosing as what you currently have for smoking. Unknown Executive: Exactly. Same dosing. Gary Nachman: Okay. And then I guess since I have you, Mark, maybe just regarding the benefits for cytisinicline in COPD patients that you just published. And this is also for Rick, but maybe just talk about a little bit more just about what you saw in those patients, like how much of a benefit there was? And then, Rick, are you still having conversations with potential partners to do a study in that patient group? So what's the status there? Richard A. Stewart: Again, I'll kind of flip that one as well as Dr. Mark can answer part of it. Look, I think the key is that the effect that we saw, the benefit that we saw in COPD smokers was quite remarkable. We'd always suspected that those were potentially the highest beneficiaries because to be a COPD smoker, you have to be highly nicotine dependent when you have a progressive disease like COPD. And our belief was that they could well be the real beneficiaries. By being COPD smokers, they are impairing the efficacy of the standard corticosteroid treatment. and the anti-IL-33 simply don't work in the smoking population. So we see that there are 6 million COPD smokers in the U.S. today. And we believe strongly that cytisinicline can have a significant impact on making sure that their current treatment actually works more effectively. So there's a kind of unique characteristic to this in terms of a 6 million population of patients with COPD who actually have the ability to benefit from cytisinicline. And that can parallel with other respiratory companies because we believe there should be an interest in ensuring that they can target that 6 million population. So over to you, Dr. Mark. Unknown Executive: Sure. Thank you, Rick. So one of the things that we saw were that these patients with COPD were older, they were heavier smokers. They had higher levels of dependence and higher levels of depression, all of which we know are associated with poor outcomes. However, despite that, with cytisinicline, their quit rates were roughly the same as what we saw in smokers without COPD. For example, the odds ratio without COPD was 5.2 and with COPD was 5.3. So basically the same. And interestingly, and I think Rick had mentioned this earlier, patients on placebo were -- had a tremendously difficult time quitting. Really, when you have COPD, given those -- probably those other factors that you are heavier smoker and older, you couldn't really quit unless you use cytisinicline. Gary Nachman: Okay. That's really helpful. And then just last one, Rick. Pfizer, I think, is bringing CHANTIX back to the market. So what are your thoughts on how that impacts the overall smoking cessation market? Will that potentially help it grow again? And I'm not sure if you've seen how Pfizer is pricing CHANTIX with generics available. So if you have any color on that. Richard A. Stewart: Well I mean, I can take a kind of strategic view on it. Why reintroduce CHANTIX when the generics have basically taken over the market. There's no value in the promotional activity because it really drives them towards the generic rather than the brand. So it's going to take -- if they're going to promote it, then it's going to be an interesting kind of ROI on that investment. And regardless of whether CHANTIX varenicline is in the market, I think the differentiation between cytisinicline in terms of not just its efficacy, but also the superior overall side effect profile and particularly focusing on that nausea and vomiting experience in the first few days of taking varenicline or CHANTIX, -- we clearly believe we've got a much superior product. I mean cytisinicline has 5x less incidence of nausea and vomiting than varenicline does and less than half of the other side effects, be sleep disturbances, abnormal dams and nightmares, headache, et cetera. So it's a huge market. There are about 8 million scripts for smoking cessation annually. At peak, CHANTIX had about 2.8 million scripts written, 75% of those were in the U.S. So regardless, I think that we have the benefits and the advantage over generic varenicline, and we see that as not being a necessary stumbling block. Operator: Your next question comes from the line of Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congratulations on all the progress. Maybe for me, can you just elaborate on the commercial infrastructure overlap you expect between smoking cessation and vaping? And then given that vaping now comes to the market earlier in the launch of the smoking cessation, which is probably not going to be at peak. Does that change your commercial infrastructure outlook or how you're looking at sort of launching these 2 products in tandem or I guess, not launching them in tandem, but I guess maximizing their potential in tandem. Just any changes to the go-to-market strategy? And then along the same lines, just with the priority voucher, how are you doing manufacturing just that vaping maybe earlier in the process than perhaps you had planned? Richard A. Stewart: Brandon, thanks for the question. We are anticipating or estimating that the vaping indication will be launched around about 12 to 14 months after the smoking cessation indication. And I think that is really a really beneficial time because it allows us to effectively knock out any of the wrinkles that might be as a result, and we've got some learning to be done from the launch of the smoking cessation. Are we targeting different markets or different patients? The answer is yes. We're targeting a much younger patient population. The typical age of smokers in our clinical trials is around about 55 years old. They've been smoking for somewhere up to 30 years. And our key strategy here is a highly motivated quitters. So of that -- of the 29 million smokers currently in the U.S., we're estimating that approximately 7 million are highly motivated quitters. On the vaping target population, it's different. So they are a much younger population. Again, average age in our Phase II trial was 33 to 35. On average, they've been vaping between 8 -- or 5 and 8 years, and we're already starting to experience some of the comorbidities associated with vaping. So I think that the fundamental approach to targeting the patients will remain the same. But I think that the younger population of vapors are more digitally inclined than the perhaps slightly older population for smoking cessation. Again, we think that gives us a kind of an advantage because the ability to communicate directly to the patients digitally is a fundamental part of our overall strategy. From a physician standpoint, it won't make any difference. The physicians all we've got to do is make them aware of the benefits of cytisinicline in vapors because they will already be aware of the benefits in the smoking population. So I think that's the slight nuance between the 2 populations. In terms of manufacturing, it will be the same. It's 3 milligrams 3 times daily. But as far as is concerned, it's 3 milligrams 3 times daily over 12 weeks only. It won't have the flexibility that we've seen in the smoking cessation at 6 or 12 weeks. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Mr. Rick Stewart. Please continue. Richard A. Stewart: I'd just like to thank you for your time and attention. We are progressing rapidly with both the smoking cessation indication. We're excited about the prospect of a PDUFA date in June and actually launching the product for smokers who have few treatment options at the current time. From a vaping standpoint, obviously, the CNBV is a real recognition of the value of cytisinicline in treating vapers who want to quit, and we look forward toâ€¦

159天前Insight Analytics约5分钟阅读

WISE.L 2026 Q2 财报电话会议

Martin Adams: Good morning. Hi, everybody. Thank you for joining us this morning for our half year FY '26 results presentation. We have a short presentation from our CEO and Founder, Kristo, followed by a presentation by our CFO, Emmanuel Thomassin. And then we will move on to Q&A. We'll start in the room, and then we'll jump over to Zoom. Thank you. [Presentation] Kristo Kaarmann: I'm being here today with us again. So about 70% of people discover Wise because their friends and family tell them about Wise. We've been really proud about this. And I've just lost the notes on the back screen, which will come up in a second. But actually making ads is quite fun in Wise because what we get to do is basically tell the stories that our customers tell their friends, their family, tell the stories again and amplify them with the ads. So what you just saw now is a set of ads we're running in the U.S. on TV, and they kind of follow the same narrative. This is what our customers are telling their friends. Our update today will show how Wise is yet again serving larger and larger groups of people and businesses, moving more and more cross-border volume and how we're fixing larger and larger use cases for them. So let's get started. We added 2 million active customers over the year, coming to 13 million people and businesses now using Wise and cross-currency transactions in the last 6 months. So that is either moving or spending money across currencies. Our work on infrastructure and product, the service experience has led to stronger recommendations. And then assisted by advertising, it has led to more new customers, but also stronger affinity to Wise, which then means more recommendations, but also staying for longer. And these customers are transacting more with cross-border volumes up 24% to almost GBP 85 billion for this half year. This is quite incredible. This time last year, we took our -- we took pretty decisive action to reduce our average fees down by almost 15%. And so we shouldn't really be surprised that we saw customers react to that. They didn't only increase their persistence of recommending Wise to others, but they also voted with their wallet. So bringing us more transactions and larger use cases. And the volume growth that we've been seeing is especially pronounced in this segment of larger transactions and larger use cases. And you've heard us talk about customers shifting from transactions just using Wise transactionally to using the Wise Account for their international banking features. And my team can be really proud of actually 2 things here. First, clearly, the features we've been adding, they're really resonating. So people and businesses are getting more out of the Wise Accounts. They're using it more. But the other dynamic here is how fast the customer confidence is growing. So our customers are now trusting us with over GBP 25 billion of their cash today, holding this as a deposit or as an investment through the Wise Account. And over this last year, I feel like we pulled off a pretty incredible feat. We've taken down our price point by about 15%, effectively expanding our economic moat quite incredibly. And at the same time, we boosted the growth of volumes and customer holdings. So as the result, recording 13% growth in underlying income. So this is really the result of the efficiencies we get from the infrastructure that we're building, but also the product that we're serving. In the last 6 months, we've been pretty busy shipping more. So as we described on Owners Day, you should expect progress come in 2 main categories. One is the infrastructure side where we go deep in the direct integrations and also in the regulatory infrastructure. And then secondly, you'll see developments for international banking, as our customers keep getting more and more out of their Wise Account. And a good example maybe here is Brazil because in the last 6 months, on the infrastructure side, we went direct really deep with Pix -- brought Pix live to our customers and our bank partners. And then separately on the Wise Account, we added interest to both local currency and U.S. dollar holdings. And then in addition, on Wise Platform, actually, we brought live this integration with Itaú that we were talking about earlier. So we're seeing these investments pay off for our customers and platform clients and quite measurably. So when we look at the payment feeds, the things people really care about how fast the money is going to get on the other side, 74% are now instant. And I need to remind you again what instant means. Instant means money leaving your bank in one country and arriving at the recipients bank on the other side of the world, ready to use in less than 20 seconds and that's now 74% of the payments. And after this large investment in our price mode, we've kept the average rate -- average take rate stable at 52 basis points. Another highlight coming from our