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AHR 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 American Healthcare REIT Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Alan Peterson, Vice President of Investor Relations and Finance. Please go ahead. Alan Peterson: Good morning. Thank you for joining us for American Healthcare REIT's Third Quarter 2025 Earnings Conference Call. With me today are Danny Prosky, President and CEO; Gabe Willhite, Chief Operating Officer; Stefan Oh, Chief Investment Officer; and Brian Peay, Chief Financial Officer. On today's call, Danny, Gabe, Stefan, and Brian will provide high-level commentary discussing our operational results, financial position, changes related to our increased 2025 guidance and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session. Please be advised that this call will include forward-looking statements. All statements made during this call other than statements of historical fact are forward-looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Therefore, you should exercise caution in interpreting and relying on them. I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results, financial condition and prospects. All forward-looking statements speak only as of today, November 7, 2025, or such other date as may otherwise be specified. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release, supplemental information package and our filings with the SEC. You can find these documents as well as an audio webcast replay of this conference call on the Investor Relations section of our website at www.americanhealthcarereit.com. With that, I'll turn the call over to President and CEO, Danny Prosky. Danny Prosky: Thank you, Alan. Good morning or good afternoon, everyone, and thank you for joining us on today's call. I am very pleased to report that the third quarter was another very strong quarter for AHR. We continue to build upon our strong first half momentum, generating same-store NOI growth of 16.4% across the total portfolio, marking our seventh consecutive quarter of double-digit same-store NOI growth portfolio-wide. This performance once again reflects the depth and quality of our portfolio, our strategic initiatives, which include leveraging our platform across our operating portfolio, the strength of our regional operating partners and the enduring demand tailwinds that support health care real estate. Within our operating portfolio, our RIDEA structured segments, which include our integrated senior health campuses, also known as Trilogy, and our SHOP segment continue to drive outsized growth, which is the result of our team's proactive and hands-on asset management approach. As I look across our industry, I maintain my conviction that this is the best operating environment for long-term care that I've seen in my entire 33-year career. This is most evident to me when reviewing our strong RevPOR growth and the fact that Trilogy and SHOP same-store occupancies are currently above 90% and continue to trend in a positive direction. Shifting to our external growth activity, we're executing diligently on scaling our operating portfolio with our regional operating partners. In aggregate, we have closed on over $575 million of acquisitions year-to-date, all of which is within our RIDEA segments. Among these new acquisitions, I'm happy to announce that we're expanding our highly curated stable of operators. We introduced 2 new relationships to our group of operators this year, which will broaden our geographic diversification while reinforcing our focus on operators that share our values, including a strong employee culture, ability to deliver ongoing outsized financial performance and most importantly, a keen focus on delivering high-quality care and results for our residents. I'd like to congratulate Stefan and the entire investments team, along with Ray Oborn and his senior housing asset management team again as they have continued to identify and acquire a tremendous volume of very high-quality managed senior housing assets. These acquisitions not only provide immediate earnings accretion to AHR, these assets should also provide strong ongoing organic earnings growth for years to come. Along with the acquisitions I just noted, the team has continued to backfill our pipeline of awarded deals, which now stands at well over $450 million. These transactions are expected to close in the fourth quarter and early 2026. As we execute on our external growth plans, we continue to demonstrate discipline and remain opportunistic in our capital markets and capital deployment activity, which should drive further earnings accretion in 2026 and future years. We're now on track to grow normalized FFO per fully diluted share by 20% over last year, while also continuing to improve our balance sheet metrics and leverage profile. As Brian will note during his remarks, our net debt to EBITDA at the end of the third quarter is now down to 3.5x. Our strategy remains consistent. We're not simply chasing near-term accretion. We are building durable long-term growth through operating alignment with best-in-class regional operators, disciplined capital allocation and capital markets activity while always putting resident care and outcomes first. Finally, I'm proud to note that in September, we published our inaugural corporate responsibility report, publicly disclosing the governance, social and sustainability priorities that have long been embedded in AHR's culture. This milestone reflects our belief that responsible stewardship and performance are inseparable. Before turning the call over to Gabe, I want to thank the entire AHR team and our operator partners for their exceptional work. Together, we are executing with precision and purpose for all AHR stakeholders, providing high-quality care and outcomes for residents, which is leading to strong financial performance for our shareholders. And now, Gabe, over to you. Gabriel Willhite: Thanks, Danny. Operationally, the third quarter of 2025 was another strong quarter for us with outstanding results across the business. Once again, we delivered sector-leading same-store NOI growth compared to the third quarter of 2024. Not only did we sustain the momentum from the first half of the year, but we also built a solid foundation for continued success with strong occupancy gains in the third quarter prior to entering what's historically a slower winter season. That being said, occupancy trends into the fourth quarter suggest that seasonality could be muted due to the accelerating demand growth from the baby boomer population. Now let's dive into our results in more detail, starting with Trilogy. Same-store NOI grew 21.7% year-over-year. Occupancy averaged 90.2% in Q3, up more than 270 basis points from last year, while average daily rate increased roughly 7%. That performance reflects not only continued pricing power, but also ongoing improvement in quality mix. Within Trilogy, its high quality of care and outcome standards continue to drive outsized demand as residents, families and now to an increasing degree, Medicare Advantage plans seek out the highest quality of care providers. Trilogy is continuously working to add to and also to optimize its Medicare Advantage partnerships with the plans most aligned on quality, which is in turn increasing access for residents to Trilogy and driving more Medicare Advantage census growth across the Trilogy portfolio. We expect this mix shift to drive robust revenue growth that reflects the strength of the platform for 2 primary reasons. One, Medicare Advantage reimbursement rates are significantly higher than other reimbursement sources and growing faster than other sources; and two, increasing accessibility for Medicare Advantage plans provides a tailwind for continued census growth. So for example, Medicare Advantage accounted for 7.2% of total resident days at Trilogy during the third quarter, an increase from 5.8% a year ago. It's a great example of how Trilogy has proactively leveraged high-quality care and outcomes to identify the best partners and ultimately create economic value and yet again demonstrates Trilogy's remarkable ability to utilize many different operational and strategic levers in order to drive continuously strong growth. Turning to SHOP. Same-store NOI increased 25.3% with RevPOR up 5.6% year-over-year and NOI margins expanding nearly 300 basis points to 21.5%. We also achieved record move-in activity during the spring and summer seasons. And for the first time, like Danny mentioned, our SHOP same-store spot occupancy is currently above 90%. Those gains were achieved without significantly sacrificing pricing discipline, reinforcing our view that the secular demand for long-term care remains durable, especially for the highest quality operators as residents and families continue to invest in superior care and service. As demonstrated by our operating portfolio results, fundamentals remain extremely favorable. Construction starts across senior housing remain near historic lows, while demographic growth in the 80-plus cohort accelerates. These structural supply-demand imbalances should support a multiyear runway for further occupancy gains, rate growth and NOI growth. As we move into the winter months, we're confident and we're well positioned to maintain the occupancy gains achieved through the busier spring and summer selling season. Overall, we continue to view this as the early innings for long-term care demand growth that's being captured most effectively by operators with scale, quality outcomes and a strong regional presence. Trilogy and our SHOP partners certainly exemplify that. I'd like to thank each of our operator partners for their enduring commitment to their residents and their employees and their contributions to another very successful quarter for AHR. We know we could not deliver these results without them. Finally, our team is actively executing on our strategic initiatives designed to enhance our operating platform. Our strategic alignment with Trilogy unlocks unique opportunities for outperformance and value creation. For example, we're leveraging Trilogy's centralized revenue management system across other operating partners. The analytics and also the operational strategies and functionality from that program, which combines a multitude of factors, including market rates, occupancy, unit-specific attributes and discount control features have already contributed to our growth at Trilogy by optimizing revenue, especially with respect to highly occupied facilities, which we know is a category that's rapidly expanding. We're in various pilot phases with our regional operators to extend this tool among other initiatives we've identified across our operating portfolio. We continue to view this as a differentiator and a key component of our strategy as we plan for rapid expansion and look to support our regional operators as they scale to meet this transformative growth opportunity. I'll now pass it to Stefan to discuss our external growth activity. Stefan K. Oh: Thanks, Gabe. Since our last call, we have been very active, closing a number of transactions while continuing to backfill the pipeline with equally strong and high-quality investments. In doing so, our investment strategy remains unchanged as we continue to focus on accretive relationship-driven growth. We're emphasizing opportunities where we have long-term conviction in the operators and markets and where our capital can directly improve care outcomes and long-term asset performance. During the quarter, we completed approximately $211 million of acquisitions and closed approximately $286 million of new investments subsequent to quarter end, bringing our year-to-date closed acquisitions to over $575 million within our operating portfolio. These transactions expand our exposure to high-quality assets in strong regional markets and deepen existing relationships with trusted operators. A key highlight of our recent activity is our new partnership with WellQuest Living, who now manages 4 communities we acquired in California and Utah. WellQuest aligns closely with our mission to deliver best-in-class resident care through integrated wellness-focused environments. WellQuest will complement our current SHOP exposure on the West Coast, allowing us to access new submarkets that screen attractively within our investment framework and offering us the ability to underwrite potential acquisitions that will leverage WellQuest's core care competencies as a high-quality needs-based senior living operator. WellQuest rounds out the new operator relationships we previewed earlier this year. And between WellQuest and Great Lakes management, it has already allowed our team to evaluate even more potential off-market opportunities, which is something we strive to do with all our trusted regional operating partners. Beyond acquisitions, we continue to optimize our portfolio mix. During the quarter, we executed $13 million of non-core dispositions, further concentrating our capital on assets within our operating portfolio that can deliver superior risk-adjusted returns. Our team has not slowed in identifying new opportunities to complement our existing investments year-to-date as we maintain a pipeline of over $450 million in awarded deals that are still in the due diligence process or that we have added since we provided an update in early September. We expect to close this awarded deal pipeline by the end of 2025 or early 2026. On the development front, we started several new development and expansion projects this quarter. Our in-process development pipeline now consists of projects with a total expected cost of roughly $177 million, of which we have spent approximately $52 million to date. We believe that these projects should extend our multiyear growth runway at attractive yields and the mix of new campuses, independent living villas and wing expansions should provide solid income at various points over the next few years, allowing for predictable cash flow that will translate to retained earnings for future new development starts to help mitigate future funding risks. To summarize our executed investment strategy thus far and our future plans, we are deploying capital deliberately, favoring operating partnerships where we see the best risk-adjusted returns, prioritizing newer assets and maintaining discipline on underwriting. We believe this strategy will prove resilient as we scale across our operating portfolio with our various partners, and we expect it will generate strong, sustainable returns next year and in the future years to come. With that, I'll turn it over to Brian. Brian Peay: Thanks, Stefan. The third quarter of 2025 was another very solid quarter of organic earnings growth, disciplined execution of external growth by acquiring assets that we expect will provide sustainable earnings for years to come as well as select capital markets execution. We achieved normalized funds from operations of $0.44 per fully diluted share in Q3, reflecting a 22% increase year-over-year. This increase was made possible by greater than 20% same-store NOI growth from our operating portfolio segments, which continues to propel our earnings, additionally buoyed by the strong initial performance from the assets we've added to the portfolio over the last 3 quarters. Given our visibility into Q4 and the solid results achieved year-to-date, we are increasing and narrowing our full year 2025 NFFO guidance to a range of $1.69 to $1.72 from $1.64 to $1.68 per fully diluted share, implying growth in excess of 20% year-over-year at the midpoint. This increase is driven by increased organic growth expectations and as we enter the remainder of the year with RIDEA spot occupancy north of 90% across our operating portfolio. As such, we are increasing our total portfolio same-store NOI growth guidance to a range of 13% to 15% from 11% to 14%. This increase is comprised of the following changes to segment level same-store NOI growth guidance. Integrated Senior Health campuses increased to a range of 17% to 20%, reflecting continued strength at Trilogy. SHOP increased to 24% to 26% as a result of the solid occupancy momentum through the summer selling season. Outpatient medical increased to 2% to 2.4% from the prior range of 1% to 1.5%, given positive renewal activity. Triple-net leased properties increased to negative 25 basis points to positive 25 basis points. During the quarter, we sold approximately 2.9 million shares through our ATM program for $116 million in gross proceeds, and we settled 3.6 million shares under a previously announced forward sale for another $128 million. We also entered into new forward agreements totaling 6.5 million shares for $275 million in gross proceeds, providing additional funding flexibility as we pursue external growth opportunities. Our disciplined capital markets approach allows us to match equity inflows with investment timing, minimizing dilution, preserving optionality and building further capacity to continue adding high-quality assets to our portfolio. That discipline has also allowed us to continue to improve our balance sheet even as we've executed more than $0.5 billion of accretive acquisitions this year. Our net debt-to-EBITDA ended the quarter at 3.5x, representing a 0.2x improvement from the end of the prior quarter and a 1.6x improvement from the third quarter of 2024. Stepping back, 2025 is shaping up as another milestone year for AHR, defined by significant organic earnings growth, continued deleveraging to provide capacity to scale our portfolio with our regional operating partners. As we enter the final quarter, our focus remains on maintaining this momentum and positioning the company for another strong year in 2026. With that, operator, we'd like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Congrats on a great quarter. Just one quick one and a follow-up. I think the 90% spot occupancy, I think, was a sort of a key marking point for investors and the thesis was always that there would be operating leverage at this point to continue the growth going. So I just wonder if you could talk about just how much more occupancy upside do you see from here realistically in the portfolio and the pricing strategy as you sort of hit this point to continue to maximize growth. Danny Prosky: All right. Well, I'll go ahead and start with that one. So I would say the maximum upside from 90% to 100% is 10%. So that's our max. I get asked all the time, where do you think you're going to be at the end of next year? What is the maximum? The truth is I don't know. What I've been saying all along is I expect over the next few years and over the past couple of years, which we've already seen, that we're going to see all of the metrics continue to move in our favor just because of the supply-demand fundamentals, right? We've seen occupancy go up, we've seen RevPOR go up, we've seen margins, NOI, et cetera. I expect over time, that will continue. I don't necessarily think that every single quarter is going to have higher occupancy than the prior quarter. We've seen a lot of that. We did see a little bit of a downtick at the beginning of this year because of flu at our SHOP portfolio. Obviously, Trilogy did very well in Q1 because of the skilled side of the business. It's now early November. It's only been a little over a month since we ended the quarter. So far, I can't say that anything has made me feel differently with what we've seen. That being said, we've got the holidays coming up. And we oftentimes see a little bit of a downturn right before the holidays. I can tell you that we consistently see Trilogy's skilled occupancy drop a little bit right before Christmas, and then it picks up during the first 10 days of January, that seems to happen every year. I expect the trend will continue. I expect us to continue to be able to price at a rate higher than inflation. I've been -- I think it's going to be around 200 basis points, sometimes a little more, sometimes a little bit less. But I think if you're seeing 3% inflation, I think we should be able to price at a 5% increase or better. Clearly, as occupancy goes up, it gets a little bit easier to do that. And I expect that the positive trend will continue. As far as the maximum and the amount, it's really hard to say. Ronald Kamdem: Great. And then if I could just get a quick follow-up in there. Clearly, you guys have been busy on the external growth front in terms of starts, acquisitions, the pipeline. But I guess my question is just there was a Wall Street Journal article about a large PE player maybe even selling some senior housing. Just can you talk about the competitive environment? Why hasn't it gotten more competitive given some of the unlevered returns that you guys are getting in the space? Danny Prosky: Yes. So I saw that article as well. I know that at least one of the acquisitions we did was from that seller, and maybe more, but I know one for sure. I think that you've seen maybe a little bit more people buying, but I also think -- I'll let Stefan comment because he's closer to it than I am. I also think you've seen more opportunities as results improve across the industry, I think you've seen more people come to market as the buildings that they've developed, let's say, in the last 5 or 10 years, start performing better and better. I think you've seen more assets come to market. So demand may have ticked up a little bit, but I think supply has as well. I don't know, Stefan, what do you think? Stefan K. Oh: I think that's exactly right. I think what you've been seeing is a lot of folks have been holding out on selling and kind of waiting for the performance to improve before they make a move. And now that's happening, some of these private equity groups that have maybe even gone beyond the end of their expected fund life are now making moves to take these assets out to market. So it's -- I think you are seeing a bigger number of assets or a larger group of assets that are being put out in the market. But I also think that this is RIDEA, and it's a difficult business. And so groups are -- it's a hard market to enter into, and it takes a long time for you to learn this business. And I don't think they're just going to jump in without being diligent about how they're approaching this market or this industry. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: So I want to go back to a topic from last quarter and something, Gabe, that you hit on a little bit in your prepared remarks. And just kind of help me understand the step down a little bit in ADR growth this quarter versus last quarter, specifically within that skilled segment of Trilogy. And would you just expect over time Medicare Advantage to continue to improve on a sequential basis given that partnership that you had previously put in place? Gabriel Willhite: Yes. Austin, thanks for the question. It's a good one. Trilogy has got a lot of levers to pull within the average daily rate in their skilled business. And part of that is like what we've talked about, optimizing quality mix to prioritize Medicare and Medicare Advantage plans and deemphasize lower reimbursement sources because Trilogy provides a high quality of care that comes with a high expense. And so they're trying to optimize from those payer sources. So obviously, they're prioritizing Medicare and Medicare Advantage plans. As you get to higher and higher occupancy, it's easier to have for that prioritization process to take place. And even within those 2 different Medicare-driven payer sources, with Medicare Advantage plans, you have pricing that varies considerably among the different plans that you partner with. What Trilogy is doing now is trying to find the Medicare Advantage plans that align with them on quality and are willing to provide a reimbursement that matches up with the quality that they're providing. So I do think that they'll have more flexibility, and they are constantly reevaluating which plans they're partnered with and whether the rate makes sense. And I do think they'll have a sustained ability to optimize those partnerships and in turn, really drive rate with Medicare Advantage. On the negative -- more negative side, Medicare is not growing as fast as it was last year because it's always retroactive to inflation and inflation has just come in. So last year's rate increase for Medicare was over 6%. This year, the national rate is going to be 3.2%, I think Trilogy is going to be a little bit above that, not materially. And so that would be a little bit of a growth headwind for Q4, but we do expect it to be at least partially offset by gains in Medicare Advantage. Austin Wurschmidt: That's very helpful. And then maybe sticking with Q mix, should the improvement in Q mix within Trilogy be a driver of both NOI growth and margin expansion as that continues to improve? Or is the trade-off and higher rate, an offset to the higher senior housing margin portion of it? Danny Prosky: Yes. So it doesn't take away from senior housing, right? The senior housing beds are separate from the skilled beds. But I think what you'll see is you'll see more Medicare and Medicare Advantage and less private and Medicaid. And certainly, you're going to see higher NOI and higher margin with Medicare and Medicare Advantage than you will with private pay and Medicaid. On the AL beds, the AL and IL -- unless Trilogy makes a decision to convert a wing from AL to skilled, those are separate lines of business. Does that make sense? Austin Wurschmidt: Yes. No, that's helpful. I mean I was talking about the entire component because the margin stepped down sequentially within Trilogy same-store pool. I recognize there's some short-term expense maybe headwinds in there, but just talking kind of bigger picture and over time, given the fact that I think the resident days component of senior was up over 200 basis points sequentially and yet that margin stepped down. And I'm just trying to get a sense of how that trends over time because obviously, the rate you're getting on the senior housing piece within Trilogy is much lower than the rates within the skilled component. So just trying to balance those 2, but understand how that flows to the bottom line as well. Danny Prosky: Yes. So as I kind of start off by saying earlier, I expect margins will continue to improve. It doesn't mean they're going to go up every single quarter over the prior quarter. I mean, clearly, the margins, it was better this year than the same quarter last year. You're right, it did tick down a little bit for Trilogy over Q3 -- I'm sorry, versus Q2, excuse me. I think we saw something pretty similar last year. Several things happened in Q3 that affect the margin. And it's not one item. They purchased a lot of flu vaccines, for example, in Q3, which is constrained the number of beds they have. It's a big dollar number, but they don't get the revenue until they administer those shots later on in the year. I think there's a component also related to employee health insurance where employees -- Trilogy self-insured, so employees go through the deductible and there's a little bit more cost to Trilogy. It's really a bunch of things of that nature. The Q2 margin was jumped up considerably versus Q1. So I think it's a combination of those things. Over time, I would expect the margin to continue to improve. It doesn't mean we're not going to have one quarter where the margin drops a little bit from the prior quarter. Gabriel Willhite: And keep in mind, Trilogy is Midwestern concentrated, right? So the winter months come with higher expenses just related to the weather and things like that. But to Danny's point, I think it's spot on. We're not sacrificing margin to go into 2 different Q mix here. We do expect that to result in higher margin. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: I wanted to touch back on Gabe's earlier comments in his prepared remarks about leveraging Trilogy's revenue management system with your existing SHOP tenants. I mean how much of the portfolio of that traditional SHOP portfolio is currently utilizing Trilogy software here? And can you provide some examples on how that's driving better results? I mean, are we seeing that in the numbers today? Gabriel Willhite: Mike, it's a great question. I think we're uniquely positioned, like I said, I think it's a differentiator for us to have the type of alignment we do with a platform like Trilogy, who does it at a really high level. For those that don't know, we've got a really unique incentive plan with Trilogy, where they have -- we have the first of its kind manager equity plan where we issue their incentive compensation using the currency that's AHR stock. So we've completely aligned their incentives to support our other SHOP operators in a way that's pretty unique to us. What that does is gives Trilogy a financial incentive to meet with our operators to let them know what their best practices are, and that's been going on for years. We took it this year to the next level where we've got assessment tools and also dashboard capabilities that we can roll out from Trilogy's platform to our shop operators as they desire to participate in it. I don't want to overstate where we're at right now. I don't think the numbers today are fully reflective of the benefit of that Trilogy platform. We're still in pilot phases with operators on that. I think what you'll see is over the next year and 24 months, probably an outsized input from Trilogy's platform as we really start to lean into it and optimize for it, and it's not going to be just limited to revenue management, it's going to be sales, marketing and search engine optimization. It's going to be employee training, employee retention strategies. It's going to be potentially IT solutions. And even today, we're leveraging Trilogy's development capabilities because they've got internal development, to identify opportunities within our existing SHOP portfolio where we can basically copy the expansion strategy that Trilogy has been using effectively to expand very highly occupied buildings on land that we already own and derisk the development with really high IRRs. Unfortunately, not a ton of dollars available in that way, but we're just incrementally growing in every way we can and really leaning into Trilogy's platform in any way we can. Danny Prosky: Yes. So we've already identified the first non-Trilogy campuses. We'll be utilizing Trilogy's development arm to do expansions and add builds. Gabriel Willhite: And to be clear, to get out in front of maybe your follow-up question, Mike, we're not planning to do ground-up development with other operators through Trilogy at this point. That's not what -- that's not the strategy. It's really to take opportunities that currently exist within the portfolio to expand on buildings that we already own. Michael Carroll: How receptive are these operators to having the system kind of rolled out into their platform? And I guess, how difficult is it to actually implement? I mean, are we talking about a few quarters here to kind of get it implemented? Or is it a longer-term process? Gabriel Willhite: It's a great question. I think the reason why we're partnered with the operators that we are is because they're very good. With being very good, certainly comes a reluctance to have somebody else tell you what to do. They certainly are reluctant to having REITs tell them how to run their businesses, and I completely understand why. They want to run them the way they do. It's, I think, far easier when you see somebody like Trilogy, who's also an operator who's gone through the same things that they have, who has the same issues that they have, but can demonstrate that they've executed at a high level on certain things. I don't expect Trilogy to be de facto operating for other operators and using every one of these different verticals and strategies to push through to them to force them what to do. What I do expect is for us to be able to identify certain soft points in certain operators and be dynamic in it and suggest, hey, if Trilogy can help you in this particular issue, please utilize them and do it. It also, I think, will be really helpful for operators that need to scale. So we prioritize regional operators because we think it provides better quality outcomes for our residents and you can control the culture better, provide upward mobility for your employees. There's a lot of benefits that come from it. What you sacrifice is a little bit of scale and resources. If we can augment what they already do well with just some back-office support and more resources to help them scale, I think it's a benefit for both and people are more willing to partner with Trilogy on those initiatives as well. Brian Peay: And by the way, I would just add to that, that this is really a lifelong journey. I mean Trilogy was a great operator when we bought into them 10 years ago. They're a much better operator today. And I would anticipate that they will continue to learn and grow and change and evolve. And all of those things would be available to our operator base. Danny Prosky: And some are more receptive than others. Operator: Your next question comes from the line of Farrell Granath with Bank of America. Farrell Granath: My first question is about your pipeline. So I know this last quarter and then this quarter, we've been seeing an acceleration from the $300 million to $450 million. So I was wondering if you could add a few comments about that momentum and how to think about that going forward. Stefan K. Oh: Yes. Thanks for the question. So I think if you think back to where we were a year ago, we were basically doing acquisitions where we had the inside track and then the opportunity for us to start doing external growth came about, and we were really just ramping up our pipeline at that point. So I think I think what you're seeing now is the fruits of that and also the fact that we have added 2 new operators to the mix. So it's been a very, I'd say, linear progression in terms of how we've gotten here. But I think what we're seeing now is kind of where we expect it to be, and it's giving us, I'd say, a strong end to 2026 -- 2025 and then a good start for 2026. Danny Prosky: Yes. So Farrell, I can't tell you what we're going to do in 2026. But I can tell you that we're going into 2026 with a much more robust pipeline than when we entered 2025 simply because our stock didn't reprice until late 2024 to the point where external growth became very attractive. But I feel pretty good about 2026. Farrell Granath: Okay. And I also just wanted to get any updated thoughts on your MOB portfolio, seen an improvement in performance also with the guidance bump, but we've also seen peers selling large chunks of MOBs. I was curious if your thoughts around reinvesting yields for the sale of MOBs or if you're content with the current performance. Danny Prosky: So this is Danny, Farrell. So we started selling MOBs 4, maybe 5 years ago, and we've sold about 1/3 of them. I believe at the peak, we had about 112. And I think today, we're somewhere in the 70 range, give or take. Now we've sold 1/3 as far as number of buildings. It's less than 1/3 as far as NOI because we sold the worst 1/3, right? We sold the smaller ones, the ones that had less growth. I think you're seeing a little bit of benefit there in our growth within MOB. It's actually ticked up. And back during COVID, we were about 35% MOB from an NOI perspective. Last quarter, we were under 17%. And I expect that number will continue to go down. Number one, we're divesting MOBs, although we've divested -- we're always going to be selling a few. We sold most of them, but I think there's a few more that we'll be selling probably this year and next. And of course, we're growing our RIDEA side of the business, both Trilogy and SHOP at a much faster clip. So it's not -- we've already been selling MOBs and redirecting that cash into seniors housing. I expect we'll continue that. Now the MOBs that are remaining are ones we like. They tend to be more institutional, larger, better buildings. And I think we'll see more growth out of those than we would have seen from the ones we sold. So we're not necessarily looking to just get out of the business, but it's certainly not where we see the best risk-adjusted returns today. We haven't bought an MOB in years. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: So we touched on this a bit already, but within the Trilogy business, the percentage of resident days coming from Medicare, Medicare Advantage has declined modestly as the year has progressed. I guess, is there a seasonality component to that? Or has it become, I guess, incrementally more difficult to push occupancy from those payer sources in recent months? Gabriel Willhite: You're exactly right, Mike. There's a seasonality component to it. So typically, the trough of occupancy for skilled nursing is in September each year. You see through the summer months, kind of occupancy declines a little bit and then ramps and peaks in Q1 of the year kind of in the colder seasonal months. What we're seeing, though, this year is less seasonality than what we typically do, and that's what's driving Trilogy's 270 basis point plus occupancy increase year-over-year. Michael Stroyeck: All right. And that same, I guess, seasonality applies to like the payer sources. Is that fair? Gabriel Willhite: Yes. Michael Stroyeck: Okay. And then I guess, sticking with Trilogy, with the higher acuity versus last year, how much have they had to increase headcount in recent quarters? And how quickly would Trilogy be able to pull back on expenses if there is a scenario where it does become harder to achieve additional increases in acuity? Danny Prosky: Honestly, I couldn't tell you exactly how much headcount they've added. I can tell you that when they have to flex their staffing, they typically do it with their flex force or with additional hours as opposed to additional staff. So they have -- they set up their own travel nurse organization right around during COVID. And basically, if they need more or less staffing, they utilize those Trilogy travel nurses to flex the force up or down. It's not so much that they hire and let people go. It's more that they flex their existing staff. Brian Peay: Yes. And keep in mind, Trilogy's turnover is industry-leading, which is to say it's less. So it's around -- it's in the 40% range. Traditionally, for their peers, you're going to see a 100% turnover rate. And it's strictly because Trilogy is such a great operator that they're able to retain their people. But I bring that up to say that essentially, hiring is a perpetual process at Trilogy. They are constantly replacing those 40% that are leaving and constantly trying to improve the workforce. And part of that is census driven, but it's more just a perpetual way of life there. Operator: [Operator Instructions] Your next question comes from Alec Feygin with Baird. Alec Feygin: Maybe to speak for the first one, can you speak about the deal volume and the competition for the newer senior housing that you have identified? And how often are you likely to compete with the other public REITs for deals in your market? Danny Prosky: It doesn't feel -- I mean, Stefan, you're closer to it than I am. It doesn't feel like it's all that often. We tend to do smaller transactions, 1 building, 2 building as opposed to $0.5 billion or $1 billion deals. It doesn't mean we haven't done those, and we wouldn't do those in the future. But it's -- with the deals that we're competing on, a lot of them are brought to us through our operating partners. I mean, a significant percentage are brought to us through our operating partners. So when I look at who's bidding, yes, there are some of the other REITs out there, but more often than not, it's going to be a non-REIT competitor. I don't know, Stefan, what would you add? Stefan K. Oh: Yes. I mean, I would echo that. About half of what we're -- what we have in the pipeline closed have been deals that have been off market. And that's one of the advantages that we have certainly had with the addition of WellQuest and Great Lakes to our operator pool is that not only are we diversifying into new markets and opening ourselves up to finding other locations and markets that we like that we can buy, but we've also been able to partner with them on a number of deals where they are just -- they're bringing them to us directly. As far as other marketed deals that we're competing on, I mean, it is really a mixed bag. I mean we're seeing -- we are occasionally seeing the REITs. We're occasionally seeing other PE that have been in the space for a while. And sometimes we're seeing local investors or local operators as well. Alec Feygin: Nice. Thanks for the color. Second one, maybe to invert an earlier question, but are there any best practices from regional operators that could help Trilogy, especially in new markets like Wisconsin? Is the -- can it be a 2-way street? Has it been a 2-way street? Danny Prosky: That's a good question. I mean I'm sure they have. I mean we have an operator summit every year where a big chunk of it is talking about best practices. I'm trying to think of some of the specific things. Gabe, if you give any color or Stefan? Stefan K. Oh: Yes. I mean the operator summit is very well attended. And I think regardless of who is in the audience, whatever operators up there talking about their best practices, they're getting good attention. I mean we have definitely seen some cooperation and partnering with -- between some of the operators and how to work on specific parts of the operations or when it comes to maybe bundling versus unbundling pricing and things like that. So there have definitely been several occasions where we've seen our operators benefiting from each other's knowledge and experience. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Now that we're seeing more SHOP deals come in, can you talk a little bit in more detail around the acquisition strategy? Do you have a view of independent living versus assisted living versus memory care? And then are you targeting unstabilized deals or stabilized deals or you just more agnostic? Just trying to get more understanding of the strategy going forward. Danny Prosky: I would say all of the above. Our acuity probably is -- I think certainly in comparison to Welltower and Ventas, I would say we probably have a higher acuity portfolio, more AL and memory care, although we have IL and we acquire IL, it's not that it's all AL and memory care. We're really looking for quality buildings that will continue to provide good earnings growth for the next 5 years, not just what can we buy today at a 7.5% or 8% cap that will be immediately accretive. And it's a mix. I mean most of what we bought last year and this year tends to be newer product. A lot of it built in the last 10 years. Not all of it, we prefer newer buildings, but there hasn't been a whole lot of development over the last 5 years. So there's not as much new product as there has been in years past. We've got some stabilized stuff that is in the 90s that we are at a more stabilized cap rate. And there's a lot of newer assets, some stuff that just -- if you look at the 5-building portfolio we did with Trilogy, 4 of those buildings only opened within the last year. So they're all new, but they're not yet stabilized. And with the stabilized buildings, you're getting a lower in-place cap rate. You're getting more growth opportunity. You're getting a situation where once it's stabilized, you're going to get a higher yield than something that's already stabilized, and a lower price per unit. You're going to get more of a discount to replacement cost on something that's unstable versus something that's stable. So it's a mix, but we're always trying to find assets that will continue to provide good organic earnings growth in '26, '27, '28, '29, et cetera. Michael Goldsmith: Got it. And maybe just as a related follow-up. Just maybe can you talk a little bit more about the process and what you're focused on? Are you focused on the operator? Are you building a data platform to analyze acquisitions in micro markets on certain demographics or incomes or home values? Just trying to get an understanding of where the focus is. Danny Prosky: So I'll start off, and then I'll let Stefan finish. I'll give him the hard part. But what I would say is that we tend to identify the operator before the building. We are more likely to work with our existing operators and say, look, here's an opportunity in your market. And by the way, when we go see it, they'll be with us. What do you think of this building? Oftentimes, they know it, maybe they've managed it in the past. Or hey, what's in your market that you think we can go out there and try to buy before it goes to market? It's -- we typically don't find a building and then put it under contract and then say, okay, now let's figure out who's going to operate it. So we tend to go after the operator before the building. And in the case of Great Lakes and WellQuest, we identified them way before we went out and found buildings. We worked with them to help build the portfolio, and that's why we've already got a substantial number with each operator. But I don't know -- and I know the processes are different, Stefan, but maybe you can give us a little bit more light on that. Stefan K. Oh: Yes. I mean that is the main point. And that's exactly what we've been doing in terms of going to the operator, identifying the operator, and that's why we've had that strategy. It is really to find the operator who has the expertise in certain markets and regions. And then from that point, identify potential communities that we might want to acquire. And we are doing that hand-in-hand with our operators. We -- if something comes to us on a marketed basis, literally, the first thing that we do is we go and we talk to our operator in that market, and we ask them what they think about it. And if it's interesting enough, we'll underwrite it together. We'll go out and tour the property together and really go from beginning to end through the process all the way through transition to make sure that we're fully aligned on every community that we're acquiring. And we feel much better conviction when we can do it in this manner than if we were just trying to do it on our own and identifying properties and then going out and trying to find the right operator. To us, that it needed to be reversed. We had to be working with the operator first. Operator: Your next question comes from Seth Bergey with Citi. Seth Bergey: I guess I just wanted to follow up a little bit on the pipeline. Of the kind of existing pipeline, is that primarily with existing operators in Trilogy? Or is that -- are there any kind of other new operators that we should be thinking about that you're looking to kind of add to the mix? Danny Prosky: I think it's all existing operators in Trilogy. There's nothing in our pipeline that is -- that would be an operator outside of our existing grocer. Stefan K. Oh: Including WellQuest and Great Lakes, of course, now considering them existing operators. Seth Bergey: Yes. And then I guess just following up a little bit around the kind of competition just as senior housing continues to perform well. Are you seeing any changes kind of with asset pricing as you kind of look at the opportunity set? Stefan K. Oh: I think, as I mentioned earlier, really, we have not seen much of a shift. Perhaps there's been maybe a moderate uptick. But quite frankly, it's been very stable. I think buyers are -- they're still being very efficient in how they're underwriting. We haven't seen any kind of fervor in terms of driving up pricing on a consistent basis. Operator: And with no further questions in queue, I'd like to turn the conference back over to Danny Prosky, President and CEO, for closing remarks. Danny Prosky: All right. Well, thanks, everybody, for joining. We really appreciate your interest. And obviously, if there's any follow-up questions, feel free to reach out via myself, Brian, Alan, and we're always available. Thanks a lot. Have a great weekend. Operator: This concludes today's conference call. You may now disconnect.

195天前Insight Analytics约5分钟阅读

CEG 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen and welcome to the Constellation Energy Corporation Third Quarter Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's call, Emily Duncan, Senior Vice President, Investor Relations and Strategic Initiatives. You may begin. Emily Duncan: Thank you, Olivia. Good morning, everyone, and thank you for joining Constellation Energy Corporation's third quarter earnings conference call. Leading the call today are Joe Dominguez, Constellation's President and Chief Executive Officer; and Dan Eggers, Constellation's Chief Financial Officer. They are joined by other members of Constellation's senior management team, who will be available to answer your questions following our prepared remarks. We issued our earnings release this morning along with the presentation, all of which can be found in the Investor Relations section of Constellation's website. The earnings release and other matters, which we discuss during today's call contain forward-looking statements and estimates regarding Constellation and its subsidiaries that are subject to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's materials and comments made during this call. Please refer to today's 8-K and Constellation's other SEC filings for discussions of risk factors and other circumstances and considerations that may cause results to differ from management's projections, forecasts and expectations. Today's presentation also includes references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and our earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call over to Joe. Joseph Dominguez: Thanks, Emily, and thanks Olivia, our operator this morning for getting us started. Thanks to all of you for your continued support, for your interest in the company and for joining us today at the end of a very busy week for all of you. As always, I want to start by thanking the incredible women and men at Constellation for delivering another quarter of strong operational and financial performance. Powering America is a 24/7 business, and our continued success derives from the simple fact that our folks are exceptional at what they do. This summer, our nuclear plants delivered near-perfect reliability. Our power fleet of gas and renewables answered the bell when dispatched and our commercial and retail teams have once again proven why they are some of the best in the business. I'm going to turn to Slide 5 to get us started with our financial results. We delivered third quarter GAAP earnings of $2.97 per share and adjusted operating earnings of $3.04 per share, higher than the third quarter of last year. Our commercial and generation teams delivered outstanding performance and the stock has performed tremendously again this year, benefiting you, our owners. But this great performance also benefits our people through stock compensation plans that we have aligned with your interest as owners. This year, because of the magnificent performance over a number of years, these plans are triggered and create some nonrecurring O&M headwinds that Dan will cover in his section. But notwithstanding these onetime events, what I don't want you to miss is the continued growth and strong performance of our business. On the data economy front, our team has never been more active with serious and knowledgeable customers. I know in the last call, I hinted that we are far along on a transaction, making use of a baseball metaphor that we were past the seventh-inning stretch. That remains true, and we continue to progress. But as we have recently witnessed in real life baseball and as I'm sure, Dodgers and Blue Jays fans, especially can attest, some of the later innings can seemingly drag out. Nonetheless, we're confident in our ability to complete these transactions, and we will let you know just as soon as we can. But perhaps more important to you than any set of transactions is what we are seeing in the broader data economy market. Our general observation is that the market is hotter now than ever. And the real big difference we're seeing is buyer maturity. In the earliest days, we had a great deal of interest from a lot of customers. But I think it's fair to say in retrospect that many customers in the early days were exploring options, kicking tires, as some might say. Sometimes, they were wondering whether nuclear energy would fit into their own sustainability plans. And even the most serious buyers were still on the shallow part of the learning curve when it came to understanding our markets and the interconnection of really large loads. Today, we're seeing a far more sophisticated and aggressive customer walk through our door. They have done deals. They understand pricing and term. They know they want nuclear. They understand the accounting and the collateral needs of a large transaction. They understand the interconnection process. Most importantly, they walk in our door with a strong understanding of what we can offer and what we need to secure on behalf of our owners and therefore, how to best execute. At the end of the day, we are often paced by the speed of interconnection in these deals. But in terms of our own commercial terms, the negotiations move much more quickly than ever before. Now with regard to the interconnection process, we were encouraged to see the letter from Secretary Wright to FERC, ordering FERC to initiate a rule-making proceeding to develop a standard approach for quickly connecting large loads to the transmission system. It was a clear message from the administration. If America is going to maintain a leadership position in artificial intelligence, we need practical reforms to make it easier to connect large loads to the grid. As you know, this is something we have been saying for a long time. We look forward to FERC's quick action. They have a docket in PJM that is complete with evidence and with arguments. It's ready for decision. Turning to other developments this quarter. We reached a landmark agreement with the state of Maryland and other key stakeholders that lays out the path for the continued operation of Conowingo Dam for the next 50 years. On Slide 5, you can see a picture of the stakeholders that gathered together with Governor Moore and others to celebrate this outcome. You see the handsome guy in the middle of the photograph and to my right, is Governor Moore. This was a win-win outcome. It brought together previously opposed coalitions to create a long-term solution that helps and protects the bay, while ensuring the continued operations of a vital source of Maryland Clean Energy for the region. I want to thank Governor Moore and Attorney General Brown for their leadership. We look forward to continuing to work with them and other elected officials to explore energy options for Maryland and the region. Lastly, Calpine remains on track to close in the fourth quarter. The DOJ is our final approval, and we presently are not seeing any effect on their work from the government shutdown. We're looking forward to getting the transaction closed, and to start working as a combined company to bring coast-to-coast solutions for our customers and to create value for you, our owners and for our communities. Turning to Slide 6. The momentum and support for nuclear has never been stronger. Nearly 3/4 of the public now supports nuclear energy. But it doesn't stop there. 9 out of 10 people think that the licenses on existing nuclear plants should be extended, and you know we're doing that work. And 2 out of 3 people believe we should be building more nuclear plants in the U.S. This is a tremendous level of public support. The public gets it and so do the policymakers. I'd point out to you that just in the last 10 days, the Trump administration and Westinghouse announced a public private partnership with the goal of building 10 gigawatts of new nuclear reactors. And the government is pledging $80 billion to help ensure it happens. Our nation recently announced a trade deal with Japan and the centerpiece of that was the investment of more capital in nuclear and the data economy. And then finally, NextEra, a company known for renewables announced the restart of Duane Arnold, all enabled by another contract with hyperscalers. And that's just what happened in the last 10 days, and it builds upon the bipartisan support that we've seen for nuclear tax credits that not only support new nuclear, but crucially support the existing fleet so that it could continue to operate, uprate and relicense. States are also leading the way through ZEC and other programs to ensure that clean, reliable nuclear power continues to benefit their citizens. Under Governor Hochul's leadership in New York, the state is looking to build 1 gigawatt of new nuclear built on a foundation of the new -- of the existing nuclear fleet that has been so successful for New York. The Public Service Commission has called for the extension of the ZEC programs, and we are involved in that proceeding. All of these developments are wonderful and a great affirmation of what I think has been the core principle of this company from its beginning. Nuclear energy is the most valuable and important energy commodity in the world today, and Constellation produces more of it than any other private sector company in the world. But our advantage doesn't just stop with the existing fleet. I think the most valuable asset that we have, that presently isn't fully recognized is the nuclear sites themselves. This is the place where nuclear was built. It's the place where we have the infrastructure, the land, the capability and the talent to build the next generation of nuclear plants. These land assets that Constellation owns more than anyone provides unique value that is difficult, if not impossible, to replicate. And what it means to me is that the path to new nuclear in many places is going to walk through Constellation. Turning to Slide 7. Constellation has had an excellent track record, as you know, of working with stakeholders to find solutions. And we once again stepped up to meet the needs of the grid by answering Maryland's call with options for the state to consider that would bring new dispatchable generation resources to the state as well as the continued operation and expansion of the world's best 24/7 clean energy resources. As part of the Next Generation Energy Act of 2025, the Maryland Public Service Commission solicited applications for dispatchable generation and large capacity resources that could proceed through an expedited process known as a CPCN or Certificate of Public Necessity. In response, we're providing Maryland options to potentially bring up to 800 megawatts of battery storage and more than 700 megawatts of low-carbon natural gas to help Maryland meet its future energy needs. Being part of the solution is who we are at Constellation, and no other company is doing more to bring and secure power for our communities than Constellation. As you know, we've committed to bring 835 megawatts through the restart of the Crane Clean Energy Center. We continue to provide nearly 600 megawatts from the relicensing of Conowingo that we spoke about a moment ago. We are bringing 160 megawatts of new nuclear uprates online at Byron and Braidwood beginning next year, and we're doing far more than this. As we talked about last quarter, we're collaborating with customers to pioneer about 1,000 megawatts of AI-enabled demand response capacity. We're targeting 500 megawatts under contract this year and another 500 next year. And we have identified an additional 900 megawatts of uprates at our sites, including 190 megawatts at Calvert Cliffs in Maryland. Constellation has and will continue to support reliability everywhere and operate in our competitive markets, effectively and performing well. And we have seen that over a decade since deregulation with generators, the competitive market has provided the best solutions to customers. With that, I'm going to turn it over to Dan for the financial results. Daniel Eggers: Thank you, Joe, and good morning, everyone. Beginning on Slide 8, we earned $2.97 per share in GAAP earnings and $3.04 per share in adjusted operating earnings in the third quarter, which was $0.30 per share higher than last year. In the third quarter, we saw fewer nuclear outage days, both planned and unplanned compared to the same period last year. These results reflect the outstanding efforts of our teams whose dedication and skill have driven higher generation volumes and help us operate more efficiently than ever with lower O&M expenses on a year-over-year basis. Last quarter marked the first period where we recognized a full 3 months of higher PJM capacity revenues following the breakout 2025, 2026 capacity auction. With our plants currently near or above the top end of the PTC zone, the non-CMC units captured almost all of the benefit of higher capacity prices. This capacity upside is partially offset by a reduction in PTC revenues compared to last year when more of our plants were in the PTC zone. Additionally, ZEC prices in both the Midwest and New York were lower compared to the third quarter of last year. As a reminder, for the full year 2025, our Illinois ZEC revenues are about the same as last year, but the timing is different since we booked banked ZECs last quarter, whereas in 2024, more of the ZECs were booked across the quarters. Moving to Slide 9. Our nuclear team continues to execute at levels of reliability and with a commitment to excellence that yields differentiated operating performance. During the third quarter, they once again hit that mark with a fleet-wide capacity factor of 96.8%. Our team consistently delivers a capacity factor about 4% higher than the industry average, which at our fleet size is the equivalent to having another reactor's worth of power on a full year basis. Our renewable and natural gas fleets performed near plan during the quarter, with renewable energy capture at 96.8% and power dispatch match at 95.5%. Consistent, reliable and excellent operations across our generation fleet, especially during the critical summer months, are a testament to the thousands of tasks and hours of planning, our teams complete on an ongoing basis to make sure we can meet our commitment to provide clean, firm and reliable power. Turning to Slide 10. Our commercial team continues to meet the needs of our customers, delivering tailored energy solutions that meet their evolving needs. This collaborative approach is driving strong performance with sales margins above the long-term averages we use in our forecast and above the margins we anticipated at the beginning of this year. The renewal rates for both power and gas remained strong. The quarter-over-quarter decline we experienced in our C&I gas renewal rate is almost entirely driven by the loss of one very large, low-margin customer and expected part of the normal ebbs and flows of the business. Our relationships with long-standing customers remain strong and our scale and ability to deliver products to meet the needs of our customers remains a competitive advantage. Continuing on Slide 11. We are narrowing our full year stand-alone adjusted operating earnings guidance range to $9.05 to $9.45 per share. The commercial and generation businesses have had another outstanding year. Our commercial team's ability to optimize the portfolio and deliver value beyond targets is a key driver again this year. Additionally, the world-class operating performance of our nuclear fleet has also contributed upside to our gross margin. This operational strength reinforces the reliability and consistency of our company's earnings profile. Our stock has appreciated over 50% year-to-date, significantly benefiting our owners, but also creating O&M headwinds from stock compensation, which is offsetting much of the gross margin favorability this year. Finally, as a reminder, our revised guidance is stand-alone to Constellation and does not include any impacts from the Calpine transaction. Speaking of guidance and looking to 2026 with the Calpine deal, we get a lot of questions on what to expect. We plan to provide combined company guidance and modeling tools on or around our typical fourth quarter call in late February. We expect to fold Calpine into our current base and enhanced EPS constructs. And as you all revisit your models in the interim, let me remind you when we announced the transaction in January, we provided preliminary expectations for EPS and free cash flow accretion. Those expectations were based on forward power prices and spreads that look relatively similar to today despite the market having moved around a lot since last December. Calpine also has a history of locking in sales or hedging its fleet like other generators to ensure meeting its financial commitments. So near-term open exposure is relatively limited. And the guidance included our view of expected synergies, which, as we talked about, were not a major value driver for this deal, but were anticipated based on what we knew about putting the 2 companies together, and recognizing Calpine was long held by private equity outside of the public markets. It also reflected estimates for accounting policy harmonization adjustments and purchase accounting with fair value calculations, which are inherently difficult to model from your seats. We will fill in all the details when we get to early spring. But I know it has been a little while since the deal was announced. So we thought a quick refresh back to our original conversation would be helpful for all of you. Turning to Slide 12. In September, we executed a renewal and upsizing of our credit facilities, positioning us for the close of the Calpine transaction. Combining the expanded revolver with the other liquidity tools that we use, we'll have $14 billion of liquidity after the deal closes, underscoring the strength of our balance sheet and the strategic flexibility afforded by our investment-grade credit rating allowing us to move forward with confidence. We're also asked regularly about our capital allocation strategy after the deal closes, and it remains unchanged. With the significant free cash flow the combined company is expected to generate, our priorities remain clear. We will maintain a strong balance sheet and high investment-grade credit ratings targeting a return to our metrics by year-end 2027, deliver at least 10% annual dividend growth, pursue growth opportunities that meet our double-digit unlevered return threshold, and return capital to shareholders with $600 million remaining on our existing buyback program. Our goal remains the same: to deliver long-term value for our owners. The philosophy behind our capital allocation strategy is consistent even as we evolve into a larger, more diversified company with even greater opportunities. With that, I'll turn the call back to Joe for his closing remarks. Joseph Dominguez: Thanks, Dan. So folks Constellation performed very well during the third quarter and throughout the year. But we've got 2 months basically to finish it up. And so we've got a lot of work going on in the business, and we remain focused on closing the Calpine transaction and bringing together these 2 great companies. We're looking forward to proving that 1 plus 1 will equal 3. And that the size and scale of the combined company will deliver value for our customers and for our nation that neither company could have done on its own. We're working hard to execute transactions with our customers in the data economy. And we're working with the states and regulators to provide sensible solutions for meeting this moment where new generation and new capabilities are going to be needed to allow America to lead as it should on AI. Constellation is built on a foundation unlike any other company in the energy sector. That foundation enables us to consistently deliver value to our owners year after year. We generate strong cash flow and base earnings supported by a nuclear production tax credit, which continues to enjoy broad and growing bipartisan support. We have a strong earnings growth profile through the decade, and we are in the middle of strategic transactions or PPAs with hyperscalers, which we expect to complete, which will be additive to both our growth and our base earnings. We benefit uniquely from higher inflation, which causes the PTC floor to automatically adjust and further strengthens the economics of our nuclear fleet. We're well positioned to capture value from the opportunities ahead, selling our megawatts at a premium through long-term contracts with customers, including those in the rapidly expanding data economy, which we've talked about quite a bit during this call. As overall power demand grows and new generation resources are required, our existing fleet is ready to meet the needs with clean, reliable and available today energy, and our land gives us a great opportunity to participate in future development. With that, I look forward to your questions. Operator: [Operator Instructions] Our first question coming from the line of Shar Pourreza with Wells Fargo. Shahriar Pourreza: Joe, just on your hyperscaler comment. I mean, obviously, we've seen a lot of BTM deals being done ironically with nonpower companies. Couldn't quite tell from the baseball analogy, but are you still kind of confident with announcing another hyperscale deal by year-end? Or should we assume early next year. And despite FERC, should we still assume that this deal or any deal will be structured in front of the meter? Joseph Dominguez: Yes. As to the last question, yes, right now, as I've indicated on prior calls, we're really focused exclusively on front-of-the-meter deals, which is why this interconnection process ends up becoming, to a certain extent, the gating function on these deals, and we often have to wait for other parties. Shar, my expectation is that deals will be completed soon. I think it will happen before we talk again. But I don't -- there are these approval processes that customers have to go through that sometimes are time consuming. And I don't want -- I can't guarantee the work of other parties. But we're quite close here. So I'm hopeful that this stuff will get done soon and certainly before our fourth quarter call. Shahriar Pourreza: Okay. No, that's actually helpful. And then just lastly, just from a contracting pricing perspective, I mean, we obviously -- we have a proxy right now in Texas for BTM deal with significant backup gen. Are you seeing FOM and BTM pricing kind of converge in your conversations, especially since you're focused more on the FOM side? And just what about gas versus nuclear, especially as you're closing the Calpine deal? Joseph Dominguez: Yes. I think gas has some capabilities in this space. Just to answer that part of your question. I think the real issue with gas for the customers is twofold. One is, does it meet their longer-term sustainability goals? For some customers, it's okay. For other customers, it isn't. And then separately, in the case of gas, it's sometimes more difficult to predict the kind of long-term pricing. So when you're asking me to compare pricing for gas, whether that's behind the meter or front of the meter to a nuclear deal, we end up having to speculate about what future gas prices are going to be, say, over 20 years, we end up having to speculate whether or not there are going to be other compliance costs associated with carbon emissions from gas. So really hard to do that. Oftentimes, the gas deals leave those issues open to different inputs for either a carbon price, a change in policy and of course, for the underlying cost of gas. So hard to compare the 2 things. And generally speaking, the deals that you're alluding to that have been done really haven't been done with new clean resources that allow for the comp. So a bit hard to say. I do think that from an economic perspective, what we're offering, and I think it's part of the heat that we're seeing in terms of the inflow of customers through the door is very attractive pricing relative to other options, and pricing that's firm and sustainable for a long-term period and something that they know from their own environmental pledges and sustainability goals is going to be compliant for them. Shahriar Pourreza: Got it. But just -- I guess, just focusing a little bit on just nuclear FOM versus BTM pricing. Is there a material difference? Are you seeing when those conversations just honing in on nuclear? Joseph Dominguez: Shar, I think it's hard yet to fully understand what the new nuclear pricing is going to be. I mean, that's -- the bottom line is we do a tremendous amount of work on that. And I think it's far from settled what that's going to look like. Obviously, what we could offer is significantly more economic. And most importantly, it's available right now. Operator: Our next question coming from the line of Steve Fleishman with Wolfe Research. Steven Fleishman: I guess, first, just a question on the Calpine. There were some stories about a potential delay in the asset sale process by you? Just is there anything that we should read into that? Joseph Dominguez: Probably a couple of things, Steve. One is we kicked off the asset sale process because we weren't sure how much time we were going to be given to divest needed assets. And so we're feeling more confident that we're going to have a reasonable amount of time to execute the divestiture post regulatory approvals. And secondly, as we complete the regulatory approvals, it is, as you know, DOJ and FERC utilize different tests. And so we want to make sure we're targeting the exact right assets to divest. Biggest point here is that we just don't feel like we need to be in a hurry to complete an asset sale transaction, and we want to take our time. The market is very supportive of sales of these assets right now. Steven Fleishman: Yes. And I guess there'll be others that have pending ones that will be done later on maybe. That could be buyers. Okay. So the other question is more just high level, I mean for the last several months, we just keep hearing different new entrants to the Power business, whether it's oil companies, gas companies, new technologies, et cetera. And then obviously, huge focus on time to power. But then at the same time, it seems to take a very long time to work out deals for those same customers with the assets that are there already. And maybe you can just help connect the dots of what's going on and your conviction level that you'll be able to kind of execute on the ability to capture these new customers? Joseph Dominguez: I think the excitement and interest in new generation is just really a reflection on how durable this growth cycle is going to be. We're seeing these -- the investment in new data centers just grow over year-over-year, and we're now seeing capital deployment projected to be $0.75 trillion on building data centers. And notably, that's probably twice as large as the 3 largest publicly traded power companies in the United States. So we're seeing an investment in the data economy that's simply enormous, and it's going to call for all hands on deck. And I'm always pleased to see that they believe in it so much that they're lining up power needs that are really going to come on 5 or in certain cases, maybe up to 10 years down the road. So I think that's all indicative of the size of the opportunity that we're seeing. Steve, I'd just simply stand by my earlier comments that the amount of interest we have, the number of deals that are being negotiated is far different now and far bigger and more serious now than it's been before. And so that's what gives me confidence we're going to be able to continue to execute the strategy. And I think we provide something uniquely and that's available now, power, with a predictable opportunity to scale that. Operator: Our next question coming from Jeremy Tonet with JPMorgan. Jeremy Tonet: We just wondered if you could provide a little bit of color on Three Mile Island, it seems like progress is going well there. Just wondering if you could provide any updated thoughts? Joseph Dominguez: Well, just what you said. I mean the progress is going well there. We've had a number of critical items that we've completed just recently. The plant looks really well. We talked at the beginning of this whole project that we are going to need a couple of components, the main transformer being one of them. Fuel was another gating item, getting the people ready to operate the site. That was a gating item, Bryan, who's here and his entire team have just done an exceptional job getting the plant ready and really tackling some of these challenges that we identified. Most importantly, we're not seeing new challenges emerge, right? So as we continue to do our work, there's always going to be some discovery that comes along with the inspections of the plant. And what gives me great confidence is that we're not unearthing anything that we didn't anticipate. And in point of fact, the condition of the plant is better. Jeremy Tonet: Got it. Very helpful there. And just wondering if you might be able to comment a little bit as well separately on power markets. We've seen energy prices moving up recently and just wondering thoughts you have on these moves where it could go, and do you see this having any, I guess, impact on conversations when you're discussing contracts? Joseph Dominguez: Well, I think it has 2 impacts strategically for us. One, right, is the -- questions I think we've already gotten here. Are we seeing some sort of convergence that causes us to think we're not going to achieve our pricing expectations? And I would say the opposite is true. And then secondly, we're going to have to sell some assets here to get through regulatory approvals. And I think the impact there, again, is favorable and that the environment for the sale of assets is more constructive now than probably when we started the -- when we announced the Calpine deal. But let me ask Jim McHugh, who's here to kind of weigh in on what he's seeing in the power markets and their durability. James McHugh: Yes. Yes. Thanks, Joe. I'd break it into a couple of components. One is maybe short term, we've seen a small rebound in the nearby, just kind of the nearby months, maybe gas rebound a little bit, that's had somewhat to do with power upward pressure that we've seen. But actually, the power upside has been longer duration than that, and it's been stronger in the outer years. And it's really outperformed gas. I think we're seeing expansion -- heat rates expanding and spark spreads expanding, mainly due to the data growth we're talking about, the load growth in general that we're talking about. We'll have continued -- some continued retirements down the road. There's less line of sight right now, as we've talked about, to additional megawatts in the grid except for all these wonderful opportunities that we've talked about in -- that Joe talked about in the call earlier as well as what we're seeing in terms of our corporate PPAs, bringing on new generation too. But really, it's -- over the last few months, it's been the realization and positive developments on load interconnection and the reality of load growth happening where I think the power markets are pushing stronger. It's still rather tight on the supply-demand fundamentals in general. And it's really about the expectation that we'll see higher energy prices to go with some of the upward pressure we've seen on capacity prices in these markets, too. Operator: Our next question coming from the line of David Arcaro with Morgan Stanley. David just withdrew his question. Our next question coming from the line of Andrew Weisel with Scotiabank. Andrew Weisel: A few questions for you. First, in Maryland. You talked about the 700 megawatts of natural gas capacity. I believe that's existing assets and you mentioned relocated turbines. Can you get a little more specific, where would those be coming from? And maybe on timing, how quickly would those be available to come online? Joseph Dominguez: They're physically located in buildings in the Midwest and in New England. And they're -- I would describe them as incredibly lightly used assets that we could relocate relatively quickly to Maryland. But in terms of their performance capabilities are relatively speaking, state-of-the-art in terms of their heat rates. And we have taken measures to refurbish those units and get them ready for rapid redeployment. So that, I think, is the answer to your question. Andrew Weisel: Great. Then on new nuclear. I know I'm pretty new to the story, but I know that you sounded pretty cautious about new nuclear construction, given the high cost and risks. But with the announcements from the federal government, has that changed your comfort level or given -- has that changed your appetite? And what would it take you to get you to move forward? Whether you need government support and the customer contracts? I know you've talked about exploring potentially 2 gigawatts near Calvert Cliffs in Maryland. And New York is considering adding a gigawatt, as you mentioned. Maybe just high-level thoughts on all of that? Joseph Dominguez: First and foremost is a PPA, right? We need a durable PPA. And the second thing is, we need clear pricing that we're going to be able to achieve with constructability. And that means good partners that bring the technical capability and the ability to construct along with that. We also think, as I alluded to in my prepared remarks, we also think the land value that we offer is the secret sauce to this whole thing. I think you're not going to build nuclear plants in the places we do business with the exception perhaps of Texas, in communities that have never had nuclear before. And I think there's a huge value to having that talent, having the big water, the rail, all the infrastructure and most importantly, the community acceptance. So what I'm looking to do is to monetize the value of that land and that set of capabilities that we bring and convert that into a position that gives us some of the output of the new units. The next thing we're trying to do is make sure that whatever gets operated on our land because we have operating units, gets operated by us, not by others. So an operating services agreement will have to be part of it. In terms of what enables it, I talked about the importance of a PPA. I think the involvement of the administration and the way that they're talking about with Westinghouse likewise is going to be critically important. And I commend President Trump for his incredible leadership on nuclear. We still need to see the details, and we still need to see, as I said, earlier, some very, very clear cost numbers and some very, very clear commitments to deliver those costs on time and on schedule with an operating unit before we are going to put significant capital at risk for these things. I like the way things are evolving. I have been cautious, and I remain cautious, and I will always be cautious because it's a lot of your money that we are talking about here. But I am gaining confidence daily as more and more qualified players are coming forward. And as we're seeing things like the Westinghouse announcement. We still need to get all of the details to really fully understand it, but it is no doubt a positive. Operator: Our next question coming from the line of David Arcaro with Morgan Stanley. David Arcaro: Could you maybe also reflect on your demand response efforts and the initiative that you're pursuing there? And I know you've talked about flexibility of data centers in the past. Are you seeing progress there in terms of data center willingness to go that route? And just the update on that initiative across different markets? Joseph Dominguez: Well, let me start on what I'm seeing in terms of flexibility from a technical capability. And then I'm going to turn it over to Jim McHugh, again, who runs our commercial team to talk about this exciting work we're doing on demand response. So we have been, since the very beginning, one of the core participants in EPRI and their DC Flex or data center flex capability. And we're seeing a lot of great capability to use backup generation and flex compute. I don't want to overstate that, however, I don't think we're going to get to a point where we could flex on and off the full output of data centers. I think it's going to have a meaningful impact, but it's going to have an impact at the margins. That's why we began to explore using AI to see if we can attract some of our other customers to actually providing the relief or the slack on the system during the key hours, and they would then use their own backup generation or curtail their own consumption of energy during peak hours. And we could play this kind of well, middleman role between the hyperscalers and the data center owners and operators and our other customers through this commercial agreement that gives them the ability to call on our other customers to curtail during high-demand events. So Jim will talk about the work that we've done to start developing that and the exciting progress we've made. James McHugh: Yes. Thanks, Joe. It kind of started with what we were doing in the market prior to kind of the recent dynamics. We still had a large amount of our customers who are interested in peak response programs and managing their energy usage. But really with the dynamic shifting towards supply needed in the capacity markets, we saw the opportunity that some of these customers may be interested in being demand response providers and supply to the capacity markets. So we're partnering with Grid Beyond and who is going to help us do a lot of the execution on the operations side with our demand response customers, but we're seeing interest from our industrial customer base to participate in this demand response product. And what's a little unique about the product we're offering is we've gone to customers to get longer tenors or longer-term commitments and they're interested in potentially longer-term deals with good pricing associated with it and we're providing some floor pricing capability in that too for them to be incented to sign up for these longer duration. So we've found kind of this unique opportunity. We're trying to be innovative around the product structure itself. And the pipeline looks really strong right now. We started executing the deals that Joe talked about working towards 1,000 megawatts or so between now and the next couple of capacity auctions. So things are going well. Joseph Dominguez: And David, what's cool about that is when you think about that 1,000 megawatts at the electric load carrying capacity or through that computation that PJM does, that looks like a new nuclear plant. It's not like a 1,000 megawatts of battery, for example, that would look like at the end of the day, 1/10 of a new nuclear plant. But this portends to look like a full nuclear units worth of output in terms of demand response. So I think we're still in the early days of this, but I think the combination of the two things you talked about in your question, the ability to flex at the top of peak by the data centers themselves in combination with new commercial arrangements to get others to pull back consumption during these hours is really going to open up a lot of room on the system and really pave the way for easier interconnection. David Arcaro: Yes. Understood. Okay. Great. That's helpful color. Then I was wondering if you could just touch on what you're seeing in terms of retail margins in PJM. One of your peers suggested that margins in PJM might be somewhat more competitive. I'm wondering if that's reflective of what you're seeing. Joseph Dominguez: Jim? James McHugh: Yes, I think on the retail side, our margins are on the upper end of the range that we've always talked about. We've certainly seen on the wholesale auction, load auction and polar procurements. So we've seen some new participants coming in, that's gotten a little bit more competitive, but we're still seeing stronger margins than the historical averages there. On the retail side, really on the upper end of the ranges we've always talked about. And I want to -- I would have -- I'd be remiss if I didn't add since we're seeing a lot of success with some of these sustainability products and CFE and other types of solutions that are sustainability related, those margins tend to be stronger than pure true commodity margins, too. Operator: Our next question coming from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: I'm just wondering, and again, somewhat of a playing the devil's advocate here. I mean you have a huge portfolio of generation assets, especially pro forma Calpine. There's this growing chatter about bringing your own generation. And I'm just wondering if you're feeling a bit unease about how many of these units you will be able to sign and granted that solar power curves are rising, but it's not just about earnings, right? It's also about the visibility and the quality of earnings. And so we do need more of your units to have that long-term visibility into their earnings power? Joseph Dominguez: Yes, Angie, and I'll just -- my comments during the call were informed by all things, including what we're seeing in terms of policy regulatory, we still believe that we're going to be able to execute transactions. I think this product offering that Jim just talked about with demand response is a bit of an anticipation isn't it, some of what you're talking about, which is to try to make sure we have BYOG or bring your own generation equivalent as we think about demand response as we think about the turbines that we have on the sidelines as we think about our ability to offer up rates. And we also think that policymakers fully understand that relicensing, while not exactly a new megawatt, is the continuation of megawatts beyond the period that they might otherwise shut down. So we think that there's great awareness of that issue. I think in large measure, it was that issue and other compelling arguments that caused PJM to pull back from their bring-your-own generation kind of requirements that they had in other places. I think we might see some voluntary BYOG. But I'm frankly not concerned with where it is right now in the States. And we're marching forward on these transactions, and that has not been an issue for us right now. Agnieszka Storozynski: Okay. And then so it's been mentioned by you in previous questions that we have seen a lot of announcements from other companies vaguely associated with power for power plants. And I'm wondering, is it -- do you think those are comparable deals like quality-wise, firmness wise, to the ones that you guys are working on? I mean some power companies suggest that those deals are more equivalent to LOIs than firm take-or-pay power contracts that public power companies announce? Joseph Dominguez: Look, I think there's probably room for a bunch of different contracting. But Angie, I feel and I could only gauge this from the customer interest in what we're offering. I feel that what we have and what we're offering outcompetes just about any other opportunity in the space. Operator: Our next question coming from the line of James West with Melius Research. James West: Curious, given all this demand from the data economy and the data centers, how are you thinking about the portfolio of generating assets that you would like to or would be comfortable locking into long-term PPAs versus keeping available for normal generation markets? Joseph Dominguez: Great question. I think -- and you're certainly hearing this from Angie's question and others, I think there's more room to run on the long-term deals that we want to get executed. But there will be a point, and there will be a point where 1 or 2 things is going to happen. Either we're going to slow it up or we're going to change our pricing to more aggressive levels to reflect, frankly, the scarcity value of what we'll be able to offer. We're not quite there yet. But -- look, our incentive is to provide sustainable long-term and growing earnings for our owner base. That's what the company is set up to do. And so in the short term, what we're trying to do is get these deals done. We're happy with the kind of atmospherics in the market being quite positive for us. But we're not at a point where we're even entertaining the discussion of, hey, are we going to stop selling long term? I think it's in our interest, it's in our customers' interest, it's in the nation's interest, for us to meet this demand for this incredibly important load that's coming on the system. And so we're going to continue to execute in that space. And I appreciate your question, but I think it's probably more theoretical than practical at this point. Operator: Our last question coming from the line of Paul Zimbardo with Jefferies. Unknown Analyst: Joe, the powerbroker, that was a nice piece recently, I got to say, nicely done. Let me follow up a little bit... Joseph Dominguez: Well, it's one of those embarrassing things that happens when you're in the middle of something like this, but thank you for noting it. Unknown Analyst: Absolutely. Not too shabby. Look, let me follow up on a couple of things here real quickly. First, with respect to uprates, you've alluded to it, both on scale and scope here. I mean can you speak to the opportunity generically? I'll take note of the Pennsylvania governor's disclosure on costs relative to the 340 megawatts at Limerick. I mean, are there more Limericks out there in terms of effectively providing an upgrade that's tantamount to the size of an SMR? And specifically, as it pertains to Limerick, can you elaborate a little bit on where you are on the transmission interconnect process there? I mean it seems like there's some public disclosure about some potential data center there, if you can? Joseph Dominguez: Yes. So [ Julien ], I apologize for the Paul thing. I now see the 2 of you guys as the same person apparently, sorry about that. We identified about 900 extra megawatts. And so the big chunky ones there are LaSalle and Limerick, which are effectively kind of the same size, but have different costs. LaSalle is a bit easier to execute than Limerick. And I don't think we've published costs on that. And then we've got Calvert Cliffs, 190 megawatts that I talked about. So all told, we're looking at about 900 to 1,000 megawatts that we've completed engineering work on and feel pretty confident about. So that's the answer to the upgrade question. In terms of -- I think you were talking about Crane interconnection. Is that what you asked about? Unknown Analyst: Well, I was thinking about Limerick, right? I mean it seems like there's some transmission, yes, go for it. Joseph Dominguez: Yes. So there's a good deal of demand going in that area. So we're quite hopeful that any new megawatts at Limerick would be welcomed and fairly easy to interconnect. That's a big growing area of Pennsylvania in terms of the data economy. That, and of course, the PPL zone. In terms of what's being done by customers to interconnect data centers around Limerick, I think I'm going to just kind of decide not to answer that question. Unknown Analyst: Don't worry, maybe I'll give you another one to follow up on here. You talked about the cost of new nuclear here, both for yourselves as well as the industry. I mean cost of these uprates though seems to be materially cheaper than any new nuclear costs we're seeing out there, even if it's more relevant than what we've seen historically. Would it be fair to assume that the next round of efforts on your front, especially with this focus on additionality would focus on these -- leveraging these uprate sites first and foremost? I mean, obviously, we've seen your restarts here take a lot of the limelight at the outset, but the uprates seem to be the next wave here of where you could really win on additionality and in contracting, it would seem, right? Joseph Dominguez: Yes. Although [ Julien ], I tend not to think about these things as binary, i.e., you're not going to not do something because you're doing uprates. But in terms of the economic merits of the uprates, you're spot on. Those are great investments for us. They have the advantage of not just being additional. We think the relicensings are additional as well. But they also have the ability to be something that's really well within our wheelhouse to execute. We've done a lot of this work historically. And Bryan, the team do really great work in that regard. As I said, we've done the engineering work. It's in communities that already like this stuff. And most importantly, when you're talking about an uprate like this, reason the economics are so attractive is you're not adding people, you're not adding O&M. The plant is just getting more output, but you don't have either an O&M drag from people and you don't have an O&M drag on extra fuel. So it's hard to compare kind of the capital numbers for an uprate to a brand-new plant, which would, of course, require you to have a whole bunch of additional O&M. And I think let me just -- not to drag this out, but I think sometimes when people are talking about the cost of new nuclear and whether it's going to be competitive as a solution for contracts, so on and so forth. They tend to look at it from a capital cost perspective, and I certainly understand that because that's the way people have become accustomed to looking at things like renewables and storage and even new gas fire generation. But there's a huge O&M piece with nuclear that has to be carefully understood that factors into the ultimate price of that resource. Folks, I think that brings the end, Olivia, right? That's the end of the call list here? Operator: Yes, sir, there are no further questions. Joseph Dominguez: All right. Well, terrific. So we'll bring the conversation for this morning to a close. Thank you again for your interest in Constellation for your time during this busy week, and we look forward to catching up with you at the end of the fourth quarter. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