fastest-growing segment, Wise Platform, where we see the cross-border volumes now getting to 5% of our volumes. And we're on track to get this to about 10% in the medium term. You've heard us recently talk about the really impressive brand names and big banks that we've signed on Wise platform, but I'm actually really excited seeing the volumes growing on integrations that we brought live years ago. So this is where -- this is the growth that we're enjoying today. And before I hand over to Emmanuel, I just wanted to remind you of the huge opportunity we have ahead of us. Because we're building Wise to move trillions, there is a huge, fast-growing market, the network we've created with our products that customers love. These have been built to make money work across borders, the same as it works at home. So Emmanuel, please take us through. Emmanuel Thomassin: Thank you, Kristo. Good morning, everyone, and thank you for joining us today. I'm pleased to share our financial performance for the first half year 2026 and how our disciplined investments continue to drive sustainable and profitable growth. We're making progress across every single key metric. Our active customers have grown by 21% each year over the last 2 years to now over 13 million active customers for the first half year. The cross-border volume has grown at a similar pace to GBP 85 billion, and the customer holdings have exceeded GBP 25 billion. This is growing by 34% each year. Underlying income growth has grown by 16% to annually GBP 750 million, and we are delivering underlying profit before tax and at the top of the range. Our range is about 13% to 16%, our target margin. So what I want to focus on today is how we achieve this and through focus, targeted investments that build our competitive moat, but also drive long-term growth. Let's start with our customers because clearly, they are at the heart of everything we do at Wise. In the first half of the year, over 13 million customers complete an international transactions with Wise, experiencing the ease, the transparency, but also the affordability that they find us. Personal customers grew by 18% year-on-year to 12.8 million, and the business customers grew to -- by 17% to 613,000, and we're particularly pleased to see the acceleration in this business segment. This is the strongest sequel growth in net addition that we have had. The cross-border volume increased by 24% year-on-year to GBP 85 billion. This is a growth of 26% even in constant currency. This was mainly given by customer growth, but also in addition to that, our existing customers moving higher volumes, a sign of growing trust and deeper engagement. But also, we saw the strong growth in business volumes. And as Kristo mentioned before, the scaling of the Wise Platform, which is now 5% of the cross-border volume means 1% more than in the previous year. And in the first 6 months, we have the pleasure to have major partners like UniCredit or Raiffeisen Bank, and we are seeing also strong growth from our existing partners. So you surely notice that the volume grew at a faster pace than our cross-border revenue, and this is on purpose. Our cross-border take rate decreased by 10 basis points year-on-year to 52 basis points, the [ sharpest ] adjustments in the company history, while our cross-border revenue increased by 5% compared to last year. So we are investing in pricing because we believe that the lowest cost, the lowest price and the best infrastructure provider will win over the long term. The Wise Account is key to our strategy in increasing customer retention and broadening the product usage. The card usage has grown significantly with card spent exceeding GBP 15 billion in the first half year of 2026, generating GBP 132 million in revenue. This is an increase of 28% year-on-year. The popularity of the Wise Account also means that customers are holding more money with us, nearly GBP 20 billion in Wise Account and another GBP 5.6 billion in Assets, So that total customer holdings over GBP 25 billion at the end of the period. And this balance obviously generates significant interest income in H1, even if slowing down pictures of the year-on-year due to the lower yields in the market. So we're successfully shifting the mix of our revenue base, which make our business more resilient, but also represent multiple engine for growth. The non-cross-border revenue now represent 41% of our total underlying income. And we also have a diversified regional footprint, as we continue to invest into growing across multiple markets. So you've seen this investment framework before, but it's worth reinforcing it, as we explain our financial strategy. And this framework ensures a sustainable approach to investment and earnings growth over the long term. So once we achieve efficiencies, we consider investing back into the business. And we also can invest in price reductions, which drive customer and volume growth. This lead to increased profitability, and then we can reinvest. So this is -- let me go through how we deliver on this. Starting with our servicing function. As we build the right structure to onboard and provide a better service to a growing customer base, our investments in servicing increased by 20% year-on-year to GBP 134 million. And we are pleased with the benefit that we are seeing from AI and automation and customer servicing with big improvement here and a lot more is planned as we ramp up AI technology. But we are also investing into our teams, including compliance, which is critical to the success of our business. Our historic investments in servicing are paying off. And as you can see some key examples here on the screen. In particular, we have been able to expand our Net Promoter Score to 69. The high levels of service we provide and our investments into price continue to help us to building a loyal customer base. And this is clearly highlighted by the 70% of customers that joined Wise through the word of mouth. But we are also going beyond that, that as we continue to increase our investments into marketing and sales, as we shared at our Owners Day in April this year. We are investing more strategically across diversified channel, increasing our brand marketing spend and build awareness and drive more organic growth. In H1, our marketing and sales investments increased by 59% year-over-year to GBP 57 million. We invest as much as possible within our targets, and this is evident with our payback period remaining strong at 6 months. So this is -- in H1, we run brand campaign in regions like Australia, Canada and the U.S. And you saw some examples from Australia at our Owners Day in April. And today, we also played an ad of the U.S. earlier today, but that's not all what we are doing. Here, you can see some examples on how we brought the Wise brand to our Canadian customers daily commute. So through these investments, we have continued to drive a constant increase of new customer acquisitions. Importantly, we had 3.5 million new active customers in H1 2026. And this is a result of our strategic investments to attract and retain our customers, including investments into pricing. So next, on tech and development, we invest GBP 144 million in H1, and this is up by 18% year-on-year across multiple teams. This is a significant portion of the spend, goes to maintaining our existing and available products. And for the rest, we continue to invest in launching new features, but also reading out -- rolling out the existing features into new markets. And Kristo shared earlier example of many launches and improvements that the team is working on. So finally, we're also investing in corporate function and infrastructure. And these teams are -- might not be customer-facing, but they are essential for sustainable growth. The spend here increased by 35% to GBP 131 million, supporting areas like compliance, risk, people operations. And this is also including one-off investments related to our dual-listing project. We expect this investment pace to continue in H2 with the administrative expense of around GBP 1 billion for the full year. And this includes investments in our people across the area that I just covered. In H1, we welcome over 1,000 additional colleagues at Wise, and we plan to keep on hiring in H2. And these investments together, with the top line growth, delivered in the period that clearly highlight how we are delivering on our strategy, and as you can see clearly in our margin progression over the past 2 years. The increased profitability we generated in H1 2025 have been reinvested, taking us back to our underlying profit before tax margin target range of 13% to 16%. And this is exactly the model that we promise here, and it's working. So as you know, we only use the first 1% yield we receive of interest income within our underlying profit before tax because we are committed to building a business that is sustainable without relying on cyclical forms of income such as interest. Including additional interest income beyond the first 1%, we reported a profit before tax for the period of GBP 255 million. So now I'd like to cover our expectation for the rest of the year, and we are reiterating our previous guidance. So for the full year 2026, we continue to expect underlying income growth to be within our midterm range of 15% to 20% on a constant currency basis. And based on the phasing of our investments, we continue to expect underlying PBT of around 16% for 2026, excluding the one-off listing expense of circa GBP 25 million -- GBP 35 million. On our capital allocation framework, as we continue to make prudent decisions to deliver on our long-term mission, our business strategy aims to deliver strong profitable growth so that we can generate strong cash in the future. This means that we can sustain strong level of cash, maintaining a strong capital to ensure resilience and flexibility. And on the return of capital, I wanted to share an update on the share repurchase program we announced earlier this year. From -- of the incremental 25 million shares into our Employee Benefit Trust to find historic options, we have already repurchased half of it. So we are executing our strategy with discipline and seeing strong results across every single metric that matters. We're growing our customer base. We're deepening our engagement, diversifying our revenue and investing for the future, all this while maintaining our target profitability range. And the fundamental of our business had never been so strong, and we're just getting started. So now I'll leave you with another ad as we set it up for questions. Thank you so much. [Presentation] Martin Adams: Great. Okay. So we're just going to take any questions that you have. So what we'll do is we'll start in the room, and then we'll jump over to Zoom [Operator Instructions]. Unknown Analyst: [indiscernible] Goldman. Firstly, platforms demonstrated a strong inflection in the half, now 5% of volumes growing around 3x than the total volume. Can you talk to us about some of the momentum and ramp you're seeing within this segment and talk us through that midterm guide of 10% of volumes in terms of the growth you need to get there? And secondly, one for Kristo, please. Stablecoins are certainly gaining traction within the payment ecosystem. Can you talk to us about where you see Wise positioned with respect to stablecoins? And what are some of the opportunities and potential challenges, given you built one of the lowest cross-border payment infrastructures? Emmanuel Thomassin: Well, I'll start with platform. Well, thank you very much. Yes, you're right. I mean we have a very good momentum. I mean every time we meet, we are pleased to announce our new names, new partners joining the platform. That was also driving inbound calls so that we're really, really pleased with that. You see basically new names coming and we are integrating them. But also, as I mentioned in the presentation, you see also the ramp-up of names that we mentioned before, where we see the volume increasing over time. So today, we are at 5% -- a little bit more than 5%. So this is 1% more than our last meeting that we had in April. And yes, we're on track for delivering the 10% midterm and the 50% long term. So yes, we have a good momentum here. And we see interest from new partners or potential new partners. Kristo Kaarmann: On the stablecoin question, so indeed, you're right, we've built the world's fastest, the most efficient, the lowest cost way of moving money between countries and currencies. And we've been -- when we talk about this, we often talk about the direct integrations and how we link together the local payment networks. But in fact, Wise