195天前Insight Analytics约5分钟阅读

DKL 2025 Q3 财报电话会议

Operator: Thank you for standing by. My name is Joe, and I will be your conference operator today. I would now like to turn the conference over to Robert, Chief Financial Officer. You may begin. Robert Wright: Good morning, and welcome to the Delek Logistics Partners Third Quarter Earnings Conference Call. Participants joining me on today's call will include Avigal Soreq, President; and Reuven Spiegel, EVP. As a reminder, this conference call will contain forward-looking statements as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call will include risks and uncertainties that may cause actual results to differ materially from today's comments. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal? Avigal Soreq: Thank you, Robert. Delek Logistics Partners had another record quarter. We reported approximately $136 million in quarterly adjusted EBITDA. Due to the strong progress year-to-date, DKL has increased its full year EBITDA midpoint guidance of $500 million to the upper end of the range between $500 million and $520 million. Delek Logistics continue to advance its key initiatives in natural gas, crude and water businesses, further improving its position as a premier full service provider in the Permian Basin. After successfully completing the commissioning of the new Libby 2 plant in the third quarter, DKL advanced its ongoing effort on acid gas injection and sour gas handling capabilities. The AGI and sour gas handling capabilities are enabling DKL to fill the plant to capacity and paving the way for further processing capacity expansions. We are also seeing solid operations in our crude and water gathering segments. Both VPG and DTG crude gathering operations had a strong third quarter with record volume for DTG. This strength has continued in the fourth quarter. Between our two water acquisitions in increasing dedication, our competitive position in both Midland and Delaware basins is increasing, and we expect to continue to build on these strengths. Our well-timed and cost-effective acquisition of 3 Bear, H2O Midstream and Gravity Water Midstream have supplemented our organic growth and enable DKL transition to full suite service provider. We will remain consistent with our strategy of growing the partnership through a prudent management of leverage and coverage. Along with seizing the growth of opportunity we see in our business, we intend to remain good stewards of our stakeholder capital. With that, I'm pleased to announce that the Board of Directors has approved the 51th consecutive increase in the quarterly distribution to $1.12 per unit. This is an extraordinary achievement, and we're extremely proud of our team and the financial prudence that has gotten us in. To conclude, Delek Logistics is making great progress in becoming a strong independent full suite midstream service provider and expect to continue on our value creation path well into the future. I will now hand it over to Reuven, who will provide more details on our operations. Reuven Spiegel: Thank you, Avigal. As Avigal mentioned, we are very excited about DKL's future and are working to increase our advantaged Permian position. I am very pleased with the commissioning and operation of our Libby 2 gas plant. The plant is performing according to expectations, and we are completing the associated sour gas AGI infrastructure to fill the plant in the most efficient manner. The planned CapEx for Libby 2 included investments that will support future expansion of the Libby complex, and our confidence in these expansion opportunity is increasing as we progress our AGI infrastructure. We continue to believe that our expanded gas processing and sour gas handling capabilities provide a unique offering to our customers and provide us with a long runway of growth in the Delaware Basin. Our crude gathering volumes had a record third quarter, and we expect to continue to see this trend going forward as we close out the year. On the Midland side, the integration of the two water gathering systems from H2O and gravity is progressing well, and we expect to use our larger footprint to enhance our combined crude and water offering in the Howard, Martin and Glasgow counties. Finally, we continue to look for opportunities to make our operations more efficient and robust and are looking for ways to increase our margin profile throughout our operations. With that, I will pass it on to Robert. Robert Wright: Thank you, Reuven. As both Avigal and Reuven highlighted, we continue to make meaningful progress in advancing the Delek Logistics growth story. While we drive forward expansion across the partnership, we remain equally focused on achieving our long-term leverage and coverage targets. Over the past 12 months, we've successfully closed two acquisitions, H2O Midstream and Gravity Water Midstream, which were well-timed from a purchase multiple perspective. And we also completed the construction of the Libby 2 gas plant. Our focus now shifts to capturing the full value of these investments by optimizing synergies and realizing the associated EBITDA uplift as we move toward our strategic goals. Importantly, we maintain a strong financial position with approximately $1 billion of availability on our credit facilities, giving us flexibility to continue executing our growth agenda. Moving on to our third quarter results. Adjusted EBITDA for the quarter was approximately $136 million, up from $107 million in the same period last year. Distributable cash flow as adjusted totaled $74 million and the DCF coverage ratio as adjusted was approximately 1.24x. We expect this ratio to continue to strengthen through the remainder of the year as our recent growth projects, including the Libby 2 gas plant begin to make a more meaningful contribution to our financial performance. For the Gathering and Processing segment, adjusted EBITDA for the quarter was $83 million compared to $55 million in the third quarter of 2024. The increase was primarily due to the acquisition of H2O and gravity. Wholesale Marketing and Terminalling adjusted EBITDA was $21 million compared to $25 million in the prior year. The decrease was primarily due to the impact of last summer's amend and extend agreements with DK. Storage and Transportation adjusted EBITDA in the quarter was $19 million compared with $19 million in the third quarter of 2024. And lastly, investments in pipeline joint venture segment contributed $22 million this quarter compared with $16 million in the third quarter of 2024. The increase was primarily due to the contribution from the Wink to Webster drop down in August of last year, in addition to stronger performance by the venture in the current period. Moving on to capital expenditures. The capital program for the third quarter was approximately $50 million. $44 million of this capital spend relates to growth CapEx, which included spend to optimize the Libby 2 gas processing plant. The remainder of the capital spend for the period was other growth projects, namely advancing new connections in the Midland and Delaware gathering systems. Looking ahead to the remainder of the year, as Avigal mentioned, we remain confident in our earnings trajectory and are raising our full year EBITDA guidance to the upper end of our range, now expected between $500 million and $520 million. With that, we can now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Irwin of Citi. Douglas Irwin: I was wondering if you could maybe expand on the comments in the press release around producers increasing activity on your acreage ahead of Libby 2 coming online. Just curious how you're thinking about the treating capacity ramp at the year-end as well as maybe some of the benefits you might be seeing across your broader gathering system just as you bring that sour gas offering to your customers? Avigal Soreq: Yes, absolutely. So why don't I take a minute or two to give you a bit broader overview. As you saw on our numbers, crude and water are extremely strong, and we are very happy about that. And I think we also can be proud of the strategy we set to be a premier crude gas and water provider in the heart of the Permian basin. I think that we were pretty much the first one to put that strategy together, and it's starting to give us a very nice yield. That's part of the reasoning that we are increasing our forecast, our guidance for the year, and we are very proud of the timely manner acquisition and build we did. We saw a record crude. We do not see any material change in the drilling activity in our acreage. And with the discussion we have with our producer and we are seeing more and more synergies between the different streams that we are actively managing. And with that, I will let Reuven comment more about the sour progress we are seeing. Reuven Spiegel: The actual construction and start-up of Libby 2 has been above our expectation on time and on budget. Originally and based on producers' forecast that we anticipated to fill up the plant with sweet gas. But as they were drilling, the landscape has changed and the producer needs solutions for sour gas as soon as possible. As a result, we accelerated some sour programs to provide solution in a more rapid time line. We have very high confidence in not only filling up Libby 2, but because of the full suite, sour gas, crude and water solution that we provide, we will need to expand processing capacity earlier than our previous expectations. Douglas Irwin: Got it. That's helpful. And maybe as a follow-up on CapEx. You talked about potentially already having expansion opportunities, but also kind of spend some CapEx this year on Libby 2. I guess where do you see '26 trending in general now that you have Libby 2 online? And I guess, to the extent that it's trending lower next year, how are you thinking about just your flexibility to make you pay down some debt or maybe even buy back some more units from DK next year? Avigal Soreq: Yes, that's a very nice question, Doug. While the macro and the strategy going very well, we still have some tactics to finish for planning for next year and budgeting and we plan to give you another guidance on the next earnings call like we did this year. So we have something to look looking forward. So we'll leave it to that. Operator: Your next question comes from the line of Gabriel Moreen of Mizuho. Gabriel Moreen: I just want to ask on the equity income line. I think Robert mentioned some, I mean, better performance or improving performance. Clearly, that was equity investment line. That was clearly a very strong point in the quarter. Can you just talk about that a little bit? And is this current run rate something that's maybe sustainable going forward? Robert Wright: Yes. Thanks for the question. Yes, as I mentioned in the prepared remarks, most of that line item was impacted by strong performance in the quarter by Wink to Webster. I think when you look at our JV results on an annualized basis, like year-to-date, I think that's a good run rate of what to expect going forward. I think we're pretty happy with our JV results overall. Gabriel Moreen: Great. I appreciate it. Can you maybe also talk a little bit about the water landscape overall? I think Reuven and Avigal, you both mentioned others trying to emulate your 3-stream strategy here. As far as you see with the landscape, are you seeing new competitors, new opportunities? Just curious kind of with some mergers happening and IPO happening, whether anything has shifted in your view? Avigal Soreq: Yes. So that's a very good question. And we should see very important trends that you can see is the gas and oil ratio and the water and crude ratio. Both of them are working extremely well from our position standpoint. And if you go one year back, Gabriel, and you think about the timing that we did the both H2O and Gravity acquisition, we brought that pretty much at half price versus what we've seen the market trending today. So we are very happy about the timing and the trend in the market. Obviously, as you can see in the Delaware Basin, it's almost impossible to get SWDs permitted in a timely manner. So we were very fortunate to have the position we are at, and it's going very well to our expectations. Gabriel Moreen: And if I could just squeeze one more in relative to Reuven's comments about Libby 3 earlier than expectations. I'm just wondering if you'd be able to define what that would mean from a timing standpoint? And then also on the AGI disposal front as well, whether what you've done here to handle the sour gas at Libby 2, whether that gives you really the runway or whatever volumes you're going to need to handle at Libby 3 when the expansion comes on, hopefully. Avigal Soreq: Yes. Obviously, the market is telling us that it needs our sour capabilities and the market tell us that it needs our gas treating and the market tell us that it needs our water treating. All of that are detailed question. Obviously, once we finish the planning session, we will come to you with a very detailed and the execution plan like we did in the past, all the time in the past, we'll do that again this time. And -- but the very good news here that we are on the right timing. And I would say, with the right product basket to give to our customers. Mohit, do you want to add anything? Mohit Bhardwaj: Yes. Gabe, thanks for your question. Just to answer your specific question, we are very happy with our permitted capacity on the asset gas side, and we don't see any near-term restrictions on that. Operator: With no further questions, that concludes our Q&A session. I will now turn the conference back over to Avigal for closing remarks. Avigal Soreq: Thank you, everyone. Thank you to my colleagues around the table. Thank you for our Board of Directors for trusting us. Thank you for the unitholder. We're enjoying a very good return and growth story. And most importantly, thank you for our employees for making that partnership as good as it is. Thank you, guys. We'll talk again. Operator: This concludes today's conference call. You may now disconnect.

195天前Insight Analytics约5分钟阅读

MTD 2025 Q3 财报电话会议

Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I would like to turn the call over to Adam Uhlman, Head of Investor Relations. Please go ahead. Adam Uhlman: Thanks, Mark, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on mt.com A copy of the press release and the presentation that we will refer to on today's call is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, financial condition, performance and achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to update any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation to these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K. Let me now turn the call over to Patrick. Patrick Kaltenbach: Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on Page 3 of our presentation. Our third quarter results were strong and reflected very good growth, especially in Industrial. I'm very pleased with our team's strong execution as we leverage our Spinnaker sales and marketing program and innovative product portfolio to drive growth while delivering solid EPS. Looking ahead, we are well positioned to capture growth opportunities while benefiting from trends like automation, digitalization and onshoring. We continue to remain very agile as we face several uncertainties in global trade disputes and governmental policies. We are confident that our strategic initiatives and strong culture of innovation and operational excellence will enable us to continue delivering strong performance in this dynamic environment. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. Shawn? Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.03 billion, which represented an increase in local currency of 6% and was 5%, excluding several recently completed acquisitions. On a U.S. dollar reported basis, sales increased 8%. On Slide #4, we show sales growth by region. Local currency sales increased 10% in the Americas, including a 1% benefit from acquisitions, 6% in Europe and 1% in Asia/Rest of the World. Local currency sales in China increased 2% during the quarter. Slide #5 shows local currency sales growth by region on a year-to-date basis. On Slide #6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 4%, while Industrial increased 9% and included a 1% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 10% and Product Inspection grew 7%. Food Retail grew 5% in the quarter. Lastly, service grew 8% in the quarter and included a 1% benefit from acquisitions. Slide #7 summarizes our local currency sales growth by product area on a year-to-date basis. Let me now move to the rest of the P&L, which is summarized on Slide #8. Gross margin was 59.2% in the quarter, a decrease of 80 basis points, primarily due to incremental tariff costs, offset in part by positive price realization and benefits from our Stern Drive program. R&D amounted to $51.1 million in the quarter, which is a 4% increase in local currency over the prior year. SG&A amounted to $248.4 million, a 6% increase in local currency over the prior year, which includes sales and marketing investments. Adjusted operating profit amounted to $309.9 million in the quarter, up 5% versus the prior year. Adjusted operating margin was 30.1%, a decrease of 100 basis points or down 30 basis points on a currency-neutral basis versus the prior year. We estimate the gross impact of tariffs reduced our operating margin by 140 basis points. A couple of final comments on the P&L. Amortization amounted to $20 million in the quarter. Interest expense was $17.7 million and adjusted other income amounted to $4.3 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. Fully diluted shares amounted to $20.6 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $11.15, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 6%. On a reported basis in the quarter, EPS was $10.57 as compared to $9.96 in the prior year. Reported EPS in the quarter included $0.26 of purchase intangible amortization, $0.29 of restructuring and acquisition transaction costs and a $0.03 tax headwind related to the timing of stock option exercises. Slide #9 summarizes our year-to-date P&L. Local currency sales increased 2% for the 9-month period. Adjusting operating profit declined 2% and our operating margin contracted 130 basis points. Adjusted EPS increased 2%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% on a year-to-date basis, operating margin declined 10 basis points and adjusted EPS grew 7%. Gross tariff costs reduced operating profit by 3% and EPS by 4% on a year-to-date basis. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $689.5 million for the first 9 months, a 6% increase on a per share basis. DSO was 34 days, while ITO was 4.2x. As mentioned, we completed several smaller acquisitions that add to our North American distribution footprint, add new service capabilities and expand on our life science equipment offering. Overall, we paid approximately $75 million related to these acquisitions and may pay contingent consideration up to $31 million in the future. Going forward, they will approximate 1% of our sales and are modestly accretive to adjusted EPS. Let me now turn to our guidance for the fourth quarter and our initial thoughts on next year. As you review our guidance, please keep in mind the following factors. First, our guidance assumes U.S. import tariffs as well as the impact of retaliatory tariffs from other countries will remain in effect at recently announced levels. Trade disputes are dynamic, and there's a potential for new tariffs or retaliatory tariffs that we have not factored into our guidance. Second, while our third quarter results were better than expected, market conditions remain challenging with continued uncertainty related to trade disputes, governmental policies and geopolitical tensions. Our forecast does not assume a significant improvement in market conditions over the coming year. Third, we have continued to make important investments in our business to capitalize on our customers' investments in automation, digitalization and nearshoring. We believe this will position us to very effectively capture these opportunities over the coming years. And finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by $58 million, nearly all of which was recovered in our Q1 2024 results. For the full year 2025, this reduces our sales growth by 1.5% and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS of approximately 4%. Now turning to our guidance. For the fourth quarter of 2025, we expect local currency sales to grow approximately 3% Operating margin is expected to decrease approximately 200 basis points or down 130 basis points on a currency-neutral basis at the midpoint of our range due to higher tariff costs. We expect adjusted EPS to be in the range of $12.68 to $12.88, a growth rate of 2% to 4%. Included within the EPS guidance is a gross headwind of approximately 7% from higher tariff costs. Currency for the quarter at recent spot rates would be a benefit to the fourth quarter sales by approximately 2.5% and would be neutral to adjusted EPS. For the full year 2025, our local currency sales growth forecast is approximately 2% or up 3.5%, excluding the shipping delays. Adjusted EPS is forecast to be in the range of $42.05 to $42.25, which represents a growth rate of 2% to 3% or 6% to 7%, excluding the impact of prior year shipping delays. Adjusted EPS also includes a gross headwind of approximately 5% from higher tariff costs. We have also provided our initial guidance for 2026. And based on our assessment of market conditions today, we would expect local currency sales to increase approximately 4%. Adjusted EPS is forecast to be in the range of $45.35 to $46, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales and a slight headwind to EPS. Lastly, I would like to share a few other details on our 2026 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $77 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pretax basis or approximately $1 per share. Interest expense is forecast at $72 million, while other income is estimated at approximately $12 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $865 million in 2025 and $900 million in 2026. As mentioned earlier, we have recently completed several small acquisitions that approximate $75 million of consideration in 2025 and have adjusted our share repurchase program accordingly. Share repurchases are now expected to be $800 million for the full year 2025 and share repurchases in 2026 are expected to be in the range of $825 million to $875 million. Our capital allocation philosophy is unchanged, and you will see us continue to use our free cash flow primarily for share repurchases and small bolt-on acquisitions. Our Board has also authorized an additional $2.75 billion to be added to our share repurchase program, which had $1.1 billion remaining at the end of the third quarter. That's it from my side, and I'll now turn it back to Patrick. Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had good growth in the quarter. We saw growth from pharma and biopharma customers with strong results in bioprocessing. These results were offset in part by softer demand from academia, biotech and the chemical sectors. We are optimistic that some of the market uncertainty could ease in 2026, but we have also not assumed a significant recovery next year. Amid the challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched the NineFocus pH Meter, our new high-performance multiparameter benchtop meter for pH, conductivity, iron concentration and dissolved oxygen measurements. When use of our broad offering of digital sensors, NineFocus provides consistent, accurate results that support regulatory compliance with automating data transfer to our LabX software. Our instrument can also be paired with our InMotion autosampler automation solution that allows users to calibrate, verify and measure over 300 samples fully automatically. Turning to our Industrial business. Growth in our core industrial business was very strong this quarter, especially in the Americas, although it benefited from easy multiyear growth comparisons and favorable timing of customer activity. Global market conditions for industrials are soft, and our sales are expected to grow low single digits in the fourth quarter. Looking ahead, our Industrial business is well positioned to benefit from increased replacement demand as market conditions improve, and it is also poised to benefit from near-shoring investments over the coming years. Turning to Product Inspection. Sales growth was very strong again this quarter despite challenging market conditions in food manufacturing industry. Our unique go-to-market approaches and innovative portfolio are supporting market share gains, and we look forward to continued growth over the coming year. Lastly, Food Retail sales grew 5% against easy year ago comparisons. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our Industrial Solutions. Growth in our laboratory business was good and included strong bioprocessing growth. Turning to Europe. Our results were very good this quarter and better than we had expected. Our Industrial business delivered very strong results, while Lab had more modest growth. Finally, Asia and the Rest of the World grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter and included growth in our industrial business for the first time in over 2 years. Our team has remained highly agile and successful in identifying opportunities in China. And while we are monitoring efforts by the central government to reduce excess capacity across certain industry, we believe we are well positioned to continue to capture growth as conditions improve and should also benefit from trends such as the latest China Pharmacopoeia update. In summary, we are very pleased with the strong execution from our team that has allowed us to deliver very good results. I recently came off our annual budget tour and met with senior leaders across the globe, and I'm inspired by the excellent progress our teams are making on our initiatives. Throughout 2025, our team's resilience and agility have been important differentiators that have allowed us to successfully navigate very challenging market conditions. Our high-performance culture is a hallmark of our success and appears to shine the brightest during challenging times. Looking ahead, we are confident that our unique growth initiatives and focus on operational excellence will provide tangible benefits over the coming year. We continue to invest in global market trends around automation, digitalization, near-shoring and hot segments and believe we are well positioned to capture growth around the world. Our team's passion to pursue these opportunities is inspiring, and we have several initiatives that further strengthen our capabilities to serve customers as we also benefit from our significant digitalization investments over the past several years. Innovation is essential to our success, and we continue to advance the digital capabilities of our products, services and software to provide additional insights and productivity improvements to our customers with many examples throughout their value chain. Spinnaker 6 has strong traction, and our global teams are actively deploying new digital solutions to further increase our effectiveness and improve our customers' digital experience. We are also further increasing our ability to identify growth opportunities via our Spinnaker program and Top K initiative. And we are enhancing the capabilities of our sales force to leverage AI to further optimize our pipeline management. Service also remains a significant growth opportunity given our large installed base of instruments, and we continue to invest and leverage sophisticated analytics to identify and capture these opportunities. Internal productivity improvements from digital tools and automation also continue to be exciting opportunities. This is especially effective as MT as we operate from a single instance of our ERP and CRM systems that are fully integrated under the Blue Ocean program. Blue Ocean provides globally harmonized processes with extremely rich data that is essential to effective digitalization. While conditions in China have been challenging over the past couple of years, our emerging markets outside of China have continued to grow and in total, are now larger than China. We see significant growth potential in these markets and expect to benefit from our strong market organizations around the world. Now let me share some additional insights into our outlook for 2026. As mentioned earlier, we forecast our growth next year to be in the range of 4%, which assumes market conditions do not significantly improve from current levels. We continue to face uncertainty in the global economy with trade disputes, U.S. governmental policies and geopolitical tensions. However, we expect conditions to gradually improve and replacement cycles will gain momentum again. While we continue to see short-term uncertainty in our end markets, we believe we are very well positioned to continue to gain market share with our broad portfolio of new innovations. We have also recently launched new initiatives to ensure resources are effectively focused and reallocated towards the most promising growth opportunities. I am very proud of the resiliency and strong execution from our global supply chain organization as we navigated new challenges with trade tariffs. Our team has been very agile and effective in implementing our supply chain optimization strategies. Our focus is to strengthen and evolve our in-region, for-region manufacturing capabilities to increase flexibility and resiliency, and we continue to expect to fully offset incremental tariffs cost in 2026. And lastly, as Shawn mentioned earlier, we also recently completed several small acquisitions that broaden our distribution and service capabilities and also expand our life science equipment portfolio. While these acquisitions are small and will add less than 1% to our sales growth in 2026, they add new products and services to our portfolio and increase our sales capabilities. We are very happy to welcome our new colleagues to our team. This concludes our prepared remarks. Operator, I would like now to open the line to questions. Operator: [Operator Instructions] And our first question comes from the line of Luke Sergott with Barclays. Luke Sergott: I wanted to start talking -- start off with the guide for '26. Can you just kind of give us a breakdown of how you're looking at that by segment, particularly around the industrial side and what you're seeing there from PID and core industrial? Shawn Vadala: Yes. Luke, this is Shawn. I'll take that one. So for 2026, we're looking at low to mid-single-digit growth in our laboratory business. Of course, we'd probably expect to do better than the average on our process analytics. We saw really good momentum in bioprocessing in the quarter that we expect to kind of continue into next year. Maybe the other side of that is that the early research area like where we participate like liquid handling will be a little bit softer. In the industrial business, we're estimating core industrial to be low to mid-single digit and product inspection to also be low to mid-single digit. Both of them will have like a modest benefit from some of these smaller acquisitions that we talked about. And then retail would be -- we estimate it to be flat for next year. And then if you break it down by geography, we're assuming the Americas at mid-single digit with low single-digit growth in Europe and China. Luke Sergott: Great. And then as I think about the overall consumer market and some of the more consumer-facing segments like PID and what you're seeing there as the consumer starts getting weaker, how is that kind of playing out when you're thinking about baked into that guide and how the pacing has been through the quarter and into 4Q? Shawn Vadala: Yes. I mean we've been really pleased with the results in that business this year. I mean if you think about the end market, the end market still is challenging. I mean 70% of that business is sold into food manufacturing. But the dynamic we've seen is that we've invested a lot in innovation over the last few years, and we've really been able to build out our portfolio, particularly targeted towards the middle market. And we find that to be a sweeter spot in terms of where there's growth opportunities as well. And so when we step back from that, our teams are executing really well and the recent product innovations are being very well received in the marketplace. And Patrick and I just came out of our annual tour that he talked about in his prepared remarks, and we also spent time with the our executives and the Board this week. And as we just look at the pipeline of -- for the future in that business as well as our other businesses, we feel really good about what we have coming out in the future as well, too. So I feel like we're competing very well. But you're right, the backdrop is still more challenging market conditions. Operator: And your next question comes from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a really nice sprint here. Maybe back off of Luke's question on fiscal '26. I think, Patrick, you mentioned macro you're not assuming any change from current environment. When I look at your back half of '25, you're averaging 4.5%. So that 4% for '26 seems a step down from back half. What changes in how you think of price versus volume? Patrick Kaltenbach: Yes, I'll start and let also Shawn chime in there. Look, Vijay, when you look at how we guided for 2026, we said we don't expect any significant change to what we're seeing today. The market situation is still quite uncertain out there with global trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide to the 4% for 2026. We think it is a very prudent guidance in this environment. And well, there could be some upside, of course, I mean, again, if the market uncertainties become less, if the customer confidence increases, as we also mentioned in our remarks that we think there's a good opportunity in our replacement business. We have seen probably now 2 years of subdued replacement business that hopefully will come into play once customers' confidence comes back. But in terms of the overall sequence in terms of the growth first half versus second half next year, Shawn, I don't think we have... Shawn Vadala: Yes. I mean the one thing to keep in mind, Vijay, is that we do have more pricing in the second half of this year than we'll have next year. We had about -- we benefited about 3.5% or so in the third quarter. on pricing. We expect to benefit by a similar amount in Q4. As we kind of go into next year, we're assuming about 2.5% for price realization for the full year. That includes some of the benefits from these midyear pricing actions to mitigate tariffs. But when you step back from that, the assumption on organic volume growth, it's going to be certainly -- it's going to be modest growth next year. And I think if you look at the back half of this year, yes, Q3 was a little bit better. Q4 is maybe kind of down a little bit, but I don't think it's a significant change in terms of how we're seeing things. And I think the reality is it's early, right? There's still a lot of uncertainty. Headlines are more favorable in the last few weeks. If that continues, we're optimistic that, that can help increase the stability and confidence within our end markets. But we're just a little bit cautious given all the volatility we've seen with our -- and the pressures on some of our core end markets over the past year. Vijay Kumar: That's helpful. And Shawn, maybe on margins for '26. I think your guide implies maybe modest operating margin expansion. Your tariff headwinds should abate quite meaningfully, but should we see a more -- a little bit more robust margin expansion? Shawn Vadala: Yes. One of the -- it's a good question because one of the dynamics we face is that the way currencies have evolved just over the past quarter, we have a lot more benefit on the sales side, but we have -- that's being offset by cost increase and the Swiss franc strengthening against the euro. And so even though it's not having a significant impact on EPS, it has a bigger impact on operating profit as a percentage of sales. And so when you kind of do that math, our operating margin expansion for next year is about plus 60 basis points on a currency-neutral basis. So it's not -- it's -- so I think it's a much better story than the reported number, which is probably in the 20 to 30 basis point kind of a level. And I do feel very good about execution in the organization, and I do feel good about our ability to mitigate these tariffs. Operator: And your next question comes from the line of Dan Arias with Stifel. Daniel Arias: Patrick, to what extent do you think onshoring demand can work itself into the picture for 2026 versus 2027 and beyond? You guys have some products that seem like it could be part of what's done earlier rather than later. But I also know you guys tend to not get too worked up about some of these high-level ideas in the earlier stages. So can you just maybe think a little bit about -- tell us a little bit about your thoughts on '26 there? Patrick Kaltenbach: Very good. Look, I think we are very well positioned as a global company to benefit from the homeshoring activities. There are big numbers out there, as you know, from pharma, from semiconductor and other places. And as you know, we -- about 50% of our sales are sold into production and plus QA/QC. So that's a big part of the portfolio as these companies will start reshoring or building out capacities in the United States and in Europe as well. Again, there have been large announcements, but it will take multiple years to build these new plants. So I think it will not have an immediate effect. It will be a gradual effect. We expect some of it in 2026, probably even more in 2027. But again, we make sure that we are ready to work with our customers. We're talking to all of our key accounts at the moment who have also made some of these statements. So if you think about the pharma companies that they will build out capacity in U.S., we are ready to help them with establishing their labs, their manufacturing floors, the QA, QC labs, et cetera, with our products. But this will be a multiyear journey. I mean if you think back even on the Semiconductor Act, how long that took until really we saw some momentum in the end market. I think the impact for 2026 will be moderate. But again, for us, it's important that we are very early for our customers to help them as they design the labs and the manufacturing floors that they get the latest of our innovation to help them to drive productivity and efficiency, which they are looking for together with all the digital capabilities that we have. Daniel Arias: Okay. That's helpful. And then, Shawn, maybe on the comments that you guys made on China, can you maybe just compare what you expect on the lab/biopharma side versus more of the industrial side? I'm trying to understand just the macro headwinds and what that might translate to for China for you guys next year. Shawn Vadala: Yes. I mean we're assuming low single-digit growth in both of those businesses. As Patrick mentioned in the prepared remarks, one of the upsides, I think we have on the lab side is the latest update of Pharmacopoeia in China, which I think is a nice opportunity. All the investments that are going on in country with GLP-1s is a really good example. And so we feel like there's medium to long term some upside here, but we're a little bit more cautious as we think about things today. And then on industrial, one of the one of the highlights of the third quarter was our industrial business. And within that, we had good -- we had good growth in each region, but it was nice to see growth in core industrial in China in the quarter. It's actually the first time we've had growth in that business in 2 years. And so when you think back to the beginning of the year and some of the things that were on our mind, that was a bigger -- an area where we would have like had placed more risk just given all the uncertainty with their economy. And it's nice to see that they had some growth. And I feel very good about our ability to continue to execute there. We kind of walked away from our visit there just 1.5 months ago, feeling optimistic and the team was really motivated and engaged. So it was good to see. Operator: And your next question comes from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: Patrick, I mean, it's atypical for Mettler to do one deal, much less a handful of them. I'd love if you could just kind of elaborate on how this came about, some background on the assets and really what you think they add to the portfolio. Patrick Kaltenbach: Yes. Thank you, Brandon. Yes, of course, normally, we do not this amount of deals in one quarter, but to be honest, the deals also take a long preparation times. And we always look to expand our portfolio at new technology vectors or adjacencies that we don't own and also expand our distribution in this quarter, we acquired a few North American distribution partners that gave us additional sales and service capabilities including some new services. We also acquired the Genie Vortex mixers, which is a really strong brand and expands our life science equipment portfolio that complements, for example, our pipette business and the businesses, shakers and others that we sell through our house business. So it has been a good number of smaller acquisitions, not one big one, but the small acquisitions that we will continue to do in the future. And as Shawn mentioned before, the revenue contribution was less than 1% this quarter and about 1% through the first half of next year. Brandon Couillard: And then just one follow-up, Shawn, did you give the lab -- the China lab growth in the quarter? And what is embedded for '25 for China and those 2 segments specifically? Shawn Vadala: Yes. So for Q3, it was up low single digit. Let me just -- I'm sorry, let me just confirm that. Yes, it was up low single digit in Q3. And then for next year, we also expect it to be up low single digit as well. Operator: And your next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Maybe one just on the core industrial side, can you just talk about what you're seeing there, what the trends are, conversations with customers? Obviously, it's helpful to hear a little bit about the go forward on that front. I would love just to hear what the trends look like there and the visibility as you work your way forward on core industrial. Patrick Kaltenbach: Yes. Okay. I'm happy to take that. Look, I think we are performing extremely well with our innovative portfolio in a market that is still very challenging. As you know, most of the PMIs are still below 50. But we are benefiting from the demand for automation, digitalization, and this is where our innovative products play strong and it also helps us differentiate nicely from our competitors, including China. As Shawn mentioned, it was good to see that China came back to growth for the first time in 2 years. We think these soft market conditions probably will continue for some time, but we are very well positioned then in the future also from the onshoring investments in the future because those will demand a lot of digital capabilities and automation solutions that we have developed and that we either implement directly with end customers or through system integrators. So long story short, I think the market will continue to be challenging in many areas. It probably will benefit next year and the year after from the homeshoring activities. But for us, it's most important that, again, that we have a very competitive portfolio and continue to help our customers with their demand for automation and digitalization in a fully compliant environment and also with products that also have very strong capabilities when it comes to cybersecurity, which we spend a lot of activity as well. Patrick Donnelly: Okay. That's helpful. And then maybe one on the geography side. I think Europe flattish year-to-date. It seems like it's been improving a little bit. I think Shawn talked about low single digits next year. What are you guys seeing there? Has it been kind of steady improvement? Is it just comps? And again, the confidence level there going forward would be helpful. Patrick Kaltenbach: Yes. I'll go a little bit through the macro of Europe. Again, it's, I would say, a tale of many cities series. If you look at our -- how we see the end markets, I would say the Southern European markets actually are performing better than the northern at the moment or in the mid, I think -- the biggest stress in Europe, I would -- as you can imagine, is probably right now in Central Europe with a large economy in Germany that is under significant pressure still from higher energy costs, et cetera. You all hear the news about them also offshoring some of their manufacturing in other areas to try to address the cost issues. Nordics has performed well, but then we also had the news coming out of Denmark in the last quarter or so about Novo Nordisk going through some resizing there, and that puts that piece of the market under pressure right now. So it's really a mixed bag. But overall, we are pleased with our own performance in Europe. I think it's very important that we leverage our tools to be always guide our sales teams to the hot segments that we see there like bioprocessing. There's a lot of good activities in bioprocessing, for example, some of it in the new energy markets as well and also in pockets also in semiconductor again. I think really the story is here, yes, it's a more difficult environment. We see definitely better momentum right now in the U.S. and in Europe. But we're still very keen on capturing all the growth opportunities to compensate the macro trend that Europe is probably slower at the moment and probably will also be next year a bit slower than the U.S. Operator: And your next question comes from the line of Doug Schenkel with Wolfe Research. Douglas Schenkel: I'm going to try to just throw out 2 and then get back and just listen given I'm out of the office. So on the industrial side, lab came in, as we've talked about, pretty well above our model and your guidance at mid-single-digit organic growth. You talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by PA process analytics versus traditional lab equipment? And maybe more specifically, are you seeing increased demand for bioprocessing sensors as several large CDMOs start to build out brownfield plants in the U.S. And then that's on the lab side. On the industrial side, 9% organic growth is impressive. As I've talked about with you guys, I mean, some of this is a function of maybe the name industrial being a little bit of a misnomer given how the business has evolved. But that being said, still impressive. And last quarter, you said you had visibility into certain projects that would drive maybe a better than typical quarter. And I think this was even better than that. So long lined up to, does this start to normalize? Were there timing dynamics? Or is there some real momentum here? Shawn Vadala: Yes. Maybe I'll start here. So on the laboratory side, we were very pleased with the quarter. As you mentioned, certainly a highlight in the laboratory portfolio was process analytics. We saw really good growth on bioprocessing. This business also benefits from some of the investments that are being made to the power grid as you think about data centers as an opportunity in the future. But a lot of it was pretty much bioprocessing. And the power is like we have ultra-pure water solutions, et cetera, that help with power plants. On the rest of the business, we also saw some good growth, like, for example, within our analytical instrument portfolio, we were very pleased with growth in that business. If you look at weighing Solutions, also really good growth. The one soft spot that kind of we -- I think I alluded to earlier was in our liquid handling business. We still see a lot of softness in that business. And that business really is in the crosshairs of a lot of the topics out there regarding funding and research, whether it's with biotech, whether it's with academia, whether it's with currently the government shutdown. Now these are smaller exposures for Mettler-Toledo. But when you get into liquid handling, they tend to be a little bit bigger and they tend to feel, especially the consumable nature of that business. But we did have modest growth on the consumable side. It's really more on the instrument side where we saw softness. On the industrial side, we did have some good -- much better activity, as you mentioned, in the quarter than we expected. I think we were kind of walking into the quarter feeling pretty good. And then just a lot of things happened in different parts of the world that just all came together. As an example, we have some activity in our transportation and logistics business, which is selling -- it's part of how facilities are trying to automate their factories, and we have these solutions around dynamic dimensioning that's super effective, provides strong paybacks -- to our customers and a lot of that kind of caught on in the quarter. But it's not only that. If you look at the rest of the portfolio where we are facilitating customers' automation and digitalization needs, we saw some good trends there. We also saw good growth in each region of the world. But we also probably had in fairness, a little bit of an easier comp in Q3. If you look at it on a longer-term CAGR basis. And so that comp is maybe a little bit more difficult in the fourth quarter. And as we kind of listen to the organization and customers, just the timing of activity seems to have been a little bit more skewed towards Q3 versus Q4. We're actually a lot more cautious on our core industrial projection for the fourth quarter. We're probably looking at more like low single digit in the fourth quarter. So we do see a step down there quarter-on-quarter. But when you like look at the second half of the year and combined, we actually feel really good about how we're executing and how we're positioned going into next year. And I just think that the portfolio is doing well. It's being really well received globally. And we always talk about how this business is -- while it's exposed to the macro, it also has a lot of opportunity with all these onshoring needs. And as companies are onshoring, they're investing more in automation as well as digitalization, and we continue to invest in our portfolio to optimize these opportunities. Operator: And your next question comes from the line of Michael Ryskin with Bank of America. Michael Ryskin: Great. I want to follow just kind of what you were just touching on, on the 4Q moving pieces. I had a lot of questions on sort of comparing 3Q, 4Q. First of all, maybe you could just give us sort of the segment results. You gave us a little bit here in there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you seeing for government shutdown? Just are there any other moving pieces you touched on the comp in core industrial just now, but we would love to flesh out the 3Q to 4Q dynamic? And then I've got a quick follow-up. Shawn Vadala: Yes. Mike, maybe I'll walk down the Q3 versus Q4, like you said, so everybody has that, and then I can make a couple of comments on it as well. So in Q3, lab was up 4%, and our guidance for Q4 is to be up low single digit. As we think about lab, we're a little bit more cautious here on budget flush going into the fourth quarter. I mean, last year, you recall, we actually had a pretty good budget flush. We're not such a budget flush company, but the reality is we do have seasonality in our business. And as we just sit here today, there seems to be a little bit more caution with some of the uncertainties out there around governmental policies. In terms of our core industrial business, as you know, it was up 11%. That was 10% organic. And our guidance for Q4 is up low single digit. We just talked about that. Product inspection was up 7% in Q3, and our expectation is that business grows high single digit in Q4. There's a little bit of -- there'll be a little bit of acquisition benefit in that number as well. And then retail actually had growth in the quarter, 5%. They've -- it's always a lumpy business. They've been on the other side of the lumpiness now for the last couple of years, but it was nice to see growth, and they're actually looking at good growth here in the fourth quarter of about 10%, but it's also against maybe softer comparisons. But that business is actually competing really well. There's some really neat examples of innovation in that business with some like imaging technologies, et cetera, and I think we're competing really well. In terms of the geographies, our business in the Americas grew 10% in Q3. If you exclude the acquisitions, it was 8%, and our guidance for Q4 is to grow mid-single digit. Europe was up 6% in constant currency in Q3, and our guidance is more flattish here. So we're definitely a little bit more cautious on Europe. I mean, as Patrick mentioned, we're executing well there. Europe tends to benefit the most from our Spinnaker programs just given the magnitude of our direct sales force with -- in terms of our go-to-market strategy, but the economy is a little bit more softer. And I think there's just more uncertainty with a lot of the different topics around trade disputes, et cetera, that have a potential impact on customer behavior. And then China was up 2% in Q3, and we're estimating it up low single digit in the fourth quarter. Michael Ryskin: Okay. That's all incredibly helpful, Shawn. For a follow-up, if I could just touch on tariffs in 2026. You said a couple of times you're going to fully offset. But just walk us through exactly what that means. Is that fully set over the course of the year, fully offset as of Jan 1? Is there like a net tariff impact on EPS next year that you could point to? Just walk us through sort of exactly how that's happening and the mechanics behind it. Shawn Vadala: Yes, yes. So I mean, we're extremely happy with the organizational's performance in this area. As Patrick said in the prepared remarks, our culture does tend to shine the brightest during challenging times, and I just couldn't be more proud of the colleagues in terms of how they've responded to these challenges over this past year. The journey towards offsetting these tariffs also didn't start in 2025. We had also -- coming out of COVID, like a lot of other companies, we wanted to create more flexibility in our global supply chain, and we also wanted to derisk our global supply chain. So we already had some things that we were working on and that we could accelerate over the past year. And then the other thing is that we also have the opportunity in pricing to mitigate. And I think that comes down to we've been investing a lot in innovation and the value proposition that we're providing to customers. And so fortunately, with strong value propositions, it gave us an opportunity to take a look at pricing in a few areas over the course of the past year. So as we kind of go into next year, I think we should be in pretty good shape at the beginning of the year in Q1. We'll provide more color on that at the end of this year. If you want to be a little conservative in your models, that's okay. But I think we'll probably be -- I think we should be in pretty good shape kind of as we start the year next year and certainly on a full year basis. In terms of what it means, which I can anticipate is a question out there. So tariffs right now are about -- if you look at the tariff rate increases that were put in place in 2025, we're probably looking at about a 6% headwind -- gross headwind on 2026 that we -- and that's the magnitude that we're talking about offsetting. Operator: And your next question comes from the line of Tycho Peterson with Jefferies. Jack Melick: This is Jack on for Tycho. Just wanted to double-click on China industrial for a minute. Did China's anti-involution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like they were impacted much at all. So I would appreciate any additional granularity on the core industrial side and what you saw in terms of activity. Patrick Kaltenbach: Very good. Thanks, Jack. Look, China has struggled with overcapacity for some time now. And if you look at the anti-involution policy, I think it's mainly focused on trying to stop price wars and address overcapacities in areas like solar, steel and other areas. These are, for us, not really large markets. And as we exited the heavy industrial infrastructure-related markets over a decade ago, it doesn't mean that we are totally immune to this, but we are now more focused with our industrial portfolio on a broader market is really looking for automation capabilities, digitalization features. And that's why we also saw some growth in Q3, frankly. I think our portfolio competes really well in a market that is fighting also for continued increases in productivity, driving cost down, and you only can achieve that through automation and digitalization. I think our portfolio plays really strong there. We have a strong R&D and manufacturing organization in the market that really also understands the local dynamics and the needs of our customers. So I think we are set up well to capture these opportunities. And with that, again, we think we will continue also in China to perform -- to outperform the underlying market dynamics with our strong portfolio. So again, anti-involution for us, probably not as big as a topic as you would think because we are not playing in these market segments that are under most pressure or most focused by the government. And the rest of the market still is looking for the portfolio opportunities that we can deliver to them. Jack Melick: Okay. Great. That's really helpful context. I guess, second, you talked a bit about onshoring in the call. Curious how conversations there, particularly among pharma customers have evolved in the past 45 days or so with commentary getting better around MFN and other issues sort of clearing up. Patrick Kaltenbach: Yes. I don't want to repeat myself. But again, there's a lot of big announcements out there, but we are in the very, very early innings with that. I mean it still will take time to build these manufacturing sites and build the labs, et cetera. Most important for us, as I said, is to really be with the customers in the planning phase to help them to implement the right solutions to not only replicate of what they have seen in other places or have in other places as they try to onshore it, but really go to the next step in terms of automation, digitalization. Operator: And your next question comes from the line of Josh Waldman with Cleveland Research. Joshua Waldman: Patrick, a follow-up on the bioprocessing side. I'm curious where all you're seeing the impact of stronger demand across the portfolio? And I guess, any sense on durability into Q4 and '26? Did it seem like volumes strengthened throughout the quarter? And then I guess on the portfolio exposure piece, I believe you have bioreactor equipment exposure within core industrial. Were there any signs of strength there? Patrick Kaltenbach: Yes. Very good questions, Josh. And yes, you're absolutely right. We see this across the portfolio. Bioprocessing is a strong segment for us, of course, especially for the process analytics piece. But as you think about the entire value chain of these customers when it comes to QA, QC solutions, where our lab products play well or in the Industrial Solutions that tank scale weighing, et cetera, play a big role, we will definitely continue to benefit from the strong momentum in this market. We actually, we anticipate this to continue into 2026 as well. This is a market that shows strong momentum and also we have very strong engagement of our sales teams with the customers in this space. Joshua Waldman: Did you see strength in the tanks and weighing side as well? Or was it more on the consumable side here in the third quarter? Patrick Kaltenbach: Yes, we saw it in both. I mean, probably more on -- a bit more on the bioprocessing sensor side, but also, again, really good customer engagement and also are building momentum on the tanks going, et cetera. As these customers will build out their manufacturing capacities or do green home shoring, again, they will look at us to help them to put in the newest and most effective solutions. Joshua Waldman: Got it. Okay. And then as a follow-up, I was curious if you could talk through what you're seeing on the service side, maybe how service performed versus expectations, your thoughts going into '26. And then if there's been any update on attach rates or change in strategy to drive better attach rates would be helpful. Patrick Kaltenbach: Good. Yes, actually, we are very happy with the 8% service growth that we have seen in the quarter, including about -- that includes about 1% through the acquisitions we made. Service is really strong. We have also a great growth initiative in the company to build out not only our service portfolio, but also the coverage in the markets. We continue to target mid- to high single-digit growth in both 2025 and 2026. And we are really confident that the long-term growth will be above the company average for services. And that's actually, again, a segment that will -- that I'm also putting a lot of energy as a CEO, help making sure that we really capture the full opportunity out there. And we have great programs in place, and I'm looking forward to continued growth there. Operator: And your next question comes from the line of Catherine Schulte with Baird. Joshua Montpas: This is Josh on for Catherine. I just wanted to unpack a little bit. Have you seen any change in sentiment from pharma customers since some of these MFM deals? I'm just wondering what those have kind of looked like since some of these announcements have been rolling out. Patrick Kaltenbach: I'll take this question. Look, I think that the most favored nation discussion has been out there. I think it probably created some initial uncertainty of what that means. But overall, the Pharma segment performed for us really well. I think the customers are really now looking forward how they address the reshoring, home shoring opportunities for them, also what they have -- the commitments they have made to U.S. government, and they also see the underlying demand for biopharmaceuticals and others. I think the uncertainty, there's still some uncertainty there, but it's not around the most favorite topics, at least when we talk to our customers, that is not the first topic that comes up. They are really looking forward to optimize their processes to drive efficiencies and also as they continue to expand their manufacturing sites that they can work with us on implementing the best efficient and most profitable solutions for them. Joshua Montpas: Great. And then you talked through the replacement cycle opportunity here maybe starting to ramp up a little bit. Just wondering if any of this is baked in the 2026 guidance? And how should we think about the impact here longer term? Patrick Kaltenbach: Yes. Well, look, I mean, I would have to give you a glass wall to really see what's going to happen. What we do know is that we have 2 years of a little bit subdued replacement business. We also see our installed base aging a bit more, but I cannot really tell you when the customers are ready to pull the trigger and replace the equipment. I think it's upside potential, but we have not factored that fully into our 2026 guidance. Operator: And your next question comes from the line of Casey Woodring with JPMorgan. Casey Woodring: Maybe the first one, you mentioned that you were in China recently. Just what's the latest there on the ground in terms of potential stimulus and what that could mean for 2026? Shawn Vadala: Yes. Casey, maybe I'll take that one. So we had a really great visit with the Chinese colleagues. As you can imagine, it's a pretty dynamic environment, but what's interesting is to see how the pace of change there and just -- and our teams like their effectiveness in terms of like really being agile in the marketplace really stood out to us. It's a very fast-moving market, and it's really exciting to see how, like I said, agile our teams in terms are identifying and pursuing those opportunities. In terms of stimulus, as we've kind of talked about in the past, it's not so much of a topic for us. I mean, yes, there's maybe a little bit of benefit. Our teams do go after that. But if you just think about the nature of our portfolio and our customers in China, it doesn't lend itself as much to the current program for stimulus. Now when we start talking about broader programs about fiscal stimulus with bigger packages, we've benefited a lot from those in the past, but the current program is a little bit more isolated in terms of opportunity. Casey Woodring: Got it. That's helpful. And then maybe if you could just unpack the product inspection performance, that 7% growth number in the quarter. I understand the comp dynamic you mentioned earlier. But in the past, you've talked about the sort of strategy shift towards focusing on the midrange market there that's really driving growth. So just curious if that's a tailwind that you're assuming extends into 2026 and the sustainability there. Shawn Vadala: Yes. I mean, like I said earlier, we feel very good about the performance here. We feel really good about the portfolio. We have come out with new products over the last few years. And the nice thing is that the cadence of product introductions will continue, and we'll start -- we'll continue to see some nice things coming out over the course of next year as well to help. And I feel like that's what gives us a little bit of confidence in our ability to sustain here. Now it's, of course, against a more challenging backdrop, but we do have good momentum. And I think there's even some synergy opportunities with some of these acquisitions as well. One of them, in particular, has like some additional services that we didn't provide in the past and that we feel like is an opportunity that we can leverage. Operator: There's no further questions at this time. I will now turn the call back over to Adam for closing remarks. Adam? Adam Uhlman: Okay. Great. Thanks, Mark, and thanks, everybody, for joining our call today. If you have any follow-up questions, feel free to reach out to me. I hope you all have a great weekend, and we'll talk to you soon. Thank you. Operator: That concludes today's call. You may now disconnect.