Network also comes with this regulatory infrastructure that allows us to do this in each of the jurisdictions around the world. So if we ask about stablecoins in that context of money transfers that goes just beyond moving U.S. dollars between wallets, then it's these regulated on and off ramps into those local currencies, how do you get the money into the USD stablecoin and out of that USD stablecoin. And that's actually the hardest thing to achieve reliably, which is exactly what we built Wise Network -- or this Wise infrastructure for. So if we want to think about Wise in that context, then as these legitimate use cases of USD clearing outside of the Federal Reserve and outside of the main banks emerge, and we're starting to see reliable anti-fraud, anti-bribery, anti-tax evasion, anti-money laundering mechanics come live on the stablecoin environments. Then of course, we have the best on and off-ramps to make use of this new technology across the world. And furthermore, if these challenges improve, I'm actually personally quite excited if we can add something like this to move U.S. dollars next to Fedwire and Zelle and Venmo and other options that are out there today for our own customers. Adam Wood: It's Adam from Morgan Stanley. So I've got 2 questions for you. Just first of all, on the pricing, obviously, a big reduction over the last 12 months. The policy in the past has always been to cut pricing as you engineer cost out of the platform. Could you just give us any change to that, first of all? And then any visibility insight you could give to how you're thinking about that over the next 12 months? And then secondly, on the investment side of things, obviously, a big investment gone in already and more in the second half. Do you see any change in the payback metrics that you're getting? Would you be more comfortable with maybe moving those payback periods out a little bit? And then critically, in some of the new markets you're in, there's a big flywheel effect with Wise in terms of getting people on and getting volumes up to bring the cost down, and we know how that works. Are you seeing that this advertising is accelerating that flywheel in some of these newer markets you're going into? And again, would that push you to do a little bit more to accelerate how you get to more of those instant transactions and so on? Kristo Kaarmann: Let me try to respond more principally, we're keeping our investments. We aim to keep our investments really balanced and steady. So we saw -- as we're describing, we did a pretty decisive move about a year ago and now been kind of stable. Going forward, we try to avoid big swings, but definitely, the strategy hasn't changed because we amazingly see this working. We see more volume even coming up in the short term, let alone this economic mode that we're building. So this is definitely going to continue, but we're going to try and avoid big swings. So that will be kind of a steady expectation. And then the other question that you had around do we see the marketing working? For sure. And I think we're one of -- potentially our marketing team is one of the world's most disciplined when it comes to payback. And I don't -- I think the magic still is if you can reach more people with the same investment return because at the end of the day, we're investing our shareholders' money and that has to have a return. Unknown Analyst: Kristo, first of all, looking at that photograph, I wanted to ask you which shampoo you use. But the real 2 questions really are, one is in terms of margins going ahead, are we kind of -- sorry, let me ask the margin question second. The first question really being, you obviously currently Wise transfers kind of charges per transfer. And are you thinking of something like an Amazon Prime model where somebody pays in, let's say, GBP 10 or whatever in whichever currency and then they kind of -- monthly, they can have so many transfers. Are you thinking about that? Have you already tried that in any particular market? So that was my first question. And my second question was about basically margins. Obviously, it's a huge, huge market out there. And are you also thinking of kind of saying -- willing to kind of take lower, lower takes and lower margins because obviously, the volumes that we are talking about are like 100 or 1,000x potential. Kristo Kaarmann: I'll take the first one. Emmanuel will take the second. Emmanuel Thomassin: Yes. So I won't talk about shampoo. But on the margin, look, I mean, we guide the market to 13% to 16%, and we are really serious about this. I mean, like we want to grow because there's a massive opportunity out there, as you know. So we -- Kristo mentioned just now how we reinvest in pricing, but this is one of the options that we have. This year, we are investing in marketing. We're investing in servicing. We're investing in product and development. We're investing in people so basically to offer the best service we can. And we anticipate, obviously, the growth. We have the strongest ad customers in this -- in history of Wise and basically for customers and businesses. So we know this is working. And while we still guide the market at the 13% to 16%. So this is a massive investment that we're doing. We're delivering not only on the fields that I mentioned, but also all the features the direct integration. So we're really, really busy. And we still deliver like on this margin at the top of the range right now. So I think in terms of margin, we are really disciplined. I mean the money, we don't spend, we invest. We want to have a return, and that's help us this discipline to guide the market to the 13% to 16%. As long as we get room to invest and we get a good return and the time is so fantastic, I think it will be set enough to do this, but you can expect us to be disciplined. Kristo Kaarmann: And your other question on the different charging models or bulking together. Of course, we play to a reasonable extent with all of those, and you might see some evolution there. But I think principally, we really value this loyalty that comes with our strings attached. And this is quite amazing if your customers don't come back to you because they bought a subscription, but they come back to you because they want to come back to you. And that's kind of something that however we end up pricing, I don't want to lose a trade away. Operator: This is Aditya from Bank of America. Aditya Buddhavarapu: Three questions from my side. Firstly, on the platform volumes, could you just talk about how much of the growth came from the, as you said, customers who have been live for a long time versus the ones who have been onboarded over the last year or so? Second, on the hiring, so you've hired 1,000 people just in the first half versus the initial expectations of, I think, hiring 700 people for the full year. So there's been an acceleration. So could you talk about why you decided to step up the pace of that? Which areas you've been hiring in? And then how should we think about that for H2 and for next year as well? And then the last one on GBP 35 million one-off, should we think about that -- as you think about the next year, does that one-off, I guess, get reinvested back into other areas? Or we should think about that, again, flowing back into the profitability? Kristo Kaarmann: I'll take the easy one, if you don't mind. Your question on investment and how did we -- how are we able to invest so much in this first 6 months. So I'm actually really, really, really pleased with that. It seems like it's a fantastic time to invest. If you look at all of those categories that Emmanuel went through, starting with servicing, so the payback that we get from like an instant service and the confidence that customers then bring like GBP 25 billion of their money to hold with you, that's amazing, and there's still room to invest there. Let alone the rate of the growth that we're now seeing, we need to be ready. There's going to be a lot more customers to serve going forward. So with that, then we talked about marketing already that has a very direct, very clear payback, has a very, very good ROI to use money. And then on engineering, we're actually -- if you look at the numbers, we're actually investing not as fast as our volumes are growing. So we're investing even lower. I wish we could go faster there. So -- and that will take a bit of ramp-up. So I'm actually pretty proud that we wanted to invest. We talked to you about this at the Owners Day that this is a fantastic time to invest now and feel like we made kind of more progress in the first 6 months than we hoped for, but... Emmanuel Thomassin: Yes. On the -- because your first question was on platform. Actually, what we see is that we have a ramp-up of new customers, like basically volume coming from new customers, but also partners that have been there before that are extending the contract with us. So we are in a very comfortable position where basically, as we told you, usually, we start with one route and then over time, they extend the contracts. This is what we see. So clearly, there's new customers that we signed last year. So -- and then on top of that, the former one that are extending the contract. So this is really a mix of both, which is very, very healthy. So that's -- and that's driving this 1% increase or a little bit more than 1% increase. Yes, on the hiring, just like as Kristo said, I mean, like Wise is a brand that people are attracting. And then basically, we are in a position where we can scale and anticipating the growth rate that we see on the customers. So that's very good. I think on the last question was the reinvesting capacities or -- yes, I mean this is clearly a one-off due to the dual listing. That's why when we guide right now on the margin, we clearly exclude basically the one-off. So we don't -- we're going to have a small part of recurring cost, but this one is a one-off in nature. You should not forget the left side. Pavan Daswani: Pavan from Citi here. I've also got a couple of questions. Firstly, on instant payments, good to see the step-up to 74% from 63% last year. What's really driving that? Is that mainly from the go-live with Pix in Brazil? And should we expect that to step up again when you go live in Japan? And then secondly, on the elasticity of pricing, you've reduced pricing by 15% over the last year. Has that really translated into the volume uptake that you've seen so far? Or is that really a multiyear payoff? Kristo Kaarmann: I'll take the first one. So you're directionally correct that these instant payment rates are basically a reflection to the large part of how good is our local connectivity, how fast we can get Australian dollars to the end recipient. Given the timings, I would probably attribute this more to our Australian integration that went live about a year ago or about 6 months ago, it kind of ramped up. So it's probably more of that than Pix. We'll see some from Pix as well going forward. So I'm definitely looking forward to this number going up further. Emmanuel Thomassin: And on the price elasticity, so it's clearly for us like a long-term strategy. We know that price matters to every single customer. So that's the first maybe statement. Like we know long term, price will matters, and it will position us at the #1 option. Last year, as we do the price adjustments, we also increased some price. I mean, like it was not only going down, and it was by design. So basically, what we've seen is that the larger transfer is becoming cheaper and more attractive for our customers. And that we saw immediate reaction. So we saw that basically people are reacting to our offering, as we decrease the take rate for the larger transactions. So there is an immediate reaction, but we think that price is anyway a long-term game, and that's why we want to push on efficiency so that we can pass this back to the customers. Unknown Analyst: I'm really interested in the decline in take rate that you're reporting. And can you just help me understand and unpick that a bit and the difference between changing mix in the business and like-for-like price cuts on your kind of rate card? And what's the balance between those drivers of a decline in the reported take rate? Kristo Kaarmann: I can take that. This is very much driven by us setting the fees and setting the fees lower than we did before. It does bring about a secondary effect of a bit of a mix shift. So for example -- kind of coming up with an example, if in a country, we used to be -- we discovered one payment method, say, people paying in with cards, is particularly more expensive and we raised the fees on cards, lower it on bank transactions, then what you do see is the shift from people who used to use cards before because they were kind of subsidized, moving into bank transfers, bringing down the take rate. But for them, this is actually a benefit. So you get these little secondary mix shifts, but generally, it is -- like we set the prices. Eleanor Hall: Eleanor Hall, Rothschild & Co Redburn. I just wanted to follow up a little bit more on the stablecoin question from earlier. And I know earlier on in the quarter, there was some news around you potentially exploring hiring in the digital asset space. I know you've been speaking to customers in terms of is this something they'd be interested in. And I'm just wondering if you could comment on the outcome of those discussions or any kind of further updates on things that you're looking at internally to do with stablecoins? Kristo Kaarmann: As I already covered, the investments that we're making are quite general in terms of we're building the network that will be useful in the context of stablecoins or without the context of stablecoin. So we're not making a bet on one payment scheme over another or one transaction method over another, but there's a lot of -- we're going to be very deliberate on what kind of use cases are we going to accept and how -- where is it actually going to be useful. So going forward, I think you should expect us to be very deliberate about that. Unknown Analyst: Vineet from Autonomous Research. Just 2 questions. What other countries do you see -- do you need to do direct integrations that will complete your overall infrastructure build? And any thoughts on rumors about Wise exploring a banking license? Emmanuel Thomassin: Well, on direct integration, we're not done yet, right? I mean like there are so many payment systems that we think we should integrate in order to be even increasing the instant payment. I mean, like we've done a tremendous job. I mean like if you remember, we were at 64%, if I remember last year, we're now at 74%. We want to integrate more systems. I mean we want to make sure that we come to the highest number as possible in terms of instant payment. So there are plenty of payment systems, and you can imagine that our team is working actively on that to add more in the future in terms of, well, having the license and then the technical integration. So we -- it's not over yet. I mean, like we have 8 today. We will continue to integrate more payment systems. Kristo Kaarmann: And then on the comment of rumors. So just the fact is the OCC in the U.S. has reported that we're in the process of a license application for a trust license, which is a form of banking charter. It's not quite a banking charter, but it's a trust charter. So that is indeed true. In the U.K., there haven't been any announcements. And generally, of course, we have licensing procedures or processes ongoing in probably 20 countries in parallel for different things that we could do for our customers. Unknown Analyst: Simon Young. Could you just help us understand what the correlation between your direct payments and -- sorry, instant payments and the ones that are direct and therefore, also the impact on the gross margin? Because if I understand it, the gross margin is very high on stuff that goes through the direct payments. And if it goes higher, obviously, gross margin should go up and yet gross margins in the first half were flat. Can you just help me understand what's going on, please? Kristo Kaarmann: I'll try a little bit. Just to build your intuition about this a little bit, I think if you look at mechanically on the cost base, you maybe see less of an impact going direct or having a very good indirect clearing mechanism. However, the COGS benefit or the cost benefit does come through quite a lot in the reliability that you get being direct and also the customer experience that you get. So it's not as direct as what I think you had in mind. But indirectly, indeed, we should see benefits operationally, benefits from customers and customer affinity and so on. So it's definitely very worthwhile investments, but I'm not sure you can translate this as directly into the gross margin increase. Unknown Analyst: Culture is a massive issue for any company. How do you embed successfully 1,000 people in a half and keep the culture that Wise has obviously developed so successfully in the last 12 years? Emmanuel Thomassin: I'm glad you asked this question because I'm here for a year, but I can tell you, basically, the onboarding is very successful. I mean, like you really quickly understand the culture of Wise. It's a developing culture and you get the support of your colleagues. I mean -- so I think Wise is a brand that is really highly seen by candidates. But the way we integrate people is really like supporting -- the team are supporting and managing to onboard newcomers like me very, very quickly. Last year, I have the pleasure to be here after 4 weeks. It was because basically my colleagues also in this room who were helping me a lot to onboard. So I think this is the culture that we have. We have one mission. We repeat this mission. We want to move [indiscernible] and everyone is working every day on that path. Kristo Kaarmann: I would amplify that the job of onboarding the 1,000 people is of the 6,000 that are already here. So it's not that hard if you take it this way, 6:1. Martin Adams: So moving over to Zoom, Justin Forsythe from UBS. Justin Forsythe: I want to hit a couple of questions on my side. So first, Kristo, the foray into stablecoins. Maybe you could just talk a little bit, it felt like 6 months ago, it was a bit of an afterthought for you guys. Clearly, quite an evolution there. Maybe you could just talk through a little bit your evolutions personally in coming to an understanding with this aspect of the market. And it does seem like there's a lot of players in this on- and off-ramp business within stablecoins. How do you expect to differentiate there? Is it simply because of your connection to local faster payment schemes? And is it fair to assume that a lot of those providers, those competitors, if you will, do not have the same level of licensure and local scheme connectivity that Wise has? Question number two, Emmanuel around the PBT margin. So I think 1H was ex-listing costs around 17.5%-ish. Now you effectively reiterated the full year guide, but ex-listing costs, so to me, that implies 2H margin down quite a bit sequentially, I think, around 14.5%. Then if you include listing costs, I think you're down at like 11.5%. So I just want to understand, one, if that's the correct math and maybe a little bit more detail on what's driving it. And what that also implies for the cost base going forward in the beginning parts of the next fiscal year. And on top of that, thinking about underlying income growth because it seems to imply that there's quite a large acceleration. Could you be doing 20% plus in 2H, as the take rate comparison eases? Kristo Kaarmann: Thanks, Justin. You were slightly tricky to hear in the room for the audio. It's probably an issue on our side. But let me try and respond to the first part, which was imagining the stablecoin ecosystem improving, then how are we competitive in these on and off ramps. And I think you're spot on there that the qualities that make these on and off-ramps so amazing in the fiat world of going from Australian dollar to U.S. dollar to euro, that's exactly the same cost speed, regulatory reliability, the same things that will matter in the stablecoin world. So this is -- you're spot on that this does work exactly the same way. Emmanuel Thomassin: I mean, like I start with the margin evolution. So the margin that -- the guidance that we give for the full year, excluding our one-off expense for the listing, and we want to be at the top of the range, we reiterated this, at the 16%, around 16%. What we will see basically in H2 is that we're driving the investments in first half year, and we will also continue to invest in H2. And this is basically our promises that we give in Owners Day. I mean we're going to invest where we can where we get a good return and still guide the market to the 13% to 16%. And that is without [indiscernible] or the dual listing cost? Bear in mind that this is a one-off by nature. I mean, for next year, we will have some recurring costs, but nothing compared to the GBP 35 million that we're expecting for this year. And when it comes to income -- underlying income growth, I hope I understood your question rightly. So yes, you have a kind of disconnect between the volume growth that you see, the cross-border volume and underlying income -- or the revenue that you generate out of this volume -- cross-border volume. But this is basically a like-for-like issue. So we're comparing basically 2 period of time where we had the price adjustments last year, in the first half year, that is coming to play. And then the comparison like-for-like is very difficult. You will see this -- we will see the real growth -- I would say, the real growth in brackets in the second half year when this pricing adjustment is not affecting anymore the comparison for year-on-year comparison. So I hope I answered your questions. If not, please just let me know. Martin Adams: We'll now move over to Bharath. Over to you, Bar. Bharath Nagaraj: Bharath from Cantor Fitzgerald. Could you highlight some of the logos that you signed previously within the platforms business where you're now seeing volumes ramp up? Is there any kind of like a case study with regards to how long it normally takes to ramp up volumes materially here? And what are the conversations that you're having with these kinds of customers? Is it to do with like lower take rates for these businesses or anything else? That's the first question. The second one, could you speak about your investments -- the marketing investments across the U.S., Australia and Canada, which ones are faring better? Are you seeing any regions with better ROI relatively speaking? And has there been any change in this ROI coming from these investments, given the macro worries? Kristo Kaarmann: I'll try to take the first one, Bharath, unfortunately, I think if we did a case study, it will be misleading because each of the -- we're onboarding the world's largest financial institutions often and each of them is so different. So it's going to be really hard to average those. The -- we're pretty -- we're very happy actually with our past announcement, past logos that have gone live, and you see that in the results. So it's something where it's very early to start singling anyone out, but we're very happy with the onboarding progress here, and that gives us confidence that we mentioned today where you kind of can see getting to 10% in medium term with the platform volumes. Emmanuel Thomassin: To your question on marketing and ROI comparing Australia and U.S. So first, maybe I should start that we're using the same discipline and the same KPIs, and we have the same expectation on return no matter, which campaign we started in which country. However, comparing Australia and the U.S. is difficult at this time because Australia campaign is running for 1.5 years, where the U.S. is basically starting, I think, 2 months ago or so. We are very pleased with the return that we see, and that's why we continue to invest in Australia. And we see also that the campaign in the U.S. is quite successful. We invest also in 3 other countries, New Zealand, Canada and U.K. So we are monitoring the progress in every single country, but it's really, really difficult because of the difficult -- it's challenging, let's put it this way, to compare Australia where we have this campaign running out for 1.5 years, and we continue to invest because we see the result. Result is, the CPA is going down. So the cost per acquisition are going down as longer we take the campaign. So that's -- we're monitoring. We're also adjusting to be quite frank, we do some time adjustment in tricks. We say this creative that you see today, we have to adapt this for this country, and then we start a campaign again. But what I can tell you is that we're looking at this with the same lens. So basically, we want to have the same return no matter what. And if a campaign is not as successful as we expect, either we do the creative again or we change the campaign or we stop the campaign and we come with a better idea. Martin Adams: Well, thank you very much for joining us today. That concludes our presentation and Q&A for our half year results for FY '26. Thank you very much. Emmanuel Thomassin: Thank you very much, everyone. Kristo Kaarmann: Thanks everyone.