195天前Insight Analytics约5分钟阅读

LNT 2025 Q3 财报电话会议

Operator: Thank you for holding, and welcome to Alliant Energy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go ahead. Susan Gille: Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Lisa Barton, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepared remarks by Lisa and Robert, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's third quarter and year-to-date financial results. We narrowed our 2025 earnings guidance range, provided 2026 earnings and dividend guidance and provided our updated capital expenditure and financing plans through 2029. This release as well as the earnings presentation will be referenced during today's call and are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you that the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's news release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements. In addition, this presentation contains references to ongoing earnings per share, which is a non-GAAP financial measure. References to ongoing earnings include material charges or income that are not normally associated with ongoing operations. The reconciliation between ongoing and GAAP measures is provided in the earnings release, which is available on our website. At this point, I'll turn the call over to Lisa. Lisa Barton: Thank you, Sue. Good morning, everyone, and thank you for joining our third quarter earnings call. Today, we're pleased to share our Q3 and year-to-date results, another quarter and year where we delivered solid financial and operational performance. We will also share the outlook for the remainder of this year, update you on our strategic initiatives, including our capital expenditures, financing plans through 2029 and discuss how we're positioned to accelerate and extend our earnings expectations. We are well positioned because of the Alliant Energy Advantage and the realization of additional near-term low growth opportunities from data centers. We are continuing our consistent track record of execution and financial performance. Our performance is driven by our customer-focused investments and supportive regulatory environments, a winning strategy for driving continued growth, while prioritizing affordability and reliable service. Our focus on customers and building stronger communities is at the heart of everything we do. With our compelling large load opportunities and diverse capital investment plans, we are well positioned to continue meeting customer, community and investor expectations. We will cover each of these advantages today, as shown on Slide 3, as they power Alliant's future. To start, I am pleased to share updates for the quarter. Our projected peak demand growth by 2030 has increased to an industry-leading 50% through the execution of a fourth electric service agreement with QTS Madison. We signed a new agreement with Google that further accelerates the load ramp in Cedar Rapids, and we continue to cultivate an active pipeline of additional opportunities. Our focus has been on prioritizing plug-in-ready sites, which minimize transmission investments and accelerates our ability to serve new customers. As a result, we can deliver project certainty, near-term earnings and near-term positive community and customer benefits. Concurrently, we continue to execute well against our capital plans. We completed construction of the Grant and Wood County energy storage projects totaling 175 megawatts and completed the Neenah and Sheboygan Falls Unit 1 advanced gas path projects, which increases the efficiency and capability of each of these Wisconsin facilities. These load growth opportunities and continued investments in our existing generation show how we're continuing to efficiently grow at the pace of our customers to foster economic developments across our service territory. Next, our financial highlights. We delivered strong performance through the first 3 quarters. We are maintaining our midpoint and narrowing our 2025 ongoing earnings guidance range to $3.17 to $3.23 per share, as shown on Slide 5, and we are trending towards the upper half of this range. As shown on Slide 6, we are initiating 2026 earnings guidance of $3.36 to $3.46 per share, which represents a 6.6% increase over our 2025 midpoint. Our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from the 2025 target of $2.03 per share. And we're increasing our 4-year capital expenditure plan by 17% to $13.4 billion. This translates to a projected rate base and investment compound annual growth rate of 12% from 2025 to 2029. We expect our compound annual growth rate across 2027 to 2029 to be 7% plus. This is based on the planned growth in rate base and the expected data center revenues during that period. We will continue to assess our long-term earnings growth potential as we execute on our data center expansion and load growth plans. As shown on Slide 9, construction is well underway on 3 of the 4 data centers under agreement, 2 in Cedar Rapids, Iowa and 1 in Beaver Dam, Wisconsin. This progress clearly demonstrates that we are focused on meaningful near-term opportunities, each of which serves to unlock the potential of our customers and communities. The contracted demand from the 4 facilities totals 3 gigawatts, translating to 50% peak demand growth by 2030. Accordingly, we've updated our 4-year capital plan, and we will invest $9 billion in both new and existing generation, complementing investments we are making in electric gas and technology enhancements. Looking beyond the plan, we have a solid outlook of investment opportunities that extend our growth potential. Investment upside would be driven by additional load growth beyond what is included in the base plan. We are focused on enabling real near-term growth, attracting high-impact projects to accelerate economic development as part of our commitment to Iowa and Wisconsin, and providing investors with a clear view of well-developed opportunities. As we continue to expand our pipeline, we remain committed to proactive community and stakeholder engagement, positioning Alliant Energy and the communities we serve for growth. Advancing win-win outcomes that maintain affordable service for customers and communities ensures Alliant continues to deliver value while unlocking the potential of our customers and communities. To share a few examples of win-win outcomes. First, the Iowa retail construct stabilizes electric base rates for customers through the end of the decade, serving as a perfect example of a win for our existing customers through stable rates. Second, we executed an agreement to enable fiber connectivity to one of our data center customers by leasing our underground conduit in our service territories, which provides substantial financial benefits to our existing customers. And third, last week, QTS advanced its Wisconsin data center plans with meaningful community contributions, full funding of all infrastructure and the purchase of renewable energy credits from new projects, reducing costs and creating value for all WPL customers. Support from our regulators has been key to moving our plans forward. The Iowa Utilities Commission approved the individual customer rates for our 2 data centers currently under construction in Cedar Rapids. Through these filings, we've demonstrated that our approach effectively protects existing customers, while allowing them to benefit from additional growth. And yesterday, the Public Service Commission of Wisconsin approved our unanimous retail electric and gas rate review settlement for forward test periods 2026 and 2027. This rate review cost effectively advances responsible energy solutions, strengthens the safety and resilience of our energy network and expands options available to customers. Our strategy is rooted in being a trusted partner in delivering outcomes, customers and regulators seek with a strong focus on customer value and forward-looking investments. We are well positioned to provide competitive rates for both new and existing customers over the long-term as a result of our economic development success and our continued focus on cost controls. The Alliant Energy Advantage is an acute focus on driving near-term growth, making smart investments to serve that growth while keeping bills low and benefiting new and existing customers. In short, being plug-and-ready enables stronger alignment between our revenue growth and capital investments. I will now turn the call over to Robert to provide our financial results, earnings and dividend guidance, financing plans and an update on our regulatory matters. Robert Durian: Thank you, Lisa. Good morning, everyone. Yesterday, we announced third quarter and year-to-date ongoing earnings. With third quarter ongoing earnings of $1.12 per share, we have realized over 80% of the midpoint of our 2025 earnings guidance. As shown on Slide 5, our ongoing earnings change year-over-year was primarily due to higher revenue requirements from capital investments at our Iowa and Wisconsin utilities and the positive impacts of temperatures on electric and gas sales. These positive drivers were partially offset by higher operations and maintenance expenses, driven by increased generation costs from planned maintenance activities and the addition of new energy resources as well as higher generation development costs to support long-term growth. Additionally, higher depreciation and financing expenses contributed to earnings fluctuations. Through September of this year, net temperatures positively impacted electric and gas margins by approximately $0.02 per share. In comparison, net temperatures negatively impacted electric and gas margins for the first 3 quarters of 2024 by $0.10 per share. Margins from our temperature-normalized electric sales have also been better than planned with higher-than-expected sales to commercial and industrial customers in both states. Electric margin comparisons to last year have experienced timing differences through the first 3 quarters of this year as a result of the new rates implemented in Iowa in the fourth quarter of 2024. The new seasonal rates are flatter, resulting in a less pronounced increase in summer rates, which has distributed earnings more evenly throughout 2025, resulting in quarterly timing differences from last year's margins, but no material impact on full year results. Turning to our full year 2025 earnings forecast. As a result of our solid earnings through September and our projected fourth quarter results, assuming normal weather, we have narrowed our 2025 earnings guidance and are trending within the upper half of the $3.17 per share to $3.23 per share updated range. As Lisa mentioned, we also announced our projected 2026 earnings guidance range and dividend target. We are expecting to continue delivering an attractive total return to our investors through a combination of earnings growth and dividend yield. The 2026 earnings growth represents a 6.6% increase from our 2025 guidance midpoint, which is higher than our typical 6% forecasted growth. And our 2026 annual common stock dividend target is $2.14 per share, a 5.4% increase from 2025. We are moderating the pace of expected dividend growth to efficiently fund our increased capital expenditure plan. We will continue to target a dividend payout range of 60% to 70%, but expect to be in the lower end of the range during the period of our plan with higher investment opportunities. As shown on Slides 11 and 12, we have updated the capital expenditure plan, which strengthens the diversity of our resources. We are investing in natural gas generation and energy storage projects to meet the capacity requirements of our growing customer demand. We are also making improvements in our existing fleet to enhance the capacity and energy output of those resources. And we continue to invest in our renewable portfolio by adding new wind and repowering existing wind sites. We have proactively safe harbored our energy storage and wind projects in our plan in order to preserve tax benefits for our customers, making these projects more cost effective, providing lower fuel costs and delivering greater affordability for our customers. With our refreshed investment plan, we now have a compounded annual growth rate of 12% for rate base plus construction work in progress, reinforcing our confidence in meeting our long-term growth objectives. Moving to our financing plans. In the third quarter, we successfully refinanced $300 million of debt issuances at IPO and issued $725 million of our first junior subordinated notes at our parent company. We plan to use the proceeds from the junior subordinated note issuance to retire maturing debt in March 2026. The equity content of this debt issuance is expected to assist us in maintaining cushion in our FFO to debt metrics to retain our current credit rating. As we look to future financings and with the increase in our capital expenditure plan, we provided an updated financing plan through 2029 on Slide 13. Of note, our capital expenditures will primarily be financed with a combination of cash from operations, including proceeds expected from the continuation of our tax credit monetization and new debt, hybrid and common equity issuances to maintain authorized regulatory capital structures and a desired consolidated capital structure of approximately 40% to 45% after factoring in the equity component of hybrid instruments. We have significant growth opportunities. The $2.4 billion of new common equity included in our current financing plan for 2026 through 2029 will primarily be used to invest in the resources needed to supply our customers' growing energy needs. We believe the equity is manageable over the 4-year planning period and are anticipating settling the planned equity issuances ratably over that period of time. We plan to continue derisking our planned equity issuances on a forward basis, utilizing the ATM, while also being opportunistic with favorable market conditions. Of the $2.4 billion of new common equity, we have raised our planned 2026 amounts already through forward agreements. And therefore, we have only $1.6 billion of remaining equity to be raised over the next 4 years, excluding equity expected to be raised under our Shareowner Direct Plan. As shown on Slide 14, our 2026 debt financing plans include up to $1.1 billion of long-term debt issuances, including up to $300 million at Alliant Energy Finance or parent, up to $300 million at WPL and up to $500 million at IPL. Finally, I'll update you on our regulatory initiatives included on Slide 16 and 17 as well as those filings planned for the future. In Wisconsin, we have 4 active dockets currently in progress, 3 of which involve requests for preapproval of customer-focused investments. First, a request for investments to refurbish the Forward wind farm, targeting additional production tax credits from the project for the benefit of our customers. Second, a request for investments in a liquefied natural gas storage facility, our first ever, to add firm natural gas capacity. This will ensure we can reliably meet current and anticipated gas supply needs, while maintaining an adequate reserve margin during Wisconsin's coldest winter days. And third, a request for investments to expand the Bent Tree Wind Farm, adding over 150 megawatts of new wind to provide more 0 fuel cost energy and additional tax benefits for our customers. We are also awaiting the PSCW's decision on the individual customer rate filing for our Beaver Dam data center. In Iowa, we have 3 active dockets in progress. We have requested advanced remaking principles for up to 1-gigawatt of wind, which has the potential for customers to avoid significant fuel costs, while investing in cost-effective and responsible energy resources. And we requested 2 certificates of public convenience, use and necessity, one for 720 megawatts of natural gas-fired simple cycle combustion turbines, which will be located in Marshall County, Iowa; and a second for a 94-megawatt natural gas RICE unit in Burlington, Iowa. We expect decisions from the Public Service Commission of Wisconsin and the Iowa Utilities Commission on these dockets in 2026. Turning to our planned regulatory filings in the future. We expect to file our individual customer rate tariff for QTS Madison later this month. And in conjunction with our updated capital expenditure plan, we also expect to make future regulatory filings in both Iowa and Wisconsin for additional renewables and dispatchable resources to enhance reliability, continue to diversify our energy resources and meet growing customer energy needs. I'll now turn the call back over to Lisa to provide closing remarks. Lisa Barton: Thank you, Robert. In conclusion, we're excited about our year-to-date performance and the growth opportunities in front of us at Alliant Energy. What sets us apart? Unlocking the potential of our customers and communities is at the center of our strategy. By pursuing win-win solutions and focusing on near-term opportunities, we're driving affordability, fueling growth and creating lasting shareholder value. Thank you for your continued support. We look forward to speaking with many of you at the EEI Financial Conference and plan to post updated materials on our website later today. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session. Operator: [Operator Instructions] Your first question comes from Bill Appicelli with UBS. William Appicelli: Just a question around -- the color, if you could provide on the ramp on the demand, right, around what that could mean for the trajectory of earnings above that 7% as the load starts to come on to the system? Lisa Barton: Yes. Great question. So the way to think about the 7-plus is that it would be at least 7% to 8%, and this is before upside to the plan. And as a reminder, this is all known projects and so forth. One of the things to keep in mind in terms of that time frame, and we've talked about this being our desire to create cascading ways of growth. And as such, timing is important. So there's some lumpiness. When you think about the 50% load growth, that's really significant. So timing is something that we'll certainly be watching on a going-forward basis. William Appicelli: Okay. So the 12% rate base growth. So when we just think about backing off of that, it's really the equity dilution. Is there anything else to think about when you walk that back to earnings growth? Robert Durian: Yes. Great question, Bill. I think of the 12% is a combination of both rate base growth plus QIP growth. So roughly about 10% rate base growth, but also about 2% of QIP growth over that time period. Given the volume of capital expenditures we've got in our plan, the QIP balances are going to increase pretty significantly. But to your specific question as far as the walk between the 12%, the combination of those 2 and what we're signaling here for at least 7% to 8%, most of that is related to the equity dilution. We've also got what I would characterize as a conservative set of financial assumptions when it comes to interest rates. And then there might be what I would characterize some small regulatory lag, but it's pretty modest. So it's primarily the equity dilution and just kind of probably more our conservative nature with some of the interest rate assumptions. William Appicelli: Okay. And then just one follow-up there. Specific to Iowa because of the uniqueness of that regulatory framework. I mean, what are the assumptions here in terms of earned returns? Is it just at your authorized across the plan? There is some optionality for you to the upside to retain some of those benefits if you can outperform, right? Robert Durian: That is correct, Bill. Yes, think of the State of Iowa right now, we've got the electric side of the business that does have a new regulatory construct that was put into effect last year that does provide us a lot of certainty of our ability to be able to earn our authorized return and does have some upside opportunity for us. If we go beyond our authorized return, we share those benefits with our customers. Right now, we've just assumed that we're going to earn our authorized return. And then on the gas side, it doesn't have that similar construct. We will have to go in for future rate cases to be able to minimize the regulatory lag there, and we'll time those based on future capital projects to ensure that we can get as close as possible to earning that authorized return. Operator: The next question comes from Nicholas Campanella with Barclays. Nicholas Campanella: Maybe just your kind of calling out that it seems that this 7-plus is pretty conservative. You're in active negotiations for the 2 to 4 gigawatts of additional load. Can you just give a little bit more color on what stages of those incremental opportunities are, and what your line of sight is to maybe have another kind of signed load contract in 2026? Lisa Barton: Yes. No, great question. So yes, I'm going to go back to last year. When we talked at EEI last year, we announced a gigawatt, Q1, 2.1 gigawatts. And today, we're at 3 gigawatts. We have been very focused on making sure that there are near-term opportunities that they are less transmission dependent. And we're also having a very high bar in terms of what we're sharing with you all. So these are ones that we are in active negotiations on. These are ones where we have our transmission interconnection studies done and so forth. And so this is something to very closely watch over the next 12 months and some of which, of course, will be sooner. We will -- we are committed as we have in the past to continuing to give you a very clear line of sight and to avoid speculation on all of these. Nicholas Campanella: And then just so I'm kind of understanding it correctly, that would then kind of put this growth rate above 8%. Is that the right way to think about it? Lisa Barton: It would be above that, yes, above that 5% to 7% that we talked about. So this is all great upside to our plan. Nicholas Campanella: Maybe I could also just ask, thank you so much for the financing commentary. What is your FFO to debt going to be at the end of '25? Where do you kind of see it through '26? And then also just you have $300 million of tax credits through '26. Does that continue at that level through 2030? And just understanding if you have to eventually replace that cash flow down the line? Robert Durian: Great question, Nick. So yes, if you think about our FFO to debt metrics, throughout the planning period, we're really targeting to try and have roughly about 50 to 100 basis points of cushion. And really, that's going to let us further grow into the plan. When you think about the 2 to 4 gigawatts that Lisa indicated, we want to make sure we've got strong balance sheets to be able to grow into that at even higher levels than we've got kind of currently indicated with the 7% to 8% plus. So -- and as we think about the tax credits, there's roughly about, I want to say, $1.5 billion, $1.6 billion in the plan over the next 4 years. We've had a lot of strong interest from counterparties to be able to buy those credits and have a lot of confidence in being able to execute those as far as generating the credits and then turning those into cash. And so I feel really good about the plan with all of those aspects. Nicholas Campanella: One more, if I could. Just the 12% load growth CAGR is large. And I understand the timing of how you get above this 7% plus could also be related to just the load ramping. So just what's the starting point that's embedded in '26, so we have a base to work off of? Robert Durian: It's actually pretty modest in 2026. We do start to see some of the data centers taking more what we call production load instead of construction load in the second half, mainly in the fourth quarter of 2026. And you'll see that continue to ramp through 2020 -- sorry, 2030 is when we expect to be at that full level of the 3 gigawatts of max contract demand that we have in our plan right now. Nicholas Campanella: All right. Looking forward to seeing you guys soon. Operator: The next question comes from Julien Dumoulin with Jefferies. Julien Dumoulin-Smith: Just a follow-up on the 2 to 4 gigs in the pipeline here. Previously, you've identified something like 1.5 gigawatts of mature opportunities with a high probability of conversion, maybe 85%. Taking out QTS Madison, there's something like 600 to 800 megawatts theoretically still in that bucket, perhaps more. But how would you characterize the probability of conversion over time for the remaining 3 to 3.5 gigs there? And then -- and maybe how fragmented is this pipeline? Is the demand dispersed across Iowa and Wisconsin evenly? Just any commentary you have there. Lisa Barton: Yes, I appreciate that. So everything that we had in the 1.5 that I'll call it the blue zone from previous decks means still an incredibly high level of confidence in that. Quite frankly, we've got a high level of confidence in all of this. And think about -- this is how I think about it. You look at Iowa. We serve 75% of the communities in Iowa. We serve 40% of the communities in Wisconsin. If you're a data center, what do you need? You need fiber, you need land, you need transmission, you need a utility that's willing to work with you and that is well positioned to be able to deliver on its commitments. And that's where I think when you think about the Alliant Energy Advantage where we hit it out of the park, we are in rural Iowa and rural Wisconsin, surrounded by transmission. We've been focusing these data centers and continue to focus this 2 to 4 gigawatts on those locations where they don't have to wait for a 100-mile transmission line or anything else. We're really trying to make sure that we can bring this load in sooner and faster. So that gives us a lot of confidence in being able to price appropriately and why we're just so excited about our ability to unlock the potential of our customers and communities. And not only that, we're in MISO. And MISO is acutely focused on making sure it's got robust transmission planning, that it's got an interconnection process, both for new generation as well as for loads that allows us to grow at this very active pace. Last thing I'll mention is we've got really constructive states between Wisconsin and Iowa. Right now, it's -- Iowa is very well positioned. As is Wisconsin, I think you'll see more of the data centers gravitating a little bit more towards Iowa, and that's just simply because we've got a lot of sites there. Remember, we've invested heavily over the years in land, and we've been able to have that as an attractive source for folks. But we're confident in the fact that in both jurisdictions, the significance of this load growth is really going to be driving affordability for all customers. And I think that, that's another key differentiator for us. And that allows us to be very well positioned from a regulatory standpoint. Regulators, as we mentioned earlier in my comments, are at the key -- they're just a key gating item for the entire sector. And our performance here that you've seen with the approvals of the ICRs and the approvals that you're seeing with the generation projects and the approval of the rate settlement, the unanimous rate settlement, it really just tells you that we've got the wind at our back when it comes to making sure that we're aligned with what our regulators care about. That's what you have to solve for in this space. Julien Dumoulin-Smith: Yes, absolutely. No, I mean, given your execution thus far and kind of the plan you've set out here, that 8% plus after 2027, it seems reasonably achievable here. I kind of want to follow-up on that specifically, just as you mentioned in the slides that you have, as you integrate more load and growth into the plan, you could reassess guidance looking forward. Your current look-forward period, it coincides sort of with the end of the stay out in Iowa or there could be some uncertainty to the timing kind of as to whether you'd like to file then or how you'd like to approach the construct. But how should we think about rate case timing here? The way you're going to look at the outer years of your plans, the growth rates you're willing to commit to, knowing that you have that regulatory further out, you might have regulatory uncertainty in the forward period. Just kind of going -- bringing that together with the idea that you've got this really visible above-average growth plan that you could potentially attain with upside here. How should we think about all these factors in the outer years? Lisa Barton: So let's start with Wisconsin. Wisconsin, we've got forward-looking test years every 2 years. That positions us very well to have that clean line of sight on what we need from a generation investment standpoint, really ensuring that we're able to minimize lag. As you recall, in Iowa, we did not have that. And the introduction of the individual customer rate in combination with the structure that we have really allows us to make sure we're able to earn our authorized every year and be able to grow at the pace of our customers. So in terms of how we're thinking of that over the period, I'm just going to point back to how successful MidAm has been. And over the past 10 years, they have not gone in for a rate review because of this construct. So that is why we are doubling down on our focus on making sure that we're unlocking the potential of our customers and communities. Rural Iowa, which is what we serve at 75%, they want to grow. They want data centers. They want to grow. This allows the property base to go up as well as driving costs down for customers. So we're going to continue to focus on that. Ideally, we wouldn't have to go in for another rate review. So I don't know, Robert, any additional commentary you'd like to provide? Robert Durian: Yes, we feel confident about the future of the plan. We only went through 2029 just because that's our standard process of just adding another year to the previous year, but don't read into that, that we have any concerns about beyond 2029. With all the growth that we see in front of us, we've got a really strong plan and feel like that's going to go well beyond 2029. Julien Dumoulin-Smith: Understood. So with the certainty you kind of have here in the construct, are you confident that there's a possibility here post '27 into the '28 time frame, you could be considering an 8% plus EPS guide? Is there further upside to the upside you've said here? Lisa Barton: You really want to look at what's coming online from a data center standpoint. Everything is timing related. If we can get data centers to be coming online sooner, that's certainly good. We have transmission investments that both ATC and ITC are making. They're relatively minimal in the scheme of things, but a lot of that is going to be associated with timing. And I think a really good indicator is what we announced with Google. And Google is working with us to accelerate that load ramp. So those are all the kinds of things to be watching for. And as we mentioned earlier, we're going to be very transparent. We're not going to throw a bunch of speculation at you. We're going to give you that clean line of sight. So that should -- I'm hoping that will be very helpful to you all. Operator: The next question comes from Aditya Gandhi with Wolfe Research. Aditya Gandhi: Just on your 7% to 8% plus commentary, what should we think of as the base for that 7% to 8%? Is that the midpoint of 2026 guidance for now? Is that a good way to think about it? Lisa Barton: It is. Aditya Gandhi: Okay. Great. And then on the 2 to 4 gigawatts of negotiations that you're having, can you give some more color on whether these are expansions of existing facilities or customers you've contracted with? Or are they new customers? And then just how should we think about the cadence of updates going forward? Will you just update your plan in Q3 next year? Or could we see an update potentially before that like you did in Q1 of this year? Robert Durian: Yes. I would think of the 2 to 4 gigawatts is a combination of expansions of existing sites as well as, as Lisa indicated, we have a lot of additional sites across our service territory that have transmission capabilities, land availability that we think are going to be great spots for new data centers. So it's a combination of those 2. When I think about the counterparties to these, these are all very high-quality hyperscalers or colocators. And so that's what really gives us a lot of confidence in being able to get these to the finish line because we know they're motivated customers with a lot of financial wherewithal to be able to kind of get us to the finish line on these. And as far as the timing goes, I would say in the next 12 months, we'll probably have a lot more clarity within the 2 to 4 gigawatts. And as Lisa indicated, every quarter, we'll give updates as far as the status of those. And if we make progress within the next 3 to 6 months, we'll obviously share with you information on the quarterly call. Aditya Gandhi: Great. And just one more, if I may. Could you give us some more color on sort of the agreement that you signed with Google to accelerate the load ramp there? Can you just remind us what the load ramp looked like earlier and what it's looking like right now as you're trying to accelerate it? Robert Durian: Yes. I think of that as of the 3 gigawatts, it's about 300 megawatts in total. And yes, they were interested in just going faster. I'll go back to my earlier comments. You'll see some of that starting to come in, in the second half of 2026, and then just going to ramp quicker than we originally anticipated. So you'll see more load in '27 and '28 than we originally expected. But that's built into our base model right now and included in the plan. Aditya Gandhi: Understood. Lisa Barton: 3 of the 4 projects are under active construction. So it's an amazing thing to watch how quickly these folks grow. Operator: Ms. Gille, there are no further questions at this time. Susan Gille: No more questions. This concludes our call. A replay will be available on our investor website. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

195天前Insight Analytics约5分钟阅读

030200.KS 2025 Q3 财报电话会议

Operator: [Interpreted] Good morning and good evening. Thank you all for joining this conference call. And now we will begin the conference of the third quarter of fiscal year 2025 earnings results by KT. We would like to have welcoming remarks from KT IRO, and then CFO will present earnings results and entertain your questions. [Operator Instructions] Now we would like to turn the conference over to KT IRO. Jaegil Choi: [Interpreted] Good afternoon. This is Choi Jaegil, KT's IRO. We will begin the third quarter 2025 earnings presentation. Please be reminded that today's presentation includes K-IFRS-based financial estimates and operating results, which have not yet been reviewed by an outside auditor. We, therefore, cannot ensure accuracy nor completeness of financial and business data, aside from the historical actuals. So please note that these figures may be subject to change in the future. With that said, let me now invite our CFO, Jang Min, to discuss KT's Q3 2025 earnings. Min Jang: [Interpreted] Good afternoon. This is Jang Min, KT's CFO. Before going into the earnings for Q3 2025, I would like to extend my sincere apologies to our customers and investors for the unauthorized micro payments and infringement incident perpetrated through the illegal base station connection. KT is currently implementing a comprehensive plan to compensate customers affected by such unauthorized micro payments and personal information breach. Starting November 5, KT is replacing used SIM free of charge for all of its customers. Going forward, KT will do its utmost to put in place technical and system-based guardrails to protect customers, and to ensure that such incidents are prevented through preemptive and far-reaching security measures. On November 4, we officially began the process for CEO nomination. KT's Director Candidate Nomination Committee, comprising of all of the independent auditors, will select a pool of candidates from various different channels to recommend one candidate to the Board of Directors before the end of the year. BOD will then make the final confirmation and the new CEO will be appointed at the General Meeting of Shareholders. Now I will move on to KT's third quarter earnings for 2025. Based on our telco business and continuing growth of group's core portfolio, as well as real estate profit gained from Gwangjin District development, KT sustained growth in revenue and operating profit this quarter. We are also collaborating with global big tech companies to launch specific services, and have secured a solid footing for AX business execution by opening KT Innovation Hub, placing momentum behind the transformation towards an AICT company. We released consecutively our proprietary model, Mi:dm2.0, SOTA K, which is a model developed in collaboration with Microsoft, as well as Llama K, based on Meta's open source technology, introducing AI LLM lineup catering to Korean requirements. Under the AI multimodal strategy, we will expand AI-driven usage base across various verticals including media press, education, public and financial domains. In October, we opened KT Innovation Hub under strategic partnership with Microsoft, where we can hold exhibitions on AX and AI experience and provide industry-specific consulting services. AI experts of both companies, together with our clients, will be working together in the hub to explore new AX business opportunities. Third quarter dividend is KRW 600 per share as we maintained 20% higher dividend payout year-over-year as was the case in Q1 and Q2. Corporate value enhancement plan also is ongoing as planned. We had concrete results in securing capacity required for structural transformation into becoming an ICT company, with SOTA K launch being one of such endeavors. We continue to work on streamlining assets and driving profitability enhancements through rationalizing low-margin businesses and liquidation of noncore assets. As part of the value enhancement plan, we also completed KRW 250 billion share buyback on 13th of August. Next on financial performance for Q3 of '25. Operating revenue was up 7.1% year-over-year, reporting KRW 7.1267 trillion and sustained growth from core businesses, including telecom, real estate, cloud and data center and profitability improvement efforts as well as onetime real estate sales gains. Operating profit was up 16% Y-o-Y, reporting KRW 538.2 billion. Net income was up 16.2% Y-o-Y, recording KRW 445.3 billion, driven by increase in operating profit. EBITDA increased 5.2% Y-o-Y, reaching KRW 1.5039 trillion. Next page, I will walk through the operating expense items. Operating expense increased 6.4% year-on-year to KRW 6.5886 trillion, an increase in cost of goods sold, cost of services and selling expense. Next is the financial position of the company. Debt-to-equity ratio at end of September 2025 was 123.3%, while our net debt ratio went up 4.2 percentage points year-over-year, reaching 34.5%. Next, on CapEx. Total CapEx up to the third quarter of '25 of KT and its main subsidiaries accounted for KRW 1.9637 trillion. KT's separate basis CapEx was KRW 1.3295 trillion, while major subsidiaries spent KRW 634.2 billion. Next, performance breakdown by business. Wireless revenue was up 4% year-on-year, reaching KRW 1.8096 trillion. Subscriber base expansion around 5G drove the top line growth, with 5G penetration as of third quarter end reaching 80.7%. Next is fixed-line business. Broadband internet revenue increased 2.3% year-on-year to KRW 636.7 billion on the back of GiGA Internet subscriber growth and value-added services. Backed by higher IPTV subscriber net addition and sale of premium plans, media business posted growth of 3.1% year-over-year. Home telephony revenue fell 6.6% year-over-year to KRW 160.9 billion. Next is B2B business. B2B service revenue reported 0.7% year-over-year growth on the back of enterprise messaging, corporate broadband and network-based business growth, despite streamlining of low-margin businesses. For the AI and IT business, revenue came down 5.7% year-over-year due to structural enhancement work done on certain businesses in line with our selective focus strategy, notwithstanding AICC project wins from large customers and ongoing monetization. Next is performance of major subsidiaries. Revenue from content subsidiaries dipped 1.8% year-over-year due to less number of original title production. KT cloud revenue was up 20.3% year-on-year, following higher data center usage by global clients and AI cloud demand growth. KT Estate revenue was up 23.9% year-on-year to KRW 186.9 billion, backed by good performance from hotel business and new development projects. This ends report on KT's third quarter earnings results. Once again, I would like to extend my sincere apology for causing concern over unauthorized micro payments and the infringement incident. KT will cooperate with the government's investigation process and exert our utmost effort in ensuring network security and stronger customer protection. Also, we will bring true AI CT transformation. And by successfully implementing corporate value enhancement plan, we'll endeavor to drive stepwise upgrade in KT's corporate value. Once again, thank you to our investors and analysts for your continued interest and support. Jaegil Choi: [Interpreted] For more information, please refer to the document and materials that we had previously circulated. We will now begin the Q&A session. To give as much opportunity as possible, I would like to ask that you limit your questions to 2 per person. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Hoi Jae Kim from Daishin Securities. H.J. Kim: [Interpreted] I'm Kim Hoi Jae from Daishin Securities. You were able to record good financial performance up until the third quarter. I know that for the fourth quarter, usually there is a seasonality expense-related impact, so it will be hard to make that projection. But still I would like to get some color as to what your projection is going forward for the fourth quarter. And you've decided to pay out dividend per share of KRW 600 up until Q3. Just wondering whether there is further upside to the dividend payment for -- when the fourth quarter comes? And also until -- so in 2025, you had decided to do a share buyback and cancellation in the amount amounting to KRW 1 trillion. Just wondering whether in 2026, you will be able to grow that size of share buyback and cancellations? Min Jang: [Interpreted] Thank you for that question. Responding to the question on Q4 outlook. As you have correctly mentioned, in the fourth quarter, there are usually seasonality issue. And also, we have to consider all the measures to compensate for customers. And also, there are certain uncertainties that currently exists relating to the fines or the penalties that we will be subject to. So at this point, we are making a quite conservative stance when it comes to making a forecast going forward, but we are putting our utmost efforts to minimize any impact or any damage to our customers and also to our financials. Now, however, because we were able to report a quite solid performance up until Q3, if we were to make projections on the full year 2025 financials, thanks to our efforts in growing our top line growth, at the same time, improving the profitability and considering that there was also a one-off gain from the NCP business, the real estate, and also due to the fact that we are able to drive our core business-centric group affiliate growth, we believe that both on a consolidated and separate basis, we could achieve a year-over-year growth. On the second question, basically, when it comes to the dividends, yes, there will be a onetime impact coming from this hacking incident, and there will be certain uncertainties in terms of its impact on the financials. However, we will be considering the annual based financial performance as well as the expectations that the shareholders have, based upon which I am most certain that our BoD will make a reasonable decision. So lastly, regarding our announcement of the plan to do the share buyback and the cancellation amounting to a total size of KRW 1 trillion, so for this year, we had already conducted the buyback and cancellation amounting to KRW 250 billion. And your question was whether for next year, can you expect about the same amount or more bigger as we go forward. I can tell you that our value up plan will continue to be implemented. And in consideration of the confidence that the market is giving us, we will make sure that either this could happen on the same size basis as it was for this year, for next year or there could be certain adjustments. We will very flexibly and nimbly respond to changes in the overall operational backdrop and deciding on the specific size. Next question, please. Operator: [Interpreted] The following question will be presented by Chan-Young Lee from Eugene Investment & Securities. Chan-Young Lee: [Interpreted] I am Lee Chan-Young from Eugene Investment & Securities. My question relates to the recent hacking incident. I would like to understand as to what the financial impact will be in line with your compensation to the customers and your subscribers, and also for the measures that you are putting in place to make sure that you prevent a recurrence of such incident going forward. And I would like to know the extent of this expense that is currently captured in Q3 numbers. And also going forward, what will be the timing or the scope of that expense? Min Jang: [Interpreted] Thank you for that question. As I've mentioned before, we have put in place a measure and a compensation plan to compensate for any harm that has been inflicted due to the unauthorized micropayment incident as well as the data breach issue. Now -- and also on November 5, we had made the announcement that we will be replacing the used SIM cards of all of the KT customers. And if and when we go through this investigation process by the government as well as the police, if additional harm is identified, then the -- eventually, the final amount of the compensation will be determined. Now in terms of the timing as well as the size of this expense, we cannot make a perfect prediction based on where we are today. However, we believe that in terms of the used SIM chip replacement, the relevant costs will be recognized under Q4 figures. There is also free data that we are planning to provide and KRW 150,000 discount on the handset tariff as well as certain other expenses. Now these expenses, when they are actually incurred, that would be the timing upon which it will be booked in our financials. Now we've also already made an announcement to the market that for the coming 5 years, that we have put in place an information security-related investment in the amount that exceeds KRW 1 trillion. We've actually communicated that plant was into the market. And looking back at our track record, we've been investing about KRW 120 billion to KRW 130 billion on a per annum basis for this security purposes. So we believe that this KRW 1 trillion, which we'll be investing in the upcoming 5 years, is not going to be overly burdensome for the company. Next question, please. Operator: [Interpreted] The following question will be presented by Eun Jung Shin from DB Securities. Eun Shin: [Interpreted] I just have one question. Your CEO appointment process has just begun. Can you just walk us through the process under which your new CEO will be appointed? And when there is a new CEO that comes into office, will there be any changes to the current value of program that the company has? Min Jang: [Interpreted] Thank you for that question. Let me walk you through our CEO appointment process. We've actually officially kick started the discussion process on appointment of the new CEO as of the November 4. And under the BoD rules, there is going to be a director candidate recommendation committee that's going to be comprised of all of our independent directors, who are 8 of them in total, and they will go through the relevant processes. So first off, we begin with the candidacy pool of the CEO, who's going to be recommended by a third party and outside entity. And also, we will go through an open call process as well and also receive recommendation from the current shareholders as well as include a candidate from the -- internally from inside the company. So the Director of Candidates Recommendation Committee will then go through the screening and vetting process based upon the documentation, and we'll also engage in interviews. And by the end of the year, the committee is going to select one CEO candidate to be tabled at the BoD. So this one candidate that is recommended by the recommendation committee is going to be tabled at the BoD, BOD making the final confirmation on that candidate, and this candidate will go through the General Meeting of Shareholders deliberation process in 2026 to be finally appointed as the CEO of the company. Lastly, your question on the consistency of the sustainability of the current value up plan that's in place. Now the company went through the BoD resolution last November and had made appropriate market disclosure. And we also went through the disclosure on the implementation progress in May as well. And so I do not think that there is a correlation between the CEO change and the changes to the value up plan. Basically, because of a new CEO, there is not -- the value up plan itself is going to be made invalid for instance, because the BoD understands the direction for the company that is deflated in the value up plan and actually, the value up plan is a commitment and promise that we make to the market. And therefore, I believe the action plans that are included in the plan itself is going to be sustained. Operator: [Interpreted] There are no questions in the queue right now. Jaegil Choi: [Interpreted] With no questions in the queue. We would now like to close the Q&A session. Thank you, everyone, for your interest and for your questions. And once again, thank you very much for joining us despite your very busy schedules. This ends KT's third quarter 2025 earnings call. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

195天前Insight Analytics约5分钟阅读

FRPH 2025 Q3 财报电话会议

Operator: Good day, everyone, and welcome to today's FRP Holdings Inc. 2025 3Q Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Matt McNulty, Chief Financial Officer of FRP. Please go ahead. Matthew McNulty: Thank you. Good morning, and thank you for joining us on the call today. I am Matt McNulty, Chief Financial Officer of FRP Holdings, Inc. And with me today are John Baker III, our CEO; John Baker II, our Chairman; David deVilliers III, our President and Chief Operating Officer; David deVilliers, Jr., our Vice Chairman; John Milton, our Executive Vice President; Mark Levy, who will serve as our new Chief Investment Officer; and John Klopfenstein, our Chief Accounting Officer. Mark Levy came to us through our recent acquisition of Altman Logistics Properties, where he served as its President. First, let me run you through a brief disclosure regarding forward-looking statements and non-GAAP measurements used by the company. As a reminder, any statements on this call, which relate to the future are, by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These risks and uncertainties are listed in our SEC filings. To supplement the financial results presented in accordance with generally accepted accounting principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G. The non-GAAP financial measures referenced in this call are net operating income, or NOI, and pro rata NOI. In this quarter, we provided an adjusted net income to adjust for the impact of onetime expenses of the Altman Logistics acquisition, which is a material business combination unlike our historical real estate acquisitions or joint ventures where we expense -- where our expenses are capitalized. We also provided adjusted net operating income to adjust for the impact of the onetime material royalty payment in the third quarter of 2024 to better detect the comparable results in both the quarter and year-to-date. Management believes these adjustments provide a more accurate comparison of our ongoing business operations and results over time due to the nonrecurring material and unusual nature of these 2 specific items. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess and identify meaningful trends in our operating and financial performance. These measures are not and should not be viewed as a substitute for GAAP financial measures. To reconcile adjusted net income, net operating income and adjusted net operating income to GAAP net income, please refer to our most recently filed 8-K. Now to the financial highlights from our third quarter results. Net income for the third quarter decreased 51% to $700,000 or $0.03 per share versus $1.4 million or $0.07 per share in the same period last year due largely to $1.3 million of expenses related to the Altman Logistics Properties acquisition, partially offset by higher mining royalties and improved results in Equity in Loss of Joint Ventures. Excluding the acquisition expenses this quarter, adjusted net income was up $281,000 or 21% over last year's third quarter. The company's pro rata share of NOI in the third quarter decreased 16% year-over-year to $9.5 million, primarily due to the onetime minimum royalty payment received in last year's third quarter. Excluding last year's onetime payment, adjusted NOI was up $104,000 in this quarter versus last year's third quarter. I will now turn the call over to our President and Chief Operating Officer, David deVilliers III, for his report on operations. David? David deVilliers: Thank you, Matt, and good morning to those on the call. Allow me to provide additional insight into the third quarter results of the company. Starting with our Commercial and Industrial segment. This segment currently consists of 10 buildings totaling nearly 810,000 square feet, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1.2 million and $904,000, respectively, a decrease of 16% and 25% over the same period last year. The decrease was due to same-store occupancy reducing by 24% or 132,000 square feet and the addition of 258,000 square feet of new development space generated by our Chelsea building in Harford County, Maryland, which was 100% vacant in the quarter. Combined, these vacancies totaled 51% of the business segment and a focus to lease and increase occupancy is a priority. Moving on to the results of our Mining and Royalty business segment. This division consists of 16 mining locations, predominantly located in Florida and Georgia with 1 mine in Virginia. Total revenues and NOI for the quarter totaled $3.7 million and $3.8 million, respectively, an increase of 15% and a decrease of 26% over the same period last year. The decrease in NOI is the result of a nonrecurring $1.9 million royalty payment in last year's third quarter. The disconnect between revenue and NOI is the result of GAAP accounting with the revenues being straight-lined. As for our Multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington, D.C. and Greenville, South Carolina. At quarter end, 91% of the apartments were occupied and 74% of the retail space was occupied. Total revenues and NOI for the quarter were $14.6 million and $8.2 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.5 million and $8.2 million, respectively, a revenue increase of 2.9% with NOI down 3.2% over the same period last year. The decrease in NOI was a result of higher operating costs, property taxes and increased uncollectible revenue at Maren. The increase in revenue is the result of GAAP accounting, which again includes straight-line rents and uncollected revenue that is due, but which has not been paid. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. We continue to have renewal success rates over 55% with renewal rent increases averaging over 2.5%. New lease trade-out rates are generally down to compete with new supply and strike a balance between revenue and occupancy. Management continues to be diligent in tenant retention and rental rates in the market. Now on to the Development segment. In terms of our commercial industrial development pipeline, our 2 Central and South Florida industrial joint venture projects with Altman Logistics Partners, where FRP was a 90% and 80% owner are under construction. Following our acquisition of Altman Properties, FRP now owns these assets 100%. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet and shell completion is anticipated by summer 2026. Our Central Florida industrial joint venture with Strategic Real Estate Partners, where FRP is a 95% owner is pending permits for 2 buildings totaling over 375,000 square feet. The buildings are in Lake County, Florida, near Orlando, with options for investment in additional industrial development on adjacent properties in the future. We expect to break ground in Q4 on both buildings with shell building completion expected in Q4 2026. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of predevelopment activities on 170 acres of industrial land that will support a 900,000 square foot distribution center. Off-site road improvements, reforestation codes and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early 2026 with a focus on attracting a build-to-suit opportunity. Finally, we are in the initial permitting stage for our 55-acre tract in Harford County, Maryland. The intent is to obtain permits for 4 buildings totaling some 635,000 square feet of industrial product. Existing land leases for the storage of trailers help to offset our carrying and entitlement costs until we are ready to build. We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in late 2026 and the potential to start a 212,000 square foot building pending market conditions in 2027. Completion of these aforementioned industrial projects will add over 1.8 million square feet of additional industrial commercial product to our platform. Our projects in Florida represent over 750,000 square feet that will be available for lease-up in 2026. When stabilized, these projects alone are expected to generate annual NOI around $9 million with FRP's share of NOI just over $8 million. Subsequent to the quarter end, the company acquired the business operations and development pipeline of Altman Logistics Properties, LLC. As discussed earlier, this allowed FRP to own 100% of the Lakeland and Broward County, Florida projects. The acquisition also included a minority interest in 3 industrial buildings totaling 510,000 square feet in New Jersey and Florida, which are currently in various stages of development and all delivering in 2026. FRP expects to have up to $8 million invested in the 510,000 square feet with expectations of receiving over a 2x multiple on invested capital when the buildings are sold. The acquisition includes future development opportunities with the potential to develop 3 additional buildings totaling 725,000 square feet in Florida. Turning to our principal capital source strategy or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding, $27.5 million was drawn as of quarter end and over $24.7 million in preferred interest and principal payments were received to date. A national homebuilder is under contract to purchase all the finished building lots by Q4 2027. 180 of the 344 lots were closed upon, and we expect to generate interest and profits of some $11.2 million, resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, our joint venture with Woodfield Development, known as Woven, is under construction. FRP is the majority owner and the project represents our third multifamily project in Greenville, South Carolina. Total project costs are estimated at $87 million and consists of 214 units and 13,500 square feet of ground floor retail that is eligible to receive both South Carolina textile rehabilitation credits upon substantial completion and special source credits equal to 50% of the real estate taxes for a period of 20 years. The project is expected to be ready for lease-up in Q4 2027. In addition to Woven, our multifamily joint venture in Estero, Florida, located between Fort Myers and Naples, where FRP holds a 16% minority interest is under construction with Woodfield as well. Total project costs are estimated at $142 million and consist of 296 units and 28,745 square feet of retail. The project is expected to be ready for lease-up in late 2027. These 2 multifamily projects are expected to boost FRP's NOI by over $4 million following stabilization in 2029. In closing, FRP will have over 1.6 million square feet of industrial space available to lease over the next 12 months, making leasing conditions an important factor now and over the next 12 to 24 months. Currently, the broader backdrop remains mixed. Continued uncertainty around trade policy and macroeconomic direction has extended decision cycles for many occupiers, particularly for larger blocks of space. Even so, on-the-ground activity in our target submarkets is improving. In Maryland, we are seeing increased tour velocity, especially among tenants in the 25,000 square foot range. While demand for over 100,000 square foot product remains selective, mid-bay activity continues to demonstrate meaningful resilience. Industrial fundamentals remain constructive. Rents are holding firm. New construction has declined below pre-pandemic levels, creating a healthier balance between supply and demand. We expect market vacancy to peak in the fourth quarter of 2025 with improving policy clarity supporting renewed tenant momentum. As we bring new product online in 2026, our pipeline is well positioned to benefit from tightening fundamentals and continued strength in well-located Class A logistics assets. Across our core markets, we are seeing signs of stabilization and early recovery. New Jersey, vacancy held flat for the first time in 10 quarters with mid-bay product remaining exceptionally tight and the development pipeline near cycle lows. South Florida is among the strongest markets nationally with Broward County vacancy remaining around 5% with rent growth near 5%. Palm Beach is absorbing near-term deliveries, supported by enduring land scarcity and tenant demand. In Central Florida, market strength continues to bifurcate between bulk and mid-bay product. Our focus on mid-bay positions us to outperform. In Baltimore, leasing accelerated in Q3 with roughly 2.9 million square feet executed and vacancy tightening to 7.4%. Modern logistics and manufacturing users continue to drive activity, supported by disciplined new supply and durable rent levels. Bottom line, we are operating in supply-constrained, high-barrier markets where modern infill logistics space continues to command strong tenant interest. With deliveries aligned to improving fundamentals, we are positioned to capitalize on the next phase of industrial demand. We are leaning into the strength across our core logistics markets with roughly [ 400,000 ] square feet of vacancy in Maryland and over 1.25 million square feet of Class A products scheduled to deliver in New Jersey and Florida in 2026. The backdrop is constructive. Vacancies are stabilizing and trending lower and rents remain firm to rising. These conditions reinforce our confidence in achieving efficient lease-up across our portfolio and driving strong value realization. Thank you, and I will now turn the call over to Mark Levy, our new Chief Investment Officer, who we hired in concert with closing on the Altman Logistics portfolio in October. Mark? Mark Levy: Thank you, Dave, and good morning. I'm pleased to join you today. As Matt mentioned, I came to FRP following the company's acquisition of Altman Logistics Properties, where I served as President from the inception of the company in 2001 through closing. My career has been dedicated to institutional industrial investment and development across the Eastern United States, including senior leadership roles at Duke Realty, Prologis and Hilco Redevelopment Partners with a focus on large-scale capital deployment and strategic market expansion. Our team brings deep expertise across development, acquisitions, entitlements and leasing with a strong track record executing complex projects in high barrier supply-constrained logistics markets. Our strategy is centered on creating durable value and generating superior risk-adjusted returns through targeted investment in infill supply-constrained locations, off-market and creatively structured opportunities, value creation through entitlement, redevelopment and adaptive reuse and disciplined execution and delivery of Class A logistics facilities. Limited new supply in our target markets continues to support pricing power and rent growth. Against this backdrop, our pipeline is positioned to outperform as demand normalizes and absorption improves. In the Northeast, one of the most competitive industrial regions in the country, our development pipeline includes Logistics Center at Parsippany, which is a 140,000 square foot Class A redevelopment in Morris County and Logistics Center at Hamilton, which is a 170,800 square foot Class A redevelopment in Hamilton Township, New Jersey. Both projects convert obsolete office assets into modern industrial facilities, demonstrating our ability to reposition underutilized real estate in core submarkets. In Florida, supported by sustained population growth and strong logistics demand, our pipeline spans Central and South Florida. Logistics Center at Lakeland is a 201,000 facility along the I-4 corridor equidistant from Tampa and Orlando and Logistics Center at Delray is a 3-building just under 600,000 square foot logistics campus in Delray Beach, Florida. And finally, Logistics Center at 595 is a 182,773 square foot distribution facility in Southern Broward County that was converted from the legacy hospitality use. This property is located immediately adjacent to Port Everglades and the Hollywood Fort Lauderdale International Airport. As mentioned, the Altman platform historically operated as a merchant development program, earning fees and promote economics alongside institutional partners. FRP expects to continue this model for projects not wholly owned by the company with property level IRRs in the mid-teens to 20 plus prior to promote participation. In addition, FRP plans to retain full ownership of select assets, including Lakeland and Davie, positioning the company to capture long-term value through stabilized cash flow and NAV growth. Across the portfolio, our discipline is consistent, invest in locations with immediate transportation connectivity, deep labor pools, significant supply constraints and dense population centers. These fundamentals support resilient demand, attractive development yields and durable long-term value creation. I look forward to working with the FRP leadership team to advance our development pipeline, deepen our market relationships and scale our logistics platform in a disciplined value-accretive manner. With that, I'll turn it back to John. John Baker: Thank you, Mark, and good morning to those on the call. As Matt touched on, third quarter results, though down, are actually better than they appear at first blush. GAAP net income is down 51% for the quarter and 37% for the year. But adjusted for one unusual item, namely the legal costs associated with the Altman acquisition, adjusted net income is up 21% for the quarter and down 5% for the year. Pro rata net operating income was down 16% for the quarter and 2% for the year. But excluding the nonrecurring cash -- nonrecurring catch-up payment in mining royalties in the third quarter of last year, adjusted NOI is up 1% for the quarter and 5% for the year. This is a very long way of saying that results are where we expected them to be, which is to say more or less flat compared to last year. 2025 was identified by management as a foundational year for future growth, just not necessarily a growth year. In the short term, leasing and occupancy -- leasing and occupying our industrial and commercial vacancies at current market rates is the simplest and fastest way to improve earnings and NOI. Our buildings had real operating costs that are offset by tenant reimbursements, and that's a problem only new leases and tenants will solve. What we don't want to do is be so focused on occupancy that it comes at the expense of leasing these spaces for less than the value they should command. A bad lease will be a headache for us for longer than the short-term pain of the vacancy. In terms of setting the company up for our next phase of growth, as David mentioned, we have 3 industrial projects in Florida totaling 763,000 square feet in various stages of development, all of which will be substantially complete in 2026. We are working to entitle all of the projects in our in-house development pipeline in Maryland to be shovel-ready in 2026. This does not mean we are starting these projects in 2026, but we want to be fully prepared to move on them if someone approaches us about developing any of these parcels ahead of where they fall in our spec development queue. Finally, and most importantly, as we laid out in our call last week, the acquisition of Altman Logistics is essential to our growth strategy. As Mark just described, through this acquisition, we are now the general partner in developing industrial assets in some of the best industrial markets in the world. Through promotes and sales, we will generate a not insignificant amount of cash, which we can use to do entirely in-house projects or JVs where we are a larger partner with family offices or institutional money and generate fees or some of both. And we now have a team in place to be opportunistic and flexible with how and where we decide to proceed. I said this on the call last week announcing the deal, but at the risk of repeating myself, the finances of the deal are attractive, but I think the most important component of this acquisition is the people. Opening a new office and building a separate team would have been a full-time job and a risky one. If you're ever curious about what that's like, you can feel free to call Mark. And any expansion into these industrial markets outside of our traditional Baltimore Sandbox would have to be done by joint ventures, which while effective, is an expensive way to expand because of the development fees and the equity you give up on a successful project. Through this acquisition, we now have the ability to do these same projects in-house or be the partner generating fees and equity if we so choose. It simultaneously solves the problem of additional hires we would have had to make anyway with people plugged into the markets where we want to be. As I said last week, talent is going to be the only differentiator we can count on to deliver value to our investors. Through this acquisition, we have taken on a team with a proven track record that can identify growth markets, leverage contacts for off-market deals, control construction costs and get a building occupied and stabilized quickly with quality tenants. Combining this team with the additional profits earned from these joint ventures on top of our own projects will be what drives this company's next decade of growth. I'll now turn the call over to any questions that you might have. Operator: [Operator Instructions] We do have a question. We'll go to the line of Ted Goins with Salem. J. Goins: Thank you so much for all the discussion this morning and especially for all the energy that you're putting into this endeavor. I would love to talk about the difficult part of the business right now, sorry for this. The Nat Stadium opened in 2008. And -- it just seems to be a problem. You speak of the recovery issues around the Maren. I think maybe this is the same thing that Wall Street Journal was talking about in an article a week or 2 ago with Atlanta as a highlight. But could you put some color on what you all are seeing in that area and the impediments to development and your thoughts around when that might develop again? And I recollect that the transaction with Vulcan was coming up in 2026, which seems a lot closer today than it was a few years ago. And if you could speak to that as well. David deVilliers: Sure. I will start in terms of the district market conditions. And you've heard us talk about this before, but during the pandemic, a lot of, I would say, tenant protective laws were put in place, where tenants were not allowed to be evicted and you weren't allowed to raise any rents. And that really materialized into an environment where tenants just stopped paying their landlords. And we really had no way of getting them out of our buildings. And there was also laws passed where we really couldn't vet tenants. So we couldn't do our due diligence where tenants paid or not paid historically. And if they didn't pay, we couldn't get them out. So our delinquency rate was extremely high, not only ours, but across the market. In Class A buildings, we were seeing 10%, 12% of the tenants not paying. So you might have been 95%, 90% occupied, but that building was really only 80%, considering many of your tenants weren't paying. We are seeing that now subside. The district has truly embraced the fact that this is an issue and new laws continue to be passed to help landlords deal with tenants and protect rent-paying tenants as well. So I think from a legal, eviction tenant landlord relations side, things are changing and evolving. I think crime and security have been a focus as well down in the district, which also is helping to support more people coming out, more people using our ground floor retail. And there are signs that things are changing. There was a number of buildings that were delivered around our buildings, large projects. These projects are over 500 or 1,000 units being delivered. And there's velocity there. They're leasing them. They may not be at the rates that everyone likes, and there's definitely concessions in the market to get these new supply deliveries filled and stabilized. But the velocity is there, the demand is there. And I think we just need to strike a better balance between supply and demand, which we believe is coming. We need to get more of these, I would say, equal tenant landlord laws in place, and we need to make sure that people feel safe and want to be out in the environment, in the district. And all those things we have seen. We have seen change. We are moving away from the bottom. When it flips to a point where we feel development will pencil, is when we start seeing gains at our existing multifamily buildings. And we're starting to see it. We're starting to see renewal rents move up. Trade-outs, as I mentioned, are still pretty flat negative because it's tough to attract tenants into our buildings when new deliveries are given concessions. But it is turning. I feel that we are off the bottom of multifamily. But let's see what the next couple of quarters say. And in terms of the Vulcan lease, we are talking with them. We're in active communications with them, and we look forward to keeping them there. They're a great tenant. They provide concrete to our projects. And until we're ready to develop that site, we'd love to have them there. J. Goins: And how does the development of RFK move things along for you? Or is that just too far down the river? David deVilliers: In my mind, it's too far down the river, but it's great to see government investment. I do think it's a little too far down, but it's always great to have that type of activity in and around where you are. J. Goins: And part of the notion a few years back was that Amazon was going to move forward in Pentagon City or wherever it is right near there. And that would offer a reverse commute to folks in the district near you. How is that developing? David deVilliers: I would say this. I -- we haven't seen any real impact from that development. J. Goins: Okay. And could you speak to Bryant Street? It seems to be getting a little bit of momentum and what you might be doing there that's showing some green shoots? David deVilliers: Yes. Bryant Street, again, we're dealing with some delinquency there. It is stable, and we have seen some small gains. We have seen gains in our rental rates, which is great. I think the biggest green shoot that we have seen is that our retail component, which is fairly large at Bryant Street. The tenants are in, they're occupying, they're paying, and we're -- and we see kind of the light at the end of the tunnel. Bryant Street is more or less stabilized now. And with treasuries where they are, I think we will be in a place to get some good financing at some point. Maybe not now, but potentially in the first half of 2026, and we would be able to lower our debt service to a point where our earnings are relevant. So Bryant Street is a big project. The development of that area really got slowed down because of the pandemic. We're moving away from that. We're seeing rent growth. We're seeing our occupancy tick up. We're seeing delinquencies and concessions burn down. We're in a good, good place from -- we're more stable there than ever. And I think that bodes well with getting the capital stack of equity and debt in a good place and start seeing some meaningful cash flow on the horizon. J. Goins: Again, I just want to say thanks for all your efforts. The efforts, the intentionality that you guys are putting forth are evident to all of us. And so thank you for that. Operator: [Operator Instructions] It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks. John Baker: We appreciate your continued interest and investment in the company, and this concludes the call. Thank you. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.