159天前Insight Analytics约5分钟阅读

ROK 2025 Q4 财报电话会议

Operator: Thank you for holding, and welcome to Rockwell Automation's Quarterly Conference Call. I need to remind everyone that today's conference call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead. Aijana Zellner: Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's Fourth Quarter Fiscal 2025 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO; and Christian Rothe, our CFO. Our results were released earlier this morning and the press release and charts have been posted to our website. Both the press release and charts include, and our call today will reference, non-GAAP measures. Both the press release and charts include reconciliations of these non-GAAP measures. A webcast of this call will be available on our website for replay for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today's call. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all our SEC filings. So with that, I'll hand it over to Blake. Blake Moret: Thanks, Aijana, and good morning, everyone. I'll make a couple of initial comments before we turn to our fourth quarter results. When we introduced guidance for fiscal year 2025 last November, amid a mixed set of headwinds and tailwinds for growth, much of the discussion centered on additional detail around the cost reduction and margin expansion actions we initiated in 2024. With the top line guidance range that included limited growth, we knew it would be a challenge to both absorb higher costs and expand margins. So with the very busy 12 months of fiscal year '25 in the books, I'm proud of the team's execution as we have returned to top line growth and continued to reduce costs. Rockwell is well positioned for sustained market-leading growth and profitability as we build on this success for fiscal '26 and beyond. We closed the year with another strong quarter of outperformance versus our expectations, including double-digit year-over-year growth in both sales and operating earnings. Our differentiated portfolio, price discipline and continued focus on productivity all contributed to this great finish to the year. Free cash flow was also very good in the quarter and for the year. As we will discuss, we're taking further steps to streamline the organization and increase efficiency in the service of customer value and expanded margins. Uncertainty remains, but it's clear that countries around the world are more aware than ever of the strategic importance of investing in advanced manufacturing capabilities and capacity. Nowhere is this more apparent than in the U.S., our home market. Let's now turn to our fourth quarter results on Slide 3. Both reported and organic Q4 sales were up double digits versus prior year. While we did have favorable comps from a year-over-year standpoint, Q4 sales grew high single digits sequentially, which was better than we expected. Organic year-over-year sales growth of 13% was led by continued strength in our product businesses. Similar to the last 2 quarters, CapEx activity and longer cycle businesses remain muted, with customers holding off on larger investments. On our last earnings call, we flagged the potential for Q4 pull-ins into Q3. Based on our analysis of daily orders and sales trends, inventory levels in our channel and machine builder surveys, pull-in orders were less than expected in Q3 and not evident in Q4. Annual recurring revenue was up 8% in the quarter. While some customers continue to delay discretionary services spending, we did have a number of large software and services wins around the world in Q4. One notable win was with Stanley Electric, a Japanese Tier 1 automotive supplier, who will deploy our cloud-native Plex platform across 25 global sites. We also secured a key cybersecurity win in life sciences, with GSK selecting our Verve platform as their new standard for asset vulnerability management to be deployed across 33 sites over the next 5 years. In our Intelligent Devices segment, organic sales were up 14% and versus prior year and up low double digits sequentially. Strong sequential growth in the quarter was driven by our power control business, where a combination of our existing business and our CUBIC acquisition is helping us win competitive projects around the world. A good example of this was our win with Ferri Systems, a Spanish system integrator, who will be providing our flexible and compact motor control system for Africa's largest desalination plant. I'll share some additional power control wins later on the call. We also had a good quarter in our Clearpath business with double-digit year-over-year growth in our OTTO autonomous mobile robot business. I'm pleased with how this acquisition continues to add new ways to win and expand our customer base. Our AMR business grew double digits in fiscal '25, and we are optimistic about fiscal '26 as we plan for Clearpath to turn profitable in the year. Software & Control organic sales in the quarter grew 30% year-over-year, led by continued momentum in our Logix business, both versus prior year and sequentially. On the software front, Plex and Fiix continue to add new logos as we augment our existing sales force with new go-to-market partners. One of our Plex software wins in Q4 was with THG, a U.K.-based global e-commerce leader in beauty and nutrition. This customer chose our cloud-native MES and quality management solution to eliminate manual processes and drive further operational efficiency. Organic sales in Lifecycle Services were down 4% versus prior year, slightly below our expectations. Book-to-bill in this segment was 0.9, consistent with our historical Q4 seasonality. We continue to see project delays across both our core business and Sensia as customers wait for more clarity and stability around the impact of trade and policy on their operations. Regarding our Sensia joint venture with SLB, following a strategic review, both parent companies have decided to pursue an orderly dissolution. Rockwell will assume 100% ownership of the process automation business that we initially contributed to the joint venture, and SLB will again fully own the parts that they contributed. After the expected close of the transaction in the first half of this year, fiscal '26, Rockwell will realize lower revenue but higher operating margin going forward due to the deconsolidation. Rockwell's resulting sales into the oil and gas vertical will be about 10%, but with a simplified go-to-market motion. That go-to-market approach continues to include SLB as an important partner with deeper relationships than the 2 companies had 6 years ago. I want to be clear that Sensia did not meet our long-term expectations. That is why SLB and Rockwell have jointly agreed to make this change. However, the changes we are making demonstrate our continued commitment to the oil and gas market, and we are well positioned to grow in this space. Our portfolio has expanded since the JV was launched, with new process I/O and process safety capabilities from Logix, an industry-leading portfolio of cloud-native software applications and deeper domain expertise. Importantly, we have taken this step in order to grow in this vertical with improved profitability going forward. Christian will add more detail on the financial impact in the quarter and the benefits going forward later on the call. Turning back to our fourth quarter. Rockwell's overall segment margin of 22.5% and adjusted EPS of $3.34 were well above our expectations, driven by higher volume and strong productivity. We ended this fiscal year with over $325 million of structural productivity savings, exceeding our original target of $250 million. Similar to last quarter, tariffs did not have a meaningful impact on our results in Q4. Christian will talk more about tariffs and the expected fiscal '26 impact in a few moments. Moving to Slide 4 to review key highlights of our Q4 industry performance. Sales in Discrete were up 20% year-over-year with strong growth in e-commerce and warehouse automation and good performance in automotive. Automotive sales exceeded our expectations in the quarter with low double-digit growth versus prior year. The industry continues to shift from an EV focus to a mix of traditional ICE, hybrid and electric vehicle offerings. Rockwell has good technical solutions and expertise for all of these types of vehicles. E-commerce and warehouse automation delivered another standout quarter with sales growing over 70% year-over-year. This quarter, Rockwell secured a significant European win with another global logistics and parcel-handling company. The customer selected our FactoryTalk Optix platform and digital services to digitize and expand operations across 28 sorting facilities. While our data center business is still relatively small, we continue to see strong double-digit growth with multiple wins across the globe. This quarter, Rockwell won a project with Alternative Heat Ltd. to supply modular cooling panels for large data centers in Europe. The rise of AI data centers is driving demand for faster deployment, advanced cooling solutions and secure industrial grade control platforms. Our Logix control platform and modular power distribution technology are well-positioned to meet these needs. We'll share more about our differentiation and growth in the data center space at our Investor Day later this month. Turning to our Hybrid industries. We saw double-digit growth across food and beverage, home and personal care and life sciences. In food and beverage, our customers are prioritizing productivity and operational efficiency in existing facilities. The industry is going through a period of consolidation, restructuring and evolving consumer preferences. While this dynamic might delay some of the larger CapEx investments near term, we continue to build a strong pipeline of new capacity projects, both globally and in the U.S. In the quarter, Electrolit Manufacturing selected Rockwell as a key automation and digital partner for their state-of-the-art beverage blending and bottling facility in Waco, Texas. This is Electrolit's first greenfield in the U.S. Sales growth in our life sciences vertical was also strong in Q4 and exceeded our expectations. We continue to see growth in our software and cybersecurity services across the product life cycle. We're also seeing increased automation adoption in the medical device segment. One of the important wins here this quarter was with Haumiller, where our Independent Cart Technology is helping accelerate and optimize production of a high-speed auto injector line for the obesity drug market. Moving the Process, sales in this segment grew 10% with year-over-year growth across all industries. Similar to last quarter, Process customers are focusing on driving efficiency and profitability in their existing facilities as they continue to grapple with weaker demand and low commodity prices. Rockwell's technology is well suited for both greenfield and brownfield investments as demonstrated by several large wins in the quarter in energy, mining and metals. A good example of this was our win with Vale Base Metals, where our arc-resistant power control systems are modernizing their Sudbury mill to significantly enhance safety and operational efficiency. This win positions Rockwell as a key automation partner in one of Canada's most critical mining operations. Turning to Slide 5 and our Q4 organic regional sales. North America had a strong finish to the year and was once again our best-performing region in the quarter. We expect North America to continue to be our strongest region in fiscal '26. Last quarter, we announced a $2 billion investment over the next 5 years to modernize infrastructure, grow talent and enhance digital capabilities. These initiatives are now underway and will unlock future growth and margin expansion with the U.S. as the primary beneficiary. We'll share more in the months ahead. Let's move to Slide 6 for key highlights of full year fiscal 2025. Our reported and organic sales were up about 1% versus prior year. Total ARR grew 8% with solid performance in our Software as a Service business. We ended the year with segment margin of 20.4% and adjusted EPS of $10.53. The improvement of over 100 basis points in year-over-year segment margin was driven by our cost reduction and margin expansion actions and strong price discipline. Free cash flow conversion of 114% exceeded our expectations for the year. I'm proud of our execution to get back above 100% free cash flow conversion, which remains an important part of our financial framework. Let's now move to Slide 7 to review our fiscal 2026 outlook. As we look to fiscal '26, we are confident in our ability to gain share and expand margins. We are less certain about the overall macro and geopolitical environment as well as the timing of the CapEx investment recovery in our key verticals. Increased