195天前Insight Analytics约5分钟阅读

SBDS 2025 Q3 财报电话会议

Operator: Good morning, everyone. Welcome to the Solo Brands Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call to Mark Anderson, Senior Director, Treasury and Investor Relations. Please go ahead. Mark Anderson: Thank you, and good morning, everyone. We appreciate you joining us for the Solo Brands conference call to review the third quarter 2025 results. Joining me on the call today are the company's President and Chief Executive Officer, John Larson; and Chief Financial Officer, Laura Coffey. This call is being webcast and can be accessed through the Investors portion of our website at investors.solobrands.com. Today's conference call will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of any replay or transcript reading date. I would also like to remind you that the statements in today's discussion that are not historical facts, including statements about expectations, future events, financial performance, liquidity, turnaround efforts, strategic transformation goals and future growth are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature are uncertain and outside the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Solo Brands assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, and reconciliations to the nearest GAAP measures are included at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form 8-K. Now I'd like to turn the call over to the company's CEO, John Larson. John Larson: Thank you, Mark, and good morning all. Thank you for your interest in Solo Brands. Today, Laura and I will discuss third quarter results and share our progress on strategic initiatives, then open the call to analyst questions. The third quarter sales environment was challenging, reflecting continued pressure on consumer demand while we work through excess retailer inventory and rebuilding our retail relationships, primarily in the Solo Stove division. That said, our approach remains measured and disciplined. We maintained stable gross margins and generated $11 million of operating cash flow, our second consecutive quarter of positive cash generation, driven by stronger cost discipline and better working capital management. Net sales for Solo Brands were $53 million, down from $94 million last year with softness in both DTC and retail. At Solo Stove, while working through excess inventory at our retail partners, we deliberately aligned promotional activity and pricing integrity across channels to rebuild retail partnerships. We also faced the reality that uncertainty and temporary delisting earlier this year set us back on future planning with some retail partners. That's on us to repair, and we're doing exactly that by coordinating promotional calendars with partners rather than competing with them. Now we are beginning to deliver on our core initiative of launching innovative new products. At Chubbies, revenue declined 16% year-over-year, primarily due to the timing of retail replenishment after a very strong first half of 2025. DTC was essentially flat for the quarter, signaling stable consumer demand for Chubbies. We recognize we have work to do on the top line. Recent product launches are gaining momentum, but we are committed to further accelerating structural cost reductions beyond the reduction in SG&A of 35.4% year-over-year in Q3 to better align our operating model with today's baseline demand and to allow future gains in top line performance to flow directly to the bottom line. Let me step back and frame how we are running the business. We are focused on profitability first and building a cost structure to match current demand. We're simplifying the organization, taking permanent costs out and holding the line on marketing efficiency. SG&A declined 35.4% year-over-year in Q3. That discipline is not a onetime action. It's how we operate. Cash discipline is equally central. We ended the quarter with $16.3 million in cash and cash equivalents, no outstanding borrowings on our revolver and inventories down 21% year-over-year. Across Q2 and Q3 combined, we generated $22 million in operating cash flow. Liquidity is stable, and we're allocating capital with care. We are product-led, but we are not chasing volume for its own sake. Our launches must be differentiated and margin accretive, supported by pricing integrity and coordinated promotions with our partners. The recent launch of the all-new Summit 24 firepit in late September and the Propane Infinity Flame firepit in late October are showing positive signs in Q4. Finally, we're keeping it simple, fewer distractions, faster execution and a sharp focus on the customer, on partnerships, on launching products that matter with profitability and cash being our measure of success. Q3 was not where we want revenue, and I won't address that up, but we are addressing head on with a plan to win, which includes further accelerating our structural cost rightsizing. With that, I'll hand it to Laura for the financials. Laura Coffey: Thank you, John, and good morning, everyone. As John mentioned, the third quarter was challenging but reflected progress in how we operate and manage the business. We are staying focused on what we can control, driving efficiency, protecting gross margins and generating cash as we continue to build a more stable, rightsized growth model while accelerating structural cost reductions. With that context, let me walk you through our third quarter results. Consolidated net sales were $53 million, down 43.7% from the prior year, largely reflecting softer retail sell in, primarily within Solo Stove as our partners continue to rebalance inventory levels. The Chubbies segment sales were $16.5 million, down 16%, mainly due to earlier timing of retail replenishment compared to last year, while DTC sales were essentially flat year-over-year. Within our Solo Stove segment, net sales were $30.8 million, down 48.1% from the prior year. The decline was driven primarily by retail partners continuing to manage through elevated on-hand inventory. While retail sell-in remained soft, sell-through trends were more stable. On the DTC side, performance reflected our deliberate shift to maintain minimum advertised pricing or MAP, and reduced promotional intensity. We believe that trade-off, while impacting near-term volume, supports the long-term brand health and profitability. For the third quarter, adjusted gross profit was $32.2 million, representing a 60.6% adjusted gross profit margin compared to 61.9% last year, down modestly, mainly due to inventory write-downs. We continue to manage costs carefully across our entire business. Selling, general and administrative expenses were $39.5 million in the quarter, down 35.4% year-over-year, driven by lower marketing spend, reduced employee-related costs and continued structural efficiencies. We also recorded a $1.9 million onetime restructuring contract termination and impairment charge in the quarter, primarily tied to a facility exit in Mexico. Net interest expense was $7.6 million compared to $3.7 million last year, reflecting both higher average debt balance and the higher average interest rate during the quarter. Our weighted average interest rate at September 30 was 8.38% on the term loan and 5.95% on the revolver, which had no borrowings outstanding at quarter end. For the quarter, GAAP net loss was $22.9 million and adjusted net loss for the quarter was $11.9 million. Adjusted EBITDA was a negative $5.1 million or negative 9.6% of net sales. Please refer to our earnings release for the reconciliation tables to the most comparable GAAP measure. Turning to cash flow. We generated $11 million of operating cash in the quarter, marking our second consecutive quarter of positive cash generation. This reflects disciplined working capital management and leaner operations. Inventories are down 21% year-over-year, and we've continued to align supply with demand, particularly within Solo Stove, where we are working closely with retail partners to support sell-through and prepare for the holiday season. We continue to monitor cash and inventories closely and are carefully managing all of our working capital. On the balance sheet, we ended the quarter with $16.3 million in cash and cash equivalents. Our debt structure included a $240 million term loan and a $90 million revolving credit facility that matured in 2028. During the quarter, we paid down the $10 million revolver balance and ended September with no outstanding borrowings on the revolver. As of September 30, we were in compliance with all financial covenants and have no significant debt repayments until 2028. This provides strength and flexibility as we execute the strategic transformation of the business. Regarding the steps we've taken with tariffs, earlier this year, we began transitioning to a more balanced diversified supply chain footprint, including Southeast Asia and other strategic regions, adding dual sourcing where appropriate, so we can quickly adapt as market conditions or tariffs shift. Our goal with these mitigation plans is to maintain a trusted supplier relationships that are flexible, scalable and resilient as we grow. We feel good about the progress we've made and remain proactive in strengthening our sourcing network to stay ahead of future changes. We are taking a disciplined approach to capital allocation. Our growth investments remain focused on new product innovation, typically in the range of $2 million to $3 million annually within our means and aligned with our return expectations. We are continuing to structurally rightsize the business to match today's demand environment, focusing on profitability, efficiency and cash generation. We believe this ongoing execution of our profit-focused model should position us to drive long-term shareholder value. This concludes my prepared remarks. John? John Larson: Thanks, Laura. I want to reiterate, we are not satisfied with our revenue performance in Q3. It was a challenging quarter and the top line pressure reinforces why we are taking action to align our operating model with current demand. Those actions are already delivering meaningful savings, and we will continue to move with urgency. On Solo Stove retail, the uncertainty in delisting earlier this year clearly set us back with some partners. We are rebuilding confidence the right way, partnering with integrity and providing the coordinated framework to win together. Looking ahead to our all-important Q4 holiday season, we're encouraged by initial consumer response to the very recently launched Summit 24 and Infinity Flame firepits, which have improved our year-over-year sales trends in October. I invite those on the call to explore these new innovative products, including the Steelfire 30 Griddle as evidence of the quality and superior design of our new products. As we look to 2026, we're executing with purpose. We have taken difficult actions required to rebuild our relationships with our Solo Stove retail partners. We know this turnaround takes time, and we expect some continued volatility, but we've stabilized our foundation, proving cash generation even in a contraction and are now leaning into innovation and further operational discipline. The path forward is clear: continue simplifying the business, focus on profitable growth, protect liquidity, invest where the customer and the data points us. I'm confident we're building a structurally smaller, stronger, more focused company with durable brands and passionate communities behind them. That's how we'll create sustainable value for our shareholders. To close, we value our investor communications and outreach. We plan to participate in the IDEAS Conference in Dallas on November 19. Please reach out to our IR team if you'd like to speak with us or meet in person at the conference. With that, operator, I'd like to open the line for questions. Operator: [Operator Instructions] The first question comes from Will Hamilton with Kestrel Merchant Partners. William Hamilton: Congrats on the positive cash flow in a difficult environment. You've been obviously busy on the new product front. I was wondering if we could just expand a little bit more about what you're seeing there in terms of online at your websites, but then also where do you stand in terms of the rollout to retail and what you think will be accomplished over the next couple of months and quarters there? John Larson: This is John Larson. Thanks for the question. Appreciate it very much. Yes, it's really soon. We launched the Summit 24 at the end of September, and we just launched the Infinity Flame October 24. But we're really excited about the initial response to it. I can tell you that we have increased orders from our partners in terms of building some more opportunity for sales here in the fourth quarter. What is really encouraging is we're bringing a lot of new customers into the category. More than 70% of the customers are new to us who are buying these products. And in particular, the Infinity Flame, the #1 state for sales is California right now. And given California generally has some fire bans, et cetera, as you know, wood burning isn't big there, but it's now the #1 state that we're selling in with Infinity Flame. As we look across the country, we're moving into other markets that we didn't participate in as heavily before. So we're very encouraged by the initial results. Nothing to announce in terms of the rollout plan with our partners. We have been reviewing with our partners our entire new lineup of products. And in '26, we have just an aggressive lineup coming out from the Solo Stove division, and we're talking about exactly what we'll do in terms of rolling out in the spring of '26. But very encouraged by the initial response to it and feel good about it heading into the fourth quarter as these are really key products for us. And as I said, the initial response has been very strong. William Hamilton: And then just in terms of the destocking with the retailers, particularly, I guess, with Solo Stove, are you nearing completion of that, do you think? Will you be done maybe by the end of the holiday season? John Larson: I think I heard most of your question here. What I'd say is it really has been a difficult transition here. Imagine our retailers were loaded with significant inventory. We did -- we were very promotional on the DTC side at the end of last year. So they came into '25 with a lot of inventory. And it was painful to reset our approach, and that was we weren't going to compete and undercut our retailers to regain confidence and promote together with them in a coordinated fashion moving forward. So what it did was it put real pressure on our DTC sales because we're no longer promoting deeply and selling. At the same time, they were working through excessive inventory, and we're working to regain their confidence. What I'd say is I think we really hit the trough in Q3. And their inventories are now in line with very normal level of inventories, and we believe we'll start seeing more normal cadence of reordering from our retailers and the conversations have been great recently. And I would say that working together for these 6 months, in October, we had a promotion that we coordinated with our retailers together, and it was very successful for both of us. And due to that success, it just shows how when we're working together, a rising tide lifts all boats. And so we feel very comfortable with the promotional cadence in the fourth quarter. We are aligned with all our key retail partners at the Solo Stove division, and we're excited about seeing where it takes us in Q4. Chubbies is -- this is related to Solo Stove. Chubbies, I think, has been a more mature relationship with the retailers and has had this alignment more in line for the entire year. But particularly with Solo Stove, we had to make these changes. It's been painful, but we're finally coming out the other end, and I think seeing some positive initial results. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Larson for any closing remarks. John Larson: Thank you for continuing to follow our company, and we look forward to providing fourth quarter and full year results and updates on our strategic transformation in a couple of months. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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IVCGF 2025 Q3 财报电话会议

Operator: Good day, ladies and gentlemen, and welcome to today's Iveco Group Third Quarter 2025 Results Conference Call and Webcast. We would like to remind you that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir. Federico Donati: Thank you, Razia. Good morning, everyone. I would like to welcome you to this webcast and conference call for Iveco Group Third Quarter Financial Results for the period ending 30th September 2025. This call is being broadcast live on our website and is copyrighted by Iveco Group. I'm sure you appreciate that any other use, recording, or transmission of any portion of this broadcast without the consent of Iveco Group is not allowed. Hosting today's call are Iveco Group CEO, Olof Persson, and me, Federico Donati, Head of Investor Relations, standing in for the financial section usually covered by our CFO, as Anna Tanganelli could not be present today. Please note that any forward-looking statements we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information relating to factors that could cause actual results to differ from forecast and expectation is contained in the company's most recent annual report, as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IFRS financial measures. Additional information, including reconciliation to the most directly comparable IFRS financial measures, is included in the presentation material. Furthermore, on the 30th of July 2025, Iveco Group announced the signing of a definitive agreement to sell its defense business, IDV, and Astra brands to Leonardo S.p.A. The transaction is expected to be completed no later than 31st March 2026, subject to the customary regulatory approvals and carve-out completion. In accordance with IFRS 5, noncurrent assets held for sale and discontinued operations, as the sale became highly probable in July, the Defense business meets the criteria to be classified as a disposal group held for sale. It also meets the criteria to be classified as a discontinued operation. In accordance with applicable accounting standards, the figures in the income statement and the statement of cash flow for the 2024 comparative periods have been recast consistently. Additionally, in 2024, the firefighting business was classified as a discontinued operation. Its sales were completely on the 3rd of January 2025. As a consequence, the 2025 and 2024 financial data shown in this presentation refer to the continuing operation only unless otherwise stated. Finally, please note that, subject to applicable disclosure requirements pending the publication of the final offer document, we will not comment on the tender offer. As per the joint press release on July 30, announcing the entering into the merger agreement and the press release by Tata on August 19, announcing the filing of the document with Conso, anyone interested is invited to refer to the offer notice published on July 30, 2025, which indicates the legal basis, rationale, condition, terms and key elements of the tender offer. All the aforementioned material and announcements are available on the Iveco Group corporate website, where any additional relevant information will be published in due time. We will not comment on the sale of the defense business to Leonardo either. The rationale, terms, and conditions of the sale, with the details as currently available, were disclosed on July 30. As announced, the transaction is expected to be completed in Q1 2026, subject to customary regulatory approvals and carve-out completion. Consistent with the agreement reached with Tata, Iveco Group will distribute the net proceeds of the transaction based on the enterprise value agreed with the purchaser via an extraordinary dividend estimated at EUR 5.56 per common share to be paid out to the company's shareholders before the tender offer is settled. With those points covered, I'd like to turn things over to our CEO, Olof. Olof Persson: Thank you very much, Federico. And let me add my own warm welcome to everyone joining our call today. I'll start with Slide 3, outlining the main highlights from our third quarter performance, excluding defense. Throughout the quarter, we maintained a high focus on our long-term vision and maintained discipline in the execution of measures that will help achieve it. These include tight control on inventory levels, diligent cost management, and the ongoing commitment to our multiyear efficiency program, as well as its acceleration for the current year, which is proceeding as planned. We have also identified additional areas of improvement, which will deliver further full-year savings. In our Truck business unit, we concentrated on balancing pricing and market share. The focus was on protecting our leadership position in the LCV chassis cap subsegment, where pricing dynamics were more challenging and maintaining a very strict pricing discipline in medium and heavy in support of the final phase of the introduction of our model year 2024 across European countries, and thereby ensuring the quality, performance, and the full potential of the product. I'd now like to break down our performance by business units. In the truck industry, demand in Europe remained particularly low in the chassis cab subsegment, which affected profitability in the quarter, which was only partially offset by strict cost control measures. European deliveries in the period were down year-over-year, particularly for light commercial vehicles, which were down 27% versus last year. At the end of the quarter, worldwide book-to-bill for trucks came in at 1.0, up 25 basis points versus the same period last year. In Powertrain, we began to see the first sign of a sustainable recovery in engine volumes as had been expected, supporting profitability improvements. In our bus business unit, profitability was impacted by costs associated with the ramp-up of production in our NNA plant in France. But despite this, our order book remains strong, providing us with a clear long-term visibility. Free cash flow absorption in the third quarter of 2025 was at EUR 513 million, broadly in line with last year's performance, when we exclude from last year the positive effect of the deployment of the higher inventory levels that we registered at the end of June 2024. You will recall that this was linked to the phase-in and phase-out of the new model year in trucks. Going forward, we will continue to remain very focused on quality and operations in line with our long-term pathway, maintaining tight control on production levels and inventory management, and on delivering our efficiency program. Slide 4 outlines our indicative timeline for the first half of 2026, with the sale of our defense business and the tender of the Veeco Group progressing in parallel. Regulatory filings for both transactions, including those required by the European Union, are currently underway and subject to final approvals. Both the sale of the defense business to Leonardo and the subsequent distribution of the net sale proceeds through an external ordinary dividend and the tender of [Bertata] are on track for completion within the first half of 2026, as we stated previously. If we're then moving on to Slide 6 and the Truck segment. We maintained pricing discipline and tight inventory control throughout Q3 in 2025. European industry volumes increased by 5% year-over-year for both light commercial vehicles and medium and heavy trucks. Iveco's third-quarter LCV market share was 11.7%, of which 29.7% was in the Chassis Cab subsegment and 65.8% was in the upper end of the segment. Industry growth overall was largely driven by the camper subsegment, where Iveco has limited exposure. Chassis Cab volumes, on the other hand, remained under pressure, yet we managed to protect our leadership position. In medium and heavy trucks, our market share reached 7.2% with heavy trucks accounting for 6.4%. In this segment, we implemented a selective sales mix strategy throughout the quarter to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries and thereby ensuring the quality, performance, and full potential of the product. Our ability to adapt to segment dynamics while preserving pricing integrity and managing inventory effectively reflects the strength of our commercial execution and the strategic clarity of our truck business. Moving on to Slide 7. Our worldwide truck book-to-bill ratio reached 1.0 at the end of the quarter, registering a 25 basis point improvement year-over-year. This reflects balanced commercial performance across geographies and product categories. In light commercial vehicles, our European order intake rose by 17% compared to Q3 2024, supported by a book-to-bill ratio of 1.05. This increase, we believe, is a welcome first sign of a recovery coming on the heels of a prolonged period of production coverage well below last year's level, 7 weeks this year versus 12 weeks last year. And South America experienced even stronger growth with order intake up 37% and a book-to-bill ratio of 1.11. In medium and heavy trucks, European order intake declined by 3% year-over-year with a book-to-bill ratio of 0.82. South America saw a more pronounced contraction of 21% with a book-to-bill ratio of 0.94. While these figures reflect a softer demand environment, the backlog remains stable at 7 weeks of production coverage. Let's move to the next slide, #9, with bus industry volumes and market shares. Iveco Bus during the quarter continued to demonstrate strong competitive positioning across Europe. In the intercity segment, our leadership was reaffirmed with a 55.1% market share in Q3, representing a 5% point increase year-over-year. This gain can be attributed to the successful introduction of electric models, which are contributing positively to both volumes and brand perception. In the European city buses segment, our market share stood at 15.1% in Q3. We expect an acceleration in deliveries during Q4, consistent with the seasonal patterns and supported by backlog conversion. Overall, Iveco Bus maintained its consolidated #2 position in the European market with a 21.3% market share year-to-date. Moving on to Slide 10. In Q3 2025, our bus order intake declined by 17% following the strong momentum we enjoyed in the first half of the year. This front-loaded demand contributed to a 6% year-to-date increase as of September. Deliveries rose 20% compared to Q3 2024, demonstrating robust execution and sustained customer demand. The book-to-bill ratio stood at 0.77 at the quarter's end, a figure impacted by the scheduling of orders early in the year. Importantly, year-to-date order intake remained higher than in 2024 at 1.08, demonstrating the segment's resilience. On the 29th of October, Iveco Bus signed a framework agreement with Ildefrance Mobility, a leading public transport authority managing one of Europe's largest and most complex transit networks. Iveco Bus will supply Ildefrans Mobility with up to 4,000 low and zero-emission buses and coaches between 2026 and 2032. This is in line with the brand's long-term strategy to build on zero-emission and electromobility solutions. In conclusion, we maintained a solid long-term visibility for intercity and city bus with coverage now extending well into the second half of 2026. On Slide 12, we have the delivery performance for our powertrain business unit. And after nearly 2 years of consecutive year-over-year decline, engine volumes increased by 1% compared to Q3 2024. While modest, this improvement reflects the recovery we predicted last quarter. During the period, new third-party customer contracts were signed between Lindner and JCB. Production for these orders will begin in 2026. These contracts position FBT Industrial as one of the main references in the agriculture industry and are in line with our long-term strategy to grow the number of third-party clients. Operational discipline remains central to our approach. We continue to manage costs diligently and remain committed to our efficiency program. These efforts are helping us to protect margins and ensure sustainable delivery as volumes recover. Looking ahead, we expect the recovery in deliveries to third-party customers to continue throughout Q4 and beyond, supporting profitability improvements. Going to Slide 14, look at our electric vehicle portfolio, where year-to-date delivery volumes continue to grow across the business units despite the challenging market demand scenario. This clearly shows the competitiveness of our product lineup and our unique positioning in LCV, where Iveco is the only truck maker to offer a complete fully electric product lineup ranging from 2.5 to 7 tons. With that, I finish my opening remarks, and I will now hand over the call to Federico. Federico Donati: Thank you, Olof. Let's now take a look at the highlights of our third quarter 2025 financial results on Slide 16. Again, all figures provided in the presentation refer to continuing operation only, excluding defense, if not otherwise stated. Q3 2025 closed with EUR 3.1 billion in consolidated net revenues and EUR 3 billion in net revenues of industrial activities. These figures reflect a contraction of 3.6% and 3%, respectively, on a year-over-year basis, mainly due to lower volumes in Europe for trucks and a negative ForEx translation effect, primarily in Brazil and in Turkey. The group adjusted EBIT closed at EUR 111 million with a 3.6% margin, and the adjusted EBIT of industrial activities reached EUR 76 million with a 2.5% margin, both contracted by 210 basis points versus Q3 2024. The net financial expenses amounted to EUR 58 million in the third quarter this year, in line with the same quarter last year. Reported income tax expenses come to EUR 17 million in Q3 2025 with an adjusted effective tax rate of 25%. This resulted in adjusted net income for continuing operations at EUR 40 million, down EUR 54 million versus last year, with an adjusted diluted EPS of EUR 0.15. Moving to our free cash flow performance in the quarter. Q3 2025 closed with a EUR 513 million cash outflow absorption, which was broadly in line with last year's performance, when we excluded from last year the positive effect of the deployment of the higher inventory level that we registered at the end of June 2024, as Olof said in his opening remarks. I will provide more details further in the presentation. Finally, available liquidity, including undrawn committed credit lines, closed solidly at EUR 4 billion on the 30th of September, of which EUR 1.9 billion was in undrawn committed facilities. Let's now focus on the net revenue of industrial activities on Slide 17. As you can see from the chart on the right-hand side of this slide, all regions contracted compared to the prior year, excluding South America, which was flat versus Q3 2024. Looking at our net revenues evolution by business unit, Bus was solidly up versus the prior year at plus 31%. Powertrain was flat, and the truck contracted 11% versus Q3 2024. More in detail, truck net revenues totaled EUR 2 billion in this quarter, down 11% versus the prior year, primarily as a consequence of 2 factors: First, a lower delivery rate in light-duty trucks due to the continuing challenging environment in the chassis subsegment. Second, a selective sales mix strategy throughout the quarter in heavy-duty trucks in order to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries. Additionally, the top line was affected by an adverse year-over-year foreign exchange rate trend, mainly in Brazil and Turkey. Our bus net revenues were up 31.4% in Q3 2025, reaching EUR 719 million, thanks to higher volumes. And finally, our Powertrain net revenues were broadly in line year-over-year at EUR 745 million with higher volumes offset by an adverse foreign exchange rate impact. Sales to external customers accounted for 49%, in line with Q3 2024. Turning to Slide 18. Let me briefly comment on the main drivers underlying the year-over-year performance in our adjusted EBIT margin of Industrial activities. Volume and mix contributed negatively, EUR 67 million in the period, mainly due to lower truck volumes in Europe. The decrease in deliveries of light-duty vehicles particularly impacted the overall truck profitability. The year-over-year net pricing contributed positively for EUR 15 million at the Industrial Activities level and was positive across business units. Production costs were negative EUR 7 million year-over-year, with negative performance in Truck and Bus, partially offset by solid positive performance in powertrain. Finally, the year-over-year improvement in SG&A costs totaling EUR 17 million in this quarter and EUR 50 million to date is again a result of the acceleration of the efficiency action announced and launched at the beginning of this year. Let's now take a look at the adjusted EBIT margin performance for each industrial business unit on Slide 19. Truck closed the quarter with a 2.9% adjusted EBIT margin. As already mentioned, this was a result of lower volumes and negative mix, mainly due to the continuing challenging environment in the chassis subsegment, which experienced lower volumes in Europe. The negative absorption due to the lower production level was only partially compensated by the cost containment action implemented in the period. Truck pricing in Europe was positive year-over-year, confirming our tight price discipline. The Q3 2025 adjusted EBIT margin for our bus business unit closed at 4%, down 110 basis points versus the prior year, with higher volumes and positive price realization offset by higher costs associated with the ramp-up of production in our Annonay plant. Finally, the Powertrain adjusted EBIT margin closed at 5.1% in the third quarter, resulting from continued and diligent cost control and operational efficiency as well as a slight increase in engine volumes. Let's now have a look at the performance of our Financial Services business unit during the quarter on Slide 20. The Q3 2025 adjusted EBIT for Financial Services closed at EUR 35 million with a managed portfolio, including unconsolidated joint ventures of EUR 7.5 billion at the end of the period, of which retail accounted for 45% and wholesale 55%. This figure is down EUR 106 million compared to the 30th of September 2024. Stock of receivable past due by more than 30 days as a percentage of the overall own book portfolio was at 2.1%, which is slightly up versus last year. The return on assets remained solid at 2.1%. Let's move to our free cash flow and net industrial cash evolution on Slide 21. As said previously, the Q3 2025 free cash flow absorption came in at EUR 513 million, which is broadly in line with last year's performance when we exclude the positive effect of the initial deployment of the higher inventory level that we registered at the end of June 2024. The lower adjusted EBITDA was offset by positive year-over-year swings in financial charges and taxes, the positive delta in working capital, and lower investments. The negative year-over-year swing in provision was driven by lower sales volume in our truck business unit. Lastly, investment totaled EUR 150 million in Q3 2025, down EUR 39 million versus the same period last year. This is in line with the already disclosed acceleration of our efficiency program and the reprioritization of some of our less strategic investments. Moving now to Slide 22. As of the 30th of September 2025, our available liquidity for continuing operations, excluding defense, stood solidly at EUR 4 billion with EUR 2.3 billion in cash and cash equivalents and EUR 1.9 billion of undrawn committed facilities. Looking at our debt maturity profile, the majority of our debt will mature from 2027 onwards, and our cash and cash equivalent levels will continue to more than cover all the cash maturities foreseen for the coming years. Moving now to my last slide for today, # 24, with the discontinued operational performance of our Defense business unit. The net revenues for Defense came in at EUR 293 million, up 9.7% compared to Q3 2024, driven by higher volumes. The adjusted EBIT was EUR 25 million compared to EUR 23 million in Q3 2024, resulting from production efficiency, partially offset by higher R&D costs. The adjusted EBIT margin was at 8.5%, down 10 basis points compared to Q3 2024. The funded order book level at the end of September 2025 reached almost EUR 5.3 billion, up close to EUR 300 million from the end of June 2025. Thank you. I will now turn the call back to Olof for his final remarks. Olof Persson: Thank you very much, Federico. And I'd like to conclude this presentation by looking at both the outlook for the industry and our own financial guidance. I will also, as usual, provide some takeaway messages from what you have heard today. We confirm our total industry outlook for the current year across the segments and regions. Specifically, we expect demand to remain low in the chassis cab subsegment and South America to continue to be negatively impacted by reduced consumer confidence and less willingness to invest in heavy-duty trucks, given the increase in interest rates in Brazil since the beginning of the year. The next slide has our full-year 2025 updated financial guidance, also expressed as continuing operations, which means excluding defense. Our full-year 2025 financial guidance has been revised across all key performance metrics, except for the industrial activities net revenue, which remains unchanged. This update reflects the year-to-date performance negatively affected by 2 main circumstances. Firstly, a slower-than-expected recovery in light commercial vehicles during the second half of 2025, particularly in the chassis cab subsegment, which has negatively affected our truck business units' year-to-date profitability. Secondly, we have allowed for extra costs associated with the ramp-up of production in our NMA plant, which negatively impacted our bus business unit's profitability in the third quarter. Implied in our updated guidance is increased Q4 profitability year-over-year across business units and an additional positive effect from the acceleration of our efficiency program compared to the initial EUR 150 million CapEx and OpEx. Based on these premises, the updated guidance for our full year 2025 is as follows: at the consolidated level, including Defense, group adjusted EBIT is now between EUR 830 million and EUR 880 million. And for Industrial Activities, net revenues, including currency effect, confirmed to be down between 3% and 5% year-over-year. Adjusted EBIT from industrial activities at between EUR 700 million and EUR 750 million, and industrial free cash flow is between EUR 250 million and EUR 350 million. On the slide, we have also shown what this guidance implies for continuing operations only. The free cash flow forecast, excluding Defense, is not included due to ongoing activities related to the separation that could affect some balance sheet accounts. We will continue to manage production levels for trucks in Europe in line with the retail demand, while at the same time, maintaining diligent cost management and leveraging the benefits of our efficiency program across business units. And now to Slide 28. Let me provide you with some takeaway messages from today's call. First, as I said, implied in our revised guidance is increased Q4 profitability year-over-year across business units. And if we break that down by business unit, in trucks, our LCV and medium and heavy vehicles are sold out, covering the remaining 2 months of the year. This, combined with strict control on pricing and cost management, will positively contribute to higher profitability compared to the fourth quarter of last year. In the bus, ramp-up costs are now behind us, and we expect higher volumes to contribute positively to the year-over-year performance. And lastly, in Powertrain, as mentioned earlier, third-party client volumes are expected to continue their year-over-year growth, supporting progressively profitable improvements. The increase in third-quarter order intake for light commercial vehicles is an encouraging early sign that the worst is behind us. In heavy-duty trucks, we will continue to maintain strict pricing discipline to support our model year 2024, ensuring the quality, performance, and full potential of the product. In Powertrain, new third-party customer contracts were signed, among which are Lindner and JCB, with production for these orders beginning in 2026. Our robust order book remains strong, providing solid visibility well into the second half of 2026, and the funded order book for our Defense business unit reached almost SEK 5.3 billion at the end of September 2025, demonstrating continued momentum in the industry. Thirdly, we are proceeding at pace with the acceleration of our efficiency program and reprioritization of certain investments, confirming the expected EUR 150 million in savings in CapEx and OpEx for the current year, as well as additional areas of improvement, which will deliver further full-year savings. And finally, we are on track to complete the sale of our defense business to Leonardo as per our original combination, and the tender offer by Tata is expected to be completed within the first half of 2026. In conclusion, as always, we are focused on our commitment to operational excellence. Each business unit remains laser-focused on its short- and long-term objectives, working to deliver lasting value for all our stakeholders. With that, I would like to thank you and hand it back to Federico. Federico Donati: That concludes our prepared remarks, and we can now open it up for questions. To be mindful of the time, we kindly ask that you hold off on any detailed modeling and accounting questions. For this, you can follow up directly with me and the Investor Relations team after the call. In addition, as already pointed out, pending the publication of the formal offer document on the tender offer by Tata, we will not comment on the legal basis, rationale, condition, terms, and key elements of the tender offer. In this respect, for the time being, you are kindly invited to refer to the materials already published in the ad hoc section of the company website. As for the sale of the defense business to Leonardo, the activities are ongoing and on track, consistent with the timeline commented during the presentation. The company will strictly comply with applicable disclosure requirements, but for the time being, it has nothing to add vis-Ã -vis what has already been announced. Operator, please go ahead. Operator: [Operator Instructions] We are now going to take our first question, and the questions come from the line of Akshat Kacker from JPMorgan. Akshat Kacker: A couple of questions, please. The first one is on the truck and LCV business. Obviously, the trends this year have been difficult to forecast and understand, given the pre-buy last year and also the changeover in the product family. Could you just help us understand how you're looking at the business going forward, probably into Q4, but also any early signs on how you expect the LCV business to develop going into 2026? And if you could just add some color regionally as well, between Europe and Brazil. We have heard from a few of your peers that inventories are high in the Brazilian and LatAm markets, and overall, there is some pricing pressure. So some details there would be helpful. The second question is on the powertrain business. You talked about a slight increase in engine volumes, the first signs of recovery. Could you just give us some more details in terms of where these green shoots are emerging from? And we now expect volumes to turn positive going into the fourth quarter, please? Olof Persson: Okay. So on the LCV market, I mean, as we said, the indications we're getting now, and also you saw on the book-to-bill and the increase in our order intake, give us confidence, and we believe that the worst is behind us, and we will see a gradual uptake. We see that also in the activity levels in the market. And as we said, we are sold out now for this year and going into next year. So I think it's always difficult to really judge where this is going, coming from such a long period of a lower market. But I feel the LCV side, I think we have the worst behind us. And exactly how that will pan out coming into 2026, we will have to see. We need a couple of more weeks or months to see that coming into it. But I would say so far, so good, and it's really good and encouraging to see that this is opening up. And that is, of course, then moving also in our key segments on the cabover and both in the medium and the upper side of it. On the LatAm, I didn't really -- LatAm pricing. Akshat Kacker: No, I was referring to the inventory level, if I understood correctly. correct? Federico Donati: Yes, that's right. Akshat Kacker: Some of your peers talk about the weakness in that market, specifically in the medium and... Olof Persson: Yes, when it comes to the inventory, both our own inventory, the dealer inventory and the whole chain, we manage that very carefully, as you know, and we do that also in LatAm when we see the order volumes going down we, of course, adjust production, and we do that rather quickly in LatAm because it's a simple one factory system where we can really manage that in a good way. So I don't have any concerns about the inventory levels in LatAm going forward, even though, of course, on the heavy-duty side, there is, as we said, a decline in the market and the order intake. Then the final question was around Engines. So the green shoots for the engine. I would say that there are a couple of things. One is, of course, that we are getting third-party business. The team in Powertrain has done a great job in actually capturing more third-party business, which is good. We also see, of course, and we have said that before, it's around the stock level of engines out there in the market and the time it has taken to destock that given the downturn that we've seen over the last basically 2 years. And that also gives you confidence that this is covering up for the destocking coming to an end, and thereby, the volumes are coming back up again. So it's a combination of that plus the fact that we actually are successful in getting third-party business. That's giving me confidence going forward in the Powertrain side. Operator: We will now proceed with our next question, and the next questions come from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is still on the LCV. Olof, I understood your qualitative comments on LCV for next year. But could you provide what your feeling is in terms of Europe and South America if in '26, the market overall is able to have at least a small single-digit rebound in terms of volumes? And the second question is specifically on the defense business because you are providing guidance with and without defense. I was wondering if in implying what the defense EBIT and revenues, is it correct to take EUR 150 million of adjusted EBIT and probably close to EUR 1.3 billion sales, or there are intercompanies or other items that could affect these figures? And I clearly understand you are not providing any updated guidance without a defense on free cash flow. But could you comment on what is the normalized free cash flow or cash conversion for this business? What was in the past? Olof Persson: Okay. If I start with the LCV market, I think I need to stay a little bit on top and give you the feeling I have right now because we need a couple of, I would say, weeks or at least a month to really see where the activities are going to start with in 2026. I mean, we now have visibility for the rest of the year, sold out, and then we need to see how the activity is going. But as I said, so far, so good. I mean, the activity levels that we see from our customers, the tender activities we see are coming. We do see, as you've seen, an increase in the order intake coming from very low levels in Q2 and so on and so forth. So the indications are good. But let's see when we have got that all together, and we will come back to that with a more detailed market development on that one. On the other 2 questions, I'll leave it to you. Federico Donati: Yes. On the defense side, I think, Martino, on the EBIT side, yes, you can be rounded to the number you have mentioned, as well as on the top line. And in terms of the free cash flow of defense, as you know, we have never disclosed it by business unit. The only thing I can say is a cash-generative business, but on a full-year basis. I hope this helps. Operator: We are now going to take our next question, and the next questions come from the line of Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Also 2. Maybe coming back on your full year guidance, it does imply a significant step-up in Q4 of around EUR 250 million in Q4 earnings versus EUR 300 million in the first 9 months. I mean, you mentioned that all segments will be stronger in Q4, but can you just give a bit more color on which segment should drive that? And it's probably going to be the light trucks, but any help would be appreciated here. And the second one, if I look at the EU heavy truck market share, came in at 6.4%. I think historically, you were closer to 9% or 10%. And that is despite the fact that you have launched a new model here. Should we expect that next year, you will have a higher market share? Or why is it below the historic run rate despite having a rather new product in the market? Olof Persson: So on the Q4, I think I gave the guidance that -- I mean, I can give at this point in time. The basis for the improvements that we see is there in the truck side is, of course, good to see that we sold out. That means that we can improve. If you look at the backup of the slide, you can also see that the inventory with our dealers has gone down. We have managed the dealer inventory together with the dealers and our own dealer very well. So we're having a system set up for an increase on that side, which I think is promising and stable in that respect. Then, as I said, powertrain bus, increased volumes, the profitability, we have the cost behind us on the ramp-up in Annonay. And just a comment on that, it was absolutely necessary to make sure that we create a very stable, efficient Annonay plant in terms of quality, volume, and efficiency, and we have that behind us, and we are pushing forward now. And then, of course, on the powertrain side. On top of that, as I mentioned and has been mentioned a couple of times, an efficiency program. Don't forget the efficiency program, that's never a linear coming in the profit and loss. It's actually an accelerating program. It's always those programs that are very often. And of course, the majority or a big chunk of that program will now start to come in fully with all the activities we have done, not only on the SEK 150 million that we talked about, but also the activities that we have seen. So those are the things that are actually going to drive the Q4 in coming back and making the result up to the guidance we have. On the EU market side, I think we specified we are now entering into the final phase of the launch, and we have been in a market situation that has been really focusing on keeping the price level on this new vehicle, because I truly believe that we're going to live on this product for many, many years. And we need to make sure that it is in the market in the right way. We have had a very stringent price discipline. We will continue to have a price discipline to really ensure, as I said, all the different aspects of the product. So I definitely see this product going forward in the mid and the long term being a product that definitely has a potential for more market share than it has today. That's for sure. Operator: We will now take one final question. And our final question today comes from the line of Alex Jones from Bank of America. Alexander Jones: Two from my side as well, please. Could you talk a little bit about the medium and heavy-duty outlook that you see in terms of order trends also into 2026? I know you talked a bit more positively about LCV, but medium and heavy orders were down 3% year-on-year in Europe. So your thoughts would be interesting. And then the second question on defense. Can you be more specific at all on the mix factors that weighed on margins this quarter, at least sequentially, and whether you expect those to continue going forward, Q4, and into next year? Olof Persson: Well, on the medium and LCV, that was the feeling going forward into the fourth quarter and into next year. And again, I repeat what I said. On the LCV side, I have a good feeling about the activity level. Also, I would say, on the medium-heavy. And as we progress with our final implementation and launch of the model year '24, we're going to see impacts there as well, not only in terms of market, but also in terms of market share over time. And we're going to continue to keep a strict, selective approach, making sure that we get the pricing. So I would say we come back in the beginning next year, as we normally do, to have a view on the market and where the market is going for heavy and medium. But we're well-positioned in both of these markets. And I think, as I said, I feel comfortable that once we are really fully launched this product now, we're going to see the positive impacts coming, full confidence in that. It is a very, very good product in terms of all the different aspects. And I'll leave it to you, Federico, on the... Federico Donati: On the Defense, sorry, you were talking and referring to the mix, if I take your question correctly, correct, Alex? Alexander Jones: Yes, please. Federico Donati: Yes. But I think, in defense is more generally speaking, you need to consider that we have a very long and solid order book that just needs to be deployed. And so, probably looking at the defense just on a quarterly basis, it is much better to look at it on a full-year basis, and the marginality also. So this is just a question of looking at it on a yearly basis, and the mix can also change by region and by country, and by product itself. So as Olof said at the beginning, we are expecting the performance of each single business unit up year-over-year, and that will be the case for the Defense as well in Q4. That is what I can share with you. Operator: Thank you. That concludes the question-and-answer session. I will now turn the call back to Mr. Frederico Donati for any additional or closing remarks. Federico Donati: Thank you all, and have a nice rest of the day. Thank you. Bye. Operator: That concludes today's conference call. Thank you all for your participation. Ladies and gentlemen, you may now disconnect your lines.

195天前Insight Analytics约5分钟阅读

EHAB 2025 Q3 财报电话会议

Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enhabit Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Bob Okunski, Vice President of Investor Relations. Please go ahead. Bob Okunski: Thank you, operator, and good morning, everyone. Thank you for joining our call today. With me on the call this morning is Barb Jacobsmeyer, President and Chief Executive Officer; and Ryan Solomon, Chief Financial Officer. Before we begin, I want to let you know that our third quarter earnings release and supplemental information are available on our website at investors.ehab.com. Additionally, we have filed a related 8-K with the SEC, and that is also available in the same location. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in the last page of our earnings release. During the call, we will make forward-looking statements, which are subject to various risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates and expectations are discussed in our SEC filings, including our annual report on Form 10-K, which is available on our website. We encourage you to read these documents. You are also cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information as well as our earnings release. With that, I'd like to turn the call over to Barb. Barb? Barbara Jacobsmeyer: Good morning, and thanks for joining us. Let me start by recognizing the exceptional Enhabit team. We're proud to share that Enhabit has been named as one of Fortune's Best Places to Work in health care. This recognition is a powerful testament to our commitment to a culture of excellence, strong leadership and an outstanding employee experience. It's that same team that has delivered another quarter of strong performance for our patients, partners and shareholders. I will address the 2026 CMS home health rule before Q&A. But first, Ryan and I will review the quarter results. Home health total admissions were up 3.6% year-over-year, with census increasing 3.7%. Normalized for closed branches, our admission growth was 4.3% year-over-year. Fee-for-service Medicare census continues to stabilize with census down 1.4% year-over-year versus the 14.1% year-over-year decline experienced in quarter 3 2024. Our non-Medicare admissions were up 10.4% and an appropriately managed payer mix resulted in a 2.8% increase in non-Medicare revenue per visit year-over-year. As mentioned on our last earnings call, we experienced disruption at the end of the second quarter, early third quarter in both admissions and census from the impact of renegotiations with a national payer that ultimately resulted in achieving a low double-digit increase in our per visit rate effective August 15, 2025. By late September, we have recovered our census with this payer and recent admissions are now at 120% of our weekly average. Our total patient census grew sequentially each month of the third quarter, and that sequential growth persisted into October. Our scale drives meaningful access to payer members and that access, coupled with our high-quality outcomes, continues to position us well for progress within our payer strategy. This was evidenced by another renegotiated national payer contract during the third quarter. This was the renegotiation of one of our first payer innovation agreements, and this one did not require disruption to patient access or to our census and resulted in achieving a successful update in our rates effective in November. The positive impact of our payer innovation team is ongoing as we continue to work with new and current payers on pricing that appropriately values our timely access to care as a scaled provider with strong outcomes. Our quality of care and our timely access are also part of our hospice strategy, and these strategies continue to drive strong results. We have now experienced 7 straight quarters of sequential census growth. Total admissions grew 1.4% year-over-year. Normalized for closed branches, admissions were up 3%. Census grew 12.6%. We have added 21 or 11% additional direct sales team members year-over-year to continue to broaden our reach to additional referral sources. We have the clinical capacity for growth and will increase our reach to diversify our referral sources. To complement our organic growth strategy, our de novo strategy is positively impacting total growth. In quarter 3, we opened 2 de novos for a total year-to-date of 6. We opened our seventh location in October and continue to be on pace for a total of 10 de novos in 2025. As evidenced by our organic and de novo focus, our admissions and census growth are a big part of our strategy. However, whether it is CMS pricing or continued shift to Medicare Advantage, we must be as efficient as possible to have necessary resources to strategically invest in people and technology. Therefore, our cost structure is critical to future success. As mentioned before, we believe advanced visit per episode management is a promising lever to mitigate uncontrollable and unanticipated rate disruptions like these. Our advanced visit per episode management pilot was initiated in mid-August in 11 branches. However, because a pilot case must start with a new start of care, the branch's full census was not impacted until the end of October. Early results are promising with a decline in total visits per episode in these locations from approximately 15 prior to the onset of the pilot to approximately 13 currently. 83 additional branches were rolled out throughout the month of October, and the rest are expected by the end of November. We anticipate adding 10 resources between our authorization team and our virtual clinical team to support the full company rollout. We will provide an additional update on our fourth quarter earnings call. As we navigate a dynamic operating environment, we remain confident that Enhabit is best positioned in the industry with our experienced leaders, high-performing teams and innovative technology to manage through challenges and continue growing market share. And now I will turn it over to Ryan, who will cover the financial results of quarter 3 and additional updates on our G&A cost management focused efforts. Ryan Solomon: Thank you, Barb. Continued strong execution in the quarter on our broader strategy delivered strong consolidated financial performance with both top line and bottom line EBITDA growth to the prior year in Q3, all while continuing to generate consistent free cash flow that we've used to improve our net leverage to levels not seen since late 2022 just following our spin. Our ability to deliver growth and profitability for the third straight quarter in what remains a challenging operating environment highlights the consistency in our operational execution and flexibility in our model. Even as payer disruptions created headwinds early in the quarter, our teams navigated the challenges effectively, ensuring that we built momentum throughout the quarter to deliver growth and position us well as we enter Q4 to finish the year strong. Before reviewing consolidated and segment detailed performance, a few Q3 highlights that demonstrate clear execution on our strategy include the following: Returning the business to consistent growth in 2025 was a strategic priority, and we are well on our way. With Q3 results, we have now delivered several quarters of year-over-year growth in both revenues and adjusted EBITDA. Improving the financial health of the business has been a focus in 2025 as well. With a return to consistent adjusted EBITDA growth, we have used the improved adjusted free cash flow to reduce our net debt to adjusted EBITDA leverage amount to 3.9x in Q3 2025, lower by over 1.5 turns compared to Q4 2023 when leverage was 5.4x. The improved leverage lowers our Q3 2025 annualized cash interest expense by approximately $19 million compared to Q4 2023. Improving the financial health of the business provides us with improved liquidity and an overall balance sheet flexibility for innovation and potential M&A. Hospice segment momentum continues to be very strong, delivering record revenues and profitability in the quarter with year-over-year segment adjusted EBITDA growth of over 70%, with substantial margin expansion on double-digit census volume growth of over 12%, driving overall revenue growth of 20% in Q3. Home Health successfully launched the visits per episode pilot in Q3, while delivering census growth of 3.7% to the prior year despite payer disruption early in the quarter, along with continued execution on stabilizing Medicare volumes and improving home health per patient day unit cost economics, which were lower by 2.1% in Q3 versus the prior year. Home office expenses improved $2.3 million sequentially, coming in at 9.1% of revenues in Q3 versus 9.9% of revenues in the prior quarter, as we focused on cost management initiatives, which lowered Q3 and run rate costs as we implement mitigation strategies in front of any potential CMS final rate rule headwind. Now shifting to the Q3 consolidated results details. Consolidated net revenue totaled $263.6 million, an increase versus prior year of $10 million or 3.9%. Consolidated revenue growth in the prior year was driven primarily by outsized growth in our Hospice segment with revenue growth of 20% on both census and unit revenue growth. Home Health revenue was relatively flat to prior year on census growth, offset by lower unit revenues related primarily to mix. Consolidated revenue growth in the quarter translated to improved profitability, both to prior year and sequentially, with consolidated adjusted EBITDA of $27 million in the quarter, an increase sequentially of $0.1 million or 0.4%, while growing to the prior year by $2.5 million or 10.2%, with overall adjusted EBITDA margin as a percent of revenue expanding to 10.2%, an increase of 50 basis points to the prior year. Now shifting to Home Health performance. Revenue was $200.5 million, lower than prior year by $0.5 million or 0.2%. We estimate that without the payer renegotiation disruption experienced early in Q3 and the loss of revenue from branch closures, the home health total revenues for the quarter would have been approximately $3 million higher, which would have resulted in growth to the prior year of approximately 1% in the quarter to prior year. Average daily census for the quarter totaled 41,451, growth to the prior year of 3.7%, while lower sequentially 1.6%, primarily related to the payer renegotiation disruption early in the quarter. While we were successful in replacing disrupted payer volumes early in the quarter and then building back volumes throughout Q3 post renegotiation, this did put incremental pressure on our unit revenue per patient day in the quarter, which was lower sequentially 2% and versus prior year by 3.7%. The lower unit revenues were partially offset by improved unit cost per patient day for the prior year of 2.1% as we maintained staffing productivity improvements in the quarter to offset typical incremental wage inflation costs. Home Health adjusted EBITDA totaled $33.9 million in Q3, reflecting a decrease to the prior year of $2.6 million or 7.1% and sequentially $5.4 million or 13.7%. The lower adjusted EBITDA sequentially reflects margin compression as unit revenues were lower 2% and unit costs were marginally higher by 0.7% on lower average daily census volumes of 1.6%, which created gross margin compression of 160 basis points. We saw this margin compression normalize late in the quarter as we built back volumes following the payer disruption. Two key items to highlight in Home Health outside of the broader revenue and adjusted EBITDA performance include the following: as Barb touched on, we continue to have success in slowing the rate of decline in our Medicare patient volumes, with Medicare revenue mix totaling 56.5% of total Home Health segment revenues, improvement sequentially of 20 basis points. In regards to the continued visits per episode optimization, our total visits per episode for Q3 of 13.4 is lower 0.3 visits sequentially and 0.7 visits versus prior year. A host of efforts in the quarter focused on providing the clinically appropriate number of visits to our patients, combined with successfully launching our pilot as previously outlined on our Q2 call in a small subset of branches with early results being promising, gives us confidence in our ability to use visits per episode as a key lever to continue to optimize while balancing quality to meaningfully offset potential rate reimbursement headwinds from CMS 2026 proposed home health rule. Now shifting to our Hospice segment performance for Q3, where continued execution by our Hospice leaders delivered a record performance for the quarter with revenue totaling $63.1 million, reflecting sequential growth of $2.9 million or 4.8% and exceptionally strong growth to the prior year of $10.5 million or 20%. Revenue growth was supported by continued strong momentum in census growth in the quarter of 3.2% sequentially and 12.6% to the prior year. Hospice adjusted EBITDA totaled $17.2 million in Q3, reflecting an increase to the prior year of $7.2 million or 72% on a double-digit volume increase combined with margin expansion as adjusted EBITDA margin as a percent of revenue improved 830 basis points to the prior year and totaling 27.3% as our operational leaders continue to create operating leverage on the increased volumes. Two key items to highlight in Hospice outside of broader revenue and adjusted EBITDA performance include the following: all of our 2024 hospice de novos are profitable and collectively generated $0.8 million of revenue and $0.3 million of EBITDA in Q3, demonstrating the ability to quickly ramp our de novo sites to profitability. Average discharge length of stay continues to remain relatively flat with Q3 coming in at 101 days versus the prior year of 100 days. Shifting briefly to our home office, general and administrative expenses for the quarter, which totaled $24.1 million or 9.1% of revenues in Q3 compared to $26.4 million or 9.9% of revenues in the prior quarter, delivering a sequential improvement of $2.3 million. This improvement primarily reflects the result of a focused G&A cost review completed in the quarter that generated savings in Q3. We saw an increase to prior year, primarily related to incentive accrual release in the prior year not replicated in Q3 and broader inflation, somewhat offset by cost initiative actions in 2025. Transitioning now to the balance sheet and cash flow. As outlined earlier, a key strategic priority in 2025 is using free cash flow to continue to delever our balance sheet. Adjusted free cash flow year-to-date totaled $64.8 million, which when normalized for 1 less payroll period in the quarter that we will see in Q4 would total approximately $45 million or an approximate 56% adjusted free cash flow conversion rate, which compares favorably to the full year 2024 by over 200 basis points. During the quarter, we reduced overall bank debt by $15.5 million, including amortization and prepayments. We ended the quarter with approximately $57 million in cash and available liquidity of $143.3 million compared to available liquidity in the Q3 period of the prior year of $94.1 million, an improvement of $49.2 million. Improved profitability, coupled with continued balance sheet improvements result in a net debt to adjusted EBITDA leverage ratio of 3.9x compared to Q3 of the prior year of 4.8x. Progress on reducing our overall bank debt continued in Q4 with us having already made an additional $10 million of debt prepayments quarter-to-date through October, which brings our total debt reduction to $100 million since Q4 of 2023 as summarized on our supplemental slides. We remain committed to strengthening our balance sheet and improving profitability. Let's conclude with briefly discussing updated guidance. Based on our consolidated year-to-date 2025 results and the momentum in the business, we remain confident in our strategy and full year outlook. We've updated our full year guidance as follows. We now expect full year revenue to be in the range of $1.058 billion to $1.063 billion. We are increasing our full year adjusted EBITDA guidance to be in a range of $106 million to $109 million. We are also increasing our full year adjusted free cash flow to be in the range of $53 million to $61 million. Thank you for the time today. I'll hand it back over to Barb for a few closing comments on the CMS rate rule before we open up for questions. Barbara Jacobsmeyer: Thanks, Ryan. As you're aware, the CMS 2026 home health final rule has not yet been published. We remain focused on our strategies to mitigate as much of the pricing headwind as possible in 2026 and are well on our way with the various strategies we have already deployed. More details will be forthcoming when we report full year 2025 earnings and 2026 guidance during Q1 of next year. As we noted in our comment letter, the proposed cuts, if finalized, will worsen the existing trend of reduced patient access to home health care. Home health is the patient preferred and most cost-effective post-acute care option and thus saves Medicare money. We urge CMS to reverse the temporary and permanent adjustments contained in the proposed rule to ensure adequate access to home health is restored. Operator, we can now open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Brian Tanquilut of Jefferies. Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. It's nice to hear some -- you guys had some additional payer negotiations that came out favorable for you guys. So can you kind of provide some color on the rate increase you received from that new one in November and then the pipeline of any additional payer innovation contracts that you have upcoming for renewal? Barbara Jacobsmeyer: Sure. So as I mentioned, this was our first payer innovation contract, national one that came up for renewal. So we were pleased with the update. Because it's already a payer innovation, we really won't disclose the update that we received. But I will say that we continue to work with those that we had negotiated. More of the regional type agreements will be coming up in the next year. The future national agreements, it will be more towards the end of next year, early 2027 before the additional national agreements will come up. Meghan Holtz: Okay. And then just a quick follow-up. You guys had nice improvement in the G&A line. Can you provide some color where that expense reduction is coming from? And then how much more runway do you have to reduce and remove some costs in that line? Ryan Solomon: Thanks, Meghan. Yes, so as we think about G&A, when we think about home office, more traditional back-office capabilities in the context of both internal and external related expenses. So a combination of some headcount reductions as well as some efficiencies that we're able to really in-source capabilities from third-party vendors while not impacting any of our capability. When you think about in the quarter, roughly $1 million to $1.5 million of that overall kind of G&A improvement sequentially, we think is durable and kind of how we think about things prospectively going forward. Operator: And your next question comes from the line of Ryan Langston of TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan Langston. Last year, we saw a pretty big jump in hospice average length of stay sequentially from 3Q to 4Q. Should we expect a similar tailwind sequentially this year just as a product of seasonality? I'm just curious what seasonal factors drive that as we get to the end of the year. Barbara Jacobsmeyer: Yes, it's difficult because, obviously, last year, when you look, we're going to have some pretty big comps here both in Q3 and Q4. And so as you mentioned, there usually is some seasonality. It's why we've added some additional resources to make sure we can extend the outreach that we have. I would say that the holiday times tend to be a little bumpy within this segment. You do have folks that tend to want to wait to elect until after the holiday. So it's -- I would say it tends to be one of our more unpredictable times of year, especially as we go into the 2 upcoming holidays. Christian Borgmeyer: Got it. And then just one quick one on the payer innovation contract renegotiation. How long is re-contracting cycle typically? Is it annually? Or is it more contract by contract? Barbara Jacobsmeyer: Yes. It's by contract by contract. I would say the majority of our contracts are 3 year. We do have some that are 2 years, but I would say the majority tend to be around a 3-year time frame. Operator: [Operator Instructions] And we have a follow-up question from Brian Tanquilut of Jefferies. Meghan Holtz: As long as there's no other queues, I'll ask another follow-up. Can you guys just kind of speak to labor in the quarter, specifically if you guys continue to benefit from some of the peers that you saw changing pay structure and you're able to capture some labor there? And then how are you thinking about wage inflation in '26, if you could give some preliminary color there? Barbara Jacobsmeyer: Sure. So I would say we've seen a nice uptick continued in our applicant pool for nursing and for therapy. And so that has been nice to see. We've continued to see an uptick also in our headcount on the clinical capacity for Home Health and for Hospice. So are pleased with the results that we're seeing there. And then as it relates to wage, I would say, we're kind of, I would say, back to that normal merit around that 3% is what we're experiencing. There are markets that will pop up occasionally that are more challenging. We do handle those more at a market level. I would say we're seeing a little bit more of that right now in the therapy side of things, but we monitor that at a market level. Operator: And there are no further questions. I will now turn the conference back over to Bob Okunski for closing remarks. Bob Okunski: Thank you, everyone, for joining today's call. Please feel free to reach out if you have any additional questions. Thank you for your time. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

195天前Insight Analytics约5分钟阅读

BDGI.TO 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Badger Infrastructure Solutions Limited Third Quarter 2025 Results Call. [Operator Instructions]. As a reminder, this event is being recorded today, November 6, 2025, and will be made available in the Investors section of Badger's website. I would now like to turn the call over to Anne Plaster, Director of Investor Relations. Anne Plaster: Good morning, everyone, and welcome to our third quarter 2025 earnings call. Joining me on the call this morning are Badger's President and CEO, Rob Blackadar; and our CFO, Rob Dawson. Badger's 2025 third quarter earnings release, MD&A and financial statements were released after market close, Wednesday, and are available on the Investors section of Badger's website and on SEDAR+. We are required to note that some of the statements made today may contain forward-looking information. In fact, all statements made today, which are not statements of historical facts are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them as actual results may differ materially from those expressed or implied. For more information about material, assumptions, risks and uncertainties that may be relevant to such forward-looking statements, please refer to Badger's 2024 MD&A along with the 2024 AIF. I will now turn the call over to Rob Blackadar. Robert Blackadar: Thank you, Anne. Good morning, everyone, and thank you for joining Badger's 2025 Third Quarter Earnings Call. Before we get into the results, I'd like to take a moment to talk about safety, which is how we start all of our meetings here at Badger. As we move into the colder weather months, it is essential that our teams remain prepared for unexpected situations, including severe winter weather, equipment issues and any emergencies. We encourage all of our team members to review emergency response plans and ensure vehicles are equipped with winter safety kits. Staying informed about local conditions and having accessible, well-maintained safety gear can make a critical difference. We appreciate everyone's continued commitment to safety and the teamwork -- and teamwork as we prepare to enter into the winter season. Now on to the quarter's results. Building on the positive momentum from Q2, the team delivered another strong quarter of double-digit growth in revenue, gross profit and adjusted EBITDA. Our record Q3 top line revenue of $237.3 million grew by 13% company-wide over the prior year. We continue to see solid demand in our end markets in both local customer and project-based work. I will provide more detail and context on our broad and diverse end markets later in the call. Our positive results reflect the team's work to increase utilization while continuing to grow the fleet. Ongoing investments in sales and marketing initiatives, including consistent performance to capture pricing opportunities are also reflected in the results. Adjusted EBITDA grew at a faster pace than revenue, up 15% year-over-year. These results highlight Badger's continued strong operational efficiencies and the optimization of our overhead support functions. Accordingly, adjusted EBITDA margin increased by 40 basis points, to 28.2%. We achieved RPT or revenue per truck per month of $47,921 in Q3, up 8% compared to last year. This improvement reflects our fleet utilization and pricing efforts. Our Red Deer manufacturing plant delivered 57 hydrovacs this quarter versus 48 units in Q3 of last year. We are updating guidance for our full year fleet plan, mainly due to increased demand from our end markets. As Badger's growth in revenue and business volumes have risen, we have increased our rate of manufacturing to ensure we have the right capacity to meet our customers' needs. Accordingly, we expect 2025 hydrovac production at the upper end of our original 180 to 210 unit range. We also successfully consolidated a Badger franchise in Denver, one of our core markets and have accelerated the planned refresh of its fleet. As a result, we expect our 2025 retirements to be at the upper end of our original 90 to 130 unit range. We are excited to gain full control of the Denver market and bring Badger's size and scale advantage to accelerate market share. We retired 36 units in the quarter, bringing us to 98 hydrovac units retired year-to-date. We refurbished 5 units in the third quarter and have completed 23 so far in 2025. The refurbished program has lagged our expectations this year, mainly due to third-party facility capacity. We are reducing the 2025 refurbishment range from the original 50 to 60 units down now to 30 to 40 units for the full year. We plan to develop our own refurbishment facility in the Central U.S. to better control the pace and the cost of this program. This new facility is anticipated to be online and operational in 2026. The company ended the quarter with 1,703 hydrovacs in our fleet, growing the fleet by 5% since Q3 of last year. Revenue and profitability grew at more than double the rate of fleet growth, exemplifying Badger's operating leverage and capital efficiencies. With the increase in hydrovac production, the consolidation of the Denver franchise as well as targeted growth in strategic market branches, we expect our range of 2025 capital spend to increase from the original $95 million to $115 million range to now between $115 million to $130 million. I'll now turn the call over to Rob Dawson to discuss our Q3 financial results in more detail. Robert Dawson: Thanks, Rob. Our solid financial results this quarter reflect the strength of our business model and the continued disciplined focus of our team. As Rob noted, we have continued to grow our bottom line at a higher rate than revenue, reflecting the ongoing execution of our road map to build scalability. In addition to the continued advancement of our commercial and pricing strategies, steady improvements in the utilization of our fleet have contributed to our performance this year. The trend in our adjusted EBITDA margins continued to rise in the third quarter, up 40 basis points to 28.2%. In particular, the addition of our fleet module and our universal data platform are showing value in the management of both our fleet and labor force. We have also continued to scale our support functions and G&A spending. This margin expansion remains on track with Badger's long-term objectives. G&A expenses were $10.6 million or 4% of revenue compared to the $9.8 million or 5% of revenue last year. Finally, adjusted earnings per share was $0.91 per share, up 25% compared to last year. As Rob has already noted, revenues and adjusted EBITDA are growing at a faster rate than our fleet, adding to the bottom line profitability and longer term, continuing to drive higher returns on capital. With year-to-date revenue up 11%, adjusted EBITDA up 16% and adjusted EPS up 29%, we are encouraged by the continued scalability and growth in margins here at Badger. Turning to the balance sheet. Our compliance leverage ended the quarter at 1.3x debt to EBITDA, down from 1.5x in the same quarter last year. It is notable that we have the financial capacity to continue advancing our organic growth strategy and maintain a stable, strong balance sheet. We renewed our NCIB program in the third quarter, maintaining our ability to make opportunistic share purchases in addition to returning capital to our shareholders through dividends. During the third quarter, we did not purchase any shares under our NCIB. I will now turn things back over to Rob Blackadar for some final comments. Rob? Robert Blackadar: Thanks, Rob. So before we open up for questions, I'd like to share a few last comments regarding our market outlook. Badger's end markets have largely recovered following the slower activity we experienced in the back half of 2024 and early '25. As we move through the remainder of 2025 and into '26, we're seeing positive indicators of sustained growth, particularly in key U.S. regions and large metropolitan areas where demand remains robust. Our strategic focus remains unchanged. We continue to leverage our deep customer relationships, both locally and through our national accounts teams to drive market density and capture operational efficiency in our core geographies. The execution of our commercial strategy continues to help Badger capitalize on large infrastructure projects such as airports, light rail transportation, expansion of petrochemical and LNG facilities as well as data centers. Supporting all of these trends is the increased demand for power generation and transmission, particularly nuclear, natural gas and solar. These projects are in addition to the continued maintenance and renewal of existing aged infrastructure in many of our more mature markets. Overall, we expect to continue to benefit from these favorable tailwinds driven by significant and sustained growth in infrastructure and construction spending in our major markets. With one of the most capable fleets in the industry and a broad operational footprint spanning 44 U.S. states, 6 Canadian provinces, we were best positioned to capture long-term growth opportunities. As end market demand continues to strengthen, we remain committed to the disciplined execution of our strategy and to delivering sustainable value for our shareholders. So with those comments, let's turn it back to the operator for questions. Operator? Operator: [Operator Instructions] And our first caller is Krista Friesen from CIBC. Krista Friesen: I was just wondering if you could give us a little bit more color on the amount of work that you're doing around data centers and if you're willing to share kind of what percentage that makes up of your work right now? Robert Blackadar: Krista, so we -- and we've shared this at some recent investor conferences because we get asked this. Obviously, data centers are kind of the big buzz right now. It's been trending in that 5% to 8% range, direct work on the data centers themselves and then some of the support functions around the data centers, I think in terms of the subcontractors, et cetera, is probably another 3% to 4%. So I would say all in, including the ancillary support around the data centers, I'd say, in that 10% to 11% range, something like that. But directly on the data centers themselves, I'd say 6% to 8% right there. Krista Friesen: Okay. And then maybe just on a different topic. Do you have any update on how tariffs are impacting your business? And just given the announcement a little while ago on heavy trucks, if that's impacting your business? Robert Blackadar: Do you want to cover that, Rob? Robert Dawson: Yes, sure thing, Rob. Thanks for the question, Krista. We continue to monitor, obviously, the tariff situation very closely. I think a couple of things just overall with regards to tariffs. 100% of our business results are entirely unaffected by the tariffs, and that's mainly to deliver excavation services to our customers. And so it really only affects the supply of trucks to our business from our manufacturing facility in Red Deer and specifically to our businesses in the United States. We continue to monitor it very carefully. There has been no real clarity on the situation with heavy trucks right now. And so we don't really have a lot to say specifically about what the impact may or may not be. We continue to be fully CUSMA compliant, and we have not paid any tariffs to date on our truck builds. And I should also point out, I think we talked about this at Q1 that when we think about a worst possible case scenario where we would have, say, a 25% tariff on our entire manufacturing production for the year, it still would increase our CapEx for 200 trucks in the neighborhood of $10 million to $20 million. We'd still continue to be showing the same kind of balance sheet flexibility we have today, and the net impact on our earnings per share would be in that 1% to 3% range. So while we are closely monitoring the situation, we continue to believe that it's an issue that doesn't impact us to the degree of [indiscernible] third-party manufacturers and sellers of equipment across the borders. Operator: And our next caller is [ Joshua Bains ] from TD Cowen. Tim James: Yes. Actually, it's Tim James here from TD Cowen. Congratulations on the good results. My first question, I'm just wondering if you could comment on any findings that you've got or that you're seeing in terms of the longevity of the refurbished units that you're doing and putting back out in the field. I believe you expect an additional 5 years typically from those. Anything you're observing that would give you a reason to believe that, that could be actually extended or shortened? Robert Blackadar: Yes. Great question, Tim. We -- we're very pleased. Obviously, we're pleased enough that we're going to build our own facility to help even fast track even more units. Very pleased with the first 18 months of the program. And the thing that we're displeased with is the ability to get more through our current third-party facilities. But to frame it up, Tim, and some people on the call may not be aware of the context, we take a thoroughly inspected 9-, 10-, 11-year-old hydrovac that we've owned its entire life. We make sure that it has really strong frame rails, and the underbody components are very, very strong on it. And we replace four large components of the unit, which is the engine; the transmission; the transfer case, which is how you transfer the power from the engine to the hydrovac on the back; and then the blower, which provides the suction on that. To do that whole exercise, then we do repaint or touch up, put on new tires, new seats and cabs for our operators, so they have a good experience in a truck. We put it back on the road, and that's anywhere from 175,000 roughly to around 185,000. It gives us an additional, we believe, 5 years. So far, Tim, in our first 18 months of doing this, we've had wonderful success. And in fact, a few of our employees have said that the truck is running better than it did when it was new. And again, these are mostly our Gen 4 trucks, the previous generation of trucks. We are very pleased with their performance so far, very little maintenance or breakdowns on them other than just routine preventative maintenance, PMs. And then the last thing I'll share is, each one of those trucks on those new components -- and those are the most expensive components on the chassis. Those components come with a 3-year warranty unlimited miles. So there really is no downside to the investment we're making. As far as do we think it can go beyond 5 years and maybe it's 6 or many, many of our chassis are run on the same model chassis we use for dump trucks and flatbeds and various other over-the-road type environments, and trucks have around a 20-year life. We do believe, though, in certain applications, our trucks are run in a little bit higher duty. So we're not sure if it's going to be 5, 6, 7 because it's still early on, and we're through our first batch right now, but we're very encouraged right now. But we're going to stick with the 5-year life at this point. I don't know if you want to add anything on that. Robert Dawson: No, I've got nothing else to add. Robert Blackadar: So hopefully, that answers your question, Tim. Tim James: That's very helpful. I'll just have one more quick one, if I could. And I realize Canada is a relatively small portion of your business in North America. But I'm curious if Canada's budget released this week, if there's anything in there that caught your attention as surprisingly positive or negative in terms of opportunities for Badger in Canada over the coming years. Robert Dawson: Tim, it's Rob Dawson here. Thanks for the question. I don't think we would point out any one thing from that Canadian budget, but I would say that we are very encouraged by this government's support for the return of large project, an infrastructure project renewal in Canada that has slowed down so much over the past, say, 5 or 6 years. And we are already starting to see the benefit of some of those, just a change in tone. In particular, our Western Canadian business is back to growing. Our Central Canadian as in Ontario is also starting to show some signs of really solid performance. So overall, quite encouraged by the change in tone and the return to large project resource spending that has made Canada what it is. Robert Blackadar: And I'm going to add one thing, Tim. We have several of our larger construction customers there in Canada that, in a weird way, they're also kind of our peers, but they're our customers. I don't want to name them because the moment I start naming some customers, you always leave one or two out and make some crabby, so I don't want to do that. But we're very encouraged that several of our publicly traded customers are press releasing these large project wins, and we love supporting those customers and partnering with them. So just as Rob suggested, it seems like Canada is really making an effort to reinvest in some of the infrastructure and a lot of projects that we were seeing regarding -- around power as well as hospitals and some airports and stuff. So very encouraged what we're seeing coming out of Canada. Operator: Thank you. And that seems to be all of our callers. So I will turn it back over to you, Rob. Robert Blackadar: Thank you, operator. So on behalf of all of us at Badger, we want to say thank you to our customers, our employees, our suppliers and shareholders for your ongoing support that drives Badger's success. Operator, you may now end the call. Operator: Thank you. This concludes today's event. Thank you for participating.

195天前Insight Analytics约5分钟阅读

EGIEY 2025 Q3 财报电话会议

Adriana Wagner: Good morning, and welcome to the ENGIE Brasil Energia's Third Quarter '25 Earnings Results Video Conference. I'm Adriana Wagner, Investor Relations Analyst at ENGIE Brasil, and I would like to make a few announcements. [Operator Instructions] It is worth remembering that this video conference is being recorded at our site, www.engie.com.br/investors, we have made available the results presentation and earnings release filed at the CVM, which analyzes financial statements, operational results, ESG indicators and progress in the implementation of new projects in detail. Before proceeding, I would like to clarify that all statements that may be made during this video conference regarding the company's business outlook should be treated as forecast depending on the country's macroeconomic conditions of the performance regulation of the electric sector besides other variables. They are, therefore, subject to change. We remind the journalists who wish to ask questions that they can do it through e-mail sending it to the company's press conference to present the results. We have with us today, Mr. Pierre Gratien Leblanc, the CFO and IRO; Guilherme Ferrari, Renewable Energy and Storage Officer; Marcos Keller, Director of Energy Trading; and Leonardo Depine, Manager for Investor Relationships. I would like to give the floor to Pierre to begin the presentation. Pierre Gratien Leblanc: So good morning, everyone. I will do it in English. So I hope it will be fine for everyone. So thanks for joining us in this -- during this hour. Always a very, very important moment for us to meet you and to explain you the financial results and the main highlights for the last quarter '25. So if we start with the highlights, it can be the main achievement we realized during this quarter are the following. First of all, regarding our project Assuruá and Assu Sol, we now almost complete the physical phases, and we are starting the operational commercial operations. So we are on time, and it's a very, very great achievement for us. Then we complete also the acquisition and the integration in our portfolio of the 2 hydro power plant, Santo Antonio do Jari and Cachoeira. So now there are -- the 2 assets are fully embedded in our portfolio management and since mid of August, and they are starting to contribute in our EBITDA. We won for the 15th time the trophy of transparency in accounting, Anefac, which recognize the transparency and the quality of our financial statements. And it's a very, very great job from teams and our accounting team. We also be certified as the Best Place to Work according to the GPTW, Great Place to Work Brazil. So good company and good achievement from our HR team. Then I have to mention that there is a subsequent event post from Q3. This is an increase of our social capital. So we decided because we need to comply with the law and our profit reserve was above our social capital in late '24. So we need to increase our capital through the profit reserve incorporation. So we will do it during November months, and we will do it through bonus shares. Then Q3 results in terms of finance is a very, very -- next slide, please. is a very, very good, robust and solid results. As you can see on the slide, our EBITDA grew by almost 12.54% compared to last quarter '24, which is good results. And if we look at year-end -- year-to-date EBITDA, of course, on a recurring basis, we increased our EBITDA in '25 by 6.4%. It's a little bit less true regarding the net recurring results because you can see that we decreased by -- in year-to-date by 8.4% our net income due to the -- mainly 3 factors. First of all, we see an increase of our depreciation of assets because we do have compared to last year, 3 big assets now in operation like Caldeirao Cachoeira. We also have an increase of our financial expenses linked to the high interest rate in Brazil in '25 much higher than in '24. And we do have an increase in our tax expenses also. But overall, very good results, robust. We deliver what we say. So ENGIE is a healthy company on that. Then regarding the ESG KPIs, well oriented to be fair, all of them, except maybe -- and unfortunately, we have to -- 4 accidents during the last quarter '25, 4 accidents with work stop days, some days. So we are still paying a lot of attention, a lot of focus on that. And we also support a lot the increase of the women in our leadership team. So we are on track. We are on the good way to achieve our results. We increased the percentage of women in our leadership team. And we continue to invest in innovation and in our responsibility, social responsibility even if we decrease a little bit our contribution on that. Now time to leave the floor to Guilherme in order for him to present the operation in renewables. Guilherme Ferrari: Very well, I'm going to explain what underlies these figures. Here, we have the availability of our wind, solar and electric assets. Our performance continues to improve, especially in wind and photovoltaic. We have a team that works closely with our suppliers so that we can have greater availability in our equipment. This is the effort of our team, of course, with the help of investment, always seeking good performance of our assets. Now the performance has been significant in these 2 technologies. In energy, we are subject to seasonality, but we're also following a very good availability standard. In transmission, also a very high availability. And of course, these are assets that are more predictable in terms of operations, except for unforeseen things, but we're doing well in transmission as well. Now regarding curtailment, the hot topic in the sector of renewable energy, it has been significantly impacting our generation. The impact is on wind, solar assets and very much aligned with what is happening in the system. We attempt, of course, to minimize this, optimize everything with maintenance, management of these curtailments. We hope that a solution for curtailment will come in the fourth quarter with operational adjustments that should come from ANEEL and the National Integration System. Now another important point that has already been mentioned by Pierre is the acquisition of Cachoeira Caldeirao and Santo Antonio do Jari. And I think you can go on to the next slide. No, perhaps not. If you could go back. Therefore, the organic growth in this quarter, where we added 680 megas additionally from [ Cerrado ] and additionally, the 2 hydroelectric plants mentioned by Cachoeira Caldeirao and Santo Antonio do Jari with 612 megawatts. Next slide, please. As has already been mentioned, we see a growth in generation. This comes from our organic growth and from the M&A operation we have just carried out. Once again, it's organic growth and an enhancement in performance. This year, the wind situation was above what we had expected, helping us to minimize the issue of curtailment. Operational enhancement, better natural resources, both solar and wind, all of these are helping us have an increase in power generation. Next slide. Keller, you have the floor. Marcos Amboni: Good morning to everybody. And I think this slide summarizes our trading activity for the quarter. It was an excellent quarter. And in the graph to the right, you can observe that we had very good sales during the quarter. Now this is a comment we made in the call of last quarter that some operations that were under negotiation are still not reflected in our balance. And this is the case of this quarter, where they are reflected, the variation is due to the accounting of new productions with high production levels, and we're showing the availability, new contracts for all the years until 2029. So we have good volumes, as you can see. And besides these good production volumes, you can see the number of our consumers. We have a good evolution in that figure of consumers when compared with the same quarter last year. 17.6% increase of consumers. We have 2,056 at the close of the quarter and a growth of 24% in consumer units served in the third quarter of '25 until the end. Once again, very positive figures in energy sold, volumes sold as well as in our consumer portfolio with a lower ticket perhaps, but with higher margin. We can see the position of our resources available until 2030 going forward. This means that we continue with that strategy of contracting through time, fine-tuning tactical adjustments, gradual growth, guaranteeing revenues and the predictability of our results. I think this is what I wanted to say regarding that slide, and I am at your disposal during Q&A. Well, to go back to the projects that are under implementation, the Assuruá Wind Complex, as Pierre mentioned, the physical progress has been concluded. It is 100% operational. We're waiting for ANEEL dispatch to enter commercial operations of 100% of this complex. And we're waiting for the decision of ONS that has created new procedures to obtain, well, the license and to test these assets. It's worth highlighting that the Assuruá Wind Complex, as you already know, has quite a bit of supply and the performance has been much above what is expected. It surprises us in terms of its performance. It's the largest wind complex in Brazil and also the part with the best performance throughout Brazil. This project was delivered within the forcing budget within the right time line with health and security fully complied with. And we're in the final stage of execution, the environmental part, the recovery of degraded areas and investment in social areas surrounding the assets location. Next slide, please. Assu Sol, we have concluded it. We are progressing in installation activities. And because of this new procedure of the ONS, we're waiting to signal all of the procedures to be able to enter commercial activity. This is an asset with very good performance, top line performance. Now in terms of CapEx, it's all according to what has been scheduled. It was -- it is in accordance to our scheduling. And the same holds true for health and security. We have a recovery plan for the degraded areas. These are activities that tend to take longer, but within what is foreseen and as part of the social work that we carry out. Next slide, please. Our first transmission project in this presentation is Asa Branca. The first stretch is between [ Shaffield 2 and Corso 3]. It's about to be concluded. This should happen in the fourth quarter. Now at the end of this year, we will have 33% of the project RAP, a relevant amount compared to what we expected in the auction. Now the second stretch is awaiting the license for the continuation. This should take a few weeks, and this should begin the coming year. The final stretch of the project will only come into operation at the end of 2027. Well, in Grauna, this comes from a recent auction at the end of 2024. It's still in the environmental phase, but going according to plan. Now that red line that you see, the brownfield on the map. At the beginning of July, we began to operate that line. We have 5% of the total RAP, not that much, but an important framework for us. It's the first brownfield that we take on with our own operation, not with third parties. And of course, this is important for ENGIE. Regarding Grauna, now if anybody would like to add something, please do. No great updates compared to the last quarter. We -- Well, we are fully mapping everything out in the graph that you see. And regarding the transfer, which is a frequent question that we receive, we're still awaiting the stance of the controller, and there's nothing new this quarter regarding that topic. And the last one, Guilherme, who will speak about expansion where there is nothing that novel. Guilherme Ferrari: Nothing new here. We continue to maintain our project pipeline. And we are awaiting and the market is reacting, of course. There are real demands. We hope this will not be impacted by curtailment. We continue to keep these in our portfolio, especially the wind assets so that we can follow on with their development. Expansions are always marginal, but highly welcome. And as part of this context, we have the possibility of the auction for capacity in the coming year. We have 2 of our assets, Santiago and others that will participate, but well, we will be able to take part in this auction. And another important point refers to the batteries. We're beginning to look at these with greater attention, the development of batteries to also take part in the auction that will take place in the coming year. Marcos Amboni: Well, thank you, Guilherme. We'll go to see our financial performance, return on equity and return on invested capital at satisfactory levels, showing how resilient we are. We invested more than BRL 38 million in the last years, which means that our asset base has increased. And of course, it is updated. The prices in the past were old. It seemed to be greater with this new updated base, the prices have dropped a bit. And some of these projects are not delivering 100% of their EBITDA. This will become more clear in 2026, Assuruá and others delivering their full performance. And so the levels will be more recurrent. Now for the 9 months of '25, we have a slightly higher share of transmission vis-a-vis 2024 as part of our strategy of diversification. 1/4 comes from transmission, gas transportation, 75% from generation. Here, we see our revenue changes at 31.8%. Most of this due to IFRS, BRL 22 million in transmission, but we do have an important organic effect in growth of revenue and volumes, inflation and new assets coming into operation vis-a-vis the same period last year. And if we look at EBITDA, this will become more clear. Now to go to the results of TAG that continues to deliver a very consistent performance, BRL 2.3 billion, and BRL 1 billion -- almost BRL 1 billion of profit this quarter of net income, very similar to the first quarter, somewhat below the second quarter where we had a nonrecurrent effect and doing very well. Here, we have a more complex graph for this presentation referring to EBITDA at one end, the accounting EBITDA that is published. Then we have the intermediate bar that is adjusted EBITDA. This quarter, there were very few adjustments, as you can see and in the middle, adjusted EBITDA and the effect of IFRS, all have a similar growth between 10% and 13%. Transmission, very stable, equity income of tax somewhat lower. So we're left with generation with an increase of BRL 287 million that we have called performance is price, volume and expansion and reduction due to costs associated to expansion, connection cables, material service and sundry costs. This is a positive result coming from generation. Now in the middle, we have a growth of 10.5%. Net income change, a very similar panorama in the center, an increase of 10% from BRL 666 million to BRL 738 million, most comes from adjusted EBITDA, income taxes, negative variations due to depreciation, new assets and partly due to financial results. Our indebtedness has increased a bit. And we have, of course, the interest rates that are higher than the third quarter last year, leading to a 10% increase. We'll speak about our indebtedness, balance debt. It's increasing, which is expected BRL 3 million for the acquisition of Jari and Cachoeira. We have BRL 600 million in debt, BRL 3 million impact on our debt. Only this acquisition changed the EBITDA. It was 2.7x last year. It has now reached 3.2x. This is still a satisfactory level that guarantees a AAA, which we would like to maintain in gross debt, 3.8x, a well-balanced debt, as you can see. Of course, as of now, we need to be more cautious in our coming steps, but a healthy indebtedness. Now in this slide, we show you the debt profile and maturity, a very smooth schedule after 2030. Therefore, this profile is BRL 2 billion a year in terms of debt payment, fully under control. We continue to be AAA, 1/3 in CDI and the rest in IPCA. The cost of the debt evidently has increased a bit, 6.4% on average compared to 5.6% in the same period last year. Of course, there is pressure from the financial conditions throughout the country. Regarding our CapEx, no significant changes, a detachment year-on-year, almost BRL 10 billion year-on-year. This year, BRL 6 billion, which means the BRL 3 billion from Jari and Cachoeira and the rest for the conclusion of Jari, the transmission companies, that is where our CapEx is going to. And in '26, '27, everything at lower levels. We will be left with maintenance and the 2 transmission companies. Grauna that extends to 2028 and Asa Branca until 2027. And finally, well, this slide, I believe, is the same as that of last quarter to show you our payment of dividend 2021, 100%. And since '23, we maintain this at 55% without significant changes. And that is it. Adri will now lead the Q&A session for us. Adriana Wagner: [Operator Instructions] Our first question is from Daniel Travitzky from Safra. He has 2 questions. I will pose the first question and put it together with another question from [ Huang ], an individual investor about the share of bonuses. Could you explain the rationale to do that now? And we have the question from Ruan on the bonus and other models for the payout of dividends and shareholder capital. Pierre Gratien Leblanc: I can take it, this one. You complement if you want. So why we are doing that? It's just because ahead of '24, our profit reserve was above the capital. And to be compliant with the law, we need to increase our capital -- social capital. This is the first point. The second point is we do have -- we had space until -- to increase our social capital until the authorized capital we do have. And this authorized capital was -- is today at BRL 7 billion. So we take the opportunity to go up to the limit or close to the limit. And we proposed to the Board yesterday, and it was approved to increase the social capital up to BRL 6.9 billion, and it will be done through a bonus action. Why? Just because we wanted to -- also to have a better liquidity of our shares in the stocks. And through these mechanisms, we will increase the liquidity of our shares without any financial impact at short term for our minority interest shareholders. Guilherme, if you want to complement or not, up to you. Guilherme Ferrari: No, that was perfect, Pierre, simply to complement the remuneration model besides the shareholder equity payment. In the future, we can alter the company's stock. I don't think this will be done in the short term. This is a model that will be analyzed to see if there's any advantage in doing that. Adriana Wagner: The second part of the question refers to your vision on the solution proposed for the curtailment in provisional measure 384. This is also part of Juan's question, who asks about curtailment and how to deal with it in the medium term? Pierre Gratien Leblanc: I would like to begin the answer, then I will give the floor to Guilherme or Keller. This provisional measure 304 was approved, but not sanctioned. We have to wait for it to be sanctioned. And we need to understand the regulation better. Perhaps Guilherme would like to comment on what is included in this provisional measure. Guilherme Ferrari: Well, this is simply to add information. We're faced with several uncertainties in terms of the real impact, which will be the reimbursement. We still have doubts if there will be reimbursement regarding power or if there will not be reimbursement. And there is an issue that we already mentioned, regulatory issues that could make investments in generation have a different technical condition to the ones we have presently, creating another obstacle to the incredible growth of generation companies. Now all of this strongly impacts our curtailment projections going forward. Marcos Amboni: Well, I don't have very much to add. Everything has been said. We would have to see the final version of provisional measure 304. There are 2 articles that we need to analyze before we can estimate what will be subject to reimbursement and those articles that refer to us and the impact, the effect that this causes on physical distribution and distributed distribution. These are points that need to be further assessed at the end of this legislation. Now there is a positive point in the midterm, and it is interesting for the long term better conditions to insert batteries into the system. This will help us overcome several difficulties that we face at present and physical curtailment can be mitigated if we make good use of these batteries. Now in the coming months and years, we will see how this plays out. To complete that topic and others, we're going to approach this in great detail in ENGIE Day that will be held in Sao Paulo at the end of November. If you can't be with us, we will record the session. Adriana Wagner: Our next question is from Joaquin. The question is will the company think of similar acquisitions compared to the assets recently acquired? Will this go in detriment of new assets in the renewable sector? Guilherme Ferrari: I will begin and then Depine and Keller, please feel at ease to add your comments. Now evidently, the market with this oversupply ended up thinking greenfield made no sense. And with curtailment massively impacting the results, greenfield has been put aside. Now this is a factor that will make us postpone our decision to invest in greenfields. And when we look at M&A for wind and solar operations, the curtailment factor is a fundamental assumption. Of course, the seller will try to insist on curtailment. The buyer will insist on a more realistic curtailment, and this leads to a great difference in values. Potential M&As for renewable wind and solar energy will have to wait until we have a clear vision of the impact of provisional measure 304 and the regulation that will come about to work with distributed generation. Now M&As in hydro plants, well, this is not only our desire, but that of other players, but it is scarce in the market. There are a few opportunities. Whenever an opportunity arises, we will look at it, of course, following the line that we followed for Cachoeira and Jari. We will see the quality of the assets, labor -- I think, labor qualification is fundamental, and that was a positive point in these 2 assets. We were able to maintain all of the employees that were already working there, bringing in the knowledge since the phase of conception until the beginning of operation. And we're adding ENGIE's knowledge to enhance the quality of these assets. We have to carry out an in-house analysis. And as I said, these assets are scarce in the market. There are not very many opportunities. Adriana Wagner: Thank you, Guilherme. The next question comes from Bruno Oliveira, sell-side analyst. Two questions. Any planning on TAG, a possible partial sale in the horizon? And as part of your investment projects, any outlook for a dividend payout of 100%? Or is it too early for this discussion? Pierre Gratien Leblanc: The answer is quite easy is no. Nothing planned in the very, very short term or short term or medium term for TAG. Depine, maybe you can take the second one. Leonardo Depine: Well, regarding the dividends, for the time being, no, our indebtedness continues to grow somewhat above 3 at present and will further increase because of the 2 projects under construction until mid-2026. I think Bruno asked about this. It doesn't make sense for the time being to go back to 100% of payout with indebtedness above 3%. I think we had already referred to this in the second quarter as well. Adriana Wagner: Very good. Thank you. To continue with the next question from Victor Brug, a sell-side analyst for JPMorgan. Any update in the revision of tariffs in the Northeast, TAG? Leonardo Depine: Well, from TAG and the regulator itself, we have heard that this tariff revision should happen in the first half of the coming year. The last information is that this review will be carried out in 2 stages. They're going to work on work and the asset base. So this process will be displaced through June, perhaps will be concluded in June. This is the last statement we heard from the regulator. We shouldn't expect anything very concrete in the short term. Adriana Wagner: Our next question comes from Bruno Vidal, sell-side analyst from XP Investments. Does the company have an outlook on participation in BP and which would be the modality, capital stock increase or increase of indebtedness? Pierre Gratien Leblanc: So we are still studying this opportunity to prepay our UBP topic. We are waiting for the ANEEL calculation. And then we will have until beginning of December to discuss with ANEEL. And then ANEEL will give us if we are interested to prepay the deadline to do the cash out. How we will do it? So it will be probably now in '26, not in '25, is still under discussion inside EBE. We do have a lot of different options. Increase of capital may be one, but it's not the only one. So we will take and choose the best option for EBE to finance the prepayment if we decide to do it. I hope that as Depine said earlier, I hope that end of December during our Investor Day in Sao Paulo, we could give you more and more detail on that. Leonardo Depine: Thank you very much. Our calculation in the time line, the payment should be until the end of March or the beginning of April. So we have the first quarter of 2026 to discuss these options. Adriana Wagner: Our next question is from Lorena, sell-side analyst from Itaú BBA. Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted considering the price of energy in the coming years. Leonardo Depine: I can answer that. If you could tell me the first part. Adriana Wagner: Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted, considering our viewpoint on energy in coming years. Leonardo Depine: We continue with that vision, with that strategy of having gradual uncontracting and we make tactical adjustments in terms of sales. This is the best for a company that is capital intensive and works with generation. We give ourselves the opportunity to make the most of higher prices in that long arm. Now we're thinking of year plus 1, year plus 2. We have future prices that are higher than years further ahead. So there is space for that long arm, while the market prices react in the upward position. It's important to make the most of contracting and not move away from this now. There's also a limit in liquidity in the market. So we can't contract everything on the spot with this very volatile price model, we know there are scenarios where the price will be much too low and spot prices will be low and we have to counterbalance our vision that there is room for future prices to improve vis-a-vis the risk in the short term, not allowing huge volume for the short term because we'll end up in the spot market. This is a bet, of course. Our profile is to have an appropriate management between results, our revenues and the risks that we take on. To summarize, we're going to continue following our broader strategy of gradually contracting future energy. Adriana Wagner: Thank you very much. At this point, we would like to end the question-and-answer session. I will return the floor to our officers and Mr. Depine for their closing remarks. Leonardo Depine: I would like to thank all of you for your attendance, and we hope to see you at our next events. We will meet at our event at the end of November, and we hope to have a better vision of the impacts of PM304. Thank you all very much. Have a good day, and we hope to see you in our next event. Pierre Gratien Leblanc: Thank you all. See you in late November in Sao Paulo. Adriana Wagner: We thank all of you for your attendance, the energy video conference and have a very good afternoon.

195天前Insight Analytics约5分钟阅读

AFLYY 2025 Q3 财报电话会议

Operator: Good morning, and welcome to the Air France-KLM Third Quarter 2025 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Benjamin Smith, CEO; and Steven Zaat, CFO. Please go ahead, sir. Benjamin Smith: Okay. Thank you. Good morning, everyone, and thank you for joining us today for the presentation of Air France-KLM's third-quarter results. As usual, I'll start by sharing the key highlights of the quarter, and then I'll hand it over to our CFO, Steven Zaat, who will walk you through the financial results in more detail. I'll return at the end with a few concluding remarks before we open the floor for any questions you might have. This quarter once again demonstrates the resilience of our business model in a challenging environment. In the third quarter, Air France-KLM delivered a stable operating margin of 13.1%, with revenues increasing by 3% year-over-year to EUR 9.2 billion, supported by a 5% increase in passenger traffic, which reached 29.2 million passengers. The passenger network unit revenue was up 0.5% at constant currency, driven by continued strong demand for premium cabins, which I will elaborate on later. Meanwhile, our maintenance business also made a solid contribution. We managed to limit our unit cost increase to 1.3% despite higher airport and air traffic control charges. As a result, operating income improved by EUR 23 million year-over-year to EUR 1.2 billion. Our balance sheet remains robust with leverage at 1.6x. Year-to-date recurring adjusted operating free cash flow reached EUR 700 million, confirming our ability to combine financial discipline with continued investment in our future. Finally, fleet renewal continues to advance with new generation aircraft now representing nearly 1/3 of the fleet, up 8 points compared to a year ago. Now moving to Slide 5. For those of you who are following the deck here. One of this quarter's key highlights is the continued success of our loyalty program, Flying Blue, which has been named the world's best airline loyalty program by point.me for the second year in a row. This distinction reflects the trust of over 30 million members and underscores Flying Blue's growing role in strengthening our connection with customers. Flying Blue remains a powerful driver of loyalty and commercial performance, and its global recognition is a testament to the value and quality of the experience that we deliver. Let's turn now to Slide 5. We're pursuing the implementation of our premiumization road map across the group with concrete improvement throughout the customer journey. On board, we're rolling out our latest long-haul business cabins at both Air France-KLM and KLM's premium comfort class is now featured on more routes. Starting in September, Air France has been introducing high-speed Starlink WiFi on board, available free of charge in every cabin, a first for any major European airline. Almost 30 aircraft have already been equipped, and we expect 30% of the Air France fleet to feature this service by the end of 2025. In addition, we are continuing to enhance the customer experience across multiple touch points. This includes upgraded premium lounges with recent improvements in Chicago and Boston, and an enriched dining offer featuring new signature dishes from Michelin star chefs on U.S. departures and a simplified customer journey from check-in to boarding. A new exclusive ground experience has also been introduced at Los Angeles, for La Prem customers, and I'm also particularly proud to highlight that our fully redesigned La Premal cabin will be available on the Paris City G2 Miami route starting November 10, after following a very, very successful launch on our flights to New York JFK, Singapore, and Los Angeles. Altogether, these initiatives elevate the quality of our product, reinforce our positioning in the premium travel segment, and support our path to higher value revenues. Moving to Slide 6. As you can see from this slide, the mix of our long-haul cabins is gradually shifting toward higher value premium segments. At Air France, the share of La PremiÃ¨re and business seats set to increase from 12% in 2022 to 13% by 2028, while premium economy, now rebranded as premium, will rise from 8% to 10%. At KLM, the trend is even more pronounced. Premium comfort introduced in 2022 is expected to expand to 10% of seats by 2028, while the business cabin segment will grow from 10% to 12%. In other words, by 2028, almost 1 in 4 seats across our long-haul fleet will be in premium cabins. This structural shift aligns with our longer-term strategy to strengthen our brand positioning, reflecting evolving customer demand, improving revenue quality, and enhancing the value proposition for long-haul travelers. Turning to our network. We are continuing to expand connectivity across all key markets. This winter, the group will operate a broad network across all regions with balanced capacity growth. In Asia and the Middle East, Air France will serve Phuket, Thailand, while KLM will add Hyderabad, India, to its network. In the Caribbean, Air France will launch services to Punta Cana in the Dominican Republic and KLM will introduce flights to Barbados. Across Europe, KLM is opening KittilÃ¤ in Northern Finland, while Transavia is launching new services from Deauville (Normandy) and Madinah Saudi Arabia, and Marsa Alam, Egypt will also be added. And Transavia will increase flights to Morocco, Egypt, and Finland's Lapland region as well. Looking ahead, Air France will launch flights to Las Vegas in summer 2026, further strengthening our North American offering. Altogether, these additions illustrate how Air France-KLM continues to grow strategically, improving connectivity, reinforcing its position in key markets, and maintaining a well-balanced portfolio of routes. With that, I'll now hand it over to Steven, who will walk you through the detailed financial results. Steven Zaat: Yes. Good morning, everybody, and thanks for taking the time to listen to us. I think we can say it was a tough quarter in the third quarter, especially from a revenue perspective. The impact of the situation in the U.S. regarding FISA and immigration rules starts to hurt our lower-yield segment in the long haul. And I think also the warm summer didn't help our European network and Transavia. And then on top, we had ATC strikes in July, we had ground strikes at KLM, and then all the impact from the taxes and charges which we get in France from the TSBA, and at Schiphol, the charges of the lending fees and the increase of our security charges. I think we had last year, we had, let's say, the Olympics. So I think if you look at the tailwinds, which we should have from the Olympics, a big part has been absorbed by these headwinds in this quarter. If we look at the margin, you see a stable margin of around 13%, which is the same as we had last year. On the unit revenue, if you're excluding currency, we are at minus 0.5%. And the unit cost, we had quite well under control. I guided you already that we will be at the lower end of the 1% to 3%. So we are very close now to the 1%. And if you include also the fuel benefit, you will see that actually our unit cost is coming down with 0.2%. So let's say, unit revenues and unit costs are stabilizing each other in this quarter. If you look at the left and you look at the net result, you see that it looks down year-over-year, but it comes that we had an unrealized foreign exchange result last year of more than EUR 100 million. So if you take that out on the net result, we actually improved, and we are now at an equity level above EUR 2 billion. If you go business by business, and I will come back on the 0.5% unit revenue on passenger business on the next slide, you have to see at the cargo that we see a minus 5% in unit revenues. This is related to the fact that we had more freighters in maintenance. So we plan more maintenance for our freighters at Schiphol, and it extended also more than what we expected. So this is quite a big impact on our unit revenue. If you look at the cargo contribution to our P&L, it's more or less flattish. So it's also, let's say, benefiting from a unit cost perspective over there, absorbing actually the unit revenue decline in the cargo. On Transavia, we grew capacity 13.8%, 15% in France, and 12.5% in the Netherlands. In France by taking over the slots of Air France in Orly, and in the Netherlands by upgauging our fleet. That had an impact on our unit revenue, which is down minus 2.8%. And I think also that the warm weather didn't help our local business due to the fact that the appetite to travel probably when it's hot, it's less when it is raining dogs and cats outside. So we have a stable result of Transavia of around EUR 217 million. The maintenance business performed quite well, an increase of 13% of our revenues despite the lower USD, especially on engines and components, we start growing the business. We are now at an order book of EUR 10.4 billion. We increased our order book by EUR 1.7 billion compared to the beginning of the last year. So we are strengthening this business segment. And you see also that the results are improving quarter-over-quarter now with an operating margin of 6.3%. So a very good performance on the maintenance business, where we also start to recover at the components business to drive up our margin. If we then go to Page 11, let's start with Air France. Of course, there was the Olympics last year, but we also had the DSBA impact and the ATC strikes. And all in all, Air France improved the result by EUR 67 million, having now an operating margin of 14%. KLM is especially impacted by the lower yield demand, and this lower yield, especially on the long haul impacts the unit revenues of KLM. And on top of it, we have the increase of the triple tariffs, which is really hurting KLM, including also the security charges, which are going up. So I think these 2 impacts actually explains all the KLM decline despite the fact that we continue with our back on track. And you see later that on the productivity side, the unit costs are getting better under control. And also, we see that we are getting very close to, let's say, the low limit of our guidance, and especially a big contribution coming from the productivity. On Flying Blue, a stable result of around EUR 54 million. We had last year, we -- first of all, Flying Blue is impacted by the dollar because we sell miles in the U.S. And on top of it, we had very cheap seats available for flying routes during the Olympics. So that has a positive impact, let's say, on the miles cost and which we don't have this quarter, but I think it was a very strong quarter. We grew the business again with 10.5% and the business operating margin of 24% is contributing as we expected to our business model. If we then go to Page 12, then you see the big difference, and we took out now also the premium economy. You see that there's a big difference between the premium traffic and the lower-yield economy traffic. So in the first business, we increased our load factor. We increased our capacity. We increased our yield. On the premium economy, we even increased our capacity with 10%, while at the same time, increasing the ticket prices by 5.4%. And then on the economy, there, you see it's starting to hurt. It is minus 1.5% in terms of yield and also a lower load factor. Although the load factor is still 91%, you see that it is more difficult to fill the seats. If you look, for instance, on our traffic on the North Atlantic to the U.S., there is minus 10% lower passengers from India, for instance, which is all related to the immigration rules in the U.S. If you go over the world, you see still that North America on itself is not doing that bad. We have a 2.7% increase in yield, especially driven again by the first and business class and the premium economy and also by the very strong point of sale in the U.S. Latin America is still strong, 2.8% up in yield. And we see also that in the Caribbean and Indian Ocean, we could increase our yields year-over-year. And on the long or the outlayer is a bit Africa, where we see that we have a gap on the load factor, which is especially again related to the, let's say, the political situation in Africa. but also the connecting traffic to the U.S. where there is less traffic from Africa to the U.S. due to all the immigration rules. And on the right, you see a quite positive trend on Asia, up 4.4% in yield. So we are doing quite well in that segment with a limited growth of 1.7%. On the right, you see again Transavia, which I already explained. So this is minus 2.7%. And you see this hot summer had an impact on our short and medium-haul, which was more or less flattish year-over-year. If we then go to Page 10, you see we guided you that we would be at the lower end of the 1 to 3. So we are very close to the 1 now. That will also be the case in the next quarter. We see that the unit costs are coming down as productivity is kicking in. But of course, the premiumization, which contributes 0. 6% to our unit cost, and also this increased ATC charges and the significant increase of the airport charges, especially in Amsterdam that drives actually the cost here still. But our own unit cost, which we can directly influence, you see that the labor price is compensated by 1.3% on unit cost on productivity. And then on the operations, it's still going up 0.8%, mainly driven also that we have expensive ground, and also on the maintenance side, is still quite a difficult environment. So -- but all in all, good to see that the unit cost, excluding the ATC charges and the premiumization are more or less flattish, and we see also a positive trend towards Q4. On Page 14, you see the cash flow. So a big jump positively in terms of operating free cash flow. We had a EUR 1.5 billion, where we were last year at EUR 28 million. Then we still have there in there around EUR 400 million of deferred social charges and Wax. And if you take these exceptionals and you take also the payment of the lease debt, you see that we are now at a recurring adjusted operating free cash flow of more than EUR 700 million, where last year, we were at EUR 23 million. And if you look at the right, you see that the net debt is coming up. Of course, these exceptionals of EUR 400 million are added actually at the end of the day to our net debt. And we had -- let's say, we signed a lease contract on the 787-9, where we extended the leases till the period 2033 and 2035, which had a EUR 300 million impact on our modified lease debt. But of course, that has not an impact in the coming period on our free cash flow because we continue to operate these profitable planes. If we then go to Page 15, you see that the leverage is down now at 1.6. We have EUR 9.5 billion of cash at hand, which is very stable over the year, which is well above the EUR 6 billion to EUR 8 billion target. We launched very successfully a bond of EUR 500 million vanilla for 5 years with a coupon of 3.75%. We had the lowest credit spread ever in our history of Air France-KLM. So we are extremely proud of that. And we continue to simplify our balance sheet. So we redeemed Apollo for EUR 500 million in July. We issued a new hybrid into the market, but we will also pay back the EUR 300 million of our hybrid convertible bond in the market. So in total, we are reducing this hybrid stock with EUR 300 million this year. And that with a net result generation, we see that we have continued to strengthen our balance sheet where we're now above the EUR 2 billion of equity. Let's then go to the outlook, and let's start with the forward bookings. We see that there is a gap of 3% in the long haul, 2% in the medium haul, and 4% at Transact. We have seen this every quarter. At the end of the day, we were always able to almost close completely this gap. So that is also, let's say, that is a little bit the trend that we see now in our industry. To give you a bit of an indication, if we look at the first 28 days of October, we see a unit revenue increase of 2%, excluding currency impact, with a load factor gap of 1%. And we see again a difference between premium traffic, including premium economy and the low-yielding classes in the overall long-haul network, giving confidence on our premiumization strategy. Then also, I will, for one time, also guide you on the cargo because usually, I not do that because I think we don't have a lot of bookings in -- but we had a very exceptional situation last year where we had a positive impact of the front-loading, especially related to the U.S. elections in the fourth quarter. I already indicated in our last call that the Q4 cargo unit revenues would be negative. And for the first 4 weeks of October, we see a decrease in unit revenue of 11%. Although cargo has a very short booking window than the passenger business, and it's difficult to predict the unit revenues. But in our internal forecast, we expect a double-digit decline in unit revenues compared to last year for the fourth quarter. If we then go to Page 18 on the hedge, so you see that we have hedged now 70% of '25 and 50% of '26. We are quite stable in our fuel bill. I think we last time indicated $6.9 billion, and we are now at $6.9 billion. So a very stable fuel price, if you look at it over quarter to quarter. It can go up and down during the weeks, but I think we are now reaching a kind of normal plateau for the fuel price. If we then go to Page 19 on the capacity. So we still aim at a capacity of 3% to 5% on the long haul, 3% to 5% on the short and medium haul and Transavia, especially because we had a very strong operations in the third quarter. We expect to be above 10% for the full year. But overall, we still guide at 4% to 5% versus 2024. On Page 20, you see the outlook, and it is every quarter the same. It becomes a bit boring maybe. So group capacity, 4% to 5%. Unit cost, I'm very confident in the low single-digit increase where we will see in the fourth quarter that we had a very low side of this guidance. So we are comfortable for the full year on this low single-digit increase in unit cost. Net CapEx between EUR 3.2 billion to EUR 3.4 billion, also probably more at the low end of the bandwidth and net debt current EBITDA, we will keep that between 1.5 and [indiscernible]. Then we strengthened further our position in Canada. We have a very strong cooperation with WestJet, which is the second largest airline with a leading market position in Western Canada. We already have since 2009, a codeshare and a loyalty program with them. And it's interesting to see that they are the #6 partner of our Air France-KLM-enabled revenues. So next time when we do all to Chris, I will invite you to tell me who are the #2, 3, 4 and 5. Number one, you can easily guess, but it's interesting to see that they drive really up our revenue. So we were happy that together with Delta and Korean Air, we could lock them in for our business, and we took a stake of 2.3%, solidifying our, let's say, integrated way of working with Delta and securing our position in Canada. With that, I hand over to Ben for the final remarks. Benjamin Smith: Thanks, Steven. And just to summarize and conclude the comments that we just made. So Q3, again, was a mixed quarter, softer leisure demand and operational headwinds, but we're pleased that revenue -- there was revenue growth and a stable margin, which clearly shows that we've got a resilient, well-balanced network, strong cash generation, and the outlook is reconfirmed. So altogether, these results demonstrate Air France-KLM's ability to navigate challenges resiliently while building a stronger position for the future. So thank you for your time and attention. We're now available to answer any of your questions. Operator: [Operator Instructions] Our first question today comes from the line of Jarrod Castle from UBS. Jarrod Castle: I'll ask 3, please. Just quite interested to get any thoughts that you might have at the moment on at least the direction of ex-fuel costs going into 2026. Secondly, any impact from the U.S. shutdown on your North Atlantic? I see they're going to reduce the amount of capacity flying in the U.S. Is this more domestic in your view? Or will it have an impact on international? And then lastly, just the current French economic/political backdrop. If you could just go through some of your thoughts in terms of what these budgetary pressures might mean for your business. Steven Zaat: I will take the first question, and I will take the second and the third question. Yes. So we are currently busy with our budget for 2026. But we -- of course, we -- you know we are back on track. We have the same actually measures also at Air France. So we are driving our productivity further. So let's see where that will end when I come back with the guidance for 2026, but we are, of course, aiming if you look at the full year to be lower than where we were this year. You see every quarter, the unit cost development is coming down, which has strengthened our position also for the next year. But we have to define our full year budget before I will guide you on any number. Benjamin Smith: Jared, so the U.S. shutdown from the information we received this morning, it's only going to impact domestic flights and that international flights as of today should be business as usual. On the political side in the Netherlands and in France, the main focuses for us are will there be any additional taxes or charges imposed on customers, passengers, or us directly or airports. So far, we don't see anything different or new from what we've been -- what we've seen already and what we've been lobbying to change or get rid of. Again, one of the big negatives that impact us in France are the air traffic controller strikes. So far, we don't have any visibility for the rest of the year. So we're hoping that things will stay stable. We have a new head of the government body, which oversees the air traffic controllers. He is quite close to the file. It's the #1 file today. So we're hopeful there will be some improvement because it cost us a lot of money this quarter and a lot of money this year. And the operating -- the operational impact that we're experiencing is much worse. This is in France, much worse than any other country in Europe. And so far in the Netherlands, it's a bit too early to tell whether there will be any change in policy towards aviation. Operator: The next question comes from the line of Stephen Furlong from Davy. Stephen Furlong: Maybe, Steven, you can just talk about what's going on in cargo. Sometimes historically, it's been a leading indicator, but I just like to understand because I haven't seen that level of decline from other airlines. And then Ben, maybe can you talk about Orly how the work is going there? And obviously, as you build up an entirely largely Transavia business there, I'd be interested in that. Steven Zaat: Yes, let's say, the booking window of cargo is very short. So that is always difficult to predict. as I gave you the numbers for October because I think I want to be totally transparent where we are currently. I think we will be in that range also, let's say, for the coming months. But it's very difficult to exactly explain. But we saw last year that there was a lot of upfront loading towards the U.S. in expectations for what would be the outcome of the election. So that has first already before the elections, it started. And then, of course, when Trump came into the White House or at least he was elected to be in the White House. In January, there was a lot of front-loading in that quarter. So Q4, if you still remember, we had a very good unit revenue on the cargo level, and that is going to normalize. So on itself, the demand is not weak. I think it is normal, and it's, of course, better than in the other quarters. But I think the year-over-year difference is quite difficult due to the fact that we have this positive situation in the fourth quarter last year. Benjamin Smith: Stephen, regarding Orly, if you look at the overall Air France Group, so Air France and Transavia and Hub, which is the regional carrier. So excluding the rest of the business units in Air France-KLM. So just Air France Group, we're extremely pleased with the performance of the Air France Group despite all the challenges we're having with the air traffic controllers and the rest of the operations and taxes that are being imposed specifically in France. So with respect to Transavia at Orly, it has to be taken in context with the entire Air France Group performance because we have been progressively shifting slots from Air France to Transavia. So we have half of the capacity, 50% of the slots at Orly, which is about 150 departures. And we operate about 1/3 of those in 2018 were operated by Transavia, and the rest by Air France, our regional operator, Air France Hop. Those slots there are being transferred to Transavia, and the totality of those slots will have been transferred to Transavia by April of next year. On many of those flights, it's a significant upgauge. If you take a hop aircraft, as an example, of 70 seats, and you're going to a 737 or an A320neo above 180 seats, it's a big jump. And we're cutting our domestic capacity by double digits. And so those slots are being redirected to new routes in Europe. And to start up a new route takes some time, but we do have a very, very strong position at Orly, and we do have our loyalty program, and we do have a cost structure that's similar to the competitors that we are going up against at Orly Airport. So the strategy we're quite pleased with. What is difficult to measure or to at least report out on is how the benefits flow between Transavia and Air France. So Air France has been able to shed the bulk of its domestic operation to date, and it will be the entire domestic operation in April. And that, of course, will be transferred to a lower operating unit, which is Transavia, and we will significantly reduce capacity. This being done in a very complex -- this is a project that should have been done 30 years ago. It was very, very difficult to put this into place. It impacts a lot of employees, a lot of unions are involved with this. And to be able to balance this out by saying, okay, Transavia is going to be profitable or not. I think for me, if we can get the overall Air France group along the path that we've committed to the market to get it to an 8% margin, we're on the path. Is it being divided correctly between Transavia and Air France with this transfer? I'll give you an example, whenever there is an air traffic controller strike to protect the long-haul flying, which is our #1 moneymaker, we try to shift the impact of the strikes to or the airport to impact Transavia as an example. So they take that of an example of a negative like a strike. So I think it's unfortunately, we're not able to put all that into our disclosure into our press releases. But I think that that kind of level of detail, I think if we were able to share that or we have the time to share that, it would be -- I think it would be acceptably well understood that the strategy is the right one. But it has to be looked at in context with the rest of the Air France group performance, which, as you know, over the last 2 years, we've been hitting record COI results. Operator: Our next question comes from the line of Harry Gowers from JPMorgan. Harry Gowers: A couple of questions from me. First one, Steven, I think you gave the plus 2% unit revenue remarks for October, which was for the passenger network. So maybe -- the network business, sorry. So maybe you could give us what you saw in Transavia specifically? Second question, I mean, just in terms of the French ticket tax increase, the Schiphol tariff increases, clearly, these are external headwinds, which are impacting passenger demand to a certain extent for Air France specifically. So anything you can do at all to try and offset or minimize those impacts on demand? And then third question, just on the costs. Do we have any idea yet, or any visibility on where like airport tariff increases could go in 2026? Steven Zaat: Harry, let me come back on your questions and maybe Beck will follow up on it. So let's first start on the unit revenues in -- on Transavia, I don't have any number, to be honest, on Transavia yet. So we always wait for the full closing, which we are going to do, and on the passenger business because it's the main part of our business. I get the daily report. So I have those figures actually always up to date. But I didn't hear any negative news for the moment. And probably as we see bigger demand in October, probably related also due to holidays, I expect that also to come from Transavia. On the Schiphol tariff, yes, it is a very terrible situation, what we are seeing there. We know that Sriol was the #9 in terms of cost in Europe. We could develop very strongly our connecting traffic. And of course, the fact that they increased so much the tariff, and we are a connecting airline. So we need to have lower cost than our competition. So we are working on that. So first, we are working on it in what we call back on track. And you see the productivity measures are kicking in now in our unit cost to get that down also to compensate all those increased charges, which we get at Schiphol. But -- and we have to review also what we are going to do with KLM, what is the right model, and we are working on that also close with, let's say, the Schiphol management because we cannot go on like this. The first indication, which you asked what is the airport tariffs are going to do. So at least the good news is that they are not going up, but they went already with more than 40%, but they are not going up in '26. For Schiphol, I don't have the indication for ADP yet, but usually, they are much more modest in the last years. Operator: The next question comes from the line of James Goodall from Rothschild & Co Redburn. James Goodall: So 3 for me, please, as well. So just coming back to the 2% unit revenue increase in October. Is there any color that you can give us in terms of how that's trending by region? Secondly, coming back to that chart on Page 6 on the increasing premium mix, assuming that there's sort of flat yields over the course of the next 3 years, can you give us an indication of what the RASK accretion just in terms of mix would be from that premium cabin growth over the course of the next 3 years? And then finally, with Leverage now sub-2x liquidity is well above target. And I guess with a very positive direction for free cash flow generation as the exceptionals roll through and with EBIT expansion on the back of your medium-term targets. Have you guys started to think about any potential use of that free cash flow? I guess you haven't paid a dividend since, I think, pre-GFC. Is there any potential in that restarting? Steven Zaat: So very good question. Let's first start with the coloring of October. So I think I already indicated that premium was much -- doing much better than, let's say, the lower-yielding segment. We see a very strong unit revenue actually in North America, and actually all over the world on the long haul, it is pretty strong. On, let's say, the European side, it is still going up, but it is not as strong as we are seeing on the long haul. So you could say that it is, let's say, 3% on the long haul and 1% approximately or even -- yes, 1% on the European network. So still the driving force is the long haul and the driving force is the premium traffic. Yes, that's a very good question. We are just building again the budget for that, but I would say it is around 1% increase of unit revenue. That looks modest, but it is directly -- it will bring a margin up with 1%. So I would say you have part which is in the unit revenue, but also part which is in the unit cost. And I would say, if I have to give an indication in arid because I don't have exact numbers here, I would give that it would bring at least 1% in margins on those networks. Then on the cash flow, so yes, we have indeed a very strong cash position, and we are driving up now our cash flow. We will use that to pay off our hybrids because the hybrids are more expensive than, let's say, a normal Fin loan, as you have seen what we did in August. So the first thing for the short term and the short term is for me '26 is to further pay off our hybrid stock. We have EUR 500 million to pay to Apollo next year, and we will pay that from our own cash flow. That's at least if the situation stays where we are today. And then I think the moment of dividend is more when we end actually, the era that we don't have this payback of the social charges in France and the wage tax in the Netherlands. So that's more for that time horizon. But it's not now, let's say, to disclose to the whole world. We need to first discuss that with the Board because we didn't have these discussions with the Board so far. Operator: [Operator Instructions] The next question comes from the line of Antoine Madre from Bernstein. Antoine Madre: Two questions, please. So first one regarding back on track for KLM. You mentioned the productivity is improving. So is it going faster than what you planned? And can we still expect EUR 450 million improvement this year? And second one on maintenance outlook. How do you see the current headwinds impacting tariff, FX, and issue? Steven Zaat: To start with back on track. So we are still see this contribution of back on track. Of course, that is also to offset, let's say, the triple tariffs and all those kind of increases of cost, but we are fully in sync with the back on track target, which we announced at the beginning of the year, and we will come back on it at the full year results where we exactly are. On the maintenance, we don't see any real big impact coming from the new tariffs. Usually, the parts are excluded. We know that some parts where there's a lot of metal can have an impact in terms of tariffs, but we don't see a significant increase. And you've seen the beautiful results in the third quarter from our Engineering and Maintenance business. So, so far, that impact is very, very limited and not noticeable and not material in our results. Operator: The next question comes from the line of Antonio Duart from Goodbody. Antonio Duarte: A question for me just on Transavia, if I may, and mainly in your -- where do you see strength and weakness within Europe, considering such increase in capacity? Any routes that you see special that you would like to highlight, or where you're seeing particular weakness? Benjamin Smith: So what I look at it from a different way, the strength of Paris and the fact that it's the largest inbound tourist market in all of Europe, and that the airport is very close to Paris and has now got a new direct metro line directly into the terminal, a new Line 14. It's a very attractive airport. We've not been able to exploit our position there in the past because the cost structure of Air France and Hop was probably one of the highest in Europe. And we had a limit on the number of Transavia airplanes we could operate because of the collective agreement we had in place with the Air France pilots. So we negotiated in 2019, it was not an easy negotiation to have that limit removed. We can now operate as many Transavia flights as possible. So now with a competitive cost structure, we can really take advantage of the opportunity here in Paris. So I think the Parisian market is very strong. It's showing resilience. It's actually growing. So we are trying to position all the new capacity that we're putting into Europe with a strong focus on inbound. This is new for us. It's traffic we did not have in the past. And of course, we're trying to deploy this traffic where also there's a strong outbound component as well from Paris. So the typical markets, leisure markets in Italy, in Greece, in Spain, in Portugal, are all still quite strong. But where we're seeing very, very good growth is in Northern Africa, in the Maghreb countries, in Morocco, in Algeria, in Tunisia, as well as Beirude, so in Lebanon and Tel Aviv in Israel, as well as a few destinations in Cairo. So it's quite a unique breadth of destinations that we've got. Not typical for a low-cost carrier, but the fact that it's got so many opportunities to serve the Paris market with a very competitive cost structure, plus the benefits of flying blue, not all the benefits. We don't want to bog it down with the costs that Flying Blue can sometimes entail, but there is quite an array of unique benefits that we offer to customers on Transavia. So a loyal Air France customer does have a low-cost carrier option, which is quite unique in Europe from the main base city of the full-service airline that we have. Meanwhile, at Transavia Holland, we've been trying to manage through a situation where we don't have full visibility on the number of slots and the curfew situations at Schiphol. And of course, the bulk of the Transavia aircraft at Schiphol do start their day early in the morning. So we do have, I think, more visibility than we had 3 years ago now that the Dutch government has agreed to go through the European Commission balanced approach process, which is enabling us to take some decisions on the deployment of our fleet at Transavia. And so we'll be refining the network offering at Transavia Holland, and we believe that should improve in the near future. Operator: [Operator Instructions] We have a question coming from Muneeba Kayani from Bank of America Securities. Muneeba Kayani: This is Kate on behalf of Muneeba. I have a question on unit cost, which is tracking at the lower end of FY guide. Just wanted to ask about 4Q outlook. Are you seeing the trend continue at about 1.3% year-on-year growth into 4Q? And any kind of base effect we need to keep in mind when thinking about 4Q? And then just another question on your forward bookings on Slide 17. If I'm reading the numbers right, I'm seeing about 2% to 4% kind of lower loading factor compared to 2024, but the commentary is in line bookings. So just if you could clarify that. Am I reading the slide correctly? Steven Zaat: Let's first start on the unit cost. I'm quite optimistic about the fourth quarter unit cost. I already gave the indication where we would end in the second half year. And I think Q4 will even be a better development than Q3. We see quite some productivity coming in. And with, let's say, the more modest labor cost increase and also having our operations better running, we are quite optimistic on the fourth quarter, but we don't give an exact number. We have a full-year guidance, and you can see where we will end for the full year. For the load factor, yes, I think that what you -- of course, the numbers are right. If you have followed also the previous presentations, you have seen that we have -- every time we had these kind of gaps -- and at the end of the day, we were able to close them. So in the first quarter, we were almost closing the full gap. In the second quarter, we were 0.1%. So in terms of load factor gap, so very close to 0, and we started almost the same. And in the third quarter, we also saw the same, and we closed at minus 0.5%. So I don't say that we will fully close this load factor gap. We saw a small load factor gap in October, but we saw quite some good unit revenues. But it is too soon to tell. These are the numbers. And of course, there's no mistake in it. Operator: We have a question from Axel Stasse from Morgan Stanley. Axel Stasse: I have 2, if I may. The first one is, could you maybe provide any quantitative guidance on the back on track program contribution on EBIT for 2026? Do you still expect to be on track for the medium-term guidance? And the second question is a follow-up actually on the potential French corporate tax proposals. We have heard a lot of things in the press last week, and many legislative lift hurdles before any such proposal is actually passed. But could you just provide any indication on how much of group PBT is related to France? Steven Zaat: Back on track. We will see, of course, an outflow in 2026. I'm not yet there to guide you on the cost. As you know, I say that it's coming down and coming down and coming down if you look at the unit cost increase, but we have not finalized the full guidance on it. But the program on itself is delivering, but we see now that especially the low-yielding traffic is getting worse. So that hurt especially also KLM, plus the triple trailers. And we have to review what are our next steps with our KLM operations. So that is where we are currently working together with the KLM management. The second question, I don't have any figures, but-- Benjamin Smith: Yes, it's Ben. From what we've seen over the last week, we don't have an aggregate -- any aggregate figures on that and how that could impact us. As you know, things are moving all over the place. But the current government that's sitting, I think we have a good feeling that what we had in place last year is going to be very similar to what should be in place this year. But as you know, it's not very stable here, but the big items that could impact us seem to be under control. And comment actually on the guidance. Because it was a question, we will come back on that with the full-year results. But we are still, let's say, aiming at 8% margin in the period '26, '28. Operator: There are no further questions. So I hand back over to you, Sirs, for closing remarks. Benjamin Smith: Okay. Well, thank you, everyone, for joining us today, and we look forward to sharing our results at the end of the year, the end of the fourth quarter. Thank you. Operator: Thank you for joining today's call. You may now disconnect your lines.

195天前Insight Analytics约5分钟阅读

HLE.DE 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, good morning, and welcome to the HELLA Investor Call on the results for the 9 months of fiscal year 2025. This call will be hosted by Bernard Schaferbarthold, the CEO; and Philippe Vienney, the CFO of HELLA. [Operator Instructions] Let me now turn the floor over to your host, Bernard Schaferbarthold. Please go ahead. Ulric Schäferbarthold: Good morning to everybody. Very warm welcome to our 9-month results call. And I'm here together with Philippe Vienney, our CFO; and Kerstin Dodel, our Head of IR. So starting off the presentation on Page 4. So if we look at our sales development, we are at end of September in line with what we expected. So positively, our electronics business is continuing to grow. We had a growth now in the first 9 months of 8.3%, specifically our Radar business, but as well our business in our product center, energy management is continuing to grow. On the Lighting side, we are not growing. So we are down 8.4%. We mentioned also earlier mid of the year that the end of some larger projects, but also the reduction on volumes on some programs in our order book is the reason for that. And I will come back to that and actions we have now taken for Lighting. On Lifecycle Solutions, our business is still down in the 9 months. But positively, we have now seen in the third quarter that we are back to growth. We had quite a decent development in that segment in Q3. So overall, sales is quite stable, FX adjusted. So a slight growth of 0.4%. And considering or looking at reported sales, we are at minus 1.1% considering the strong FX headwind we had. On our operating income margin, we are at 5.8% in the first 9 months. Overall, I can state we continue to have a strong cost discipline. We are implementing the structural programs we have initiated in the last 2 years. So overall, considering the environment, we are in line what we planned also in our budget. Net cash flow has improved on a year-on-year comparison is at EUR 68 million to the end of the year, 1.2%. We have reduced CapEx. And within that number, if we look at factoring, the increase in factoring is at EUR 23 million in comparison to last year, EUR 30 million less. If we move on to the order intake, we are good on track. The third quarter was again a good quarter in terms of order intake. We had a strong momentum, especially in the lighting business, 2 areas where we wanted to grow. More broadly in the U.S. and also in Asia and specifically China, we could win important programs. But as well in Europe, we were quite successful. We are now attacking the market as well in the mass market, so in the volume markets, and we were able to win significant program volumes for the European regions in the third quarter. On the electronics side, we continue to be very successful. So we are highlighting here some of the programs. But what I can state overall that within our Electronics business, we continue on a strong growth path, and this should also support our growth trajectory in the upcoming years. And to finish off, our Lifecycle was also quite successful in the last month. We are highlighting here some of the programs. So bus, agriculture remains important business areas and customer segments for us to continue to grow and as well here also to highlight to get broader in terms of our market reach. So we are happy to win also projects outside of Europe and to gain market shares there as well. So overall, we are on track in terms of our order intake achievements after 9 months. Going to Page 6, some highlights. So on the Lighting side, we continue to see that we are differentiating with our lighting technologies. We are present also in different -- on the different shows and fairs. Here, we are highlighting one, and we are advertising and showing our newest technologies also to the different customers. I think from my perspective, feedbacks are quite good. We are getting. So this should support our growth we are envisaging in the upcoming years. In the electronics, one important milestone now we had is the launch of our iPDM, so of our eFuse technology in one large platform. We are engaging ourselves much stronger now into the whole sonar architecture of the car. And this technology, which manages the power in the car and which is embedded in the sonar architecture and in the new E/E architecture overall of the car is a big milestone for us. And this is one very important technology we envisage will give a strong growth potential in the upcoming years, and this is why we are highlighting it here in a strong way. The other thing I want to mention is on the structural changes. So I mentioned we continue to reduce our cost base. In the last month, we announced the structural change in one of our plants in Germany, which now we are going into execution. Other than that, we are now in execution in terms of our new SIMPLIFY program. So this is a global program where we are reducing in all white-collar functions in the upcoming 3 years, around 15% on headcount. And so we are well on track. We already started on that program. The target is to be at least at 20% of reduction to the end of this year and around 50% on the reduction to the end of next year. And I can say that we are ahead of the target as of today, and we are trying to accelerate on that as well. And you can see that as well in the headcount development. If you only look at the last 9 months, we have already reduced close to 5% on headcount as of today in comparison to the start to the year at a quite comparable sales level, and we will continue on these adaptions. If we move to Page 7, let's say, one of the big challenges we are facing actually is the crisis on the shortage on Nexperia. So it's clear that if we look at our portfolio of products, we have a lot of Nexperia parts in our products. So in general, I can say we are strongly impacted. So we have organized our way -- us in a way also with task forces and are managing the situation in the way that we are building up the alternative suppliers. And in the meantime, for sure, we use -- we still use Nexperia parts. So our relationship today with Nexperia China is still stable, and we also managed to buy broker parts, which in the meantime, supports our supply. So far, I can say that the month of October was in line with our plan. So there was little impact. The start into the month of November showed a little more impact in terms of the full coverage against the plan. And the most difficult weeks now from our side will now be the next ones where in the meantime, where before being able really to ramp up the second sources, we are seeing some of the shortages. So we are working intensively also on the application on export licenses and also taking advantage and the support also on the OEM side, which are going for these applications as well. So this could help to support also on parts we have in China who could be exported to the U.S. and Europe and help there on the shortages. So far, China for us is not impacted. We have enough parts. So this is something difficult to quantify overall. But as I said, so far, the impact was very limited, and we have now to see how next weeks will be and specifically if with -- on the Chinese authorities, the customs and MOFCOM, we are able now to get the necessary applications to the exports to support Europe and the U.S., as I said. But as you can imagine, a lot of intensive work we are doing and managing the situation to keep our delivery promises to the customers. So having said that, we will move on with some more details on the financial results. Philippe will take over. Philippe Vienney: Yes. So good morning to all. So looking at the sales, so we are publishing sales at EUR 5.868 billion, so which is representing a decrease of 1.1% versus prior year. And excluding the exchange rate, this would be at plus 0.4% versus last year and versus the market, which is showing a growth of 3.8%. So here again, as I said, we have a good momentum in all region on electronics, whereas we are suffering on the lighting side with lower sales, which are affected by end of production on some programs and mainly in North America and Asia. And Lifecycle was reducing -- showing reducing sales, but which we are also -- where we are also seeing a good momentum in Q3 with some slight recovery. So looking at the sales per region and versus the market. So Europe, where we still have more or less 56% of our sales, we have a growth of 1% versus the market of -- which is showing a decrease of 1.7%. So we are overperforming versus the market for Europe. For Americas, where we have sales which are above the 20% of our sales, we are seeing a decrease of our sales of 1.1%, slightly impacted as well by the FX impact versus the market, which is reducing by 0.5%. So here also, we have the -- again, the impact of lighting, where we have this impact of some end of production series, which are not fully compensated by new launches. And we have Asia, which is also a bit above 20% of our sales. where we have a decrease on our published sales of 6.4%, also slightly impacted by the FX versus a growth in this region of 7.2%. So here again, we have the same topic on end of production of series project in lighting, but not fully compensated by new sales and new launches with local OEMs in Asia. And we still have, again, growth momentum in China on the electronics with radar and battery management. So now looking at the profitability per segment. So lighting, we are at EUR 2.7 billion of sales, which is representing an organic decrease of 7.3%, excluding the exchange rate. So here, I said again, we have the impact of end of production of some series projects in China and North America. We have some increase on the headlamps and rear combination lamps in Europe and Americas, but which are not enough to compensate the drop that we are seeing in Asia and North America on the rundown programs. So the operating income for Lighting is at EUR 73 million or 2.7%. So here, we are impacted by the volume drop, which is clearly impacting the gross margin and the operating margin, which we are partially compensating by lower material costs, also some reduced R&D cost and SG&A costs, but not enough to compensate the volume drop that we are facing where we still have to reduce and continue to reduce our fixed cost to absorb this and face this volume drop. Electronics. So we are publishing sales of EUR 2.5 billion or EUR 2.6 billion, which is representing plus 9.5%, excluding FX rates on an organic basis. So here again, we have growth in all regions and growth -- thanks to the radar business. We have also growth in the car access system in Europe and Asia. And we have also some growth, thanks to the battery management system as well in Asia. So good momentum on the sales in Electronics. And this is leading us to an operating income of EUR 196 million or 7.6% of operating margin. So here, we have the benefit of the volume, which is helping the gross margin and the operating margin. And we have been able to be stable on the R&D spend and also thanks to reduction of external spend and external provider. And we have also been able to maintain or even reduce the SG&A percentage in this segment. So all in all, leading to the 7.6% of operating margin. The Lifecycle, where we have sales of EUR 739 million, which is representing a decrease of 1.5%, excluding FX rates. So yes, as we said, we have a low demand, especially coming from the H1 and especially on the commercial business vehicles. But we see some recovery, a slight recovery in Q3. So especially also on the commercial business with some stable business on the after market. And this is leading us to an operating income of EUR 74 million or 10%. So here, we are impacted also slightly by the volume. And we have been able to maintain or even decrease the R&D expense and with SG&A, which are slightly increasing mainly due to distribution costs. Profit and loss for HELLA? Yes. So we have a gross profit of EUR 1.3 billion, which is 22.8% versus 23.2% last year. So here, we have the weight of the volume decrease in Lighting and Lifecycle, which is impacting us and not fully compensated by the improvement on the Electronic segment. On the R&D side, we are at 9.4% versus 9.8% last year. So here, we continue to see the benefit of our adjustment and structural adjustment on the R&D side and cut on the external provider, as I mentioned, for Electronic. On the SG&A, we are at 7.7%. So here, we see a decrease on the administration costs, where we have a slight increase on the distribution costs. So I think the good trend is the administration costs which are decreasing and showing some effect of the program which have been launched to reduce this cost. On the earnings before tax, so we are reaching EUR 208 million versus EUR 409 million last year. So here, we have the impact -- negative impact of all the restructuring programs, which are booked and are part of the EUR 129 million. To mention that last year, we also had some restructuring costs, but which were more than compensated by the sales of the BHTC business and the net gain that was booked last year. And this is leading us to a net income of EUR 108 million versus EUR 310 million last year. On the net cash flow, we are at EUR 68 million, so versus minus EUR 8 million for the same period last year. So here, we are increasing our net cash flow. So we have higher cash from operations. We are also having a good momentum on the working capital with some negotiated and good payment terms with suppliers. And we are also reducing our tangible CapEx. You can see that we are at minus 23% versus what was cash out last year and spent last year for the same period. So this is benefiting to our cash flow, leading us to have a EUR 68 million cash flow for the 9 first months of the year. With that, I think we are finishing the financial details, and we can go to the outlook. Ulric Schäferbarthold: Thank you, Philippe. So on the outlook, so on Page 17, if we look at volumes, so the actual outlook on S&P is 91.4 million cars. I would expect that specifically on Europe and Americas, we would see some reductions in the fourth quarter due to the shortages on Nexperia parts. China is quite stable in terms of volumes. This is also what we see actually now in the fourth quarter. On Page 18, so we confirm our outlook in terms of sales in the range of EUR 7.6 billion to EUR 8 billion. On the operating income (sic) [ operating income margin ] 5.3% to 6% and the net cash flow of at least EUR 200 million. We are stating that this assumes a sufficient supply situation on -- especially in Nexperia parts. As I said, in terms of -- today, if I look at the month of October and the start into November, the impact were limited, but I also mentioned that the next weeks will be the crucial ones. So summing it up on the key takeaways. So, so far, looking at the 3 quarters, from our point of view, a robust sales development in line in terms of profit and net cash flow, what we expected, strong focus on the structural changes we have done and still a good momentum on the order intake side. So we -- outlook I mentioned, we see us on track for the guidance we have given. And if it comes to the top priorities, so we continue to work on the structural programs. One important new program we have now initiated is in the lighting area. We have started a transformation program now with -- starting into the second half of the year. Mainly, we focus on 3 big topics. One is on the business growth. So we need to come back to growth again for that. We are broadening our reach and focusing significantly also on the regions where we see a strong potential, especially the U.S., but also beside of China, Japan, Korea, India. And we already see now in the third quarter, the first successes and programs we could book in quite a sizable numbers. So first, let's say, proof points are given, but I think this is a very relevant point to come back to growth. And on top of that, we are -- we have initiated the operational transformation. We see significant potentials in terms of reductions on our footprint or on our costs within the operations, including also the supply side and logistics. We have initiated a structured program on that, which is specifically for Europe and also for our Mexican operations. And the third element is the improvement in D&D productivity and efficiency where as well we initiated a program also with a focus on cost reductions on our technology, where we see also a big potential to reduce on the cost side as well here, too. So this should help to bring our Lighting business into a much better profitable situation in the years to come. Having said that, we are happy to take your questions. Operator: [Operator Instructions] And the first question comes from Christoph Laskawi from Deutsche Bank. Christoph Laskawi: The first one, coming back a bit to what you just said on the Lighting performance. Obviously, Q3 margin around 1% is very low. When you've implemented all the measures that you talked about, what do you think is in the midterm a realistic margin potential? Could it be around 5% plus? Or any thoughts on that would be appreciated. And then in contrast to that, electronics is actually quite strong in Q3 with 9% plus margin. Was there any specific one-timers in there or just really capitalizing on growth and showing the margin potential of that business? And then the third question would be on Nexperia. It sounds like you didn't face production shutdowns on your own yet, and you haven't cost any so far. Still you're expecting production cuts to come. Do you already see that in the schedules? Any volatility you can highlight there? And then just on the cost of going to brokers and others, those have been quite high in the semi shortage. Is this something which could be a meaningful impact on earnings in Q4, just the sourcing alternatives? Ulric Schäferbarthold: Thank you for your questions, Mr. Laskawi. So on the Lighting performance, our target is to come back to 6%. But this will not be possible on the short notice. So this is a target we have set ourselves. It will take until '28, '29. So before we are at this 5% level, you said, probably '28, '29 to come closer to the 6%. So we have now seen that, as I said, so we are struggling a lot because, first of all, we are not growing. Secondly, we have also been impacted now in the second half by a warranty topic, which was quite significant as well. So it is partially in the third quarter and will also hit the fourth quarter. So this is a topic which lasts now from the years '22, '23, where now finally, we got to an agreement with -- and the settlement with the customers. So we are close to, but this was an impact as well. And overall, on the full, let's say, second half, it will have an impact of around EUR 25 million, which is quite significant for the Lighting business. But the overall, let's say, if I look at Lighting, we are -- the business is declining. And this is something which will also continue into the next years and will be a headwind also in the next year before now we see with the momentum we have on the order intake, we will be able to grow again in the -- starting from '27. What I have to say positively is that in lighting, we are very strong in China. So the transformation also we need to do for Europe and specifically also our Mexican operations, we already have done in China and also the adaption to competitiveness. So I see us very strong in Asia today. And now we need to do the work we have -- we need to do in Europe and also South America. So we changed also the responsibility. So I have taken over in combination of tasks now from the 1st of July. And so we are now starting on this transformation program, as I said. On Electronics, I'm very pleased about how our business is developing also in terms of performance. So what we now see is basically that we see now the payoff of the business now where we see now the growth coming with the launches and the new programs, which are going into serial production. So the growth supports the profit development. And what we as well see is that the structural changes we have done in terms of -- on the cost side helps as well. So with that, we see immediately a very strong profit development. There was no really specific one-off in the third quarter. So -- but it was quite a good quarter. So I wouldn't say now every quarter will be the same. So also no negative impact, I have to say. But I have to admit also, it's a good development, and we are building on that and trying to continuously to improve on that. On the Nexperia, so I think that -- I stated so far with the coverage or with the stocks we had, with the coverage we had. We also bought some -- quite early on some broker parts. So this helped really to cover the period of time until now. We see now that some shortages on some products, they are already there. On the call offs, basically, you do not see yet that customers are changing anything. But for sure, on the -- in the systems, but for sure, we are in very intensive discussions with all of our customers. And today, the situation is as follows that the weekly -- the decisions are taken now on a weekly base, what can be produced and how much reduction will we see. And I mentioned the next weeks will show reductions. And the magnitude is still not absolutely clear. So what is in the next, let's say, 3 to 4 weeks. And it certainly will now also depend on how -- are we now able really to get exports on Nexperia parts with these exemptions or with export licenses granted now to the OEMs or to us. And we are already trying out the test shipments and working with MOFCOM and the customs, as I said. So there is some hope that now it should work and that certainly will help a lot immediately. But this is the uncertainty we have. If this is not working, I mentioned it, then the reductions on the volumes in the next weeks will be much higher. And on the cost side, on the broker so far, I would say, for sure, it goes fast. The last broker -- broker offers I saw between factor 600, factor 800, also factor 1000 I already have seen. The difference to the semi is that the original price is much lower. So there, we are only talking cents, but sure, if we are talking factor 500, 600 or higher, then you talk immediately some millions. So far, it has not such a big impact. The market today is still -- there are not so many volumes any longer in the broker market. So I would not expect that this should have such a hit, which is comparable to the semi today or to the semi crisis we had some years ago. But it's -- again, still we are talking some money. It's some millions we are discussing. That's for sure. But not comparable, as I said, to the semi crisis. Operator: And the next question comes from Sanjay Bhagwani from Citi. Sanjay Bhagwani: Maybe to begin with, so on the Nexperia situation, this morning, there seems to be several articles suggesting like -- so yes, I mean, on the Nexperia situation, this morning seems to be like several like constructive articles typically like quoting some of these Dutch ministers that things will be okay in the coming weeks and chip supply should resume. Is that providing some comforting messages to you as well? Maybe let's say, if there is a disruption, there can be just 1 week disruption or something like that? Or it's probably too early to look at these headlines or something like that? Ulric Schäferbarthold: So there are 2 things for me. One is does China now allow that Nexperia China -- the parts which are still produced at Nexperia China that we can export these to Europe. And this -- we are still working -- I mentioned it. We are still working on how process-wise, the application and the export needs to be executed. And this is where I said we are now just running now with custom, the discussions we have with MOFCOM doing these test shipments to try out how we have now to handle and practically do it. And there are some signs now. This I can at least also confirm that -- I hope that it will be possible soon. Let's put it like that. Still today, it has not worked out, but we are getting signals that there is hope that it could be possible. So that is one thing. So I would take that as a positive note, but still to be seen if then really it works out. Because just practically, I can tell you the custom were not aware that they are allowed to do. On the other hand side, MOFCOM is allowing it. So I think we are still, let's say, it's an administrational point, but you never know. So that is one thing. The other thing we are also working on, and this is as well, let's say, a critical path, we are still getting a lot of parts from Nexperia China, and they are dependent still on the wafers they get from Europe. And there apparently, they are not coming along. So that these wafers, which are needed for the further production, if they -- if China do not have any longer wafers from Nexperia Europe, they couldn't continue on their production. And they will run out at a certain point of time if there is no agreement. And this is the second path we are working on to get a solution between the 2, Nexperia Europe and China, to stabilize the situation so that Nexperia China is able to continue to deliver. And this is important because, as I said, we are working on the alternative suppliers. And for most of the suppliers, it can be -- we can find, let's say, good agreements and to ramp up quick. But for some of the parts, it will take a little longer, and this is why it's important to have a stability on Nexperia China as well. Sanjay Bhagwani: That's very helpful. And I think on the broker parts, you mentioned that so far, this has not been a major impact. But in terms of the pricing pass-throughs, I understand in the previous like chip crisis, you had to actively go and negotiate the price increases. In this case, is it easy to like kind of have some sort of indexation for these components now? Or this again, will be subject to negotiation if the, let's say, inflation becomes material? Ulric Schäferbarthold: So in the actual situation, because we need to be quick, we take the decision with the customer, so with our customer, with the OEM together. And the agreement is that in terms of who takes which part, we agreed that this will be then discussed later. But it's clear that we will have a comparison as it was in the semi crisis where we agreed on the, I would call it, pain share, who takes which proportion. So you can assume that what we have seen similar in the semi crisis should -- at least from our perspective, should also be true now for this one. Sanjay Bhagwani: And then my final one is on the Q3 margins. Just a kind of follow-up to Christoph's question, but more at the group level. So Q3 group margins have like sequentially gone down to, I think it's 5.3% versus H1 was 6%. So are you able to provide some color in terms of the Q4? Is it sequentially looking better as of now? And in terms of divisions, how the Q4 versus Q3 margins are looking? Ulric Schäferbarthold: So month of October was okay. It was in plan. So -- and normally, the months, October and November are very strong in the industry. So we have seen quite a good month in October so far, even we had this Nexperia situation. So the month of November will certainly be impacted now. And it's difficult to say on the margin -- so really to say now what does it now mean for the full quarter because it will depend on volumes at the end. And we will lose volumes. The question is how much. So I would not feel so comfortable now to say how it will go. I think in terms of our cost savings, all what we are doing there, we are in plan. At the end, it will depend on sales. Operator: [Operator Instructions] So it looks like there are no further questions at this time. So I would like to turn the conference back over to Bernard Schaferbarthold for any closing remarks. Ulric Schäferbarthold: So thank you to all of you who participated, and thank you to showing the interest on HELLA again. And I wish you a pleasant remaining day and after that, a good weekend. Hope to see you and speak to you soon. Bye-bye.