stability and trade policy will help unlock additional capital spending. We expect our reported sales growth for the year to be in the 3% to 7% range. The midpoint of our guide assumes a sequential sales decline in Q1, which is typical, followed by gradual sequential improvement in the subsequent quarters. Christian will provide more detail on this and the expected impact from price and tariffs in his section. Annual recurring revenue is slated to grow high single digits next year. We expect our segment margin to expand by over 100 basis points, and our adjusted EPS is projected to be $11.70 at the midpoint. We expect free cash flow conversion of 100% in fiscal year '26. Before I turn it over to Christian, I want to reiterate how proud I am of the execution of the team in the quarter and throughout the year. To be sure, there remain plenty of opportunities for continued improvement, and we are taking action to further our progress throughout the coming year and beyond. As we'll discuss in less than 2 weeks at Investor Day, keys to execution includes strengthening a high-performance culture, accelerating top line growth, expanding margin and continuing our progress in operational excellence. And these are the elements of the Rockwell operating model. And with that, I'll turn it over to Christian. Christian Rothe: Thank you, Blake, and good morning, everyone. Before I get into our strong fourth quarter results, I want to spend a few minutes highlighting some of our onetime items unique to Q4, so you understand how they flow through the P&L and where adjustments were made. At a high level, all these changes are outlined on Slide 8. For additional financial details, please also refer to Slides 21 and 22. First, starting in Q4, we're introducing a new engineering and development expense line in our statement of operations. This aligns with the SEC's expanded segment disclosure rules and enhances visibility into key metrics that inform management decisions, particularly total innovation spend. Engineering and development includes what you typically think of as R&D, which has been about 6% of sales historically. And our sustaining engineering spend, which maintains existing technology and has been about 2% of sales. Reclassifying these costs from cost of sales to operating expenses increases gross margin by about 8 points with no impact to the total P&L. This change is applied consistently across historical periods, as shown in the Q4 earnings slide deck appendix, Page 21. Importantly, this move improves visibility into Rockwell's total development spend, aligns our reporting with industrial and tech peers and provides a more meaningful view of gross margin performance. Second, we're making a change to how we treat certain costs related to our legacy asbestos exposure, which is unrelated to our ongoing operations. Historically, we expensed the defense cost for these claims as they were incurred. In Q4, we changed our accounting policy to a full horizon accrual for defense costs, consistent with how we account for indemnity. All told, inclusive of the indemnity and the defense cost accrual update, the result was a onetime pretax charge of $136 million or $0.91 per share in the fourth quarter. This is the accrual portion of the changes. Because these costs are not tied to current operations, we are also updating our definition of adjusted income and adjusted EPS to exclude legacy asbestos and environmental charges. In Q4, this change excluded $141 million in pretax charges or $0.94 per share from adjusted earnings. That includes the $136 million accrual as well as $5 million of normal asbestos and environmental spend we incurred in the fourth quarter. The EPS impact is $0.91 from the accrual and $0.03 from the normal spend, both now excluded. For full year fiscal 2025, the definition change increased adjusted EPS by $1.03, with $0.91 from the Q4 accrual update and $0.12 from excluded -- excluding legacy asbestos and environmental costs that we incurred for the full year. Without the definition change to adjusted EPS and excluding other onetime items in the quarter, Q4 adjusted earnings would have grown 34% compared to the 32% under the new definition. For the full year, EPS growth was unchanged under the new definition. When compared to our previous guide, the Q4 change, excluding onetimes, was a net benefit of $0.03. For the full year, the net benefit was $0.12. Moving to the third item on the slide, we recorded an impairment in our Sensia business following the decision to dissolve the JV, which Blake discussed. The net result is a noncash impairment charge of $110 million or $0.97 per share, net of tax and the NCI adjustment. For reference, the approximate annualized impact from the planned dissolution will be a $250 million revenue reduction and virtually no impact on operating earnings. The approximate margin benefit to Rockwell on an annualized basis will be an increase of about 50 basis points. And finally, in Q4, we made a voluntary $70 million contribution to our U.S. pension plan. As Blake mentioned earlier, we delivered 114% and free cash flow conversion for the year, inclusive of that contribution. Excluding the contribution, our conversion was 119%, with free cash flow reaching a record $1.4 billion and reflective of strong operational execution and solid performance across the P&L. All financials reported in our earnings release, conference call presentation and in our 10-K, which will be filed next week, reflect these changes. Turning to our financial results. Let's go on to Slide 9, fourth quarter key financial information. Fourth quarter reported sales were up 14% versus prior year, exceeding our expectations and closing 2025 on a strong note. About 1 point of growth came from currency. About 4 points of our organic growth came from price with about 1 point of that coming from tariff-based pricing. Price/cost was favorable in the quarter. Company gross margins under our new reporting methodology expanded 290 basis points year-over-year and segment operating margin increased 240 basis points. While tariffs had a neutral impact on EPS, they did cause a slight margin dilution in the quarter. Adjusted EPS of $3.34 was above our expectations, primarily due to outperformance on revenue, better segment mix and favorable price. The adjusted effective tax rate for the fourth quarter was about 18%, up from about 15% last year, driven by higher discrete benefits in the prior year. For the full year fiscal 2025, our adjusted ETR was 17%. Free cash flow in Q4 was $405 million and was $38 million higher than the prior year. Slide 10 provides the sales and margin performance overview of our 3 operating segments. Intelligent Devices margin of 19.8% decreased 90 basis points year-over-year due to a tough comparison with last year's Clearpath earnout reversal and higher compensation this year, resulting in the incrementals in the teens. Excluding the earnout reversal, incrementals would have been about 30%. Software & Control margin of 31.2% was up 880 basis points versus prior year, driven by outstanding 30% organic sales growth and good price realization. The segment saw year-over-year incrementals in the high 50s. Lifecycle Services margin of 17.5% was up 30 basis points year-over-year. A mid-single-digit organic sales decline and higher comp would normally have driven segment margin lower year-over-year. However, the team continued to deliver strong project execution and higher productivity. Overall, for Rockwell, the incremental margin on the year-over-year sales growth was about 40% in Q4. I want to take a moment to point out the sequential movement we saw in each of our segments. Intelligent Devices had sequential incrementals in the high 20s on low double-digit sales growth, reflecting seasonal shipments of configure to order, which created a sequential negative mix. Software & Control sequential incrementals were in the low 20s with modest sequential sales growth after a very strong Q3. Lifecycle Services saw similar sequential dollar growth in both sales and segment earnings, yielding 100% conversion on strong project execution. Overall, for Rockwell, the incremental margin on the sequential sales growth was in the high 30s. Let's move to the next Slide 11 for the adjusted EPS walk from Q4 fiscal 2024 to Q4 fiscal 2025. Year-over-year, core performance had a $1.45 impact in Q4. Software & Control was the primary driver of both sales and earnings growth in the quarter. The largest driver in our core was volume, followed by structural productivity and price. Compensation had a $0.45 impact in Q4 compared to our prior expectation of about $0.30 of impact, driven by our outperformance in the quarter. Full year compensation expense, which includes merit and bonus ended the year at $255 million. As I mentioned earlier, we are lapping the prior year benefit from a Clearpath earnout reversal this quarter. With some other onetime items, this resulted in a $0.15 headwind. Slide 12 provides full year 2025 key financial information. Reported and organic sales increased 1% to $8.3 billion, 200 basis points better than our original guidance midpoint for the year. Currency was neutral. Full year segment margin of 20.4% increased 110 basis points from last year and was 140 basis points better than our original guide. The increase was due to our margin expansion and cost reduction actions, price and favorable mix. This was partially offset by higher compensation and unfavorable net currency. Adjusted EPS of $10.53 was up 7% and well over $1 better than the midpoint of our initial guide for the year. For the year, we deployed about $1 billion of capital towards dividends and share repurchases, while we continue to pause on our inorganic investments. Our capital structure and liquidity remain strong. Moving on to the next slide, 13, to discuss our guidance for the full year. Our organic sales growth guidance is 2% to 6% or 4% at the midpoint. We expect about 100 basis points of currency benefit, so our reported revenue growth is expected to be 5% at the midpoint. Our guidance does not include the anticipated impact from the Sensia dissolution. Once the JV is dissolved, we'll update our FY '26 guide for the remainder of the year. As we mentioned, this will reduce reported revenue and increase margin percentage but have no significant impact on EPS. Our segment operating margin guidance is 21.5%, more than 100 basis points higher than -- higher year-over-year. Our adjusted EPS guidance is a range of $11.20 to $12.20 or $11.70 at the midpoint. We expect a couple of points of price for fiscal 2026, 1% on underlying price and 1% from tariff price. From this growth, we expect our FY '26 incremental margin to exceed 40%, inclusive of tariff-based pricing. Looking ahead to 2026 capital expenditures, we plan to increase investments in plant and digital infrastructure with targeted CapEx spending of about 3% of sales. In terms of the calendarization, as Blake mentioned, we expect a sequential decline in Q1, followed by a gradual sequential improvement in subsequent quarters. This is true for both sales and margins as we progress through the year. Now let me share some additional color on our first quarter. In Q1, we expect overall company sales to be down low double digits sequentially, given normal seasonality and the continued uncertainty and slower CapEx activity. With that said, we do expect good year-over-year growth in both sales and margins with total company segment margins in the high teens range. This translates to more than 25% year-over-year growth for adjusted EPS. From a business segment standpoint, Intelligent Devices sales in Q1 are expected to be down low double digits sequentially due to ongoing softness in our configure-to-order shipments. As a result, we expect Intelligent Devices segment margins to be in the mid- to high teens. Software & Control margin is expected to be in the high 20s in the first quarter on sequential sales declines in the high single digits. Lifecycle Services sales are expected to be down high single digits sequentially, driven by a combination of both normal seasonality and continued CapEx project delays. We expect segment margin for Lifecycle Services in the low double digits. For the full year, we expect segment sales and margin as follows: Intelligent Devices reported sales growth is expected to be in the mid- to high single digits. We expect margins in the high teens to low 20s or 150 to 200 basis points higher year-over-year, driven by continued progress on productivity. Software & Control reported sales growth is expected to be mid-single digits. We expect margins in the low 30s, up slightly year-over-year and driven by better volume and price. Lifecycle Services reported sales growth is expected to be flattish. We expect margins in the low teens, lower than last year. Let's turn to Slide 14 for our adjusted EPS