195天前Insight Analytics约5分钟阅读

9688.HK 2025 Q3 财报电话会议

Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. As a reminder, today's call is being recorded. It is now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Please go ahead. Christine Chiou: Thank you, operator. Hello, and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on November 6, 2025, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du. Ying Du: Thank you, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Before we discuss the quarter, I want to take a moment to reflect on who we are, where we are headed. Zai Lab was built on a clear vision to bring the best global innovation to patients in China and to discover and develop new innovations that can compete on the world stage. That vision remains unchanged. Today, our global pipeline is stepping to the forefront, becoming the next key chapter in Zai's growth story. Zoci or ZL-1310 has now entered the pivotal stage less than 2 years from Phase 1/1b, an extraordinary pace at any standard in our industry. And we're on the path for our first global approval by 2027 or early 2028. Beyond Zoci, we're expanding our global portfolio with other highly differentiated programs, including our IL-13xIL-31R bispecific atopic dermatitis, IL-12 PD-1 bispecific and LRRC15 ADC for solid tumors. More importantly, we have built a global R&D organization that combines speed, scientific rigor and quality expected of a global biopharma. On our commercial business in China, we are commercially profitable today and on a steady, profitable growth path. However, the pace has been slower than we expected. The environment is complex and dynamic. But at the same time, there are encouraging signs of progress. Regulatory reviews are faster and NRDL negotiations are more transparent. We have one of the strongest commercial teams in the industry, backed by a portfolio of differentiated, high potential assets, and we remain confident in the long-term potential of this business. This next chapter will take focus and persistence, but we have the right science, the right team and the right vision. Together, we are building a company that will make a lasting difference for patients and create long-term value for our shareholders. With that, I'll now hand the call over to Rafael, who will walk you through the progress of our R&D pipeline. Rafael? Rafael Amado: Thank you, Samantha. I will begin with a few highlights from our global pipeline, starting with ZL-1310 or Zoci. Two weeks ago, at the triple meeting conference, we presented updated Phase I data in previously treated extensive stage small cell lung cancer. This global study enrolled 115 patients across the U.S., Europe and China. At baseline, 90% of patients had received a PD-1 or PD-L1 therapy, nearly 1/3 had brain metastases and several had progressed on a prior DLL3 targeted therapy, including tarlatamab, making this a very difficult to treat heavily pretreated patient population. At the 1.6 milligrams per kilogram dose, we observed an overall response rate of 68% and a disease control rate of 94%, among the strongest efficacy signals reported in the second line setting. Importantly, we also saw robust activity in patients with brain metastases, including an 80% overall response rate in lesions, which had received no prior treatment of any kind, suggesting that Zoci may offer a new way to control both systemic as well as intracranial disease without interrupting therapy, a potential game changer in terms of speed to treatment for these patients whose tumors tend to be growing very fast. Across all doses and lines, the median duration of response was 6.1 months, and the median progression-free survival was 5.4 months, which is highly encouraging for a monotherapy in this refractory population across doses and lines of therapy. Data from the 1.2 and 1.6 milligrams per kilogram cohort continue to mature as enrollment continues and patients remain on treatment. Zoci also continues to demonstrate a best-in-class safety profile. At the 1.6 milligrams per kilogram dose, grade 3 or higher treatment-related adverse events were observed in only 13% of patients, far below the 35% to 50% rate seen with other ADCs in this setting. There were no drug-related discontinuations or deaths and only 2 Grade 1 interstitial lung disease cases across both expansion doses of 1.2 and 1.6 milligrams per kilogram. This combination of deep efficacy and favorable tolerability positions Zoci as an ideal candidate for the first-line combination where safety is paramount. We've now begun enrollment in our registrational Phase III trial in extensive stage small cell lung cancer with the potential for an accelerated approval submission. We're also advancing our first-line strategy with plans to initiate a Phase III study next year following results of our ongoing combination study evaluating Zoci plus PD-L1 with and without chemotherapy. In addition, we see significant opportunity for Zoci as a backbone therapy in novel mechanism combinations. We plan to initiate studies with agents with ethanol and complementary mechanisms of action, and we will share details once the studies are posted on clinicaltrials.gov. Beyond small cell lung cancer, Zoci is being evaluated in Neuroendocrine Carcinomas or NAC, which have poor prognosis and no targeted therapy despite high DLL3 expression. Early data with ZL-1310 are encouraging, and we plan to present results in the first half of next year and to move into a registrational study thereafter. Beyond Zoci, our next wave of innovative global assets continue to advance rapidly. ZL-1503, our internally discovered IL-13/IL-31 bispecific antibody for atopic dermatitis recently entered Phase I. Its dual mechanism targets both itch and inflammation and its extended half-life offers potential for less frequent dosing. A subcutaneous formulation is being developed. Preclinical results support its use in other inflammatory diseases. First-in-human data are expected in 2026. ZL-6201 is an internally discovered LRRC15 targeted antibody with a next-generation payload linker. It remains on track for a U.S. IND submission by year-end and a global Phase I study initiation early next year for patients with cancer that have tumor cell or tumor stroma expressing this target. ZL-1222 is another internally discovered asset. It is a next-generation PD-1 IL-12 immunocytokine designed to deliver cytokine signaling directly into the tumor microenvironment while preserving PD-1 checkpoint blockade. IND-enabling work is underway, and we expect to move quickly towards an IND once data are available. Now turning to our key late-stage regional programs in immunology and neuroscience. The Efgartigimod continues to expand across multiple autoimmune indications. The ADAPT SERON study in seronegative gMG was positive, the first global Phase III trial to show clinically meaningful improvements across all 3 gMG subtypes, MuSK+, LRP4+, and triple seronegative. Three additional Phase III readouts in Ocular myasthenia gravis, Myositis and Thyroid eye disease are expected next year with China contributing to global enrollment. For Povetacicept, our partner, Vertex recently received FDA breakthrough therapy designation for IgAN. Enrollment of the global RAINIER Phase 3 is complete with an interim analysis planned for the first half of 2026, where patients from China are included and potentially supporting an accelerated approval submission next year. The global pivotal Phase II/III study in primary membranous nephropathy was initiated in October, and we're on track to enroll patients in China this quarter. Together, these achievements reflect the depth and quality of our pipeline, one that is advancing with speed and efficiency and with a clear focus on novel mechanisms and clinical differentiation. In summary, over the next 12 months, we expect to reach several important milestones across our global portfolio. For Zoci, we expect a catalyst-rich year with updated intracranial data, first-line small cell lung cancer combination data and results in neuroendocrine carcinoma in the first half. In parallel, we plan to initiate registrational studies in first-line small cell lung cancer and other neuroendocrine carcinomas as well as starting studies with novel combinations across line of therapy. Beyond Zoci, we expect first-in-human data for ZL-1503 or IL-1331 and to advance ZL-6201 or LRRC15 into global Phase I development. We're also progressing ZL-1222 or anti-PD-1/ IL-12 agonist and look forward to sharing additional data in the coming year. And with that, I'll hand it over to Josh. Joshua Smiley: Thank you, Rafael, and hello, everyone. Before we turn to our third quarter results, I'd like to start by welcoming Dr. Yajing Chen, he as our new Chief Business Officer. Chen brings both deep scientific expertise and investment experience and will play a central role in expanding our portfolio and unlocking value through partnerships and out-licensing. I'd also like to sincerely thank Jonathan Wang for his many contributions over the past decade in helping build the strong foundation that now supports our next phase of growth. Now turning to our commercial performance. Total revenues were $116 million, representing 14% growth year-over-year. VYVGART and VYVGART Hytrulo contributed $27.7 million, which includes a $2.4 million reduction following a voluntary price adjustment on Hytrulo to align with NRDL guidelines ahead of national pricing negotiations. While this adjustment affected reported sales, the underlying fundamentals of the launch remain very strong. VYVGART continues to be one of the most successful immunology launches ever in China, ranking as the #1 innovative drug by sales among all new launches in the past 2 years. More importantly, the trends beneath the headline numbers point to durable long-term growth. There are 2 key growth drivers underpinning the trajectory of VYVGART in gMG, patient demand and treatment duration, the latter of which is particularly important given the chronic nature of the disease. First, on demand. We continue to see steady new patient additions each month with nearly 21,000 patients treated to date. VYVGART penetration in gMG remains only around 12%, meaning we are still in the early stages of market development with significant room for expansion. Second, on treatment duration. The updated MG guidelines published in July have been a meaningful catalyst to emphasize both the importance of rapid symptom control, where VYVGART has demonstrated strong efficacy and a minimum of 3 treatment cycles to reduce the risk of relapse and maintain durable disease control. Since publication, we have seen clear signs of positive impact in real-world practice. Physicians are becoming receptive to maintaining patients on therapy even after achieving symptom control, signaling a shift from episodic to maintenance use. As a result of our efforts, the average vials per patient have increased over 30% year-to-date versus last year, with a notable acceleration in Q3. And VYVGART volumes have grown sequentially in the mid-teens. We see this level of growth as realistic and sustainable as we head into 2026. Now admittedly, the pace of market build for this first-in-class therapy for chronic disease has been more measured than we initially anticipated. With VYVGART, we are shaping this new market thoughtfully, focusing not only on driving adoption, but also on redefining how gMG is managed over the long term. Through physician education and real-world experience, we aim to change long-standing treatment patterns. While the ramp is slower than expected, the long-term potential of VYVGART in gMG is substantial. Beyond gMG, we're making progress in CIDP, expanding access across both supplemental and commercial health insurance plans. We will continue to add new layers of growth with new indications and formulations with the most immediate being seronegative gMG and the prefilled syringe. Looking ahead, our next major launch opportunity is KarXT, currently under regulatory review. KarXT has the potential to redefine schizophrenia treatment in China, introducing the first new mechanism of action in more than 70 years. Notably, it has already been included in the China Schizophrenia Prevention and Treatment Guidelines 2025 Edition, the first national guideline globally to do so, underscoring its strong differentiation and anticipated clinical impact. Across the company, we remain disciplined in our operations, scaling efficiently while investing strategically in commercial execution and pipeline innovation. And with that, I will now pass the call over to Yajing to take us through our financial results. Yajing? Yajing Chen: Thank you, Josh. Now I will review highlights from our third quarter 2025 financial results compared to the prior year period. Total revenue grew 14% year-over-year to $116.1 million in the third quarter, primarily driven by higher sales of NUZYRA supported by increasing market coverage and penetration. Demand for XACDURO remains robust, and we aim to normalize supply by year-end. ZEJULA grew sequentially but declined year-over-year amid evolving competitive dynamics within the PARP class. Given this trend as well as VYVGART dynamics discussed earlier, we are updating our full year total revenue guidance to at least $460 million. Our continued focus on financial discipline and efficiency was evident in our cost structure with both R&D and SG&A as a percentage of revenue declining significantly year-over-year. R&D expenses for the third quarter decreased 27% year-over-year, mainly due to a decrease in licensing fees in connection with upfront and milestone payments. SG&A expenses for the third quarter increased 4% year-over-year, mainly due to higher general selling expenses to support the growth of NUZYRA and VYVGART, partially offset by lower selling expenses for ZEJULA. As a result, loss from operations improved 28% in the third quarter to $48.8 million and adjusted loss from operations, which excludes certain noncash items, depreciation, amortization and share-based compensation, was $28 million in the third quarter, a 42% improvement from the prior year. While we expect meaningful quarter-over-quarter improvement in adjusted operating loss, we now expect profitability to shift beyond the fourth quarter, reflecting the lower revenue base this year. Importantly, our fundamentals remain strong. Our China business is already commercially profitable and growing, and we are executing strong financial discipline and investing strategically in R&D. We are on a path to profitability, and we'll provide updated 2026 financial guidance when we report our full year 2025 earnings. Zai Lab is at a major value inflection point with a rapidly advancing global pipeline, a commercially profitable China business and a path to profitability. We also maintain a strong financial foundation, ending the quarter with $817 million in cash, which provides us with the flexibility to invest in both innovation and disciplined execution. And with that, I would now like to turn the call back over to the operator to open up the line for questions. Operator? Operator: [Operator Instructions] We will now take our first question from the line of Jonathan Chang from Leerink Partners. Jonathan Chang: First question, on the revised revenue guidance, how should we be thinking about the key drivers for growth and the path to profitability? And then second question on ZL-1503. Can you help set expectations for the initial data readout expected in 2026? And how are you guys seeing the opportunity in atopic dermatitis? Joshua Smiley: Thanks, Jonathan. It's Josh Smiley. Thanks for the questions. I'll take the first one on revenue drivers, and then Rafael will talk about 1503. I think as we think about revenue headed into the fourth quarter here, drivers will continue to be VYVGART, we expect continued good sequential growth driven by new patient additions and continued growth and durability in terms of the number of doses patients get. We are seeing, as I mentioned in the opening remarks, we're seeing good progress as a result of the national guidelines that were issued in July, which focus on getting patients into at least 3 courses of therapy. So, we'll see, we expect to see continued growth there. ZEJULA, we are seeing a return to growth. As we've mentioned throughout the year, the quarterly numbers, I think, will be a little bit choppy because of the generic entries for Lynparza, but we do expect VBP to kick in, in the fourth quarter here, and that gives us a chance to gain share in this class, and we're confident we will. So, we'd expect to see some growth there. rest of the portfolio continues to do well. We are excited about the progress we're seeing with XACDURO, but still face supply constraints. So, we'll be somewhat limited as we come into the fourth quarter here or there. But overall, good momentum in the portfolio and good growth drivers. We'll give more specific guidance for 2026 as we get into next year. But obviously, we're looking forward to the launch of KarXT, the potential approval of TIVDAK and continued growth in these, in the core part of the portfolio. As it relates to profitability, again, our profitability will be driven by growth in the business in China. The China business, of course, is profitable today. And as we continue to drive top line growth, that profitability will be enough to cover the R&D and corporate costs that we have. So, we're still on that path. It's just, we just need the growth to continue in the portfolio. With that, I'll turn it to Rafael to talk about 1503. Rafael Amado: Thanks, Josh. Thanks, Jonathan. So, 1503, we're really excited about this molecule. As you know, it's both dual IL-13/31 inhibitors. It traps IL-13, and we know that, that is a proven pathway. And 31 is a very potent pathway in initiating pruritus. So, we think the combination plus the long half-life is going to translate into a really brisk effect, which is very fast and sustained. We have initiated the IND already. We plan to do a multi-country study. And obviously, it's a first-in-human study. We will do single ascending dose in normal volunteers and then multiple doses in patients with atopic dermatitis. In the lab, we've been looking at other models of TH2 diseases, and we are very encouraged with what we're seeing on asthma, rhinitis and other disorders that affect [TH2]. So, in addition to this, we're going to be looking at efficacy endpoints given the half-life that is long, we think that we will be able to see effects on EASI scores as well as IgA/ID [Audio Gap] and so this is going to be measured very frequently. We hope to have the data available by the middle of next year, but it will obviously accumulate throughout next year, and we will present when we have sufficient data. It's a placebo-controlled trial. So, we'll be able to have comparisons. And obviously, we know what the landmarks are here with other products. So again, a very large opportunity. This is a very common disease, even a fraction percentage of capturing in AD would be a large opportunity. And also, the possibility of expanding into other TH2 diseases, I think make this a very promising product. Operator: We will now take our next question from the line of Anupam Rama from JPMorgan. Anupam Rama: This is Joyce on for Anupam. The press release today really led with progress on your own internal global development programs. Is this a shift in how you're thinking about the resource allocation in terms of your prior focus on external BD versus now the internal pipeline? Joshua Smiley: Thanks. It's Josh. I'll start. First, we are very excited about the pipeline that we have today with the global emphasis. And of course, that will be a priority to invest in and Rafael outlined our near-term focus in terms of 1310 and getting the registration trial up and running and expanding into first line and into neuroendocrine tumors. So that's going to be a focus. We've got a really exciting global portfolio behind that. We think we have the capacity here to fully invest in those programs. We have a strong balance sheet with plenty of cash to continue to pursue on a targeted basis, the right kind of external opportunities to bring in, both on a global and regional basis. And we have the capacity within the income statement on the R&D side to, I think, fully invest behind these exciting opportunities and still manage, I think, an R&D budget that's within the range of what we've seen the last few years. So, priorities are advance the pipeline, continue to build the pipeline and continue to drive the commercial business in China, which is profitable today and will be increasingly profitable over time. Operator: We will now take our next question from the line of Yigal Nochomovitz from Citi. Yigal Nochomovitz: This is Caroline on for Yigal. We were wondering where you're seeing the greatest opportunity and greatest likelihood for success for your internal global pipeline among LRRC and PD-1, IL-2 and others. I have a second question, if okay. Joshua Smiley: Rafael, jump in on this one, please. Rafael Amado: Sure. Obviously, the most immediate one is 1310. I mean, it clearly is quite active. It is well tolerated, very few related grade 3 and above treatment effects. treatment side effects, strong brisk effect on brain metastases in untreated brain metastases. And again, very high percent of patients responding. We are starting up the Phase III study for second line. We've had recent discussions with FDA, and we're sharpening the design to the point that it's already started. We will continue to do some work on the dose, but I think that is going to finish pretty quickly. With regards to the rest of the products, obviously, 1503, I mean, these are proven pathways. So, the bar for activity is pretty low. And also, the characteristics of the product with FC modification for long half-life makes it very ideal for patients with these chronic diseases. And then with regards to some of the other ones, LRRC15 is particularly interesting because it will be the first time where a tumor is being targeted where the target is not necessarily in the tumor. So, there will be these 2 groups of patients like sarcoma patients where the tumor does express LRRC15, but others in which the tumor only expresses the target in fibroblasts. And if that is the case, if we can actually abrogate tumors where the tumor is negative, but the tumor microenvironment is positive, then it opens a whole host of tumor types. So pretty excited about this. And I think we are with others leading in ADC, which is one of our focus in oncology. And then I'll finish with PD-1 IL-12. It's been very hard to target IL-12 because it's toxic. So, we've been able to engineer an IL-12 stimulated moiety, which actually is attenuated. So, it doesn't really cause side effects of T cell activation. And at the same time, with full blockade of PD-1. So, in animal models, we can see that we can actually restore PD-1 resistant tumors, which would be pretty exciting to see. And we are seeing, as you know, more enhancements on PD-1 as a checkpoint with other molecules. And we think that an IL-12 would be one of them. So, I'll just finish by saying that we can move these things pretty quickly. We'll have 2 INDs this year. One of them will enroll this year. The other one will start enrolling in January. And PD-1 IL-12 is a candidate that will have an IND next year and hopefully, the first patient as well in the second half. So yes, we're excited about all of them. But obviously, our strongest focus right now is making sure that we cover the lives on 1310. Yigal Nochomovitz: Got it. And on my second question, we're wondering what you're doing to set yourself up for a strong KarXT launch? And what more have you learned about the schizophrenia market in China to best position KarXT in the marketplace? Joshua Smiley: It's Josh. Yes, we're quite excited about the opportunity with KarXT. Regulatory reviews are going well. So, we are hopeful for an approval sometime in the near term here. First, I think if you look in China, there's a huge opportunity. Of course, there haven't been any new mechanisms approved in severe melan illness or schizophrenia in more than 70 years. So, the opportunity for a mechanism like KarXT that provides both efficacy on positive symptoms, negative symptoms and cognition is, I think, well anticipated and thought leaders are anxious for this drug to come. So, we'll launch with a targeted sales force. I think the difference in China versus what we see in some of the Western markets, certainly in the U.S. is it's a more concentrated approach. Patients tend to be in bigger institutions. So, with a relatively targeted sales force and education program, we should be able to touch a significant portion of the market at launch. And again, just to remind people that the opportunity here is quite significant with millions of patients today suffering from schizophrenia. Obviously, it's a lifelong disease. So, we're anxious to get the approval first to get up and running in 2026 and then move toward NRDL listing in 2027. Operator: Our next question comes from the line of Li Watsek from Cantor Fitzgerald. Li Wang Watsek: I have one commercial, one pipeline question. I guess just given some of the complex commercial dynamics in China and your revised guidance, can you provide your updated views on the $2 billion revenue target by 2028? And then second is for ZL1310, sounds like you're expanding to neuroendocrine tumors next year. I wonder if you can just talk a little bit about the pathway to approval and what would be the bar? Joshua Smiley: Thanks, Li. It's Josh. I think first on the $2 billion 2028 goal, we will look at all the moves that we had in the portfolio, and we'll provide a more fulsome update next year, maybe starting at JPMorgan. But to comment, we feel really good about the portfolio we have today. As Samantha mentioned upfront, I think the most exciting piece is the opportunity for sales outside of China in 2028. We mentioned that 1310, we see a path for an approval as early as late 2027. So, to have some significant sales in 2028 coming from the U.S. in small cell lung cancer, I think, quite exciting and certainly represents a new inflection point and phase of growth for us. The portfolio in China continues to grow. And we've talked about the dynamics with VYVGART, which we expect over the course of the next number of years to continue to grow at a good and steady rate, supplemented by additional indications. since we have talked about that revenue goal, we've added Pove and Veli, both of which can launch in the 2028-time frame. So, we're quite excited about the long-term growth potential of the portfolio and most excited this year about the progress on 1310 and what it means for sales, not just in China, but outside of China within this time frame. Yes, Rafael, if you can jump in, please. Rafael Amado: Yes. Thanks, Caroline. So, I'll talk a bit about NEC. So, the study that we have has 2 cohorts of carcinoma. So, these are highly proliferative tumors that have a poor prognosis. One is gastroenteropancreatic tumors or GEP, and the others are other NECs that can arise from other sites, other organs. We are seeing responses in both groups. It's still early days, obviously, and we're accumulating more and more evidence of activity. These are patients that have had more than one line of therapy, which tends to be platinum-based therapy. And there really isn't any standard for these patients. The tumors tend to grow fast and actually mortality is quite high. So, in terms of how we want to proceed with this, the idea would be to sort of circumscribe the tumors that have similar natural history like GEP, large cell non-small cell lung cancer and also tumors of a non-primary and do a study, a single-arm trial and try to characterize the response rate. I think anything above 30% to 40% would be of great interest because there really isn't any therapy. Many of these patients go to clinical trials with reasonable durability. So, we would plan to have discussions with regulatory authorities to see whether given the unmet need single-arm trial with these kinds of results could result in an accelerated approval. The alternative is to do a physician choice comparator, which also we will be prepared to launch. And given the activity that we are seeing, if it continues, it wouldn't be a very large study, particularly given the large unmet need and the fact that this is an orphan indication. So pretty excited about what the agency will see and opine once we have sufficient follow-up and sufficient patients to characterize the activity. Operator: Our next question comes from the line of Lai Chen from Goldman Sachs. Ziyi Chen: Two questions. The first one is regarding the guidance. We try to understand a bit more about compared to the expectations set in any guidance previously, in which areas has the company encountered deeper than anticipated challenges in China environment, particularly for VYVGART and ZEJULA. Could you elaborate a bit more? And also, I think beginning of the year, in terms of the guidance, not only about the top line, but also you mentioned about fourth quarter cash breakeven target. Is that still intact? That's my first one. Second is regarding the R&D because Zai Lab is really pivoting towards a global R&D company. So, in terms of the pipeline buildup, particularly for the early-stage pipeline buildup, now we got oncology ADCs, we have 2 different ADCs. We have PD-1, IL-12, and we also have immunology. So we're trying to understand a bit more about the strategy, the portfolio strategy when you're deciding what to go after and what not to do. So, could you provide a bit more color on that? Joshua Smiley: Sure. Thanks. First, on the performance this year, I would say, relative to our initial expectations, VYVGART, while growing well, and we're pleased with the underlying dynamics, as we've mentioned throughout the call, it's just taking longer to get to the rate that we, of treatment that we see in the U.S. market, for example. So, we're focused now on getting patients up to at least 3 cycles of treatment, and we're seeing progress there. It's just slow. So, I would say that's our sort of on the VYVGART piece, that's the piece that has been the slowest relative to our expectations. Again, I think this is what we're realizing is it's a long-term build the market opportunity. We have the long term with this product, and we're seeing good response to things like the national guidelines and our continued promotional and educational efforts. So just a slower ramp to get to the kind of treatment duration that we see in the Western markets. On ZEJULA, we expect to gain share as a function of Lynparza going generic, and we saw some delays there in terms of, relative to our initial expectations relative to VBP. Again, we expect that to kick in beginning in the fourth quarter and set us up well for next year. Certainly, again, there are dynamics related to affordability and hospital purchasing and otherwise that may make that a bit choppy. But I think the underlying opportunity for ZEJULA is to gain share from what had been Lynparza as it goes to generic. The third piece for us is then just we've talked about this through the year. It's a great product and our partner, Pfizer, is seeing really great response and demand in the hospital setting for this drug. And we've had more supply constraints than we anticipated at the beginning of the year. We're working through those, and we're hopeful that as we come into 2026, those will be resolved, and we'll be able to fully meet the demand that we're seeing in the marketplace. Those things together, of course, will help and drive profitability. I think if you look at our path to profitability and focus on the noncash, I mean, on the cash sort of earnings, which is our non-GAAP number, you see continued good progress in that regard. And that progress should continue. We'll give you an update for 2026. But really, it's just going to be a function of continued growth on the top line. And I think at the numbers that we're suggesting here for the fourth quarter, we probably won't quite get there, but we'll still show good improvement, and we'll be on that path as we head into 2026. Rafael, if you can talk about how we think about the portfolio and the next opportunities. Rafael Amado: Sure. So, the portfolio will continue to grow as a blend of both internal as well as external opportunities. I'm really proud of the fact that many of the products that are now in development came from our protein science laboratories, which have been very productive. But in terms of strategy in oncology, we will continue with antibody drug conjugates, and we will continue to innovate there. There are other antibodies that we haven't mentioned that are in the pipeline at the moment, and we spend a lot of time trying to characterize the antibody vis-a-vis the target. and then use the right payload linker. So that's going to continue to grow. We also have an interest in immunocytokines, which I mentioned before. We have other immunocytokines that will come after the PD-1 IL-12. And then T cell engagers, we've made an effort in T cell engagers, and we will be reporting with time some of these candidates entering the clinic. Outside of oncology, you are right. I mean, we have been focusing on autoimmunity, neuroscience and immunology. In autoimmunity, we are focusing on cytokines, both antibodies or bispecifics perhaps cell depletion as well and then signal transduction of some of these cytokine pathways, which involve small molecules as well. And so overall, we will remain opportunistic, obviously, for either regional or global opportunities that have novel mechanisms of action, have differentiation and really make a big difference for patients. But the guardrails, if you will, are the ones that I just described to you. So, thanks for the question. Ying Du: Yes. I think, Joe, just like Rafael was saying, we, even though our pipeline in China, regional pipeline has oncology, autoimmune and neuro and anti-infectious. But for our global pipeline, we are focusing on oncology and autoimmune and anti-inflammatory specifically that Rafael was saying. So internally for global development pipelines, we are only focused on those 2 areas. Operator: Our last question today comes from the line of Clara Dong from Jefferies. Yuxi Dong: This is Jenna on for Clara. We have 2 questions, if we may. First, on VYVGART. I think previously, we were under the impression that sales will be back half loaded. So, I was just curious what kind of visibility or leading indicators you may have for Q4 and 2026? And more specifically, can you comment on, for example, pace, number of cycles on average patients are getting today? What does the pace look like over the next few years to reach the 3 average doses? And then our second question is on Bema in the context of the Amgen announcement. I was just curious if it's still possible to have a path forward for just China based on the trials you're running or the data you have in hand? Joshua Smiley: I'll start with VYVGART and then Rafael can talk about Bema. I think on VYVGART, what we're seeing is good underlying growth in terms of duration or number of vials or cycles patients get. I think as we started the year, on average, we were probably close to 1 cycle per year or per patient per year, and that represented the fact that at launch, we were getting lots of the acute patients and VYVGART, of course, works really well in an acute setting, but to get the full benefit for patients with gMG that allows them to work and live their lives fully, you need to get the maintenance benefits, which kick in at least 3 cycles. Through this year, we're seeing progress towards an average of 2 cycles per year. And as you mentioned in your question, the goal is to get to at least 3 and over time, aspirations toward 5, where we see the full benefits in clinical trial and real-world setting, so I think as we look into next year, we'd expect the underlying growth to continue probably at this, what we're seeing in terms of volume, so sort of number of vials in total is sequential quarterly growth in the sort of low teens. And I think that's reasonable to expect as we head into next year and continue to sort of climb towards that on average, 3 cycles of use; again, supplemented by, or accelerated by the national guidelines that were issued in July and our efforts to educate physicians in that regard. So, we're looking forward to the continued underlying growth here, and I think expect that to continue on a good basis as we head into 2026. Rafael, do you want to talk about Bema? Rafael Amado: Sure. So, we're still digesting the data. You saw the data at ESMO that was presented with the primary analysis of 096 and then the final analysis with this attenuated treatment effect. And then Amgen announced that 098 was a negative study in terms of not meeting statistical significance. So, we're looking at with Amgen and our partner at translational markers and subgroups, and we will be doing this in the upcoming weeks and make a decision. But our opinion is that it will be very challenging to get an approval in China with this data set. So as such, we're thinking about how to deploy these resources to the rich pipeline that we've been discussing today and try to capitalize on the fact that we will have this opportunity of time, people, resources and effort to advance the current pipeline. Operator: Thank you, we have come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Dr. Samantha Du for her closing comments. Ying Du: Thank you, operator. I want to thank everyone for taking the time to join us on the call today. We appreciate your support and look forward to updating you again after the fourth quarter of 2025. Operator, you may now disconnect this call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.

195天前Insight Analytics约5分钟阅读

IREN 2026 Q1 财报电话会议

Operator: Thank you for standing by, and welcome to the IREN Q1 FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mike Power, VP of Investor Relations. Please go ahead. Mike Power: Thank you, operator. Good afternoon, and welcome to IREN's Q1 FY '26 Results Presentation. I'm Mike Power, VP of Investor Relations. And with me on the call today are Daniel Roberts, Co-Founder and Co-CEO; Anthony Lewis, CFO; and Kent Draper, Chief Commercial Officer. Before we begin, please note this call is being webcast live with a presentation. For those that have dialed in via phone, you can elect to ask a question via the moderator after our prepared remarks. Before we begin, I'd like to remind you that certain statements that we make during the conference call may constitute forward-looking statements, and IREN cautions listeners that forward-looking information and statements are based on certain assumptions and risk factors that could cause actual results to differ materially from the expectations of the company. Listeners should not place undue reliance on forward-looking information or statements, and I'd encourage you to refer to the disclaimer on Slide 2 of the accompanying presentation for more information. With that, I'll now turn over the call to Dan Roberts. Daniel Roberts: Thanks, Mike, and thank you all for joining us for IREN's Q1 2026 Earnings Call. Today, we'll provide an overview of our financial results for the first fiscal quarter ending September 30, 2025, highlighting key operational milestones and importantly, discuss how our AI cloud strategy is driving strong growth. We'll then open the call for questions at the end. So Q1 FY '26 results. Fiscal year 2026 is off to a really good start. We delivered a fifth consecutive quarterly increase in revenues and a strong bottom line. Revenue reached $240 million and adjusted EBITDA was $92 million. Noting, of course, that net income and EBITDA importantly, reflected an unrealized financial gain on financial instruments. This performance reflects our continued -- the team's disciplined execution along with the benefits of having a resilient vertically integrated platform. Microsoft and the cloud contract. So earlier this week, we announced a $9.7 billion AI cloud contract with Microsoft, which was a defining milestone for our business that underscores the strength and scalability of our vertically integrated AI cloud platform. The agreement not only validates our position as a trusted provider of AI cloud service, but also opens up access to a new customer segment among the global hyperscalers. Under this 5-year contract, IREN will deploy NVIDIA GB300 GPUs across 200 megawatts of data centers at our Childress campus. The agreement includes a 20% upfront prepayment, which helps support capital expenditures as they become due through 2026. The contract is expected to generate approximately $1.94 billion in annual recurring revenue. Beyond the obvious positive financial impact, the contract carries strategic value of significance for us. It not only positions IREN as a contributor towards Microsoft's AI road map, but also demonstrates to the market our ability to serve an expanded customer base, which includes a range of model developers, AI enterprises and now one of the largest technology companies on the planet. As enterprises and other hyperscalers accelerate their AI build-out, we expect that our combination of power, AI cloud experience and execution capability will continue to position us as a partner of choice. Looking ahead, we're executing now on a plan that will see our GPU fleet scale from 23,000 GPUs today up to 140,000 GPUs by the end of 2026. When fully deployed, this expansion is expected to support in the order of $3.4 billion in annualized run rate revenue. Importantly, this expansion leverages just 16% of our 3 gigawatts in secured power, leaving ample capacity for future expansion. With that overview in mind, let's turn to the next section, a closer look at our AI cloud platform and how we're positioned to scale in the years ahead. So as I alluded to earlier, a key driver of IREN's competitive advantage in AI cloud services is our vertical integration. We develop our own greenfield sites, engineer our own high-voltage infrastructure, build and operate our own data centers and deploy our own GPUs. Simply put, we control the entire stack from the substation all the way down to the GPU. We believe strongly that this end-to-end integration and control is a key differentiator that positions us for significant growth. This model of vertical integration eliminates dependence on third-party colocation providers and most importantly, removes all counterparty risk associated. This allows us to commission GPU deployments faster with full control over execution and uptime. For our customers, this translates into scalability, cost efficiency and a superior customer service with tighter control over performance, reliability and delivery milestones, driving tangible value and certainty. For those reasons, our customers, including Microsoft, view IREN as a strategic partner in delivering cutting-edge AI compute, recognizing our deep expertise in designing, building and operating a fully integrated AI cloud platform. On that note, we're excited to announce a further expansion of our AI cloud service, targeting a total of 140,000 GPUs by the end of 2026. This next phase includes the deployment of an additional 40,000 GPUs across our Mackenzie and Canal Flats campuses, which are expected to generate in the order of $1 billion in additional ARR. When combined with the $1.9 billion expected from the Microsoft contract and $500 million from our existing 23,000 GPU deployment, this expansion provides a clear pathway to approximately $3.4 billion in total annualized run rate revenue once fully ramped. Importantly, this incremental 40,000 GPU build-out will be executed in a highly capital-efficient manner through leveraging existing data centers. While we have not yet purchased GPUs for the deployment, we continue to see strong demand for air-cooled variants of NVIDIA's Blackwell GPUs, including both the B200 and the B300. And given their efficient deployment profile, we expect these to form the basis of this expansion. That said, we will continue to monitor customer demand closely and pursue growth in a disciplined, measured way. This full expansion to 140,000 GPUs will only require about 460 megawatts of power, representing roughly 16% of our total secured power portfolio. This leaves substantial optionality for future growth and importantly, continued scalability across our portfolio. The key takeaway here is that we have substantial near-term growth being actively executed upon, but also have significant and additional organic growth ahead of us. Turning now to Slide 8, which highlights the British Columbia data centers supporting our expansion to 140,000 GPUs. At Prince George, our ASICs to GPU swap-out program is progressing well. The same process will soon extend to our Mackenzie and Canal Flats campuses, where we expect to migrate ASICs to GPUs with similar efficiency and speed. Together, these sites are allowing us to fast track our growth in supporting high-performance AI workloads, scaling it into what is becoming one of the largest GPU fleets in North America. Turning to Childress, where we are now accelerating the construction of Horizons 1 to 4 to accommodate the phased delivery of NVIDIA GB300 NVL72 systems for Microsoft. We've significantly enhanced our original design specifications to meet hyperscale requirements and also further ensure durable long-term returns from our data center assets. The facilities have been engineered to Tier 3 equivalent standards for concurrent maintainability, ensuring continuous operations even during maintenance windows. A key feature of this next phase is the establishment of a network core architecture capable of supporting single 100-megawatt super clusters, a unique configuration that enables high-performance AI training for both current and next-generation GPUs. We're also incorporating flexible rack densities ranging from 130 to 200 kilowatts per rack, which allows us to accommodate future chip generations and the evolving power and density requirements without major structural upgrades. While these design enhancements have resulted in incremental cost increases, they provide long-term value protection, enabling our data centers to support multiple generations and reduce recontracting risk typically associated with lower spec builds. In short, we're building Childress not just for today's GPUs and the Microsoft contract in front of us, but also for the next generations of AI compute. Beyond the accelerated development of Horizons 1 through to 4, the remaining 450 megawatts, as you can see in the image on screen of secured power Childress provides substantial expansion potential for future horizons numbered 5 through to 10. Design work is underway to enable liquid cooled GPU deployments across the entire site, positioning us to scale seamlessly alongside customer demand. Finally, turning to Sweetwater, our flagship data center hub in West Texas, which has been somewhat overshadowed in recent months by the activity in Childress and Canada. At full build-out, Sweetwater will support up to 2 gigawatts, 2,000 megawatts of gross capacity, all of which has been secured from the grid. As shown in the chart, this single hub rivals and in most cases, exceeds the entire scale of total data center markets today. While the recent headlines have naturally been dominated more about our AI cloud expansion at other sites, Sweetwater is a pretty exciting platform asset, giving us the capability to continue servicing the wave of AI compute demand. Sweetwater 1 energization continues to remain on schedule with more than 100 people mobilized on site to support construction of what is becoming one of the largest high-voltage data center substations in the United States. All exciting stuff. With that, I'll now hand over to Anthony, who will walk through our Q1 FY '26 results in more detail. Anthony Lewis: Thanks, Dan, and thanks, everyone, for your attendance today. Continued operational execution was reflected in another quarter of strong financial performance. Q1 FY '26 marked our fifth consecutive quarter of record revenues with total revenue reaching $240 million, up 20% -- 28% quarter-over-quarter and 355% year-over-year. Operating expenses increased primarily on account of higher depreciation, reflecting ongoing growth in our platform and higher SG&A. The latter primarily driven by a materially higher share price, resulting in acceleration of share-based payment expense and a higher payroll tax expense associated with employees -- $63 million were both significantly up, largely on account of unrealized gains on prepaid forward and cap call transactions entered into in connection with our convertible note financings. Adjusted EBITDA was $92 million, reflecting continued margin strength, partially offset by that higher payroll tax of $33 million accrued in the quarter on account of strong share price performance. Turning now to our recently announced AI cloud partnership with Microsoft. As Dan mentioned, this is a very significant milestone for IREN. It not only delivers strong financial returns, but also creates a significant long-term strategic partnership for the business. Focusing on the financials. The $9.7 billion contract is expected to deliver approximately $1.9 billion in annual revenue once the 4 phases come online with an estimated 85% project EBITDA margin. This strong margin, which reflects our vertically integrated model incorporates all direct operating expenses across both our cloud and data center operations supporting the transaction, including power, salary and wages, maintenance, insurance and other direct costs. These cash flows deliver an attractive return on the cloud investment, i.e., the $5.8 billion CapEx for the GPUs and ancillaries after deducting an appropriate internal colocation charge, ensuring that the project delivers robust cloud returns as well as an attractive return on our long-term investment in the Horizon data centers, which will deliver returns for many years into the future. The transaction has also a number of features that allow us to undertake the transaction in a capital-efficient way. Firstly, the payments for the CapEx are aligned with the phased delivery of the GPUs across the calendar year '26 as we deliver those 4 phases. Secondly, the $1.9 billion in customer prepayments being 20% of total contract revenue, paid in advance of each tranche provides funding for circa 1/3 of the funding requirement at the outset. Thirdly, the combination of the latest generation of GPUs and the very strong credit profile of Microsoft should allow us to raise significant additional funding secured against the GPUs and the contracted cash flows on attractive terms. While the final outcome will be subject to a range of considerations and factors, we are targeting circa $2.5 billion through such an initiative. And depending on final terms and pricing, there is meaningful upside to that, noting again the very high quality of our counterparty. We also have a range of options available to fund the remaining $1.4 billion, including existing cash balances, operating cash flows and a mix of equity convertible notes and corporate instruments. On that note, turning more generally to CapEx and funding. We continue to focus on deepening our access to capital markets and diversifying our sources of funding. We issued $1 million in 0 coupon convertible notes during October, which was extremely well supported. And we also secured an additional $200 million in GPU financing to support our AI cloud expansion in Prince George, bringing total GPU-related financings to $400 million to date at attractive rates. Taking into account recent fundraising initiatives, our cash at the end of October stood at $1.8 billion. Our upcoming CapEx program, which includes the construction of the Verizon data centers for the Microsoft transaction will be met from a combination of the strong starting cash position, operating cash flows, the Microsoft prepayments, as just noted, and other financing streams that are underway. These include the GP financing facilities that we discussed as well as a range of other options under consideration from other forms of secured lending against our fleet of GPUs and data centers through to corporate level issuance, whilst maintaining an appropriate balance between debt and equity to maintain a strong balance sheet. With that, we'll now turn the call over to Q&A. Operator: [Operator Instructions] The first question today comes from Nick Giles from B. Riley Securities. Nick Giles: I want to congratulate you on this significant milestone with Microsoft. This was really great to see. I have a 2-part question. Dan, you mentioned strategic value, and I was first hoping you could expand on what this deal does from a commercial perspective. And then secondly, I was hoping you could speak to the overall return profile of this deal and how you think about hurdle rates for future deals. Daniel Roberts: Sure. Thanks, Nick. I appreciate the ongoing support. So in terms of the strategic value, I think undoubtedly, proving that we can service one of the largest technology companies on the planet has a little bit of strategic value. But below that, the fact that this is our own proprietary data center design, and we've designed everything from the substation down to the nature of the GPU deployment and that has been deemed acceptable by a $1 trillion company, I think that's got a bit of strategic value, both in terms of demonstrating to capital markets and investors that we are on the right track, but also importantly, in terms of the broader customer ecosystem and that validation. And look, we've seen that play out over the days since the announcement. In terms of hurdle rates and returns, I think it's worth Anthony, if you can to jump into this. I think it's fair to say that IRRs, hurdle rates and financial models have dominated our lives for the last 6 weeks. So there's probably a little bit we can outline in this regard. Anthony Lewis: Sure. Thanks, Dan, and thanks for the question. The -- yes, just in terms of -- yes, the returns on the transaction, obviously, as I noted in the introductory comments, we -- when we look at the cloud returns, we obviously take away what we think to be an arm's length colocation rate, right, so effectively charge the deal for the cost of reaching the data center capacity. After we take that into account on an unlevered basis and assuming that there are 0 cash flows or RV associated with the GPUs after the term of the contract, we expect an unlevered IRR of low double digits. Obviously, we'll be looking to add some leverage to the capital structure for the transaction, as we also discussed. And once we take that target $2.5 billion of additional leverage into account, you're achieving a levered IRR in the order of circa 25% to 30%. Obviously, that is assuming that $2.5 billion package and it also assumes that the remaining funding is coming from equity as opposed to other sources of capital, which we might also have access to. I'd also note that we said that the -- might well be upside on that $2.5 billion. Obviously, at a $3 billion leverage package against the GPUs on a secured financing package, you could see those -- that levered return increase by circa 10%. In terms of the RV, we've obviously -- in those numbers, we're just reflecting 0 economic value in the GPUs at the end of the term. If, for example, you were to assume a 20% RV, obviously, that has a material impact. Unlevered IRRs would increase to high teens and your levered IRRs would be somewhere between 35% to 50% depending on your leverage assumptions. Daniel Roberts: Yes. I think maybe just to jump in as well. Thanks, Anthony. That's all absolutely correct. And there are a lot of numbers in there, which is demonstrative of the amount of time we spent thinking about IRRs. So I think just to reiterate a couple of points. One is we've clearly divided out our business segments into stand-alone operations for the purposes of assessing risk return against a prospective transaction. So to be really clear, all of those AI cloud IRRs assume a colocation charge. So they assume a revenue line for our data centers. So our data centers, we've assumed to earn internally $130 per kilowatt per month escalating, which is absolutely a market rate of return, particularly considering the first 5 years is underwritten by a hyperscale credit. So that's probably the first point I'd make. But it's also really important to mention that we've optimized elsewhere. So the 76,000 GPUs that we've procured for this contract at a $5.8 billion price, Dell have really looked after us to the point where they've got an in-built financing mechanism in that contract, where we don't have to pay for any GPUs until 30 days after they're shipped. So there's further enhancements there. And then the final point I'd reiterate is this 20% prepayment, which I don't believe we've seen elsewhere, accounts for 1/3 of the entire CapEx of the GPU fleet. And I guess we've been asked previously why we would prefer to do AI cloud versus colocation. As one very single small data point, we are getting paid 1/3 of the CapEx upfront here as compared to having to give away equity -- big chunks of equity in our company to get access to a colocation deal. So we're really pleased to lead us towards that $3.4 billion in ARR by the end of 2026 on returns that are pretty attractive. Yes, it's a good result. Nick Giles: Anthony, Dan, I really appreciate all the detail there. One more, if I could. I was just wondering if you could give us a sense for the number of GPUs that will ultimately be deployed as part of the Microsoft deal. And then as we look out to year 6 and beyond, I mean, can you just speak to any of the kind of future-proofing you've done of the Horizon platform and what can ultimately be accommodated in the long term for future generations of chips? Kent Draper: I'm happy to jump in and take that one, Dan. So in terms of the number of GPUs to service this contract, I draw your attention to some of our previous releases where we've said that each phase of Horizon would accommodate 19,000 GB300s. And obviously, we're talking about 4 phases here with respect to that. In terms of future proofing of the data centers, there are a number of elements to it, but the primary one is that we have designed for rack densities here that are capable of handling well in excess of the GB300 rack architecture. And to give you specific numbers there, the GB300s are around 135 kilowatts of rack for the GPU racks and our design at the Horizon facilities it can accommodate up to 200 kilowatts of rack. So that is the primary area where we have future-proofed the design. But as Dan also mentioned in the remarks on the presentation, we have enhanced the design in a number of ways, including effectively what is full Tier 3 equivalent concurrent maintainability. So yes, there are a number of elements that have been accommodated into the data centers to ensure that they can continue to support multiple generations of GPUs. Nick Giles: Very helpful, Kent. Guys, congratulations again and keep up the good work. Operator: The next question comes from Paul Golding from Macquarie. Paul Golding: Congrats on the deal and all the progress with HPC. I wanted to ask, I guess, just a quick follow-on to the IRR question. Just on our back of the envelope math, it looks like pricing per GPU hour may be on the rise or at the higher end of that $2 to $3 range, assuming full utilization, so presumably potentially even higher. How should we think about the pricing dynamics in the marketplace right now on cloud given the success of this deal? And what seems to be fairly robust pricing? And then I have a follow-up. Daniel Roberts: Sure. Kent Draper: You go ahead, Dan. Daniel Roberts: Look, I'll let Kent talk a bit more about the market dynamic, but it is absolutely fair to say that we're seeing a lot of demand. That demand appears to increase month-on-month in terms of the specific dollars per GPU hour, we haven't specified that exactly. However, we have tried to give a level of detail in our disclosures, which allows people to work through that. I think importantly, for us, rather than focusing on dollars per GPU hour, which I think your statement is correct, is focus on the fundamental risk return proposition of any investment. And when we've got the ability to invest in an AI cloud, delivering what is likely to be in excess of 35% levered IRRs against the Microsoft credit, I mean, you kind of do that every day of the week. Kent Draper: Yes. Thanks, Dan. And Paul, with regard to your specific question around demand, we continue to see very good levels of demand across all the different offerings we have. The air-cooled servers that we are installing up in our facilities in Canada lend themselves very well to customers who are looking for 500 to 4,000 GPU clusters and want the ability to scale rapidly. As we've discussed before, transitioning those existing data centers over from their current use case to AI workloads is a relatively quick process, and that allows us to service the growth requirements of customers in that class very well. And case in point, we've been able to precontract for a number of the GPUs that we purchased for the Canadian facilities well in advance of them arriving out of the sites. And this is something that customers have historically been pretty reticent to do, but that level of demand exists in the market as well as ongoing trust and credibility of our platform with both existing and new customers that is allowing us to take advantage and pre-contract a lot of that away. And then obviously, with respect to the Horizon 1 build-out for Microsoft, this is the top-tier liquid cooled capacity from NVIDIA. We continue to see extremely strong demand for that type of capacity. And the fact that we are able to offer that means that we can genuinely serve all customer classes from hyperscalers, the largest foundational AI labs and largest enterprises with that liquid cooled offering down to top-tier AI start-ups and smaller scale inference enterprise users at the BC facilities. Paul Golding: As a follow-up, as we look out to Sweetwater 1 energization coming up fairly soon here in April, are you able to speak to any inbound interest you're getting on cloud at that site? I know it's early days just from a construction perspective, maybe for the facilities themselves. But any color there and maybe whether you would consider hosting at that site given the return profile and potential cash flow profile that you would get from engaging in, in the cloud business over a period of time? Kent Draper: Yes. In terms of the level of interest and discussions that we're having, we're seeing a strong degree of interest across all of the sites, including Sweetwater as well. Obviously, very significant capacity available at Sweetwater, as Dan mentioned, with initial energization there in April 2026, which is extremely attractive in terms of the scale and time to power. So I think it's very fair to say that we're seeing strong levels of interest across all the potential service offerings. As it relates to GPU as a Service and colocation, as previously, we will continue to do what we think is best in terms of risk-adjusted returns. Anthony outlined the risk-adjusted returns that we're seeing in colocations -- sorry, in GPU as a Service specifically at the moment. And as we've outlined over the past number of months, that does look more attractive to us today. But as we continue to see increasing supply-demand imbalance within the industry, that may well feed through into colocation returns where it makes sense to do that in the future. But as it stands today, certainly, the return profile that we're seeing in GPU as a Service, we think is incredibly attractive. Operator: The next question comes from Brett Knoblauch from Cantor Fitzgerald. Brett Knoblauch: On the $5.8 billion, call it, order from Dell, can you maybe parse out how much of that is allocated to GPUs and the ancillary equipment? And on the ancillary equipment, say, you wanted to retrofit the Horizon data centers with new GPUs in the future, do you also need to retrofit the ancillary equipment? Kent Draper: So out of that total order amount, I mean, it's fair to say the GPUs constitute the vast majority of it, but there is some substantial amounts in there for the back-end networking for the GPU clusters, which is the top-tier InfiniBand offering that's currently available. In terms of future proofing, we'll have to see how much of that equipment may or may not be reusable for future generations of GPUs. As I was referring to earlier, the vast majority of our data center equipment and the way that we have structured the rack densities within the data center mean that the data center itself is future-proofed. But in terms of the specific equipment for this cluster, it remains to be seen whether that will be able to be reused. Brett Knoblauch: Perfect. And then on the -- maybe the new 40,000 order that sounds like kind of be plugged in, in Canada. You talked about maybe a very efficient CapEx build for those data centers. Can you maybe elaborate a bit more on that? I know when the AI craze maybe first got started 18 months ago, you guys flagged that you guys are running GPUs up. I'm pretty sure that you built for less than $1 million a megawatt. Are we closer to that number for this? Or are we just well below maybe what the Horizon 4 cost per megawatt basis? Kent Draper: So in terms of the basic transition of those data centers over to AI workloads, it is relatively minimal in terms of the CapEx that is required. The vast majority of the work is removing ASICs, removing the racks that the ASICs sit on and replacing those with standard data center racks and PDUs, so the power distribution units. That can accommodate the AI servers. So that is relatively minimal. As we've discussed before, it's a matter of weeks to do that conversion. And from a CapEx perspective, it is not material. The one element that may be more material in terms of that conversion is adding redundancy if required to the data centers that would typically cost around $2 million a megawatt if we need to do that. But obviously, in the context of a full build-out like we're seeing of liquid cooled capacity at Horizon, it's extremely capital and CapEx efficient. Operator: The next question comes from Darren Aftahi from ROTH Capital Partners. Darren Aftahi: Congrats on the Microsoft deal as well. To start, with Microsoft, was colocation ever on the table with them? Did they come to you asking for AI cloud? Or how did those negotiations sort of fall out? Daniel Roberts: Just think about the best way to answer this. So we've been talking to Microsoft for a long period of time and the nature of those conversations absolutely did evolve over time. Is there a preference for the cloud deal? Possibly. But at the end of the day, we want to focus on cloud, and that was the transaction we were comfortable with. So conversations really focused around that over the last 6 weeks or so. I think if I may, I'd talk more generically around these hyperscale customers because obviously, we weren't just talking to Microsoft. I think there probably is a stronger preference from those to be looking at more colocation and infrastructure deals rather than cloud deals. But also is the case that there's an appetite for a combination. So it may be that we do some colocation in the future. Yes, I think different hyperscalers have different preferences. We'll entertain them all. But given the nature of the deal we did with a 20% prepayment funding 1/3 of CapEx and a 35% plus equity IRR, we're feeling pretty good about pursuing AI cloud. Darren Aftahi: Got it. And just as a follow-up with the rest of Childress, is there any significance to the size of the Microsoft deal starting at 200 megawatts? Do they have interest in the rest of the campus? Have you talked to them about that yet? Daniel Roberts: So again, I'm going to divert the question a little bit because we've got some pretty strong confidentiality provisions. So let me talk generically. There is appetite from a number of parties in discussing cloud and other structures well above the 200 megawatts that's been signed with Microsoft. Operator: The next question comes from John Todaro from Needham. John Todaro: Congrats on the contract. I guess just one on that as we dig a little bit more in, any kind of penalties or anything related to the time line of delivering capacity? Just wondering if there's guardrails around that. And then I do have a follow-up on CapEx. Daniel Roberts: There's always a penalty, whatever you do in life, if you don't do what you promise you're going to do. So we're very comfortable with the contractual tolerances that have been negotiated, the expected dates versus contractual penalties and other consequences. I can't comment more specifically beyond that on this call. But the other thing I would reiterate is we have never ever missed a construction or commissioning date in our life as a listed company. So I think you can take a lot of comfort that if we've put something forward to Microsoft and agreed it there and if we put something forward to the market, our reputations are on the line, our track record is on the line, we're going to be very confident we can deliver it and potentially even exceed it. John Todaro: Got it. Understood. And then just following up on the CapEx. That $14 million to $16 million on the -- I think it was the data center side. Just wondering if there's anything kind of additional in there that would get it north of the colo items other folks are talking about, if maybe there's some networking or cabling included in that or any contribution from tariffs are being considered there? Kent Draper: To give some additional color there. So yes, in terms of networking, et cetera, again, as Dan mentioned in his presentation earlier, this is designed -- the Horizon campus is designed to be able to operate 100-megawatt super clusters. Now that does raise a significant level of additional infrastructure that is required over being able to deliver smaller clusters. And so certainly, some of the costs that are in the number that you mentioned are related to the ability to do that. And that will not necessarily be a requirement of every customer moving forward. So that probably is an element that is somewhat unique. Operator: The next question comes from Stephen Glagola from JonesTrading. Stephen Glagola: On your British Columbia GPUs, can you maybe just provide an update on where you guys stand with contracting out the remaining 12,000, I believe, GPUs of the initial 23,000 batch? And are you seeing any demand for your bare metal offering in BC outside of AI native enterprises? Kent Draper: Yes. Happy to give an update there. We previously put out guidance a couple of weeks ago that we had contracted 11,000 out of the 23,000 that were on order. Subsequent to that, we have contracted a bit over another 1,000 GPUs. And primarily the ones that are not yet contracted are the ones that are arriving latest in terms of delivery time lines. As I mentioned earlier, we are seeing an increased appetite from customers to precontract. But these are GPUs that are a little further out in terms of delivery schedules relative to the ones that have already been contracted. Having said that, we continue to see very strong levels of demand, and we're in late-stage discussions around a significant portion of the capacity that has not yet been contracted and continue to see very good demand leading into the start of next year as well and are receiving an increasingly large number of inbounds from a range of different customer classes. So you mentioned AI natives. Yes, that has been a portion of the customer base that we've serviced previously. But we are also servicing a number of enterprise customers on an inference basis. So it is a pretty wide-ranging customer class that we're servicing out of those British Columbia sites. Operator: The next question comes from Joe Vafi from Canaccord Genuity. Joseph Vafi: Congrats from me too on Microsoft. Just maybe, Dan, if you could kind of walk us through what you were thinking in your head. Clearly, some awesome IRRs here on the Microsoft deal. But how are you thinking about risk on a cloud deal here versus a straight colo deal, which probably wouldn't have had the return, but maybe the risk profile may be lower there? And then I have just a quick follow-up. Daniel Roberts: Thanks, Joe. Look, it's funny. I actually see risk very differently. So we've spoken about colocation deals with these hyperscalers. And if you model out a 7% to 8% starting yield on cost and run that through your financial model, what you'll generally see is that you'll struggle to get your equity back during the contracted term, and then you're relying on recontracting beyond end of that 15-year period to get any sort of equity return. So in terms of risk, I would argue that there's a far better risk proposition implicit in the deal that we've signed and going down the cloud route. And then for the shorter-term contracts on the colo side where you may not have a hyperscale credit, you're running significant GPU refresh risk against companies that don't necessarily have the balance sheet today to support confidence in that GPU refresh. So again, we think about it in business segments, we think about our data center business has got a great contract internally linked to Microsoft as a tenant. And that data center itself is future-proofed accommodating up to 200-megawatt rack densities. And it's also the case that in 5 years, the optionality provides further downside protection. So upon expiry of the Microsoft contract, maybe we can run these GPUs for additional years, which we've seen with prior generations of GPUs like the A100s. But assuming that isn't the case, we've got a lot of optionality within that business. We could sign a colocation deal at that point. We could relaunch a new cloud offering using latest generation GPUs. So my concern with these colocation deals is what you're doing is you're transferring an interest or an exposure to an asset that is inherently linked to this exponential world of technology and demand and the upside that, that may entail and you're swapping that for a bond position in varying degrees of credit with the counterparties. So if you're swapping an asset for a bond exposure to a $1 trillion hyperscaler and you're kind of hoping you might get your equity back after the contracted period, I mean, that's one way to look at it. If you're swapping your equity exposure for a bond exposure in a smaller Neo cloud without a balance sheet, then is that a good decision for shareholders? We just haven't been comfortable. Joseph Vafi: I get it, Dan. I mean we've run some DCF here and on some colo deals here in the last couple of months. And there's a lot to be learned when you do it. There's no doubt. And then just on this prepayment from Microsoft, I know you've got some strong NDAs here, but kind of a feather in your cap on getting that much in a prepayment. Any other -- anything else to say on how -- maybe your qualifications or how Microsoft perhaps and you came to the agreement to prefund the GP purchases out of the box? Daniel Roberts: Look, yes, getting the 1/3 of the CapEx funded through a prepayment from the customer is fantastic from our perspective, and we're super appreciative for Microsoft coming to the table on that. And what that allows us to do is to drive a really good IRR and return to equity for our shareholders. And again, linking back to what Anthony said earlier, we expect 35% equity IRRs from this transaction accounting after an internal data center charge. So trying to create that apples-and-apples comparison for a Neo cloud that has an infrastructure charge. Even after that, we're looking at 35% plus. And also what's really important to clarify is the equity portion of that IRR we have assumed is funded with 100% ordinary equity, which given our track record in raising convertibles, given the lack of any debt at a corporate level is probably conservative again. So from a risk-adjusted perspective, linked to a $1 trillion credit and the ability to fund it efficiently, I mean, we're really happy with the transaction. And yes, hopefully, there's more to come. Operator: The next question comes from Michael Donovan from Compass Point. Michael Donovan: Congrats on the progress. I was hoping you could talk more to your cloud software stack and the stickiness of your customers. Kent Draper: Yes, I'm happy to take that one. Yes, to date, the vast majority of our customers have required a bare metal offering, and that is their preference. These are all highly advanced AI or software companies like a Microsoft. They have significant experience in the space, and they want the raw compute and the performance benefits that, that brings, having access to a bare metal offering and then being able to layer their own orchestration platform over the top of that. So that has been by design that we have been offering a bare metal service. It lends itself exactly to what our customers are looking for. Having said all of that, we obviously are continuing to monitor the space, continuing to look at what customers want. And we are certainly able to go up the stack and layer in additional software if it is required by customers over time. But today, as I said, we haven't really seen any material levels of demand for anything other than the bare metal service that we're currently offering. Daniel Roberts: And I think maybe just to add to that, Kent, if you step back and think about it, you contract in with some of the largest, most sophisticated technology companies on the planet that want to access to our GPUs to run their software. It's kind of upside down world to then turn around and say, "Oh, we'll do all the software and operating layer." Like clearly, they're in the position they are because they have a competitive advantage in that space. They're just looking for the bare metal. I think as the market continues to develop over coming years, it may be the case that if you want to service smaller customers that don't have that internal capability or budget, then yes, maybe you will open up smaller segments of the market. But for a business like ours that is pursuing scale and monetizing a platform that we spent the last 7 years building, it's very hard to see how you get scale by focusing on software, which is, I think everyone generally accepts is going to be commoditized anyway in coming years as compared to just selling through the bare metal and letting these guys do their thing on it. Michael Donovan: That makes sense. I appreciate that. You mentioned design works are complete for a direct fiber loop between Sweetwater 1 and 2. How should we think about those 2 sites communicate with each other once they're live? Kent Draper: Yes. I think really the best way to think about it is it just adds an additional layer of optionality as to the customers that would be interested in that and how we contract those projects. There are a number of customers out there who are looking particularly for scale in terms of their deployments. And obviously, being able to offer 2 gigawatts that can operate as an individual campus even though the physical sites are separated is something that we think has value, and that's why we have pursued that direct fiber connection. Operator: At this time, we're showing no further questions. I'll hand the conference back to Dan Roberts for any closing remarks. Daniel Roberts: Great. Thanks, operator. Thanks, everyone, for dialing in. Obviously, it's been an exciting couple of months and particularly last week. Our focus now turns to execution to deliver 140,000 GPUs through the end of 2026, but also continuing the ongoing dialogue with a number of different customers around monetizing the substantial power and land capacity we've got available and our ability to execute and deliver compute from that. So I appreciate everyone's support. I look forward to the next quarter.