walk for the full year. Our core is expected to be $1.40 for the year. Included in our core is productivity, which is the term we are using for operationalizing our ongoing focus on cost reduction and margin expansion. FX is expected to be a $0.20 tailwind. We expect our adjusted effective tax rate this year to be 20%, reflecting the implementation of BEPS Pillar Two. The resulting EPS headwind from tax is $0.40. A few additional comments on fiscal 2026 guidance for your models. Corporate and other expense is expected to be around $100 million. Since we are no longer including legacy asbestos and environmental costs and other income, corporate and other expense is about $18 million lower than it was -- than it otherwise would have been for the year. Net interest expense for fiscal 2026 is expected to be about $120 million. We're assuming average diluted shares outstanding of about 112.7 million shares, and we are targeting approximately $500 million worth of share repurchases during the year. I'd like to thank the global Rockwell team for the outstanding execution that allowed us to exceed our cost reduction and margin expansion targets and company guidance for fiscal '25. This organization is ready to build on this momentum and deliver another strong year. With that, I'll turn it back to Blake for some closing remarks before we start Q&A. Blake Moret: Thanks, Christian. This year's Automation Fair and Investor Day at McCormick Place in Chicago is the best venue to see what's special about Rockwell. We're looking forward to showcasing the best solutions and partner network in the business, including software-defined automation and AI-enabled technology from sensor to software, integrated intelligent devices, robotics and digital services. You will hear from customers about our differentiated value and from management as we review progress on our goals, details of our internal investments and inorganic priorities. I'm looking forward to seeing you there. Aijana, we'll now begin the Q&A session. Aijana Zellner: Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow up. Julianne, let’s take our first question. Operator: [Operator Instructions] Our first question comes from Scott Davis from Melius Research. Scott Davis: Lots of questions -- I'm sure you're going to get lots of questions on the guide, but I just would want to start with Sensia. And just what's the postmortem like -- it just doesn't feel like that ever really got traction the way you guys expected it to, even though I think there was a fair amount of support for it at the highest levels in both companies. But what was kind of the postmortem of why it didn't work out? Blake Moret: Yes. Scott, I think for starters, standing up a new entity a few months before COVID kind of descended on the world had a particular impact in energy markets for that period of time. So that created a challenging starting point. I think from an operation standpoint, the scope that Sensia had laid out was broad, which added costs. And while we worked it into a position of operational profitability, we jointly decided that it wasn't going to meet our long-term goals to justify the continued, let's say, complexity of a JV. And so returning the originally contributed businesses added simplification. And I would also say that we're different companies than we were in 2019. We've added considerable technology capabilities, both in terms of the control architecture as well as software and digital twins, simulation, which is useful in a lot of these applications. And so we felt it was the right time to simplify and obviously, the increased profitability reflected on the overall company as attractive as well. Scott Davis: So it just sounds like just since there's not a lot of earnings impact of the adjustment that it wasn't very profitable JV overall. But is the -- is getting Process up to Discrete margins something that is more a function of volumes? Or is there a cost or product issue or scale? I mean, just a little color there, and then I'll pass it on. Blake Moret: Yes, sure. So first of all, just due to the nature of process applications typically requiring more engineering content, order-specific engineering content, you have more people involved. And -- so that's going to put some suppression on margins as opposed to just providing raw product into an application. That being said, the work that Lifecycle Services has done over the last couple of years to really dramatically increase their margins reflects the proof that those margins can be improved even in a people-intensive business. And obviously, the further incorporation of artificial intelligence and the software-defined automation that we've been talking about helps as well as you make greater use of libraries and reduce the integration costs through digital twins. So I think the work that we're doing on the products, the work we're doing in Lifecycle Services specifically, the rigor with which they select projects to pursue, which was part of the reason for the good performance in Q4, all of those things that bode well for us to be able to continue to grow in process, specifically in energy and oil and gas more profitably going forward. Operator: Our next question comes from Andrew Obin from Bank of America. Andrew Obin: Impressive growth numbers in Software & Control. Could you give us a sense, and I know you don't give an exact number, but can you give us a sense where the Logix volumes are relative to where we were pre-COVID? Blake Moret: Sure. So Andrew, in the back half of the year, we touched pre-COVID unit volumes for Logix. For the full year fiscal '25, we were still below pre-COVID. And so there's room to run just with the math of that as obviously, the market is expanding. And then, of course, we benefited from good price over that period of time. So in fiscal '26, we do expect Logix unit volumes to get back to those pre-COVID levels and then obviously continue on from there with market growth as well as market share. Andrew Obin: Excellent. And I may be wrong on the timing, but I believe in '26, you're going to start rolling out new Logix products. And I'm sure you will talk about it at the Analyst Day. But does that impact sort of margin patterns seasonality in the year? Because I think there is a big product upgrade ahead of you over the next couple of years. Blake Moret: Yes. Andrew, you're right. And actually, we've already started. So we released new Logix L9 processor ahead of schedule. We're already taking orders for it. It provides a higher performance than any other Logix processors that we've had. And that's just one example. Process I/O is off to a good start where we've released a new family of Process I/O. And then what we've been talking about a lot is software-defined automation, which includes Logix and software form, and you'll be able to see that in a couple of weeks when you're in Chicago. So a lot of vitality in that business with more to come. In terms of the impact, we don't typically see a big swell of orders when we release a new product. It's more of a contribution to the steady sequential growth of the product family. But I would tell you that orders are off to an impressive start for those new products. Operator: Our next question comes from Andy Kaplowitz from Citigroup. Andrew Kaplowitz: I think you said previously that book-to-bill is now running close to 1x. So I assume that was the case in Q4. And would you expect that to continue to be the case moving forward? And then I know today, you said bigger CapEx projects are still getting delayed. But are you any more confident that you'll see some of these larger orders move forward in '26 or can you sustain a book-to-bill around 1x without a big improvement in these projects? Blake Moret: Sure. So in general, the product business orders and shipments are really right on top of each other, and we continue to expect that. So the orders that distributors are saying are translating into orders on us at normal rates. Deliveries are fine. And -- so we don't expect that to change in the year. And we'll continue to provide the book-to-bill in Lifecycle Services where you do have some offset due to the longer lead times in projects in that business. In terms of CapEx in the year, it does continue -- we do continue to see projects being delayed. And as we've characterized it before, we see typically those projects that our customers subject to a higher level of approval, delegation of authority requirement in their organization. So there are projects coming through. We certainly talked about a few of those a few minutes ago. And we expect gradual sequential improvement through the year. The guide does not contemplate some big improvement in the capital environment. So that would be a factor that would push us more to the higher end of the guide if we did see a release of capital at a greater rate through the year. Andrew Kaplowitz: That's helpful. And then just looking at your segment margin forecast, as you said, you're forecasting over 40% incremental margin, which could arguably described as --- '26 could arguably described as a more normal year for Rockwell where you're layering in restructuring savings as productivity. And I think incentive comp is more normalized as well versus FY '25. I think, Christian, you mentioned you're still absorbing some tariff headwinds. So does that mean that, that's the kind of incremental margin we can count on from Rock moving forward? Maybe just a little bit more on the puts and takes would be helpful. Blake Moret: Sure. Andy, Christian will have some more to say on this. But at a high level, while we are proud of good incremental conversion expected in the year due to all the factors that you said, including normalized run rate for compensation, continuing aggressive productivity and so on, we're not ready to change our guidance for incremental for a long-term framework. Christian Rothe: Yes. And so just to build off of that, the long-term framework has us at a 35% incremental number. Again, that's kind of through the cycle, mid-cycle to mid-cycle. You're going to see some variability from quarter-to-quarter, obviously, and also from year-to-year periodically. So as we're looking at the momentum we're taking into fiscal '26, that 40% felt like an appropriate number. It's not a heroic change from the 35%, but we are seeing just a little bit better opportunity in this coming year. Operator: Our next question comes from Julian Mitchell from Barclays. Julian Mitchell: I wanted to start on the top line guidance. So you're just finishing the year with very strong growth. You're guiding for sort of mid-single digits at the midpoint for the year ahead and starting off, I suppose, with high single digit year-on-year in the first quarter. So I just wanted to try and understand when we're thinking about that revenue guide for the balance of the year, was it sort of constructed with a view around sort of normal seasonality or just very tough comps in the second half? And anything happening to price year-on-year as we move through fiscal '26? Blake Moret: Yes. So a couple of comments. And again, I think Christian will have more detail. As we look across the end markets, in general, we're looking at mid-single-digit growth for Discrete and Hybrid, low single-digit growth for Process. We had some outliers there. Semiconductor flattish in Discrete, warehouse, e-commerce up around 10%. And then in Hybrid, good results expected from the part of the business, food and beverage, life sciences and so on. But CapEx continues to be suppressed in terms of spending. And so that influences the low single-digit expectation in process. Christian Rothe: Yes. And so as we kind of shape that year out, Julian, you're right, we implied in that guide and the way we think about the first quarter and the way we shape the first quarter, yes, we're looking at high single digit growth year-over-year in the first quarter and then the comps get more difficult as the year goes on. We are looking for sequential revenue improvement from Q1 to Q2 and then on through the remainder of the year. But if you're looking at year-over-year [ growth rates ] during the course of the year, then yes, those are going to be at a declining level from a -- again, more due to the difficult comps. Julian Mitchell: And just on that pricing, I think it was 4 points in the fourth quarter. Does that sort of assume to be de minimis tailwind exiting this new fiscal year? Christian Rothe: Yes. So the way we talked about pricing for fiscal '26 is that we're looking at 1 point of underlying price and 1 point of tariff-based price is what's included in our guide. As you're aware, price is not something that you can just universally make changes around their market dynamics or competitive dynamics. So part of what we're working on is a -- we want to make sure we have a balanced approach. Tariff-based pricing is, of course, absolutely critical for us to ensure that, that EPS neutrality is kept intact. At the same time, we also want to make sure we get underlying price. Tariffs have helped us on price realization broadly. You saw that kind of throughout fiscal '25, which is a great thing. As we turn the corner and we go into fiscal '26, again, we want that balanced approach and ensuring that we can get that tariff-based price is absolutely critical. When we think about the 1% underlying price, again, we feel really good about our ability to realize that hopefully, we can continue to try to execute at a higher clip. Julian Mitchell: And then just a quick follow-up on margins. So you had 110 bps of margin expansion. The year just finished off volumes that were down slightly in the year and a big comp headwind. The year ahead, volumes are up low single digit in the guide, no big comp headwind and the same margin expansion. Is your point there that you're just using that sort of placeholder for now of 40% that there isn't some big hike in the specific investment spend or something like that? Christian Rothe: Yes. So there is no really big hike in investment spend, that's for sure. I don't know if I'd call it a placeholder necessarily. We had really good progress in fiscal '25 on cost reduction and margin expansion. Blake highlighted it. That $325 million is a very significant number for this organization. We have additional opportunities as we go into fiscal '26. We're going to talk about that a little bit more when we get into Investor Day as well. So there is a portion of that that's definitely built into our guide. At the same time, we want to make sure that we are continuing to have great profitability growth and that 40% number seems -- again, seems like something we can go execute against. Operator: Our next question comes from Chris Snyder from Morgan Stanley. Christopher Snyder: It certainly seems like demand is getting better. If you look at the order rates in the above $2 billion the last 2, 3 quarters. Last year, they were below $2 billion. Do you think that this is cycle momentum? Do you think this is a reshoring tailwind investment coming through? Do you think you guys are just gaining share versus the market because when you look broadly at the industrial economy or even your competitors in Discrete, we're not really seeing this level of acceleration or momentum broadly. Blake Moret: Sure. Well, Chris, I think there's pieces of each of the factors that you mentioned. First of all, the U.S. is probably the healthiest market around the world, and that's a home field for us with high share. So we're going to get a lot of that benefit from investment. And we'll talk more about this in a couple of weeks at Investor Day, but we did see higher orders due to capacity expansion in the U.S. this year than last year, and we expect to see higher orders from that activity in fiscal year '26. The demand, particularly for the product side of the business, which is still more than half of our business is good. Optimization of brownfields, adding software into facilities that have a base level of automation and looking for more efficiency with information management software. We have a portfolio that's second to none. We do think that we're taking share there. So I think it's all those pieces that put us in a favorable position. Christopher Snyder: And then I wanted to follow up around the medium-term margin target, which you guys have out there of 23.5%. You just did a 22.5% and I know Q4 is the seasonal peak, but the quarter did have headwinds from FX and tariffs. I imagine there's more cost-out opportunity next year given that you guys exited pretty strong on that front. And then another 50 bps, I guess, of margin uplift from Sensia JV going away. It just feels like we're getting awfully close to that 23.5% target. I guess in that context, are you rethinking that? And do you think there's meaningful upside to that prior target? Blake Moret: Christian and I are both smiling because it is something that we're proud of is that progress. But we are laser-focused on attaining the current targets that we've set out there. As we've talked about, we've got plans already underway to get us to and through that number, but we're focused on hitting it first. Christian Rothe: Yes. And it's absolutely -- we want to continue to make progress against that. And Blake's response in saying to and through that is top of mind for us. We are really spending a lot of time and energy to make sure that we have a lot of runway to continue to go through that as we move forward. At the same time, we're not ready to put a new target in place. Let's go achieve this one first. Operator: Our next question comes from Steve Tusa from JPMorgan. C. Stephen Tusa: Congrats on the execution. Unknown Executive: Thanks, Steve. C. Stephen Tusa: Just on inflation, what level of inflation did you guys see in the quarter? Christian Rothe: Inflation was relatively modest. Keep in mind, we have a lot of cost reduction and margin expansion actions that are underway inside the organization. So it's a good countermeasure that we've been taking all year long. We expect that to continue to be an opportunity for us to work to offset inflation as we go into '26. C. Stephen Tusa: Okay. And then the 1% tariff that you got, you said that was offset in the quarter or that was -- or you were ahead of the tariffs in the quarter? Christian Rothe: Yes. On the EPS line, it was neutral for us in the quarter. That is the tariff-based price that we achieved. And the tariff-based price that we achieved in the fourth quarter was simply to offset the tariff-based costs. C. Stephen Tusa: Okay. That makes sense. And going forward, for next year, do you still expect inflation to be kind of minimal and then maybe a little bit ahead on the tariff stuff? Christian Rothe: Yes. So we do expect the inflation to be relatively minimal. We're not seeing anything out there that we're ready to call out. From the tariff-based price and cost perspective, again, our expectation is to keep that EPS neutral. It's a really important factor for us. That is we are not using tariffs as an opportunity for us to expand margins. We're not using tariffs as an opportunity for us to grab some profit. We truly are -- and importantly for our customers, we are using tariff-based pricing to simply to offset the costs that we're incurring. C. Stephen Tusa: Okay. One last quick one. Just you guys didn't mention orders this quarter. You said last quarter, it was -- the book-to-bill was around 1. I know there's some seasonality here. Where was the -- where did the book-to-bill land this quarter? Blake Moret: Yes, book-to-bill still within that range of around 1 that we have been talking about with product orders right on top of shipments. Operator: Your next question comes from Nigel Coe from Wolfe Research. Nigel Coe: Christian, I just want to have another crack at the incremental margin of 40%. I think comp came in at [ 2.60% ] this year. I think you've mentioned in the past that [ 2.25% ] is the right run rate. So just wondering if that's still the case. And there should be some wraparound on costs from 2025 into 2026. We sized that at $50 million, $75 million, somewhere like that. Again, is that the right math there? Christian Rothe: Yes. So on the incremental side and specifically around compensation, the number of it that I gave in my prepared comments was $255 million. So you're right in that ballpark. The way to think about comp for us as we turn the page and look at '26 is that generally, things have normalized. So you shouldn't expect us to actually put to see comp as a specific bar chart in our waterfalls as we talked through it. It's going to be part of our core as is the productivity and the ongoing cost reduction and margin expansion. So that -- again, that part has generally normalized. We've got really good motions in place to continue to work on margin expansion broadly using all the levers inside the organization, whether you're talking about price, cost reduction and margin expansion, again, or just continued leverage on the business. So again, feel very comfortable around trying to drive towards that 40%. Nigel Coe: And is the math on the cost wraparound in the right zone as well? Christian Rothe: I think that that's correct, but... Nigel Coe: I get it. I get it. And then, Blake, maybe on some of the -- 2 of the end markets. Auto growing low double digits and warehouse, e-com up 70%. Is the warehouse really being driven by -- you called out, I think, Clearpath up 25%. So just wondering if that's the big driver of warehouse and if that continues into 2026. And then on auto, we are seeing a lot of brownfield expansion plans in the U.S. So just wondering if in your '26 plan, whether you're expecting auto to be maintaining in the double-digit zone. Blake Moret: We're expecting auto to be mid-single digits in the -- well, in fiscal year '26. It stabilized in a lot of ways. We are seeing some projects. But as they're retooling to ICE and hybrid again, but we're not placing a lot of bets on CapEx all springing back there. With respect to e-commerce and warehouse automation, it is really a shared contribution across the company in both traditional sources of value like Logix and variable speed drives and motion control, along with some of the newer things that do include the OTTO AMRs as well as software throughout that. So it's an industry. And as we've talked about it, it's multifaceted. To be sure, there's some data center in there, but there's also parcel handling. There's CPG companies that have their own warehousing as well. And we have great readiness to serve in that area, which many of these customers have identified as kind of a hidden opportunity for major productivity in their operations. Aijana Zellner: Julianne, we'll take one more question. Operator: Our last question will come from Jeff Sprague from Vertical Research. Jeffrey Sprague: Christian, I just want to come back to sort of understanding sort of the Sensia accounting and sort of like in my simple mind, right, I think if you and Schlumberger are picking up your ball and going home, there shouldn't be a charge, but I understand you build an organization, and therefore, you need to take a charge around dismantling it. But if you're dismantling overhead as you take it apart, why isn't there some earnings benefit going forward from the dissolution of those costs? Hopefully, that makes sense. That's what I'm a little confused by. Christian Rothe: Yes, it makes -- it does make sense. So keep -- there's a couple of factors that go with this. Obviously, when we established the joint venture, we did have to put it onto our balance sheet that had a value to it. So when we took the decision to dissolve it, there was an impairment that occurred. So we had to recognize that, which was what we did in the fourth quarter. As we pull apart those pieces, there are parts that come back to Rockwell, there are parts that go to SLB, and there is a P&L that's attached to both of those as well as assets that go with them and employees and whatnot. And so there's a bunch of mathematics that go with it. There are some other transactional -- minor transactional costs that will occur as we get closer to the closing date. So generally, that's how it all pulls together. And when we think about what the future state is going to be, again, as Blake mentioned, we do expect it to be somewhat beneficial to our overall company margins as well as that for the Lifecycle Services business. Jeffrey Sprague: Understood. And then corporate looks low even kind of making the adjustment for the asbestos-related accounting. Is this where some of the overhead and restructuring and kind of cost actions that you've talked about are really bearing fruit? Or is there some kind of change in allocation between corp and the segments going on? And is that 100-ish a pretty good run rate going forward? Maybe it grows with inflation going forward, but is that a pretty good baseline? Christian Rothe: Yes, [ the $100 million ] is a pretty good baseline. The delta -- you're right, there's a couple of deltas that are happening there. One is the removal of the asbestos and environmental. The other part is the driver of that next step of the reduction is related to the implementation costs on our cost reduction and margin expansion activities that we incurred in fiscal '25. A lot of that's built into our base right now, and it's being driven more within the various aspects in the segments. So that's where that's going, but it's also -- a lot of those costs, those execution costs are also going to be going away. Aijana Zellner: Great. That concludes today's conference call. Thank you for joining us today. Operator: At this time, you may disconnect. Thank you.

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