195天前Insight Analytics约5分钟阅读

RPID 2025 Q3 财报电话会议

Operator: Good day, and thank you for standing by. Welcome to the Rapid Micro Biosystems Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mike Beaulieu of Investor Relations. Please go ahead. Michael Beaulieu: Good morning, and thank you for joining the Rapid Micro Biosystems Third Quarter 2025 Earnings Call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our third quarter 2025 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under Investors in the News and Events section. Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, statements relating to the company's term loan facility, guidance for 2025, including revenue, expenses, gross margins, system placements and validation activities, expectations for and planned activities related to Rapid Micro's business development and growth, including the expected benefits from our distribution and collaboration agreement with MilliporeSigma, customer interest and adoption of the Growth Direct System, and the impact of the Growth Direct System on their businesses and operations, and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors, including our ability to meet publicly announced guidance, the impact of our existing and any future indebtedness on our ability to operate our business, our ability to access any future tranches under our debt facility and to comply with all its obligations thereunder, our ability to deliver products to customers and recognize revenue and market and macroeconomic conditions. For a more detailed list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 7, 2025. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Rob. Robert Spignesi: Thank you, Mike. Good morning, everyone, and thank you for joining us. I'll begin this morning's call with a brief overview of our third quarter performance. Next, I will discuss the record multi-system order we announced this morning and then review our MilliporeSigma partnership. I'll conclude my prepared remarks with a few comments on our updated 2025 outlook and then turn the call over to Sean for a more detailed review of our financial results and outlook. This morning, we reported total third quarter revenue of $7.8 million, above the midpoint of our guidance range, representing our 12th consecutive quarter of meeting or beating revenue guidance. Within product revenue, consumables, which are a key indicator of customer demand and usage, increased 40% to a quarterly record. This strong performance helped offset a difficult comparison in system revenue, which included 5 Growth Direct placements versus 7 in the prior year. Service revenue grew 12% compared to Q3 2024. Recurring revenue, which is comprised of consumables and annual service contracts, increased more than 30% year-over-year. Third quarter gross margins were 9%, reflecting a 70 basis point improvement from the prior year quarter. Higher revenue and productivity gains drove service margins to 40% in the quarter. While product margins were slightly negative, we expect progress on our product cost reduction and manufacturing efficiency initiatives to deliver positive product margins in Q4. Looking forward, we expect continued meaningful gross margin improvement in 2026. Now I'd like to turn to the significant commercial win we announced earlier this morning. In October, we secured a record multi-system order from an existing top 20 global biopharma customer, with contributions beginning in the fourth quarter and extending into 2026 and beyond. This customer is deploying Growth Direct Systems across multiple sites in North America, Europe and Asia Pacific. Additionally, the customer will utilize the Growth Direct platform across several manufacturing modalities and fully leverage all of our applications, including environmental monitoring, water and bioburden. This milestone underscores the Growth Direct platform's position as the leading fully automated solution capable of meeting the demands of increasingly complex, large-scale and global biopharmaceutical manufacturing. It also reflects the trust and strong partnerships we've built with our customers, and illustrates how customers have and will continue to adopt the Growth Direct platform. Importantly, we expect this customer to make additional purchases as they continue to expand and standardize across their network. This achievement is a testament to the outstanding work of our commercial team, and we are now focused on timely and efficient execution as our operations and service team support this global deployment. In addition to this multi-system order, broader customer engagement remains strong. Last week, we attended the annual PDA Pharmaceutical Microbiology Conference, the largest global industry event focused on microbiology and pharmaceutical manufacturing. Our key takeaways were twofold. Confirmation of the accelerating industry trend towards automation and validation from existing and prospective customers that the Growth Direct platform is the right product for modernizing pharmaceutical manufacturing and quality control. Now turning to our collaboration with MilliporeSigma. We remain closely engaged with our commercial team as they develop their global sales funnel. In the third quarter, they began to order Growth Direct Systems. Though as previously indicated, their purchase commitments will remain modest in 2025 and become more meaningful in 2026. Next week, Daiichi Sankyo will support our annual Growth Direct Day near their facility outside Munich, Germany. As you'll recall, this event will feature existing and prospective customers discussing the benefits and sharing best practices of the Growth Direct platform. And this year, we're pleased to welcome colleagues from MilliporeSigma and several of their prospective customers, making it our largest Growth Direct Day ever. In addition, later in November, our sales and marketing colleagues will work alongside the MilliporeSigma team in the Jason Booth's at the Pharma Lab Congress, also taking place in Germany. This will be a valuable opportunity to jointly engage customers and further accelerate commercial momentum for both organizations. Turning to the second component of our MilliporeSigma collaboration. We are nearing completion of an initial product supply agreement. We are currently conducting material validation studies and assessing additional areas to potentially expand the scope of the agreement. This agreement is a meaningful step towards driving margin improvement as these programs are expected to lower our direct product costs and improve gross margins, with financial benefits starting in the second half of 2026. In summary, we're pleased with our execution and very encouraged by the momentum building as we exit 2025. With strong year-to-date performance across the business and initial contributions from the recent multi-system order, we are raising our full year total revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. As we look ahead to 2026, there will be 3 core drivers of revenue growth. First, a robust pipeline. Our sales funnel remains strong with multiple customers planning multi-system global rollouts. These opportunities are similar to our recent record order motivated by a compelling ROI and a drive to standardize and automate global manufacturing networks. Second, our business model is anchored by an expanding global installed base of over 150 fully validated Growth Direct Systems, generating durable recurring revenue from consumable and service contracts. And third, our collaboration with MilliporeSigma continues to progress well. They have begun to order Growth Direct Systems, and are building a global funnel of opportunities that we expect to contribute meaningfully to system placements in 2026. In addition to these revenue growth drivers, we remain equally focused on improving profitability. Margin expansion will accelerate in 2026, driven by internal product cost reductions and manufacturing efficiency initiatives, as well as anticipated benefits from the MilliporeSigma supply collaboration. Finally, we are well positioned to capitalize on industry tailwinds, including the accelerating use of automation technology and increased investments in the onshoring of U.S. pharmaceutical manufacturing. The Growth Direct strong customer value proposition, combined with our growing global top-tier customer base, optimally positions us for future pharma industry investment and growth. And with that, I'll turn the call over to Sean. Sean Wirtjes: Thanks, Rob, and good morning, everyone. Third quarter revenue of $7.8 million increased 3% compared to the $7.6 million we reported in Q3 2024. We placed 5 Growth Direct Systems and completed 4 validations in the quarter, and now stand at 174 cumulative systems placed globally, including 152 fully validated systems. Product revenue was essentially flat at $5.2 million in Q3, with record consumable revenue offsetting the impact of 2 fewer system placements compared to Q3 2024. Service revenue was $2.6 million, an increase of 12% compared to Q3 last year, driven by higher service contract revenue resulting from an increase in the cumulative number of validated systems on a year-over-year basis. Third quarter recurring revenue, which consists of consumables and service contracts increased 32% to $4.8 million with consumables growing 40% in the period. Nonrecurring revenue, which is comprised mainly of systems and validation revenue, was $3 million. Third quarter gross margin was 9%, marking our fifth consecutive quarter of positive gross margins and a sequential improvement of over 500 basis points compared to Q2. Product margins were negative 7% in the quarter, compared to negative 1% in Q3 2024. While consumable margins improved meaningfully compared to Q3 last year as we continue to make good progress on our product cost and manufacturing efficiency initiatives, overall product margins were slightly lower due to a short-term shift in the mix of revenue from systems to consumables. On a sequential basis, Q3 product margins improved by 4 percentage points compared to Q2. Service margins were 40% in the third quarter compared to 29% in Q3 last year. The improvement was driven by higher revenue and productivity as well as lower service headcount. Total operating expenses were $12.1 million in the third quarter, representing a decrease of 5% from the $12.7 million we reported in Q3 2024, due largely to benefits from the operational efficiency program we announced in August last year. Within OpEx, R&D expenses were $3.5 million, sales and marketing expenses were $2.9 million and G&A expenses were $5.6 million. Interest income was $0.3 million and interest expense was $0.4 million in the third quarter. Net loss was $11.5 million in Q3 compared to a net loss of $11.3 million in Q3 last year. Net loss per share was $0.26, both in Q3 this year and last year. With respect to noncash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million. Stock compensation expense was $1.1 million and capital expenditures were $0.1 million in the third quarter. We ended the quarter with approximately $42 million in cash and investments. Now I'll turn to our outlook. As Rob highlighted earlier, we are raising our full year 2025 revenue guidance to at least $33 million, which includes at least 27 Growth Direct System placements. This guidance reflects the initial contribution from the large multisystem customer order we recently received. We expect this order to contribute meaningfully to system placements and system revenue in Q4 with related installation and validation service revenue recognized in the first half of 2026. These new systems are also expected to begin generating consumable revenue as they ramp to routine use in the second half of 2026. Turning to consumables. We expect Q4 revenue to step down sequentially and be consistent with Q2 levels with variability driven by the timing of customer orders and shipments. With respect to service revenue, we expect to temporarily step down to roughly $2 million in Q4 due to the timing of validation activities. Specifically, most validations of recently placed systems were either completed by the end of Q3 or are planned for 2026, including the validation of systems under the multisystem order we received this quarter. We continue to expect to complete at least 18 validations in the full year 2025 with at least 3 in the fourth quarter. Turning to gross margins. We expect our gross margin percentage to be in the mid-single digits in Q4. Breaking this down, we expect positive product margins for the first time, driven by higher system placements and continued progress on our product cost reduction and manufacturing efficiency initiatives. Conversely, we expect service margins to step down both sequentially and year-over-year. This reflects lower service revenue and a challenging comparison to last year's Q4, which remains our highest service revenue quarter on record. For the full year, we expect our overall gross margin percentage to be in the mid- to high single digits. We expect further meaningful gross margin improvement in 2026, driven by our ongoing product cost reduction and manufacturing efficiency initiatives, as well as increasing volume leverage and anticipated benefits from the MilliporeSigma supply collaboration as we progress through the year. We expect operating expenses to step down from Q3 to Q4, and to now be around $48 million for the full year, with full year depreciation and amortization expense of approximately $3 million, stock compensation expense of $4 million and CapEx of $2 million. For the fourth quarter, we expect interest income of $0.5 million and interest expense of $0.6 million to largely offset each other. Finally, we continue to expect to end the year with roughly $40 million in cash and investments. That concludes my comments. So at this point, we'll open the call up for questions. Operator? Operator: [Operator Instructions] And our first question will be coming from Thomas Flaten of Lake Street Capital Markets. Thomas Flaten: Congrats on the quarter. Sean, I just want to make sure I understand. In the last call, you indicated that you would be at the low end of the 21 to 25 system placement and now you're going to be at least 27, which leads me to believe there might be more than $1 million in terms of the guidance raise. Can you just square that circle for me? Sean Wirtjes: Yes. I think there's a couple of moving pieces here, Thomas. So we talked about -- so on the large multi-system order, I think when we talked last quarter, we have said consistently that we have a number of these kind of in the background where we have not been assuming them in the guide. So the transaction that we're talking about today is not something that was considered back then. So it is additive. We've got some things going the other way in Q4 in terms of the guide. So for example, service because of mainly timing, I think it's good news for 2026 service revenue. It does have a short-term impact on Q4 service revenue, will actually be lower than we expected it to be going back a quarter. So you've got some puts and takes here that are kind of netting out to that increase in the overall increase in the revenue guide. Thomas Flaten: Got it. And then kind of at a broader level, I know the multi-system order is across 3 geographies, and you said that you're going to benefit from onshoring. I'm curious, though, if you look more broadly, the demand you're seeing from a geographical distribution, what does that look like? Robert Spignesi: Yes, Thomas, it's Rob. So it's generally consistent with where it has been. So we -- as you know, we operate in North America, Europe and Asia. I think this most recent multi-system orders is a pretty good example, is a good proxy of end market conditions that we're seeing. Things are -- I wouldn't say they're more robust in one region than another. And many times, it's really dependent on the specific company that we're working with. So we anticipate -- it depends quarter-to-quarter and timing is always an issue depending on where in the world things are coming from. But I think the takeaways from this -- from our announcement is that our value proposition is resonating. Customers are trusting us to deploy globally, and we're seeing generally broad-based demand from our customer base to deploy globally. And notably, this particular win was not due to U.S. onshoring. So we expect that to be a potential benefit in 2026 and beyond. Operator: And our next question will be coming from Paul Knight of KeyBanc. Paul Knight: Rob, congratulations on the order in the quarter. This is what? You're going to have 6 delivered in Q4 on this order. What -- did you say total order size? Robert Spignesi: I didn't say total order size, nor do we say how many we're going to deliver this quarter specifically out of the order, Paul. But we're not going to disclose the exact order size, but you can think of it as a double-digit order. Paul Knight: Okay. And then the next question is in the world with analytical instruments, it's kind of an instrument becomes ubiquitous across the world within each major biopharma. So the question is how many multiple -- how many multiple orders are you looking at? How many customers are saying, I've got to have this in all 3 continents? Robert Spignesi: Yes, we -- certainly, we're striving for ubiquity, Paul. So that of course, is the ultimate goal. So we've had historically customers purchase multi-system orders and deploy globally. This is a notable example of a large single order, and we anticipate more of these going forward. As we said, we've got multiple multi-system orders in our funnel, and we -- our plan is to continue to develop those and close those, and get our customers going. Moreover, we also expect over time, that Merck Millipore relationship to build upon this momentum and success. And that's how we look at the next -- certainly into '26 and beyond. Paul Knight: And there's 2 aspects to Merck Millipore, right? A, you expect them to sell some units in their own channel and the other, more cost efficiencies. Where do you think you're on the cost efficiency journey with them? Are you just getting started and we really see that in '26? Sean Wirtjes: Yes, I think that's right, Paul. This is Sean. We are working through -- I think Rob mentioned some of this in his remarks, the process of looking at materials specifically right now. Some of the key materials that go into our consumables are things that we can procure from Merck. But as you do that, you've got to work through testing, validation, make sure it's all going to work and the performance is where you want it to be. And then there's a process of kind of moving that over to manufacturing, working through your existing inventory and transitioning over to the new inventory with that material in it. So I would think about the benefits from that kind of as we're looking at right now is probably second half of next year is when we'll start to see some benefits from that activity. Operator: And our next question will be coming from Brendan Smith of TD Cowen. Brendan Smith: Congrats on the [indiscernible]. Just wanted to get a sense of how you all are thinking actually about this momentum against the current backdrop. I guess we've heard broadly that pharma biotech spending has been, again, kind of broadly hitting instruments and services maybe more than other segments. Obviously, you all are still seeing some pretty steady demand, maybe with some nuances. But I guess my question is really as folks are getting their '26 budgets together and maybe start feeling more comfortable with revisiting some of that spend. Do you guys expect that could potentially be an outsized growth tailwind like in the first half of next year? Or is kind of the steady sequential growth we've been seeing how we should think about it in the next couple of quarters? Robert Spignesi: Yes, Brendan, it's Rob. I would say that it's -- we don't -- we're not seeing a demonstrable -- we haven't seen a demonstrable change. It's a little hard to prognosticate at this point about 2026, although it seems to be getting, I would say, maybe a click or 2 better. As we said in several -- what we are seeing though, the 80-20, if you will, is at least over the past several quarters, it's been fairly consistent where, to your point, yes, the CapEx budgets have been more scrutinized and things are going through more diligence, if you will. But as we've said several times, high ROI compelling investments are getting through. And I think we've been able to continue to be a beneficiary of that. And I think this most recent announcement is a clear and present example that pharma will continue to invest in high ROI projects. And also, as I've mentioned on previous calls, in some cases, in this most recent one, I think, is a good example where there's a strategic impact across an enterprise in multiple sites, we have seen growth direct projects be a bit more resilient to the vagaries of the budget tightening. Brendan Smith: Got it. Yes, makes sense. And then really quickly, just maybe piggybacking off of the onshoring conversation a little bit. Is also something we get asked about quite a bit. I guess it's feeling like most people are assuming it's not going to be a huge factor in '26, but could maybe start to hit in '27. Does that kind of gel with how you're thinking about it or what you're hearing? Or should we think maybe more '28 plus? Just kind of... Sean Wirtjes: I think -- yes. I think that's -- Listen, I don't think it's going to be a floodgate from what we can tell. And just we've been involved over the years in a lot of construction projects with new labs. So what you'll see is it won't be uniform. In some cases, entire sites are being built from a greenfield. In other cases, other sites are being expanded, which can move a little faster. In other cases, even labs are being expanded. So you'll have this maybe uneven mix. As we talked about last time, there might be a log jam with some of the design and A&E firms out there. So that may play a factor. But I think you could start to see potentially the leading edge. More broadly, I won't speak for RMB specifically, but more broadly in 2026. And then I would generally agree, '27 could be certainly feature more and then '28 and beyond, absolutely. Operator: And our next question will be coming from Dan Arias of Stifel, Nicolaus & Company Inc. Unknown Analyst: This is [ Rowan ] on for Dan. Maybe a quick one. Regarding the large multi-system order in October, how long does it typically take to plays validate and start seeing a ramp on consumable pull-through from these systems? Just trying to get a better view on the time line there. Or maybe just in general, as you alluded to having other, I guess, orders in the pipeline there, or potential orders in the pipeline? Sean Wirtjes: [ Rowan ], it's Sean. I think as we look at this particular deal, I think we expect it to kind of follow the following path. I think the placements, they're going to have a meaningful impact in Q4. And moving into the first half of next year, we expect to get those systems installed and validated. I think we have a motivated customer, and we are ready to go with them in that time frame to get that work done, which I think is a tailwind as we think about services in that time period. And then as we get into the second half of the year, what typically happens and what we expect in this case is that they'll -- we'll get the validations done. They'll kind of work through their internal process and start to ramp up into GMP use, and we expect to see at least the front end of that in the second half of next year from a consumable standpoint. So that's the kind of time frame we typically expect to see. I think different customers can move with different speed depending on resourcing and things like that. But I think this one we feel good is there's good alignment between us and the customer to work along that time line. Unknown Analyst: Okay. And maybe just one more quickly. In the past, Rapid has alluded to wanting to penetrate adjacent markets such as personal care. How much traction are you all seeing in that market? What has become of those efforts? Robert Spignesi: Yes. Thanks, [ Rowan ]. It's Rob again. So as we have mentioned, there are sizable adjacent markets. Personal care, as you mentioned, is certainly one of them. Our current strategy from a Rapid Micro direct sales commercial effort is principally focused on global pharmaceutical and biopharma. Our strategy to develop those adjacent markets, personal care, med device and others is generally focused on our collaboration with Merck MilliporeSigma. Some of those markets, they're large or can be large. They tend to be a bit more fragmented, a little bit different sales cycle. So having a larger sales force that Merck MilliporeSigma has focused on those markets and more uniformly spread globally is really our strategy to go after those markets. And our collaboration agreement allows for that, and encourages that, frankly. Great. And I think that's the last question. So thank you all for the question. We'll conclude the call at this time. Appreciate everyone's time and attention, and we look forward to speaking with many of you soon. Thank you. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.

195天前Insight Analytics约5分钟阅读

PLMR 2025 Q3 财报电话会议

Operator: Good morning, and welcome to the Palomar Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir. T. Uchida: Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christianson, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11:59 p.m. Eastern Time on November 14, 2025. Before we begin, let me remind everyone this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute to results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release. At this point, I'll turn the call over to Mac. D. Armstrong: Thank you, Chris, and good morning. Today, I'm pleased to walk through our exceptional third quarter results. It was another outstanding quarter for Palomar, highlighted by record gross written premium, record adjusted net income, the 12th consecutive earnings beat and our fourth adjusted net income guidance increase in calendar 2025. These results underscore the strength of our distinct franchise and the effectiveness of our disciplined underwriting, diversified portfolio and consistent execution. We've intentionally constructed a portfolio of specialty products designed to perform through all parts of the insurance market cycle. Our portfolio consists of a unique mix of admitted and E&S residential and commercial property and casualty risk that provide balance and earnings consistency. Additionally, our newer businesses like crop and surety are scaling nicely and enhance the diversification of the book given their lack of correlation to the broader P&C market. Even when -- with the increasing balance of our book, we are not standing still. The Palomar team remains not only entrepreneurial, but also steadfastly committed to profitable growth. We continue to strengthen our franchise, entering select specialty markets that offer compelling risk-adjusted returns. As part of this effort, last week, we announced the acquisition of the Gray Casualty and Surety Company, a leading surety carrier with a strong national presence and an exceptional management team. This transaction meaningfully enhances Palomar's surety platform, bolstering our market position and complementing our existing operations. The acquisition immediately adds scale and provides access to attractive markets such as Texas, Florida and California. Gray only enhances the sustained execution of our Palomar 2X initiative of doubling adjusted net income over a 3- to 5-year time frame. We're thrilled to welcome the Gray team to Palomar. Returning to the third quarter, we delivered another quarter of strong financial results, highlighted by 44% gross written premium growth and 70% adjusted net income growth. Our operating metrics were equally as strong with an adjusted combined ratio of 75% and adjusted return on equity of 26%, demonstrating the strength of our underwriting discipline and the earnings power of our model. Our strong top line growth was not driven by a single line of business as all our product groups, say, for fronting experienced double digits growth in the third quarter. The balance in our mix of business, commercial and personal lines products written on an admitted and excess and surplus basis allows us to navigate property and casualty market cyclicality definitely. The balance book, combined with the numerous growth vectors across all our lines of business allowed us to outperform industry growth and profitability benchmarks in the third quarter and emboldens us to do so for the indefinite future. Turning to our business segments. Our Earthquake franchise is a great example of the balanced approach we take to constructing our portfolio. Our book of admitted and E&S residential and commercial earthquake products grew 11% year-over-year in the third quarter. A sequential improvement from the second quarter. Growth was driven by the sound performance in the residential earthquake market as we continue to see healthy new business production and strong policy retention, a robust 88% for our Flagship Residential Earthquake business. We continue to benefit from our 10% inflation guard, which affords our residential earthquake book meaningful operating leverage in a softening property catastrophe reinsurance market. Additionally, we have a robust pipeline of high-quality residential earthquake partnerships that we believe will provide incremental growth as we move into 2026. In our Commercial Earthquake business, the rate pressure experienced in the first half of the year persisted into the third quarter. During the quarter, the average commercial risk price decreased approximately 18% on a risk-adjusted basis, with large commercial accounts seeing more pressure than small commercial risks. Despite the rate pressure in the market, our commercial earthquake book grew during the third quarter, which reflects the strength and breadth of our franchise. We do not believe the rate pressure in commercial earthquake will ease over the near term, but we still expect to see growth for the remainder of the year and in 2026. We expect that the earthquake book will experience single-digit growth in the fourth quarter, although that is somewhat exacerbated by a onetime unearned premium transfer received in the fourth quarter of 2024. Overall, we remain convicted in our long-term ability to profitably grow our Earthquake business. The underlying profitability remains at a very high level with our earthquake average annual loss at a level considerably below that of 2023 and 2022. The stature of our residential earthquake book, which was 61% of the total earthquake book in the third quarter, combined with the expected further softening of the property cat reinsurance market will enable us to grow net earned premium even if primary commercial rate decline in 2026. As we have said time and time again, we have purposely built the earthquake book of business to navigate any market cycle. Our Inland Marine and Other Property category grew 50% year-over-year, which was a strong acceleration from the 28% growth in the second quarter. The quarter's performance was driven primarily by our admitted and residential property products, including but not limited to Hawaii hurricane, E&S flood and admitted builders risk. The Hawaii book grew close to 20%, and Laulima has emerged as the second largest rider of stand-alone hurricane coverage in Hawaii. Our residential flood product, while still a modest contributor to premium today, has experienced strong steady growth. We also believe our partnership with Neptune Flood will serve as a key catalyst accelerating the product's growth over the next 3 years. The Neptune partnership commenced writing new business on October 1, and we are encouraged with the initial production, which has been amplified by the temporary closure of the National Flood Insurance Program. Our Builders Risk franchise continues to stand out, growing 53% in the quarter. Like our Earthquake business, our suite of builders' risk products includes commercial and residential products written on both an admitted and E&S basis. Builders Risk is a national product with no geographical boundaries, and we are investing in talent where building activity remains robust. During the quarter, we added experienced underwriters in the high-growth markets of Boston and Dallas to sustain our growth and extend our reach. Importantly, we are achieving this growth in our Inland Marine and Other Property group despite the challenging commercial property market that has impacted our excess national property and commercial all-risk lines, again, underscoring the value of our differentiated and balanced mix across residential and commercial, admitted and E&S products. Our Casualty business delivered 170% year-over-year gross written premium growth, representing a nice sequential improvement from the 119% growth in the second quarter. We remain focused on segments of the casualty market where there is sustained rate adequacy. We are maintaining a disciplined approach to attachment points and net limits, leveraging quota share reinsurance to manage volatility and allow the portfolio to season appropriately. Through the third quarter, our average net line across casualty remained below $1 million with our largest line of business, E&S General Casualty, averaging roughly $750,000. In the quarter, we saw strong performance from the excess and primary general casualty, which grew more than 110% year-over-year in our Environmental Liability business that was up 119%. Real estate E&O, which is our longest tenure casualty line grew 65%. This quarter, we also wrote our first healthcare liability premiums, providing capacity to a segment amidst a hard market with technical rate increases exceeding 20%. Our casualty reserving philosophy also remains conservative and consistent. It is informed by ongoing analysis of loss emergence trends, attachment points and portfolio composition. As we've discussed in prior quarters, we continue to carry more than 80% of our casualty reserves at IBNR, well above industry standards. Maintaining this conservative position reinforces the strength of our balance sheet and provides confidence in the durability and predictability of our future results. Fronting premium declined 32% year-over-year, a function of the last quarter of impact from the termination of the Omaha National partnership. Fourth quarter results will better reflect the underlying performance in the Fronting business. We remain selective in choosing our counterparties. And while we expect to add new partners in the coming quarters, fronting is not our highest strategic priority. Our crop franchise delivered $120 million of gross written premium in the third quarter, doubling the $60 million produced in the same period last year. This strong year-over-year growth puts us well ahead of the pace to exceed our full year guidance of $200 million. Beyond the production during the quarter, we added talent focusing on the Kansas and Oklahoma markets that will help drive seasonal production in the first and fourth quarters of each year. These additions inform our revised premium expectation of $230 million for 2025. We remain confident in building the business to $500 million over the intermediate term. Additionally, the crop market conditions have been favorable so far this season with strong planting activity and growing conditions that appear to be better than historical averages. Based on what we are seeing today, we expect results to outperform the 15-year average industry loss ratio. These dynamics are an encouraging indicator for the remainder of the year. The third quarter is generally not considered a major reinsurance renewal period. However, it was active for Palomar as we placed seven treaties. Importantly, all treaties renewed on terms equal to or better than expiring. We also had successful first-time placements for our new flood and healthcare liability programs. Market conditions remain conducive to reinsurance buyers. And at this point, we are confident that we will see further decreases in property cat treaty pricing. Before I hand it over to Chris, I want to provide a little more color on Gray Surety. The $300 million acquisition is expected to close in the first quarter of 2026, and it should be accretive to earnings in its first year of incorporation into our organization. We intend to finance the transaction with a new term loan and excess cash on hand. Gray's terrific leadership team of Cullen Piske and Michael Pitre— will continue to lead Gray Surety, which we will rebrand as Palomar Surety. They will join forces with our team in New Jersey to build a top 30 national surety carrier. Adding Gray to our portfolio further diversifies our book and when combined with crop results in approximately 15% of our premium base being not subject to property and casualty market cyclicality. To conclude, I'm very proud of our third quarter results and moreover the team that delivered them. We generated strong top and bottom line growth, a top-tier return on equity and our 12th consecutive earnings beat. We are raising our 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million, the midpoint implying an adjusted ROE of 24%. The revised guidance implies the achievement of the Palomar 2X tenet of doubling adjusted net income in an intermediate time frame, in the case of our 2022 cohort, a 3-year time frame and our 2023 cohort 2 years. We continue to believe this is an attainable target for the foreseeable future. With that, I'll turn the call over to Chris to discuss our financial results and guidance assumptions in more detail. T. Uchida: Thank you, Mac. Please note that during my portion, referring to any per share figure, I'm referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents such as outstanding stock options during profitable periods and exclude them in periods when we incur a net loss. For the third quarter of 2025, our adjusted net income grew 70% to $55.2 million or $2.01 per share compared to adjusted net income of $32.4 million or $1.23 per share for the same quarter of 2024. Our third quarter adjusted underwriting income was $56.7 million compared to $31 million for the same quarter last year. Our adjusted combined ratio was 74.8% for the third quarter of 2025 as compared to 77.1% for the year ago third quarter. For the third quarter of 2025, our annualized adjusted return on equity was 25.6% compared to 21% for the same period last year. As Mac discussed, our third quarter results continue to demonstrate our ability to achieve our Palomar 2X objectives of doubling adjusted net income within an intermediate time frame of 3 to 5 years while maintaining an ROE above 20%. Gross written premiums for the third quarter were $597.2 million, an increase of 44% compared to the prior year's third quarter or 56% growth when excluding runoff business. Looking at the fourth quarter, this headwind is now fully behind us. Gross earned premiums for the third quarter were $518.8 million compared to $395.9 million in last year's third quarter and sequentially to $408.8 million in the second quarter of 2025. Year-over-year growth is driven by the overall performance of all lines of business, while sequential growth is significantly influenced by the crop earning pattern. Net earned premiums for the third quarter were $225.1 million, an increase of 66% compared to the prior year's third quarter. Our ratio of net earned premiums as a percentage of gross earned premiums was 43.4% as compared to 34.3% in the third quarter of 2024 and compared sequentially to 44% in the second quarter of 2025. With the timing of our core excess of loss reinsurance program renewal and the majority of our crop premiums written and earned during the third quarter, we continue to expect the third quarter to be a low point of our net earned premium ratio, increasing throughout the remainder of the reinsurance treaty year in a similar pattern to last year. While we expect quarterly seasonality in our net earned premium ratio, we expect net earned premium growth over a 12-month period of time. Our net earned premium ratio was 43.7% for the first 3 quarters of the year. Based on our performance through the first 9 months of the year, we expect our net earned premium ratio to be in the low to mid-40s for the full year, a slight improvement from our view after the second quarter. Losses and loss adjustment expenses for the third quarter were $72.8 million, which were predominantly attritional losses. The loss ratio for the quarter was 32.3%, comprised of an attritional loss ratio of 31.5% and a catastrophe loss ratio of 0.8%. Additionally, our third quarter results include $6.1 million of favorable prior year development, primarily from our short tail Inland Marine and Other Property business. We continue to hold conservative positions on our reserves. Favorable development is a result of our conservative approach to reserving upfront, allowing us to release reserves later. Our year-to-date loss ratio was 27.7%. With the strong results so far, we expect our loss ratio to be around 30% for the year, slightly more favorable than after the second quarter. Our acquisition expense as a percentage of gross earned premium for the third quarter was 10.8% compared to 10.5% in last year's third quarter and 12.6% in the second quarter of 2025. The percentage -- this percentage decreased sequentially from the higher gross earned premium for the quarter. Year-to-date acquisition expense was 11.8%. For the year, we expect this ratio to be around 11% to 12%, in line with previous expectations. The ratio of other underwriting expenses, including adjustments to gross earned premiums for the third quarter was 7.9% compared to 5.9% in the third quarter last year and compared to 8.7% in the second quarter of 2025. As demonstrated by our hires over the last year and in the third quarter, we remain committed to investing across our organization as we continue to grow profitably. As we have discussed on prior calls and today, we have continued to invest across our company as we work to further expand our reach and drive profitable growth given the attractive risk-adjusted returns that we continue to generate. We expect long-term scale in this ratio, although we may see periods of sequential flatness or increases due to investments in scaling the organization within our Palomar 2X framework. Year-to-date, this ratio was 8%. We continue to expect this ratio to be around 8% for the full year. Our investment income for the third quarter was $14.6 million, an increase of 55% compared to the prior year's third quarter. The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held due to cash generated from operations and the August 2024 capital raise. Our yield in the third quarter was 4.7% compared to 4.6% in the third quarter last year. The average yield on investments made in the third quarter continues to be above 5%, accretive levels compared to the most maturing securities. We continue to conservatively allocate our positions to asset classes that generate attractive risk-adjusted returns. During the quarter, we repurchased approximately 308,000 shares for $37.3 million under the $150 million share repurchase authorization. At the end of the quarter, our net written premium to equity ratio was 1:1. Stockholders' equity has reached $878 million, a testament to consistent profitable growth. Our strong capital position allows us to continue to profitably invest in and grow our lines of business and to acquire Gray Surety with a combination of debt and cash. I would like to make some brief comments on our business from a modeling perspective in addition to the expectations mentioned earlier in my remarks. As we have previously indicated, the third quarter will continue to stand out from other quarters because of the crop book and its seasonal written and earning patterns in addition to the first full quarter of our excess of loss reinsurance placed June 1. Taking all of this into consideration and focusing on the dollars as we spoke about ratios earlier, we expect the third quarter of each year will have the highest gross written premium, gross earned premium, net earned premium, losses and acquisition expense. Looking to 2026, our third quarter and full year 2025 results should provide a good framework to model our business. Reflecting our strong operating results for the first 9 months of the year, we are raising our full year 2025 adjusted net income guidance range to $210 million to $215 million. Importantly, the midpoint of our full year guidance range implies adjusted net income growth of greater than 59%, a full year adjusted ROE above 20% and doubling our 2022 adjusted net income in 3 years and doubling our 2023 adjusted net income in just 2 years. Our Palomar 2X objective remains in focus, and we plan on doubling adjusted net income every 3 to 5 years. With that, I'd like to ask the operator to open the line for any questions. Operator? Operator: [Operator Instructions] And your first question comes from Paul Newsome with Piper Sandler. Jon Paul Newsome: I was hoping you could talk a little bit more about the market opportunity in Surety and maybe a little bit more specifically about exactly who you may or may not be competing with and it is an ordinarily pretty broad class of the business. D. Armstrong: Sure, Paul. Thanks for the question. We are really excited to bring Gray Surety into the organization. They are a very nice complement to what we have in New Jersey, which is Palomar Surety, the company known as First Indemnity of America. It's really writing contract Surety, kind of mid to small limit bonds. On average, you're talking about bonds that are less than $2 million. The combination of the two affords us greater regional expense. As I said in my prepared remarks, Gray Surety is very strong in kind of high-growth Sunbelt regions, Texas, Florida, California. FIA is the Northeast. Bringing them together gives us over $100 million of kind of in-force bonds and premium and writing say, nationwide presence, but really strong in like 15 markets. I think the opportunity for us is to take this from approximately a top 30 Surety on a combined basis to a top 20 in the not-so-distant future. And that's going to be driven by a few things. One, continuing to extend our reach. The Gray team has a terrific market entry model that's replicable where they understand what it takes from an underwriting investment and a system investment standpoint to enter into a market, the premium that must be generated to cover the cost and generate the requisite margin. So we will do a lot of that. I think there's an opportunity to cross-sell distribution between the two entities in FIA and Gray Surety. And then thirdly, our balance sheet will afford us more to do. Putting us together, I am going to have an entity that's approaching book value in excess of $1 billion. And moreover, our intention is to have Palomar Specialty T-listed, which will give them the ability to write larger bonds and participate in larger T-listed bonds. Right now, the combined entity can do around a $12 million T-list -- has a $12 million T-listing approximately. So I think the combination of going deeper in existing markets, expanding into new markets, writing some larger limit business and a cross-selling distribution will allow us to get to that top 20 status. But again, the footprint that we have, just once they come together, gives us a meaningful position in the market and really strong expertise helping us build a franchise that we think can be an even bigger leader. Jon Paul Newsome: And then for my second question, maybe you could talk as well about the potential future of the Crop business. Obviously, this year has the effect of the acquisition. I don't think of crop as being a growth business in general, but it's also fairly competitive. I don't know if that's a business that can grow a lot organically, prospectively and maybe it can. If you can just direct us into where that may go as well. D. Armstrong: Yes. So well, I think, first off, I want to applaud our team, Benson Latham and [ Jon Scheets, ] Jay Rushing and others for what they've done this year. This is our second full year of operation, but the first full year of where we've had that leadership team as well as AAP inside our four walls. So they are executing very well. And I think the strength of their execution has been, a, leveraging their historical experience and relationships in the market. I mean these are professionals that have been in the crop space for decades. And then secondly, there's been their ability to attract talent. I highlighted on the call some new additions that we brought in, in the Oklahoma and Kansas market that's going to extend not only our geographic reach, but also our product offering and allowing us to write more kind of off-season winter wheat-type business, stuff that's written more in the fourth and first quarters of the year. But overarchingly, Paul, we do think we're going to continue to growing crop. We've said that we plan on getting this to $0.5 billion of premium in the next several years, next couple of years. And then the ultimate goal is to get this to a $1 billion of premium. And the way we're going to do it is really on service and technology. And so we're making the investments right now to get to $0.5 billion and to get to $1 billion, and particularly on the technology side, while attracting best-in-class talent. So this is going to be a growth driver for us for the next few years, and we are very confident in our ability to execute. Operator: Your next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Just on the net income guidance, I didn't hear anything about cat. Is there anything embedded within that? T. Uchida: Yes. No. So we obviously had about $1.9 million of cats in the quarter. From our viewpoint, we do include mini cats in our loss ratio expectations of -- now we've kind of updated to be a little more favorable around 30% for the year. In our view, that includes everything that we would expect to happen for the year. Knock on wood, there are no major cats at the end of the year or in this quarter. D. Armstrong: Okay, and -- sorry, go ahead. Andrew Andersen: Just on the commercial quick, yes, I think it was down 20% in 2Q in terms of rate, down 18% this quarter. Do you think we're kind of past the peak deceleration of rate where maybe it will still be soft minus 10%, minus 5%, but it's not going to get much worse from here? Or how are you kind of thinking about the next 12 months? D. Armstrong: Yes, Andrew, it's a good question. And I do think we have seen a deceleration but we are not hanging our hats on a reversal. So I would say that you're going to continue to see a softening. But what I would like to point out is if you just look at the expense of our earthquake book, residential quake now is 61% of the book at the end of the third quarter. The area where we're seeing the most pressure from a rate standpoint is about 1/4 of the book and frankly, is around 8% of our book in totality. So we think we are very well hedged against softening rate on the primary side in commercial quake by the softening P&C -- or excuse me, property cat reinsurance market plus the inherent leverage that we have in residential quake. So yes, I think, you're going to continue to see large account pressure, probably not to the degree that you saw in the second and third quarter, but we're not going to make a call that it's going to recede. But we will make the call that the health of our residential earthquake book and the softening property cat reinsurance market is going to allow us to grow book top gross written premium in '26 as well as have scale from a net earned premium perspective on the earthquake book prospectively. Operator: Your next question comes from Mark Hughes with Truist Securities. Mark Hughes: Chris, did I hear you properly the ratio of net -- yes, net to gross should continue to increase. It should step up in the fourth quarter and then step up further in the first half of next year. Is that correct? T. Uchida: Yes, that's the correct way to think about it. We think of the third quarter as our low point for the net earned premium ratio. A couple of factors now, obviously, before and currently, it still has a lot of impact from the XOL and this being the first full quarter of any new XOL placement, even though there was rate savings on that, we still buy for growth. So the dollar spend on that does increase to support that growth. And then now this year and a little bit last year, but obviously, with the growth in crop this year and still ceding 70% of that, we expect the net earned premium ratio to be at the low point in the third quarter of every year and then going up incrementally from there all the way until, call it, Q3 of next year. Mark Hughes: Yes. I appreciate that. The impact from the Omaha National in 3Q, did you give that specifically? You mentioned that 4Q should show the underlying trend in fronting. And I'm just sort of curious what that underlying trend looks like at this point? T. Uchida: Yes. No. So the third quarter, I want to say it was about $30 million last year in our written premium. And so at this stage, that, call it, headwind has been pushed aside or beaten, I guess, is the right phrase for that, yes. D. Armstrong: Yes, run its course. Mark Hughes: Yes. You pushed the headwind. Mac, you had mentioned a pipeline of quake relationships. Was that -- is there something -- some new developments there? Or is that just ongoing course of business? D. Armstrong: Yes, Mark, and I'll let, Jon Christianson, chime in, too. It's -- I would say it's ongoing course of business. We have over 20 carrier partnerships for earthquake, where we are their dedicated partner to providing earthquake, whether it's to satisfy mandatory obligations or to bundle it with other products. And sometimes they come over lumpy, sometimes they are a bit of a hunting license and they grow. And so we have seen good execution and good conversion from partnerships over the course of '25, but we also do have a pipeline. But Jon, feel free to chime in. Jon Christianson: Yes. No, I agree with all that. And I'd add that we're always searching for new strategic opportunities. And what we're finding now is that because we have been known as a strong strategic partner for earthquake, we're also taking inbounds, inquiries from others that are looking to better address the earthquake exposure that they may have or add value to their customers by adding earthquake. As Mac mentioned, some of the more higher profile household name type of partnerships that have come on over the last few years, they don't all come on at once in certain cases. And so as time has gone on and we've been working together for a longer period, we have seen increased traction with a number of large partners, and that's paid off so far this year. D. Armstrong: Yes. And so sometimes, it can be in a relationship where we are working with them in all states, but California and then California has opened up to us or it's vice versa. We're the California partner and then all of a sudden, they think about us handling Pacific Northwestern, New Madrid. So Jon and his team do an excellent job of chasing down these partnerships and then executing and implementing them. So we feel that '26 should provide one or two other new deals. Operator: [Operator Instructions] Your next question comes from Meyer Shields with KBW. Meyer Shields: Chris, I can push a little more on the guidance. I'm trying to get a sense as the expectations for the underlying loss ratio, excluding reserve development and excluding the major catastrophe losses so far this year. Is there any -- can you help us think about that? T. Uchida: Yes. So I think from our standpoint, when you look at the book of business and the maturity and the lines of business that are growing, whether it be Crop, Casualty, Inland Marine and Other Property are growing at a very strong rate, not to say that Earthquake growth is still very good, but those lines that are growing at a higher rate do have attritional losses with them. So overall, Earthquake still has a nice 0% loss ratio, but these other lines that are growing at a higher rate do have attritional losses with them. So I expect the loss ratio to continue to move up. I think the one thing that we were saying at the end of last quarter is that we expected our loss ratio to be about, call it, low 30s for the year. I think now based on some of the favorable results that we've seen so far, we expect that to kind of be around 30%. So that could be plus or minus 1 or 2 points on either side of that. But overall, we feel a little bit more favorable about where we did before. But overall, nothing has really changed that we still expect it to move up. It's still moving up in line with those attritional results. But there's been no, call it, underlying unfavorability in any of the results. It's kind of just a natural change in our book of business and portfolio and diversification that is having that loss ratio move up a little bit. But again, like I said before, it's not jumping. It didn't jump from 10 points like anyone was thinking before. But overall, we felt that it was going to just move up incrementally and it's kind of doing exactly what we expected. Meyer Shields: Okay. That is very helpful. Can you talk a little bit more about the healthcare liability, I guess, book that you're writing? The specific question is whether there's like sexual abuse and molestation exclusions, but more broadly, what you're looking for? D. Armstrong: Yes, Meyer. So we launched that [ 71. ] We hired a gentleman named Frank Castro, 30-year-plus underwriter, spent time at RLI, access -- and actually have worked as a risk manager for a large hospital system too. So great experience, launched [ 71 ] with a nice reinsurance program. It's like we've done with other casualty. It's a walk before we run. Our gross limits are about $5 million. Net limit is going to be inside of $2 million. His book, what we're targeting is about 60% hospital liability, 25% managed care E&O and then 15% kind of Allied Health. And his timing is good as it pertains to hospital liability because you are seeing the SME or sexual molestation liability exclusions more frequently or sublimited. And as I mentioned on the call, again, the timing is good in the sense that there is meaningful rate to be grabbed here. So this is another example to walk before you run, but it's led -- and it's also another example of a great underwriter overseeing a market that's a bit dislocated. Meyer Shields: Okay. Yes. The timing certainly makes a lot of sense. And one last question, if I can. How should we think about the stickiness of flood policies that you're writing while the federal program is shut down? Jon Christianson: Yes. Happy to take that, Meyer. This is Jon Christianson. So I think what we found historically, both pre-shutdown and what we're seeing now is strong stickiness of policy renewals. And I think more importantly, in the last couple of months, we've seen a greater interest in new business and greater confidence in the private market delivering relative to the uncertainty around the NFIP. So strong product, a great partner, strong distribution. And I think as every day passes, there's greater validation and credibility in how the private market can deliver a better product than what has traditionally been in the market. Operator: Your next question comes from Pablo Singzon with JPMorgan. Pablo Singzon: The question of loss ratio deterioration versus accelerating premium growth always comes up for you, right, because of your changing mix and that's before thinking about things like reinsurance retentions and ceding commissions and the like, right? But just given your Palomar 2X aspiration to double earnings in 3 to 5 years, would it be fair to simplify the discussion here and assume that you're also planning for a similar growth trajectory in your net underwriting income, right? So I don't know, something like 20% to 30% growth a year in the medium term. Is that a fair way to think about your portfolio in a very simple way? D. Armstrong: It is, Pablo. Yes, and thanks for bringing that up. I mean I think we feel that Chris has talked about it, that we have levers to pull from retentions and that's going to potentially amplify net earned premium growth over net premium growth and similarly on the investment side. But to answer your question simplistically, yes, I think that is an accurate way to categorize it. Pablo Singzon: Okay. And then second question also, I guess, on growth, Mac. So clearly, good growth you're experiencing right now. I'd be curious to hear at what point do you think you'll have to reload, whether it's with respect to new hires or even M&A as you did with Gray in order to sustain the current pace as opposed to sort of like past hires ramping up and growing in adjacent lines or sort of like low-hanging fruit that what you have now can achieve versus incremental hires or stretching for M&A. D. Armstrong: Yes. I mean I think, obviously, Gray was unique in that it was an acquisition. We've been really an organic growth story up until the last year or so. But I think Gray afforded us the ability to really kind of supercharge our entry into the Surety market and give us the scale that we wanted. We said our goal was to get to $100 million, bringing Gray in fold allows us to do it a lot quicker. But I think having Gray, and that's going to give us another organic growth vector, and that's because they can enter into new markets. And so Pablo, I think we're going to continue to grow organically by investing in talent, expanding geographic reach, entering into adjacencies. And then we'll be opportunistic if there is some inorganic growth driver that allows us to bring in an expertise or a competence that we don't think we can build in-house as effectively. So I don't want to say that we're going to -- well, I definitely want to say that we're not going to stop hiring talent that complements what we're doing or can help enhance our growth trajectory because we will continue to do that. But I do want to say that we -- all of our lines of business, earthquake included have growth vectors. Some lines of business have headwinds in them, commercial property. But if you really peel it back, commercial property is less than 9% of our book. So when you look at crop, casualty, now the Surety franchise, the builders' risk franchise, residential quake, there are growth vectors across the board. So 44% growth is very strong, and that's not going to be ad infinitum, but we remain very confident in our ability to achieve the Palomar 2X goals. And so that's going to have to come from gross written premium to some degree and then the net earned premium, which you highlighted earlier. So we just think that we are well positioned and -- to attain Palomar 2X and also just to grow organically. Operator: There are no further questions at this time. So I will turn the call over to Mac Armstrong for closing remarks. D. Armstrong: Thanks, operator, and thank you all for joining the call today. I'm very proud of our third quarter results. They demonstrate the strength of our business and the diversity of our unique specialty insurance portfolio. It's a balanced book of E&S and admitted residential, commercial property and casualty products. That's being supplemented now by the newer lines of business like crop and Surety that are uncorrelated to the P&C market cycle. So we think we are very poised to deliver consistent growth, and we're confident in our plan to do so. And the third quarter only gives us more conviction of what we have in front of us. So I'll conclude this with welcoming our new teammates at Gray Surety. And as always, I want to thank our employees for their commitment to Palomar. Thanks again. Enjoy the rest of your day. Operator: Thank you. All parties may now disconnect.

195天前Insight Analytics约5分钟阅读

AMKBY 2025 Q3 财报电话会议

Vincent Clerc: Welcome, everyone, and thank you for joining us on this earnings call today as we present our third quarter results for 2025. My name is Vincent Clerc. I'm the CEO of A.P. Møller - Maersk. And with me in the room today is our CFO, Patrick Jany. As usual, we start with the highlights of the quarter just passed. We are pleased with the strong execution shown during the quarter in all businesses. We improved our performance across the board and delivered on an EBITDA of $2.7 billion and an EBIT of $1.3 billion, up from the previous quarter. All segments showed strong sequential volume progression, while costs were kept under tight control. These efforts paved the way for the strong results, notwithstanding the external environment. Specifically, in Logistics & Services, we are staying the course, focusing on operational margin improvements on both prior year and quarter to maintain the streak of good progress in 2025. We also registered good underlying and seasonal volume growth, which more than offset the softening observed in North America. For Ocean, this third quarter was the first full and clean quarter of the Gemini cooperation. While we kept delivering reliability at 90-plus percent, we also generated cost benefits well above the target we had communicated. This excellent performance was supported by strong volumes and high asset utilization as well as asset turns. As expected, rates softened during the period as new capacity continued to be inflated ahead of demand. Finally, our Terminal business delivered again record high revenues and profitability, driven by strong volumes, not least the ones delivered as a consequence of the Gemini implementation and the highest ever utilization across our portfolio of gateway terminals. With another quarter of sustained high demand, especially out of China, we expect a market growth around 4% for the full year. This strong demand, combined with the successful implementation of Gemini and progress across all segments allows us to narrow the full year 2025 guidance to an underlying EBIT of between $3 billion and $3.5 billion. As usual, more details will follow on this later in the call. Now taking a closer look at each of our business segments. First, Logistics & Services continued to track positively. We achieved an EBIT margin of 5.5%, up from 5.1% last year and 4.8% last quarter. The key levers of progress remain asset utilization, productivity improvement and stringent cost management. Aside from these efforts, the top line also grew 2% year-on-year and 9% sequentially, the latter reflecting both seasonal strength and new win implementation, which offset the softening of demand in North America. In Ocean, as mentioned, we had our first full and clean quarter of Gemini -- after the Gemini implementation. From already the first month since the implementation in February, we have seen the network deliver reliability above 90% and show resilience against disruptions such as weather, which we have seen recently in the Far East with the worst typhoon season in 10 years. Meanwhile, we continue to deliver 90-plus percent reliability in the third quarter, and we also achieved significant cost savings even compared to the ambitious target we had communicated to you earlier this year. I will go into more details on this very shortly. What Gemini has allowed us to do with these savings is to use our fleet more efficiently and capture more volumes. Our volumes are up 7% year-on-year and 5% sequentially for this quarter, while the average loaded freight rate was more or less in line with the prior quarter. Good volume development has also driven high utilization of 94% for the quarter, up 0.5 percentage points sequentially. All of this happened against the backdrop of decreasing rates as expected. In Terminals, we delivered another excellent quarter, driven by record on volumes, revenue, EBITDA and EBIT. What we have not talked about so much until recently is the volume uplift in our gateway terminals from Gemini, which has been a key contributor to our performance this quarter. Return on invested capital has delivered a further uptick to 17.2%. Here, we note that with utilization close to 90%, we are approaching the full potential at which operations in some of our locations become less efficient and volume growth opportunities become more limited in the short term. We continue to invest to debottleneck our existing terminals as well as grow with new locations as exemplified by the inauguration of Rijeka Terminal in Croatia less than 2 weeks ago and several other projects in the pipeline. Turning to our midterm target. As you can see, we have shown almost full delivery on our 2021 commitment. As mentioned, we continue to stay the course of regular progress in Logistics & Services, which is tracking positively with EBIT margin up both year-on-year and sequentially, although more needs to be done on that field. We continue to make good operational progress with our challenged products of Air, Middle Mile and Last Mile, while seeing good revenue growth in our other products, more in line with our organic revenue growth targets. Our priority is to continue to improve in the fourth quarter as we round off the relevant period of these targets. Taking a step back from this quarter, I want to just take a couple of minutes to get into more detail as to what has been driving such a robust demand growth in Ocean and some of the consequences of this phenomenon, which we do not think are sufficiently well understood. Despite talks of deglobalization, nearshoring, trade wars, container demand has shown a remarkable resilience over the past few years that has confounded many observers and models. During this period, China's export growth into all regions of the world, except for North America, has not only been resilient, it had gathered pace. China's share of global export has increased significantly and never as fast as it has over the past 2 years. Specifically, its global export share has increased steadily from 33% only 2 years ago to about 37% this year. This growth is part of a longer trend as reflected from the chart to the left, but has accelerated recently. It affects all regions with the Far East, excluding China being the biggest market and growing at 12% per annum, and Europe the second biggest market and growing at 10% per annum. North America, which, in this case, is including Mexico, which is the third biggest market, has been weaker, but still has seen growth at 5% per annum despite the known trade tensions in 2025. Given the widely available production capacity in China and the very competitive products that are being exported, we do not expect this trend of accelerated export growth from China to stop. The momentum is strong. The consequence for us are not only the resilience of demand growth, which will contribute to absorbing some of the new capacity coming online, but also the increased trade imbalance that it is causing, which over time will lead to higher production cost and lower asset intensity for the industry. On both fronts, Gemini offered us a much needed flexibility so that we can capitalize on the growth opportunity while minimizing the cost impact. Moving back to Q3 and to Gemini specifically, this is the first quarter where we can see the full effect of the new network, and we are pleased that the savings are higher than our original guidance. To give you a sense of the benefits, we separate the Ocean cost savings, which were the ones we had communicated into 2 buckets, namely Bunker Savings and Asset Turn increase. Aside from these, we can also present an upside that we have seen in Terminal as a direct result of this new cooperation. Now taking each of this in turn and starting with Bunker. We can see that the advantages of Gemini stemming from a more efficient use of our vessels, for instance, through lower speed, shorter sailing distances and shorter dwell time are allowing us to reduce the bunker consumption. This quarter, we saw a 6% higher capacity, but about -- but about 3% lower total bunker consumption. And this translates in an approximately 8% bunker consumption reduction corrected for the changes in capacity. Then on our Asset Turn side. From the most efficient use of our vessels, Gemini allows us to transport more volumes at the same capacity. This quarter, we saw the capacity growth of about 6% against the volume growth of 7%. The delta of about 1% point represent the improvement in asset turns. Both these buckets are driven by improvements we have been able to do under Gemini. First, we have been able to deploy our largest vessels in most effective routes and on shorter loops. Secondly, the shorter loops have had fewer port calls and more efficient ones. Thirdly, locations outside the shorter main liner loops have been serviced by fit-for-purpose shuttles rather than underutilized mainliners. We can quantify the bunker consumptions improvement to about 8% at fixed bunker into cost benefits of about $135 million for the quarter, which annualized is about $450 million to $550 million based on the full year implementation and normal seasonality. Likewise, we can quantify the asset turn improvement of about 1 percentage point, which against our total network cost translates into about $50 million of cost benefit in the quarter, which annualized is about another $150 million to $200 million benefit. The cost benefits on the Ocean side alone, therefore, sum up to around $600 million to $750 million on an annualized basis. Another advantage of Gemini has been to increase volumes in some of our gateway terminals, allowing us to significantly increase the throughput. These additional moves have improved port moves per hour and expanded operating terminal capacity. The additional uplift has generated about $40 million in benefits, which annualized is about $120 million to $200 million based on full year implementation and seasonality. Overall, across Ocean and Terminal, therefore, we have generated about $225 million in cost benefits in the third quarter or $720 million to $950 million in annual savings compared to our previously announced targets of about $500 million. As mentioned earlier, we now expect container volume growth to be around 4% for 2025, given the strong demand that we continue to see outside of North America. There is no change to our assumptions on the Red Sea disruptions, which we still expect will not reopen in the near term, absorbing net supply in the industry as long as it remains closed. Against the backdrop of these factors as well as a strong year-to-date performance, we refine our financial guidance to the full year 2025 to an underlying EBITDA of $9 billion to $9.5 billion from previously $8 billion to $9.5 billion, and an EBIT of $3 billion to $3.5 billion, previously $2 billion to $3.5 billion. And finally, free cash flow of positive $1 billion or higher, previously negative $1 billion or higher. Our CapEx guidance for '24 and '25 combined is revised down to about $10 billion, down from $10 billion to $11 billion, while the guidance for '25 and '26 remains unchanged. And I will now hand out to Patrick, who will walk you through the detailed financials at segment level for our performance. Patrick Jany: Thank you, Vincent, and welcome to everyone on the call. Q3 '25 was a quarter with strong financial performance across the group, significantly up sequentially. Overall, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion, implying a margin of 18.9% and 9%, respectively. As expected, the delta to the previous year is driven largely by the shift in rates we have seen in Ocean since the peak levels in mid-'24, which was at the height of the Red Sea disruption, while the progress on the previous quarter is driven by higher volumes and operational improvements across all 3 businesses. Net profit after tax was $1.1 billion, generating a solid return on invested capital of 9.6%, still at a good level, but decreasing as strong 2024 quarters progressively fall out of the yearly calculation. Solid free cash flow supported a strong balance sheet with cash and deposits standing at $20.9 billion at quarter's end. Our net cash position is down from $5.6 billion last year to $2.6 billion, driven mostly by the strong returns to shareholders, which totaled $4 billion in the first 9 months. Let's take a closer look at cash flow on Slide 12, where we see that cash flow from operations increased sequentially to $2.6 billion in the third quarter, driven by higher EBITDA of $2.7 billion, while the movements in net working capital was largely flat. Overall, we had a strong cash conversion of 97% up from 89% last year and 81% last quarter. Further, across the chart, gross CapEx for the quarter was $1.2 billion, in line with our multiyear CapEx guidance, driven by our Ocean fleet renewal program. Meanwhile, capitalized losses -- capitalized leases stood at $868 million, also in line with expectations and down from the previous quarter, which was impacted by the Port Elizabeth concession extension and free cash flow was therefore at $771 million. Capital return via share buyback was $578 million this quarter. And finally, most of the $850 million you see in movements in borrowings relates to our 9-year EUR 500 million green bond issuance in September, extending our maturity profile early in light of extending bonds maturing in March next year. Taking all together, cash generation was strong in the third quarter and supported an already strong balance sheet alongside the continuation of our share buyback. Turning to our Ocean segment on Slide 13. Ocean delivered a strong operational performance in the third quarter, which marked the first full quarter of Gemini implementation. From a financial standpoint, Ocean generated an EBIT of $567 million, implying a margin of 6.2%. This is down on last year, driven by the expected rate decline, but significantly up sequentially, driven by the strong volume growth of 7% in Gemini. Specifically on Gemini, as Vincent mentioned earlier, the new network generated cost benefits in the form of bunker savings and higher asset turns, without which we would have expected our third quarter Ocean costs and therefore, EBIT to be impacted negatively by about $185 million. Meanwhile, freight rates were significantly down year-on-year, driven by the ongoing market pressure on rates since 2024, but broadly in line sequentially. CapEx was in line with guidance and comprised mainly installments on vessel orders announced last year as well as a broader equipment renewal and vessel deliveries that are part of our Ocean fleet renewal program. As usual, the chart on Slide 14 illustrates the main elements of the year-on-year EBITDA development in our Ocean business. On the left, you can see the large impact on profitability from the 31% lower freight rates, cushioned by the tailwind of the 7% increase in volumes year-on-year. Ocean also saw a positive impact of $211 million from lower bunker prices compared to last year, while container handling and network costs increased driven by higher empty repositioning and terminal costs. Also note that EBITDA was further supported by higher detention and demurrage revenue and a positive delta in revenue recognition, the latter of which accounts for the vast majority of the net $551 million in the final bucket. All in all, these offsetting factors allowed EBITDA in the third quarter to settle at $1.8 billion, down from the previous year, but up on the previous quarter. Let's now have a look on the Ocean KPIs on Slide 15. Ocean's operational performance in the third quarter is highlighted in these metrics with strong volume performance and Gemini helping to offset headwinds in cost and rates. Loaded volumes increased by 7% year-on-year, reaching 3.4 million FFEs as demand was strong on key trade lanes. Sequentially, volumes grew by 5.2%. As mentioned earlier, our average loaded freight rates declined by 31% year-on-year, reflecting market fundamentals that we have seen since 2024 from growing excess capacity. Nevertheless, as reflected in the flat sequential development, the lower levels in the third quarter at quarter end were actually offset by the high levels at the start of the quarter, therefore, providing a fairly benign rate environment in the quarter. On the cost side, unit cost at fixed bunker decreased both year-on-year and sequentially by 0.8% and 2.2%, respectively, as strong volume performance, high utilization as well as cost benefits from Gemini offset the general cost pressure. Bunker costs were down 14% year-on-year due to both lower fuel prices by 13% and increased efficiency from Gemini, leading to lower bunker consumption of 3.2%. This is despite us carrying more volumes and managing a larger fleet. Specifically on the fleet, the average operating fleet grew 5.5% year-on-year, reaching 4.6 million TEUs, all while capacity utilisation remained high at 94%. Let's now turn to our Logistics & Services business on Slide 16. In the third quarter, Logistics & Services delivered revenue of $4 billion, up 2.3% year-on-year and 8.6% sequentially, the latter reflecting seasonal strength. The year-on-year growth was driven by growth across most products. On the bottom line, EBIT showed a significant increase to $218 million, which also implied a continued EBIT margin improvement of 0.4 percentage points year-on-year and 0.7 percentage points sequentially to 5.5%. The margin improvement is primarily driven by the continued operational progress that the team has made in fulfilled by Maersk, all while continuing to exercise stringent cost control across all service models. CapEx is down on last year, but remains at a stable level sequentially to support growth with particular focus on Depot and Warehousing this quarter. Now let's have a look at the breakdown by service model within Logistics & Services on Slide 17. Starting with our supply chain management offering. Revenue here decreased by 4.8% year-on-year to $594 million, with the EBITDA margin decreasing to 22.6%, down from 24.2% last year. This decline was driven by weakness in Lead Logistics, our 4PL business, volumes primarily from China to the U.S. on the back of the stop-and-go volatility we have seen in the external environment. In Fulfillment Services, operational progress in Middle Mile North America and Warehousing led to significant improvements in profitability with an EBIT margin of negative 0.9%, up from minus 4.5%. Revenue increased by 2.9%, reaching $1.5 billion. Finally, revenue increased in Transported Services to $1.9 billion, equal to a 4.3% increase year-on-year. This was supported by higher volumes in Landside Transportation in the peak season. However, the EBITDA margin was impacted by weakness in Air, landing lower on the previous quarter at 7.3%. We round off with our Terminals business on Slide 18. Terminals delivered another excellent quarter, continuing the positive trend. Revenue grew by 22% year-on-year to $1.4 billion, driven by 8.7% higher volumes supported by Gemini and improved rates. Specifically on the Gemini impact, volumes from Maersk Ocean increased 26% year-on-year. The higher volumes brought a further uptick in utilization, which stands at 89%. As mentioned earlier, while this is supportive of higher margins, it also highlights the necessity to invest in capacity extension in the coming years to cater for the long-term growth of our port operations. Revenue per move increased by 7.8%, reflecting improved rates and mix. Meanwhile, cost per move increased by 6.7%, largely due to labor inflation and higher SG&A costs, but mitigated by higher utilization. Overall, EBIT increased by 69% year-on-year to $571 million with a margin of 39.4%, up 11 percentage points from last year and 4.1% higher sequentially. This underlying good margin was supported by a net $139 million positive impact from one-offs, including the reversal of impairments due to the successful extension of a concession. ROIC rose to a record 17.2%, underlining the intrinsic strong return profile of this business, although levels will taper down progressively with increased renewals and investments. CapEx for the quarter came in at $154 million, more or less in line with previous year and reflect the continued investment in our gateways portfolio. Turning to the breakdown of Terminals EBITDA on Slide 19. Terminals delivered an increased EBITDA from $424 million last year to $501 million. The increase in cost per move of $56 million was more than offset by higher revenue per move and volume impact. Currency exits and other movements brought a further positive impact of $29 million, bringing the EBITDA to a record level for the quarter. And with that, we finished the review of our business segments and are ready for the Q&A. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Patrick Creuset from Goldman Sachs. Patrick Creuset: Just 2 questions. First on the outlook. If we look at your Q4 EBITDA, you're implicitly guiding based on the full year range of somewhere between $1.3 billion and $1.8 billion. Can you provide a little bit of color on what sort of volume and rate assumptions are embedded or would be embedded at the top and the bottom? And also based on what you see so far going to Q4, do you see a skew more likely at the top or low end? And then just on the buyback, you've got a cash position of around $15 billion or so. In the past, you've sometimes given the market a sense on how comfortable you felt on buybacks in the year ahead. Can you again give us a bit of sense today, assuming, for instance, stable trading environment at these levels, would you see a reason to discontinue the buyback next year or keep it? Patrick Jany: Thanks very much, Patrick. So indeed, when you look at the guidance for Q4, it implies a continuity of the pace that we have currently. We have seen rates stabilize by September and early October. And that is, I would say, the pace that we have continued to forecast for the Q4. And the volume development actually seems still to be pretty strong as we can see it. So I would rather mentally see, let's say, the revision of the guidance towards indicating the higher end of the guidance, which is what we are doing by narrowing the range, and that's what we intend to signify here, which at group level is more or less a breakeven. It will depend on the last few weeks for the Q4. When you look at the cash position and balance sheet, it is strong. And as we have indicated as well when we restarted the share buyback back in February this year, the intent is to certainly see this as another 1-year event. And in your assumption of a stability of externalities, I think there's nothing that speaks against the continuation of the share buyback indeed. Operator: Our next question comes from Muneeba Kayani, Bank of America. Muneeba Kayani: Firstly, just on the logistics EBIT improving at the margin to 5.5%, can you remind us what seasonality in this business? And if there was any benefit on that and kind of how much of this is kind of the improvement which can continue? And then secondly, we've seen in container shipping, the order book-to-fleet ratio for the industry is around 32% now, which I believe is the highest since the global financial crisis. So what do you think is driving that? And how do you see it playing out? Vincent Clerc: Muneeba, so if I start with your first question on Logistics, I think most of the improvement that we're seeing are due to the cost containment and productivity improvement that we are putting in place. In general, the business will have a seasonality a bit tilted towards the second half year versus the first half year. But -- and mostly, I would say, towards the very end of the year, depending on your product exposure. But I think when we look at it, and you can see that in the volumes and the top line, we see some seasonal improvements that are helping. We also see some of the wins that we have taken in that are helping, but I think most of it is actually coming from the work that we're doing on margin. From the order book, I think you're correct that at 32%, the order book is quite high. I want you to -- I just need you to remember 2 things. I think the first one is that the time to order, so the number of years over which this is going to phase in is more than it was during the -- before the financial crisis. So if you -- we're going to -- there's a longer installment, if you will, that is being ordered. So that's one thing. And the second thing is the story that we had about China. The market is growing at about 4%. But on the head haul, it's growing at about 7% and what we're seeing is as long as it grows at 7% on the head haul, you need 7% more capacity to be able to carry this. So I think there is -- this dichotomy that there is between head haul growth and average growth is absorbing a lot more capacity. The longer order books is -- it means that it's not phasing as brutally as one would expect. And then the last point that there is, is not a single ship has been scrapped for the last 6 years, but the ships all got 6 years older in that period. So there is pent-up demand for that. And so I think over time, we will see that some of the levers that so far have come at us, whether it was higher demand from China or selling around the Cape of Good Hope or COVID, this will fade away, and we'll be back to having to use the tools that we normally use in the industry, which is scrapping, idling, slow steaming and so on. And there, there are still significant levers that we can lift to actually balance the outlook. Operator: The next question comes from Ulrik Bak, Danske Bank. Ulrik Bak: So on the volume side, Ocean volumes, you obviously have very strong growth, 7% in the quarter. I'm just curious to hear what if there is a split between the feeder legs and the main haul legs? And if there is any issue with double counting, anything because it just looks so extraordinary, your volume growth. And then if I can sneak in a second one. So this overperformance versus the market, how long do you expect this to be sustained? Vincent Clerc: All right. So I can guarantee you that there is no double counting of volume like we count the containers and the bills of ladings only once. It's much better. You would see it in the revenue development very different if we were double counting. So I think that we're pretty -- we can be quite categorical around. I think when I look at what we're able to do right now as a result of Gemini from a cost perspective, I think it's a pretty significant lever that we have unlocked here. And this has, I think, legs to continue into the coming quarters. I cannot give you how many quarters this advantage will last. I think it's going to last quite a while, but it depends also on what we do next and what competition does next. And I'm not in control of all of that. But I think that what we have shown on the slide with Gemini is there are a few levers where we have broken some efficiency frontier that we had under the previous deployment and that we have moved them now to being higher. And this is what allows us to actually lift the cost impact of Gemini quite significantly. Operator: The next question comes from Omar Nokta, Jefferies. Omar Nokta: Just wanted to follow up on the share buyback discussion. You mentioned last quarter, you continue to view that as a focal point of the capital allocation strategy. It sounds like that's going to continue for '26 as well. But just in terms of how you're thinking about the size, $2 billion this year, how can we think about how that looks for '26 as you set the budget? Does it become a portion or a function of how much free cash flow was generated this year? Or what's it based on? Is it based off of earnings next year? Any color you can give would be helpful. Patrick Jany: Yes. Thanks very much for your question, Omar. No, as we said, clearly, share buyback is a fundamental piece of our capital allocation and will continue to be as well for next year. I think when you look at the dimensioning, you know that we actually maxed out this year, right, just from the free float and the rules on the daily volumes. So I would expect this to be, say, a maximum amount. But then the exact dimensioning will be done, obviously, in February and when we come out with our guidance for full year. I think it will be premature now to guide. But I think certainly, the willingness to continue a sizable share buyback is certainly there. Operator: Our next question comes from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I have a question on the Gemini cost savings. I'm looking at that slide that you put together, and it looks like the bulk of the benefits come on the bunker side of things, which I think makes sense. What I am surprised about is why the asset turn benefit is not higher? Maybe you could just talk through like what I'm missing there. Maybe I've just thought that the asset turn would be better. You could optimize the network more, long voyage, big vessels, feeder vessels, et cetera. I'm just trying to understand that split that the bunker number and the asset turn number are not sort of closer to each other? Vincent Clerc: Yes. Thank you, Cedar. I think let me try to explain that I think the asset turn, it depends also on what is your base. We had an extremely high utilization last year. So we've been able to lift this with 0.5%. We're continuing to look at whether we can actually increase that number in the coming quarter. The bunker, we can very much control because that -- as soon as you're into the deployment, since we measure it against the capacity, we get the full saving calculated there. And we've tried to disaggregate that because we could have just done this in terms of total unit cost per container, and I would have mixed the bunker and the efficiency on the fleet or on the utilization. So I think the bunker, we see 100% of the saving right away. As long as we deliver on the reliability, this will be pretty steady. I think on the asset turns, this is where I think we have some opportunity to continue to fine-tune and improve the network. So this one, I would look at as still having a bit of leg that we need to exploit in the coming quarters. Cedar Ekblom: Okay. And then, yes, just a follow-up there. So obviously, container handling unit cost at a fixed banker hasn't really come down year-over-year. It obviously has come down sequentially, which is helpful. Could you give any sort of guide around how to think about that sort of container handling cost on a unit basis or maybe network costs on a unit basis? Like are we talking about a 5% decline from here unit-wise? Or I don't know if you could help us quantify how to think about that run rate into '26? Vincent Clerc: Yes. So the issue with container handling is the fact that, as I mentioned, with an average market growth at 4% and a head haul growth at 7%, trades become more imbalanced. And then under container handling, the amount of empty containers we're moving around increases because there is just more containers going one way and fewer containers going the other way. And that means more empty repositioning. And that's what I mentioned in the slide for China. I think as we see this imbalance continue to grow, it's important that we understand that we're going to need more and more capacity to cater for growth because it's more and more asymmetrical because between the head haul and the backhaul, but it will also increase our cost per FFE above that because of the increasing balance and more empty containers being moved around. Operator: Our next question comes from Kristian Godiksen, SEB. Kristian Godiksen: Yes. Also a couple of questions on the Gemini part. So just a house of question to start out with the improvement in Terminals, is that in the -- is that for the hubs and hence, included in the Ocean part of the business? Or is that for the Terminals business? And then if you could maybe comment a bit on the unit cost advantage you see compared to the peers that are not using the hub and spoke model? And then maybe just finally sneak in a question on whether you've had any preliminary discussions with the clients on a potential price premium for your higher schedule reliability? Vincent Clerc: Yes. Thank you, Kristian. So I think the -- what is important with Gemini from the gateway perspective is the fact that before when we were in 2M, we were paired with probably the other line that has the most comprehensive terminal portfolio. And it means that in a lot of locations, we have to split volumes between the different parties. Here, we are with a partner that has less -- much less of a terminal portfolio. And it means that net, we're getting more locations where 100% of the throughput is not split between 2 different facilities, but it's all going to our facilities. So for the gateways, this is very, very positive because they get the full 100% of the support from Gemini. And that is something that is an uplift for this, and it will last for as long as Gemini lasts. So it's quite positive. On the unit cost, I think we're going to need 1 or 2 quarters more of data from also the competition to know because we can see how much we have saved sequentially and how much we have saved year-on-year. Obviously, the world doesn't stand completely still. They will also do certain things. What we can see with the numbers that have been released so far is that we're making more progress on unit cost than what they're making, and we attribute this to Gemini, which is the big thing that we did to lower our unit costs. So we're quite positive on the fact that we are opening up a gap now with Gemini that is going to be -- that is going quite handy, especially in the current rate environment, and we will continue to work at making it as big as possible. Then finally, on customer discussion, I want to say that the customers' reaction is really very, very positive. Obviously, for the premium, this is a conversation that we have started, but it's a bit too early to talk because we need to be certain also that we have a long enough track record that it unlocks value for them that we -- where we can then capture some of that value for us. So for instance, concretely, today, every customer has a buffer stock and that reliability needs to unlock a reduction of that buffer stock. They need to trust that this has weathered sufficient ups and downs and be steady that they can take out some of that buffer stock. And if they do, they pocket that saving and then we can capture some of it in form of a premium. I think that process is starting. It's a long-haul process to take place, but certainly something that where we see some potential at least to capture some value, but we need to -- it's just a few months. It's the first quarter we're going with it today, where we have the full Gemini. Some of them have been in transition with -- not everything is yet fully in a place where value has been unlocked yet, but we're very positive with the discussion so far. Operator: Our next question comes from Jacob Lacks, Wolfe Research. Jacob Lacks: So you've discussed in the past maybe a bit of a shift in how quickly contracts get repriced when the market is tightening up. Have you seen customers actively work to reprice contracts again with rates moving lower now? And to that end, do you think the current rate environment will largely be reflected in Q4? Or could there be some incremental pressure in '26 when new contracts are signed? Vincent Clerc: So we've not -- thank you, Jacob. We've not seen any big movements on contract being open now, which since the contracts have been trending down during Q3, and it was not very timely for people to do it until they -- when they know they have the negotiation coming soon and as long as things are moving their way. So I think that from that perspective, that's one of the things that also holds the contract good. So those have not moved. You will have noticed that over the past few weeks, the rates have actually come up again a little bit. It's too early to call anything on the contracting season. I think we'll have certainly a discussion around this in February when we come with the full year guidance for 2026, and we have some of the early negotiations under wrap. But I think for now, what we have seen in terms of behavior from customers is that whatever the price did during Q3 did not lead to customers actually reopening contracts or wanting to have commercial discussions on price. And contract adherence has been quite strong as well. So it's not like the volumes just disappeared. I mean they were living up to their commitment. Operator: The next question comes from James Hollins, BNP Paribas. James Hollins: Obviously, you discussed buybacks a lot pretty important to the market. I was just wondering, I mean, clearly, another way you might not do buybacks is aggressively pursuing M&A. I was wondering how you're looking at M&A if we are indeed looking quite extensively and globally at potential deals? And secondly, a bit of a sort of generic question, but as I look at consensus for 2026 Ocean, Bloomberg consensus has a loss of $2.8 billion. I mean that would be a business scenario like 2009, you'll come to deposit [ $1.7 billion ], apart from showing how on that forecasting. Maybe just get sort of your view on how you would see, I guess, particularly that Bloomberg consensus against the reality of what you might see in this industry based on someone that's been in it a long time, your work on cost, your work on the alliance and basically whether that's way too pessimistic. Vincent Clerc: James, I think let me start with the 2026 and give you the standard answer that I look really forward to talking about it in February. But before that, I think we'll have to pause on giving any type of views. With respect to the M&A I think what we need to remember is that all 3 segments that we operate in are actually over time, segments with -- that are quite competitive and very low margin. So when I hear something like aggressive pursuit of M&A, I hear a premiums that will be difficult to justify through synergies afterwards and a lot of risk to destroy shareholder value. So whereas we've said it and we continue to say that M&A will be a part of the continued repositioning of Maersk. And whenever we see opportunities, we have both the wherewithal and the interest to pursue them, but maybe an aggressive thing right now, given some of the outlook is not necessarily something we will pursue. Operator: Our next question comes from Parash Jain, HSBC. Parash Jain: I mean just first with respect to Red Sea, I know nobody has a crystal ball, but given the recent developments, is it first half of next year looks more likely than ever before? And my second question is, we heard a lot about front-loading by the U.S. retailers, in particular, now that we are well into the peak season, are there any signs of front-loading, which has been reflected into the fourth quarter's volume run rate? Vincent Clerc: Yes. So for the Red Sea, let me start by saying that, obviously, the ceasefire in Gaza is a significant -- first, it's a great thing for people in Gaza and for the world in general. But it is also a significant step towards being able to reopen the Suez Canal since the -- the situation in Bab al-Mandab and in Gaza have been linked since the beginning. I think the way we think about this is that we need now to make sure that this moves into a process where it becomes clear that the ceasefire is entrenched and doesn't risk going backward at some point and then we fall back into a new phase of a conflict. And that's the situation we're monitoring quite closely. And we're also figuring out what is the posture of the Houthis specifically to see if we can start to have a safe passage. So I would whether it's more likely now to be early at some point or whatever, I think if the ceasefire holds, then I think we've crossed a gate and made a big step towards returning through the Red Sea. But I think we need to see that get entrenched, and we need to see the process move ahead. And once that happens, then we'll have a better view of what that means for a return to the Red Sea. Then in respect of front-loading, I think there was a lot of discussion on front loading, especially end of '24, beginning of '25 before the tariffs in April. We certainly saw following the implementation of tariff that things softened in North America. And we certainly still have seen this still into the third quarter and even, I would say, during the month of October, I will say that what we're seeing now is there is somewhat of a push also into the U.S. for some of the seasonal goods to get there. So I think from a demand perspective, very resilient demand across all geographies and the U.S. that is picking up a bit of pace following this month between April and October that have been a bit more soft. Operator: Our next question comes from Alexia Dogani, JPMorgan. Alexia Dogani: Just firstly, could you explain a little bit the unit revenue development because we're struggling to reconcile with the trade lane numbers you report on the group level. If you can just explain how it normally developed as per the 6-week lag, the spot versus the contract, has it performed versus expectations, whether it's underperformed or overperformed because, yes, struggling to reconcile a little bit the outcome. And secondly, on the unit cost, again on Ocean, I mean, clearly, you talked positively about the Gemini contributions. But overall, your unit cost at constant bunker is only down 1% despite you growing 7% capacity and 5.5% volumes -- sorry, the other way, 5.5% capacity, 7% volume. So when we look at into next year, what further cost savings can you deliver if there is less volume growth because I imagine the capacity benefits annualized. And then finally, obviously, the IMO has now delayed its kind of net zero initiatives. How should we think about the implications for industry capacity discipline? And I guess, more importantly, for yourselves that have invested in green CapEx, which comes at a higher cost. And so it kind of takes you in a relative disadvantage? Vincent Clerc: Yes. There's quite a few questions. So let me try to cover that to the best possible. I think, first of all, when you look at the cost, there is one element that we're missing. And it is that the net position that we have on our different VSAs, whether it's a plus or a minus is reported under other revenue. And the fact is that our position in 2M was balanced and our position in Gemini is that of a net seller of capacity. And that means that out of the 11% that you see in growth in the network cost, half of that is due to that net position. And once you take that out, then the growth of our network cost is actually 5.5% for 7% volume increase. So I think that's just important to position this. We see the unit cost being decreased. The biggest efficiency is because we've chose to slow steam and be reliable is going to be seen on bunker. So that was always -- it doesn't matter so much which line item it shows, but we've made choices. We could have gone a bit faster and save a few ships and also generate some cost savings that you would have seen more on the network cost. We've chosen to really focus on bunker. So I think for the unit cost, there is this -- when we look forward, I think we have 3 levers for cost savings, for further cost savings. One is the expansion of Gemini. Two is actually some of our other costs here under organizational cost that we're looking into. And then finally, I think as the rates soften, we will see also a softening in the time charter market, and that will generate further savings in the unit cost that we have by basically being able to lease ships at a cheaper price. So those are, I think, the 3 key things. I will say that we anticipate -- you mentioned like less volume growth. We don't expect necessarily less volume growth, but we'll talk about this in February. But I think that's not an assumption we should have. So that's both for the unit cost and the growth. The IMO, I would say, from a CapEx perspective, it's -- what happened at the IMO is a nonevent. Seen from that, that today, every single ship that is on order more or less is a -- has a dual fuel engine. It's either dual fuel LNG bunker or it's dual fuel methanol bunker. And I think everybody understands that it makes sense when you take a bet on the next 30 years by ordering a ship that you cannot just base yourself on what the IMO is doing now, but you need to understand what optionality you have for the next 30 years. And I don't expect that people will start to order only bunker ships because they will think that for the next 30 years, this is not -- green transition is not going to be an issue at all. So I think from that perspective, I don't think operationally, IMO is a problem. I don't think CapEx-wise, IMO is a problem. It's a problem to execute the energy transition because definitely, it's a loss of momentum. But from an operational perspective, we are not at disadvantage, and I don't think it's going to change order behaviors or supply and demand. Patrick Jany: And let me come back on your rate on your first part of your question. So what you have to consider is that we have increased the share of short-term rates in our mix, as you can see as well in our disclosure to 53% compared to 47% long term in the quarter, and which was positive during Q2, Q3. As short-term rates decreased during Q3, you see that our full year estimate for '25 sees an increase of the long term. So we are pushing the contract fulfillment and the long-term rates, which are more resilient to the erosion of the rates in the short term. So you have a progressive change of mix constantly to optimize the revenue there. Another factor when you try to reconcile is also the very different geographical evolution of the rates. So the North -- the East-West rates are the ones which we always follow very publicly and those ones came down. However, you do have much more resilient rates development in North-South and then the interregional rates as well. So that's a bit of a mix that you see always in our total figure. I hope that helps. Operator: Our next question comes from Marco Limite, Barclays. Marco Limite: So my first question is on demand because you are talking about a fairly strong demand, while some of your competitors in other subsectors are talking about soft demand. You have also mentioned that you expect U.S. demand being sort of strong over the next 6 months. And then also, you have mentioned that China outbound has grown 7% and expect a similar rate going forward. Do you -- what kind of visibility have you got on basically these assumptions? And especially the fact that China has been very strong this year is not that a risk for growth next year on a very high comps, is the first question? And the second on capital allocation. We have been discussing about potential for M&A and share buyback and so on. But when we think about terminal expansion, I mean, this week, you announced a $2 billion investment in the terminals. But first question is that on your balance sheet or off balance sheet as you have got a minority stake. But more in general, is it a problem for you to have, let's say, the terminal business in the overall Maersk umbrella, where, of course, you cannot take a lot of leverage, but terminal business needs big CapEx investments and also a larger balance sheet buffer? Vincent Clerc: Yes. So on -- let me start with the demand. First of all, the strength of the demand, if I look at year-to-date, both last year and year-to-date, I mean, this is -- I hope this is undisputed by anybody, at least when it comes to container traffic because you can verify it in the CTS statistics, [ GOC ] statistics and any other widely available port statistics that you can find. So is the fact that China makes up a large part of this and that this shows no signs of abating. So personally, I don't see any reasonable argument or data source that would go against the fact that demand has been above 5% last year and will be around 4% this year, which is actually quite significant. The demand from China and the growth from China, at least so far shows no sign of abating. And unless at some point, somebody can point to a reason for why this would abate, then I think it's a reasonable assumption to say that if there is no reason for it to slow down or stop, then why would it? And then you can discuss whether given -- as you mentioned, given the comps, whether it's going to continue to be 11% or that the base becomes so big that it becomes 10% or 9%. But the fact is that it's still quite significant. And at least so far, as we show in the graph, the last 2 years has been accelerating, not decelerating. So I think from a demand perspective, we feel quite confident that demand growth is very strong. There's a lot of cargo out there to move, and that has a lot to do with China. And I think that there is ample data to back that up. You want to? Patrick Jany: Yes. On your question on the capital allocation and terminals. I think -- so first of all, on the capital allocation, I think our first priority is organic growth, and we have always said that we would dedicate the sufficient funds to grow in Logistics, grow in Terminals and renew our fleet for Ocean. That is part of our guidance of the $10 billion to $11 billion CapEx over 2 years. So that's factored in. I think what you have to see is actually Terminals is a brilliant business that complements Ocean. We capture a lot of the value as we actually just showed on Gemini of the value of the Ocean leg into the port, right? And the margins there are actually higher than in Ocean. So it is good to have. It comes with, I would say, a high CapEx profile when you have new terminals, but a lot of the CapEx is actually expansion of existing, right? Of existing capacity where you can grow. And then you have a few new ones which are planned. We just announced the -- we just opened one recently and there are others in the pipeline, which, again, are absolutely included in our guidance and do make absolute good sense. Overall, I would say it is still an asset-lighter business than Ocean is. So it's absolutely fine with our balance sheet, and we have the balance sheet structure and financing to fund that development as well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Vincent Clerc for any closing remarks. Vincent Clerc: Thank you again for joining us today. And to summarize the discussions, we have demonstrated strong execution in this quarter in which uncertainties did persist in the external environment, but where we carried to deliver strong results across the whole business portfolio. We've made good progress across the portfolio and continue to see supportive demand, and this has allowed us to narrow the full year guidance. We look forward to seeing many of you on our upcoming roadshows and investor conference. Thank you for your attention again, and see you soon. Bye-bye.

195天前Insight Analytics约5分钟阅读

CARG 2025 Q3 财报电话会议

Operator: Good day, and welcome to the CarGurus earnings call. Please note that this event is being recorded. I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead. Kirndeep Singh: Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' Third Quarter 2025 Earnings Call. With me on the call today are Jason Trevisan, Chief Executive Officer; and Sam Zales, President and Chief Operating Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the Investor Relations section of our website. We undertake no obligation to update or revise forward-looking statements, except as required by law. Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to comparable non-GAAP measures is included in our press release issued today as well as in our updated investor presentation, which can be found on the Investor Relations section of our website. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency as it relates to metrics used by our management in its financial and operational decision-making. With that, I'll now turn the call over to Jason. Jason Trevisan: Thank you, Kirndeep, and thanks to everyone joining us today. In the third quarter, we delivered double-digit year-over-year Marketplace revenue growth while also expanding profitability across our U.S. and international businesses. Marketplace revenue and Marketplace EBITDA both finished above the midpoint of our guidance range, reflecting focused investment to drive sustainable top line growth and disciplined execution of our strategic priorities. Marketplace revenue grew approximately 14% year-over-year or $28 million, and Marketplace adjusted EBITDA was up 18% during the same period. Growth was driven by continued expansion in [ CarSID ], led by dealer upgrades to higher tiers, broader adoption of our add-on products, like-for-like price increases and higher lead quantity and quality. We also added 1,989 net new dealers globally year-over-year, supported by stronger retention. Our international operations contributed meaningfully with revenue up 27% year-over-year, driven by momentum in both Canada and the U.K. [ CarSID ] grew 15%, and we added 807 net new dealers year-over-year. At the foundation of these results is the strength of our market-leading 2-sided Marketplace. Built on trust and transparency, CarGurus connects the largest audience of car shoppers with the broadest network of dealers, giving consumers confidence and dealers high-quality demand and intelligence, both of which bolster Marketplace liquidity through rising engagement and adoption. As our Marketplace continues to scale, it generates vast proprietary data and machine learning signals that fuel a uniquely advantaged analytics and intelligence platform for dealers. With this expanding data set and our accelerating AI capabilities, we turn data into intelligence, delivering predictive tools and insights that help dealers make faster, smarter decisions and achieve stronger outcomes. These dynamics reinforce 2 durable advantages, scale and data intelligence. Scale delivers reach and liquidity. With the broadest dealer network and deepest inventory, our marketplace offers car shoppers unmatched selection and transparency, attracting the largest consumer audience and in turn, more dealers. That flywheel has supported faster growth and share gains from our primary competitors. Data intelligence transforms that scale into smarter products. We believe our growing size generates the most comprehensive retail demand and pricing signals in the markets where we operate, which we productize into solutions that improve dealer profitability. For example, our retail demand analysis recommends vehicles aligned with local shopper interest. And when dealers follow those recommendations, we've proven their inventory turns faster. Our pricing models enable dealers to price with precision, improve margins and outperform competitors, while behavioral and intent data enriches leads to improve conversion and ROI. This creates a virtuous cycle in which scale drives richer data and intelligence derived from that data improves dealer performance and the consumer experience, which in turn, we believe drives ever-increasing adoption and engagement. Building on our position as the #1 most visited automotive marketplace, we've continued to expand our platform with software and data products that help dealers make more intelligent decisions across 4 key workflows: inventory, marketing, conversion and data. We've already introduced a variety of offerings in each of these 4 pillars. In inventory, products like Sell My Car, Acquisition Insights and Next Best Deal Rating help dealers source the right vehicles, merchandise and price each inventory unit with precision. In marketing, solutions such as our core listings packages, Highlight, RPM and New Car Exposure connect dealers with high-quality, ready-to-purchase shoppers efficiently and generate significant dealer awareness and walk-in traffic. In conversion, offerings like Lead AI, our in-person engagement team and Digital Deal help dealers convert leads into sales, driving better attribution and higher close rates. And in data, our dealer data insights suite delivers local market intelligence that powers smarter, more profitable decisions. Over the past few years, we have built a strong foundation and garnered dealer engagement across these pillars and are now advancing from add-in features in these areas to differentiated software and data products, each with a clear value proposition and measurable ROI. We believe these products will expand our addressable market from the current $3.5 billion spent by U.S. dealers on marketplaces by roughly an additional $4 billion U.S. dealers spend on software and data products in these segments. We believe that our growing product suite positions CarGurus as an intelligence-driven partner that helps dealers optimize every stage of their workflow beyond simply marketplaces. We plan to deepen monetization across these pillars through scalable software and data solutions, and we're excited to share that we've begun that this quarter with our newly launched PriceVantage, which I will cover shortly. Much like we've done for our dealer partners, we're expanding our offerings along the consumer journey, continuing to lead the market in trust and transparency while broadening our role more upstream with research and downstream to purchase. With the largest selection and a seamless online to offline experience, shoppers can research with confidence, connect with dealers and complete the transaction on our platform or at the dealership in the way that works best for them. We believe this expansion of our product suite on top of our market-leading marketplace will continue to reinforce our scale and data intelligence flywheels and result in us capturing more dealer wallet share and deepening consumer engagement to support long-term growth. With that context, I'll now walk through our progress across our 3 drivers of value creation. Driver number one, expanding our suite of data-driven solutions across dealers' workflows to help them drive more profitable businesses. Core to our mission of helping dealers make more profitable decisions, we recently launched PriceVantage, a major machine learning-based evolution of our pricing tool. It is the only used vehicle pricing solution powered by real-time consumer demand from the #1 most visited car shopping Marketplace, giving dealers an edge to predict the market rather than just react to it, enabling smarter pricing, faster turns and improved profitability. Built on the industry's largest data set of shopper behavior and market supply, PriceVantage leverages AI to deliver VIN level activity, turn time predictions, lead potential, market day supply and visibility into comparable listings, all within a single unified workflow that directly syndicates into dealers' inventory management systems. It translates live market dynamics into data-driven pricing recommendations aligned with each dealer's goals, giving dealers greater speed, control and confidence in every pricing decision. Early beta results demonstrate the power of the software. The most engaged dealers using PriceVantage saw a 5x improvement in turn time compared to their top 5 competitors on CarGurus. Taking price drop recommendations drove a 68% median increase in daily VDP views and 77% of recommendations met or exceeded predicted sales velocity outcomes. We launched a Chrome-based browser extension that embeds these insights into the platforms where dealers already operate, such as their IMS or auction sites. Dealers can access real-time price recommendations without leaving their workflow with future releases planned to extend into sourcing and merchandising. PriceVantage is the latest and most substantial addition to CarGurus' expanding suite of dealer intelligence software solutions. Other offerings continue to grow, especially our dealer data insights suite, which strengthens dealers' predictive capabilities, delivering greater efficiency and faster sales. Next Best Deal Rating is now used by nearly 20,000 dealers, growing over 70% year-over-year. Merchandising insights adoption grew to 9,791 dealers, while Max margin insights adoption rose to 5,032 dealers. In the third quarter alone, dealers made over 700,000 price changes through Next Best Deal Rating. We've seen a median 48% increase in VDP views and faster turn times for vehicles using our recommendations. Engagement remains high with Next Best Deal Rating driving nearly 50 price changes per dealer in Q3 and dealer data insights reports overall driving 75 price and inventory changes per dealer. Over 2/3 of recommendations we send to dealers are being opened and red, indicating the value of these insights. Last quarter, we also introduced New Car Exposure to give dealers more sophisticated control of their new vehicle marketing. New Car Exposure continues its rollout across markets, now reaching 94 DMAs and brand combinations. To date, it has driven 31% of new car VDP views and 13% of new car leads with participating dealers capturing a greater share of new car leads than those relying solely on organic placements. Innovations like this are deepening dealer engagement by enabling smarter decisions across inventory, marketing, conversion and data. Dealers are upgrading into premium tiers more frequently. They're adopting our products and solutions at higher rates, and they're signing long-term contracts. Together, we believe these factors support our ability to grow [ CarSID ]. [ CarSID ] growth has been manifesting in 3 trends. First, customers who remain on our platform consistently increase their spend over time. Second, new customers are joining at higher average order sizes than in prior years. Third, newer customers are ramping their spend faster than prior new customers did. On all these observable dimensions, we're seeing clear evidence that the growing quality and breadth of our products have been driving measurable [ CarSID ] growth. Driver number two, meeting the evolving needs of car shoppers by powering a more intelligent and seamless journey. As I said earlier, we're expanding the CarGurus experience across the full car buying journey from research through consideration and purchase. This quarter, we advanced 2 key innovations that bring that vision to life. First, consideration. We expanded CG Discover, our Gen AI-powered shopping assistant. Unlike others that use Gen AI to repackage traditional filters, Discover uses conversational understanding and real-time reasoning to interpret a shopper's intent and curate the best fit vehicles for millions of listings. It helps consumers refine choices and explore inventory with greater speed and clarity while giving CarGurus richer demand signals and pricing insights to strengthen the data intelligence flywheel. Early engagement has been strong, and we have since expanded Discover to our homepage and app, creating more prominent entry points that have driven higher traffic into the experience. Research shows 80% of consumers are open to using AI in their car buying journey, underscoring the scale of this opportunity. Traffic to CG Discover has nearly tripled quarter-over-quarter and leads have grown 3.3x. Discover VDP to lead conversion is 6,000 basis points higher than standard VDP to lead conversion. As Discover scales, every interaction generates signals and insights, making the platform smarter and strengthening both dealer and consumer experiences. Next, purchase. Car shoppers want confidence at every step from discovery to purchase. Research shows consumers feel the hardest part of car buying happens in the dealership when shoppers feel anxious about pricing, alternatives and making a rush decision. Our goal is to reduce that anxiety with transparent dealership ratings and reviews and by extending the CarGurus experience into the dealership where support matters most. We're excited to introduce Dealership Mode, a major innovation in the purchase step designed to deliver real-time support at the exact moment shoppers need it. When a CarGurus user visits a participating dealer lot, the app activates through geofencing and push notifications to provide VIN level pricing and ratings, reduce payment anxiety with a financing calculator, compare cars on the lot or highlight alternatives at the dealership and surface reviews to validate quality. Dealership Mode gives consumers clarity and confidence at the most stressful point in the process. For dealers, Dealership Mode strengthens attribution and ROI. While we already maintain significant attribution on closed sales data through DMS integrations and third-party data providers, Dealership Mode now enables us to close the purchase loop more fully, connecting online engagement to in-store activity, which we believe demonstrates clear ROI and higher quality leads. With millions of monthly app users making hundreds of thousands of lot visits, we believe the opportunity is significant. Based on an early analysis, 56% of consumers who see Dealership Mode in the app navigation have clicked into the experience and over half of our users have opted in for push notifications. Over time, we expect Dealership Mode will drive even greater app adoption, build consumer trust and help dealers convert more sales. By improving the consumer experience and extending our brand awareness, we are giving shoppers more reasons to start and end with CarGurus. This deeper engagement is translating into higher intent activity with CarGurus-led sales growing year-over-year in the past 2 years. Separately, as we implement changes to comply with cookie consent regulations across markets, reported uniques and sessions are expected to decline as some users do not opt into tracking. This represents a change in how traffic is measured rather than an indication of an underlying change in site traffic or in the leads and connections we believe we're delivering to our dealer partners. Driver number three, enabling dealers and consumers to complete more of the transaction online, streamlining the final steps of the deal. In the third quarter, we advanced our transaction capabilities through continued progress across Digital Deal and Sell My Car. These offerings are delivering a seamless online to off-line journey for shoppers. Digital Deal adoption surpassed 12,500 dealers this quarter with over 1 million listings digitally enabled. With more Digital Deal listings and improved user experience, we have driven 45% year-over-year growth in high-value actions such as financing applications, appointment scheduling and deposits. Users who complete these high-value actions close at up to a 3x higher rate than standard e-mail leads. In fact, our strongest close rate comes from reservations. Reservations closed at nearly 16x the rate of standard leads for out-of-market shoppers and 9x for in-market shoppers. Appointments are up approximately 20% year-over-year. Financing adoption is also strengthening, supported by direct credit applications, prequalification and SRP filters that surface vehicles consumers are already approved to finance. Digital Deal leads with a financing element have grown 77% year-over-year. We also embedded high-value actions into the core site experience. This quarter, we introduced a post-lead high-value action menu that surfaces additional steps such as scheduling an appointment or submitting a deposit immediately after a shopper submits a core lead. This creates a natural ramp for consumers and provides dealers with even stronger intent signals. Alongside a broader redesign of the Digital Deal experience, initial testing shows several hundred thousand incremental leads from the new experience. We now expect that by year-end, nearly 30% of a Digital Deal enabled dealers' e-mail leads will come through Digital Deal. These leads include verified contact information, full name, e-mail and phone number and around 45% of them historically carry at least one high-value action. Beyond enabling more of the transaction online, we're helping dealers source inventory with greater efficiency. Sell My Car adoption has continued to grow and is now live in 115 markets, reaching roughly 75% of our eligible traffic. Lead quality and conversion have continued to strengthen. A growing share of Sell My Car acquired vehicles are listed on our Marketplace soon after purchase, demonstrating that these are high-quality retail-ready leads. Collectively, these advancements are streamlining the transaction for both dealers and consumers, improving lead quality, accelerating conversions and reinforcing our ability to meet customers wherever they are in their journey. Across all of our value creation levers, I'd like to discuss the accelerating use of agentic AI. AI has been foundational to CarGurus since our inception and continues to power innovation across the platform. We're embedding agentic AI in numerous places throughout our products and systems to create smarter, faster and more intuitive experiences for both consumers and dealers. CarGurus Discover, our conversational Gen AI-powered shopping assistant uses large language models to help consumers refine choices and explore inventory with greater speed and clarity. In our mobile app, Dealership Mode activates when a shopper visits a participating dealership lot, providing AI-generated comparisons and summaries of vehicles. In our dealer dashboard, PriceVantage extends these capabilities to dealers by using predictive AI and real-time demand data to deliver VIN level pricing insights, turn time forecasts and competitive benchmarking directly into their workflows. We also continue to scale AI-driven content and quality improvements across the platform to drive consumer traffic and reduce operational overhead across internal teams. SEO content generation powered by generative AI and guided by our editorial expertise has expanded high-quality content roughly tenfold across CarGurus and our core channels, driving a 60% increase in top and mid-funnel sessions year-to-date. Pricing compliance monitoring now also uses AI to identify inconsistencies and ensure data integrity across millions of listings. Internally, AI is transforming how teams work. Over the past year, we've deployed numerous solutions that have improved speed, precision and efficiency across nearly every function. Our Gen AI sales tools have provided account summaries, tailored recommendations and predictive insights that have helped teams identify opportunities to strengthen retention and deepen dealer relationships. Nearly 80% of managed leads in October, chat and text were handled and closed by AI. This automation has enabled us to reduce the outsourced team by over 40%, driving meaningful efficiency gains and cost reduction. Engineering productivity has risen by nearly 25% in the past year through the use of AI coding tools and code review agents. Our LLM gateway democratizes LLM integration, allowing teams to embed new use cases directly into workflows and bring ideas to market faster, while our enterprise LLM-based search platform enhances knowledge retrieval and workflow automation. AI also strengthens fraud detection and prevention, enhancing data integrity and platform trust. Adoption is broad and disciplined. 91% of employees report using AI weekly, driving faster execution, sharper insights and greater collaboration across the company. Looking ahead, we believe that the combination of proprietary data, machine learning, predictive analytics and agentic AI positions CarGurus to deliver new levels of intelligence, automation and efficiency to both dealers and consumers. AI remains central to how we innovate, operate and lead in automotive technology. In Q3, we delivered strong revenue growth, healthy margins and disciplined execution. We advanced products that give dealers greater control, efficiency and intelligence while creating more confidence and clarity for consumers. These innovations are expanding our reach beyond the $3.5 billion U.S. Marketplace segment into an additional $4 billion dealer software and data products TAM, which we believe broadens our long-term growth opportunity. Innovation remains at the center of this progress. We're extending our platform across each of our 4 pillars: inventory, marketing, conversion and data with scalable software and intelligence solutions that address more of the dealer workflow and consumer journey. These advancements reinforce our leadership as a data and technology-driven company, which we believe unlocks new sources of growth and value creation. Across every initiative, our focus remains on measurable value, capturing more dealer wallet share, deepening consumer engagement and strengthening our platform's foundation. With that momentum, we believe that we're scaling solutions that reinforce our leadership, support durable growth and create long-term value for our customers and stockholders. Now let me walk through our third quarter financial results, followed by our guidance for the fourth quarter and full year 2025. Third quarter consolidated revenue was $239 million, up 3% year-over-year. Marketplace revenue was $232 million for the third quarter, up 14% year-over-year toward the high end of our guidance range. Marketplace revenue growth was driven by strength in our subscription-based listings revenue. In the third quarter, U.S. [ CarSID ] grew 8% year-over-year, and we added 1,182 paying U.S. dealers year-over-year, marking our seventh consecutive quarter with positive net dealer adds and our fourth straight quarter of accelerating year-over-year dealer count growth. We continue to expand our footprint while taking greater wallet share in our growing base, driven by upgrades, broader adoption of add-on products, like-for-like price increases and higher lead quantity and quality. Our international business had yet another strong quarter with revenue up 27% year-over-year and international [ CarSID ] up 15% year-over-year, the ninth consecutive quarter of double-digit year-over-year international [ CarSID ] growth. Wholesale revenue was approximately $2 million for the third quarter and product revenue was roughly $5 million for the third quarter as we ceased facilitating transactions in the quarter as a result of our decision in August to wind down the CarOffer transactions business. As a reminder, we expect to account for the wind down of CarOffer as a discontinued operation in the fourth quarter. As such, we do not expect there to be revenue associated with digital wholesale going forward. I'll now discuss our profitability and expenses on a non-GAAP basis. Third quarter non-GAAP gross profit was $214 million, up 11% year-over-year. Non-GAAP gross margin was 90%, up about 650 basis points year-over-year. Marketplace non-GAAP gross profit was up 13% year-over-year and non-GAAP gross margin was stable at 93%. On a consolidated basis, adjusted EBITDA was approximately $79 million, up 21% year-over-year. Adjusted EBITDA margin was 33%, up about 490 basis points year-over-year. Marketplace adjusted EBITDA grew 18% year-over-year to approximately $82 million, above the midpoint of our guidance range. As a reminder, we guided to Marketplace EBITDA only this quarter as we sunset the CarOffer transactions business. Margin rose about 120 basis points year-over-year to 36%, but declined slightly quarter-over-quarter due to investments in new product innovation and sequentially higher sales and marketing expense. Digital wholesale adjusted EBITDA loss of approximately $4 million was modestly higher quarter-over-quarter as expected. The sequentially larger loss was driven by lower volumes due to the cessation of transactions in the third quarter as a result of our decision to wind down the CarOffer transactions business. Moving to OpEx. Our third quarter consolidated non-GAAP operating expenses totaled $142 million, up 7% year-over-year and 4% quarter-over-quarter, reflecting sequentially higher sales and marketing expense and investment in new product innovation, as I mentioned earlier. During the third quarter, we incurred $3.8 million in onetime cash restructuring charges, and we expect remaining cash restructuring charges of $2 million in the fourth quarter. Accordingly, we have narrowed our previously estimated range from $5 million to $7 million to $5 million to $6 million. We still expect to substantially complete the CarOffer wind down by year-end, with total wind-down related charges expected to be in the range of $13 million to $15 million, which is lower than the original range of $14 million to $19 million. Non-GAAP diluted earnings per share attributable to common stockholders was $0.57 for the third quarter, up $0.13 or 30% year-over-year, reflecting primarily the increase in adjusted EBITDA and lower diluted share count. We continue to generate strong free cash flow, and we ended the quarter with $179 million in cash and cash equivalents, a decrease of $52 million from the end of the second quarter, primarily driven by $111 million in share repurchases in the quarter, partly offset by higher adjusted EBITDA. As of September 30, we have approximately $55 million remaining on our share repurchase authorization. I will now close my prepared remarks with our guidance and outlook for the fourth quarter and full year 2025. As a reminder, due to the wind down of CarOffer, last quarter, we stopped guiding to consolidated revenue and consolidated adjusted EBITDA and instead, we'll guide to Marketplace revenue and Marketplace adjusted EBITDA as that is representative of our go-forward operations. We expect our fourth quarter Marketplace revenue to be in the range of $236 million to $241 million, up between 12% and 15% year-over-year, respectively. And we expect full year Marketplace revenue to be in the range of $902 million to $907 million, up between 13% and 14% year-over-year, respectively. For the fourth quarter, we expect our non-GAAP Marketplace adjusted EBITDA to be in the range of $83 million to $91 million, up between 5% and 15% year-over-year, respectively. And we expect full year Marketplace adjusted EBITDA to be in the range of $313 million to $321 million, up between 18% and 21% year-over-year, respectively. We expect to meet the discontinued operations criteria in the fourth quarter. As a result, we expect our full year guidance, similar to the third and fourth quarters to reflect Marketplace absorbing approximately $1 million in ongoing quarterly CarOffer expenses as a result of the wind down. Accordingly, we've included about $2 million of first half costs that we expect to be recast to continuing operations once the criteria are met. These estimates are preliminary and subject to change. The midpoint of our Q4 guidance implies a full year Marketplace EBITDA margin of approximately 35%. We're pleased with the strength and growth of our Marketplace and excited by the early results of our various new product investments. That innovation has delivered growing adoption across more dealer pillars and deeper consumer engagement across their shopping journey. That success reinforces our confidence to continue growing our investments in new, primarily AI-centric innovation across our dealer and consumer product suites that we believe will drive long-term growth. We expect fourth quarter non-GAAP consolidated earnings per share to be in the range of $0.61 to $0.67, up between 13% and 24% year-over-year, respectively, and full year consolidated earnings per share to be in the range of $2.19 to $2.25, up between 29% and 32% year-over-year, respectively. And we expect fourth quarter and full year diluted weighted average common shares outstanding to be approximately 97 million and 101 million, respectively. With that, let's open the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: If I'm looking at the deck on Slide 5, I think you have a stat that you shared for the first time that may or may not be right, but it says 25% of CarGurus dealers only pay for CarGurus. Is there a way to think about where that stat was a year ago, 2 years ago and some sort of upper bound as maybe you guys drive separation versus peers? Jason Trevisan: Chris, it's Jason. Thanks for the question. I don't think we've given a trend on that stat. But what we have seen is that in surveying dealers, the dealers use fewer and fewer marketplaces -- marketplace partners. In fact, over the last few years, I don't remember the exact years, but it's gone from about an average of using 3 to using under 2, around 1.8. So there's consolidation and concentration with those that typically offer the best ROI. So that's the sort of macro trend on that dynamic, but we haven't given a trend number on the 25%. Christopher Pierce: Okay. And then on the ROI that you were talking about, specifically on digital deals, are you seeing dealers more willing to engage here given there seems to be an acceptance that fully digital transactions are growing within the industry? And like I guess what will be the right time to flex pricing power here given the conversion metrics you cited and sort of -- the dealers need to do something specifically on their end to accept these leads? Or is it sort of just kind of easy housekeeping on their end and a customer can walk in, have their loan in place, take their test drive and leave the dealership within, call it, an hour, something like that? Samuel Zales: Chris, it's Sam here. Thanks so much. We have constantly spoken about the research we've done showing 80% of consumers want to do more online, but still want to touch and feel the car and come in for a test drive. So we think we've got a perfect product in that regard. You've seen that we've got 12,500 customers now on the program. It is packaged into one of our premium tiers. So the dealers who get access to Digital Deal have to pay more. I see your point that as that trend continues to move, that's an opportunity for us. But I think the thing we're most excited about is more and more of our consumers doing highly -- what we call high-value actions. So taking a process to either put -- set an appointment to put a deposit down to look at financing and try to provide some information on their credit ability. That we think is driving a higher quality lead, a further down funnel lead, and we believe that's driving further and further ROI for our dealers. So long term, it gives us the opportunity, as you said, to say, how much more will that continue to grow? That gives you an opportunity for pricing power, and we'll consider that as we go forward. Operator: Our next question comes from Marvin Fong with BTIG. Marvin Fong: I had a question just on the international [ CarSID ] and international in general is doing so well, very good growth there across the board. I just wanted your thoughts on how much faster and higher you think [ CarSID ] can grow? Obviously, we can look at in the U.K., the dominant player there and generating revenue per dealer is much higher than... Operator: Sorry to interrupt you there, Marvin. Marvin, we are unable to hear you clearly. Could you please use your handset? Marvin Fong: Is this better? Operator: Yes, please go ahead. Marvin Fong: Sorry about that. Yes, I just wanted to ask about [ CarSID ], particularly in the international segment. I believe the incumbents in the U.K. in Canada charge a lot more than you are right now, and we're seeing very nice [ CarSID ] growth in international. So just wanted your thoughts there and how quickly you can pull that lever and close that gap. Samuel Zales: Thanks, Marvin. It's Sam Zales. We're really, really proud of the international markets and what we're doing there. You'll recall that we're competing against 2 big players who had monopoly power in those markets. But I think what we're showing is 2 things. When you drive lead quality and lead quantity in an aggressive amount, it makes dealers stand up to say and you price at a lower price point, it makes dealers stand up and say the ROI is better, and we've shown you the research in the markets to show that our ROI is advantaged versus our competitors. I think though, we're still in a market zone of adoption right now. We're keeping our prices at a lower level because we are winning more and more customers. As you saw, we added 800-plus customers in the international market. So our goal there is to say, let's be smart about pricing. Let's price to the value that we're offering to our dealers. And we know we can always grow that over time, but we're looking to build more market share. So you may have read in Canada that one of the largest dealers in a press release that was out AutoCanada converted by saying, I'm no longer going to be on the auto trader program, and I want CarGurus as my preferred partner in that regard. Those are the kinds of things that will give us that opportunity to continue growing not only dealers, and that leads to other dealers picking up their heads and saying, I might do the same thing. It allows us to keep growing our customer base, but also growing [ CarSID ]. The 15% growth, we're really proud of. We'll continue to push in that direction, but we don't want to get too aggressive on that front at a time we're still signing more dealers in both Canada and the U.K. And that will replicate if we can, the market experience we had here in the U.S. We started with lower pricing. We got the largest base of dealers to our franchise and joined us, and then we raised prices over time, and we think that's a good model to try to take on in that arena. So thank you for recognizing 27% growth in international. We're really proud of it and excited to try to push forward. Jason Trevisan: And if I may, I'd just add to that and echo something that was said in the call. So international [ CarSID ] is about 1/3 of the U.S. And the levers that drive [ CarSID ] in the U.S., upsell, cross-sell, lead growth, lead quality, pricing, those are all available to us in international, and they're all much earlier and less mature. And so they all have more runway in international. But the other thing I'd point to from the script is to just call out some of the trends we're seeing in U.S. [ CarSID ], which I think we have every reason to believe will exist in international. And that's among our -- it was 3 themes from the script. Among our paying dealers, they increase their spend the longer they stay with us. The second trend is new dealers are joining at higher AOS than old dealers. And the third is that despite joining at a higher AOS, they're actually ramping their spend faster than prior cohorts ramp their own spend. And so we're seeing that in the U.S., which is a much more mature market, and we're incredibly proud of that. And international has all of those available and earlier stage. Marvin Fong: Those are terrific insights. And maybe a follow-up question, just maybe, Sam, this is up your alley. But Jason referenced that you're really attacking, I believe you said $4 billion solutions market. Is that how you're presenting it to dealers? I know that dealers like to think about things in a cost per sale. But are you actually kind of talking to them about these new analytics in the sense that now you don't have to pay for vendor A or vendor Z. Is that how dealers are thinking about it? And is it kind of clear to them that you're presenting both a listing service as well as a solution -- software solution? Samuel Zales: Marvin, I'll jump in and then let Jason add color. I think what we're doing every day is talking to customers about driving profit maximization. And that can come from our marketplace business that as we spoke about in the call, you start to build solutions like DDI that we've talked about previously, which helps dealers convert more of the leads that they're getting today, helps them increase their profitability. And then you -- from product-led growth, you're seeing customers adopt those products -- so our pricing tool led us to build this software product called PriceVantage. So what we're doing for dealers with that product is simply helping them grow their profitability by reducing their turn times and allowing them to price as most effectively to manage their inventory. So it all comes out of the Marketplace business that then leads to other products, as we said, inventory, marketing, conversion and data. They all work together with the value proposition that says, we're going to help you, Mr. or Mrs. dealer, to grow your profitability by utilizing our marketing tools, our data and now software that lets you run your business more efficiently, that leads to [ CarSID ] growth, that leads to retention of our customers long term. Jason, anything you'd add? Jason Trevisan: Just that it is -- they are all connected. The dealer historically has thought of them as steps in the workflow and as such, has allocated different wallets to those different steps. And these products are allowing us to start to tap into those new wallets. But what makes them particularly compelling is we're not selling a stand-alone product here and a stand-alone product there. When Sam talks about them being tied together for something like PriceVantage, it's saying, if you do this to a price, this is exactly -- or this is what will happen from a leads perspective, from a turn time perspective. So it's giving them recommendations and the ability to act on those with a strong forecast of the results because the results are what occur on our Marketplace. Operator: Our next question comes from John Colantuoni with Jefferies. Vincent Kardos: This is Vincent on for John. Just one with a few parts for me. So it looks like some of the investments you've talked about in recent quarters is really paying off, given both U.S. and international dealer rooftops saw accelerated growth during the quarter. At the same time, [ CarSID ] growth slowed a little bit across both geographic segments despite the traction you called out for the product suite. Maybe talk a bit about what the growth algorithm between rooftops and [ CarSID ] ought to look like going forward, touching a bit on the drivers of slightly slowed [ CarSID ] growth as well as the relative contributions of improved dealer retention versus net new adds to rooftop growth? Jason Trevisan: Sure. Vincent, it's Jason. So the relationship between -- so thank you for acknowledging the investments paying off. We are incredibly excited about a bunch of the things that we shared with you all tonight in terms of new launches. The relationship between rooftops and [ CarSID ] is math in so much as [ CarSID ] is revenue divided by the average active rooftops. And so what happens is when we grow rooftops much faster, that's a natural math-based headwind or depressant to [ CarSID ]. And so this past quarter, [ CarSID ] was up about 8% year-over-year. Rooftops were up about 5% year-over-year. And if you add those 2 together, you actually get something close to our total marketplace revenue growth for year-over-year, around 13%. And so if you look at the last several quarters, you'll see that type of relationship. It's not perfect, but I think it illustrates the math pretty well and how the math works. In terms of retention versus adding, we've talked about our retention has been improving nicely over the last set of quarters, even a couple of years. And that's a function of a number of things. We've invested in account management, as you've heard, but I would say a lot of it is through the investment in product and a lot of that product is in dealer data insights and things that we're adding to our core Marketplace and thus far haven't really been charging for a good portion of them. And so between better account management, between more feature functionality, between more insights that help them perform better on our marketplace, our in-dealer partnership team that helps them perform better. So much of what we build here is to just help them perform better on CarGurus. And when they do that, they tend to stay. So -- and some of the cohort information I just gave shows that they're, in fact, ramping even faster. And then as you heard about some of the adoption numbers from the script, we're getting really broad adoption of a lot of these things. Operator: Our next question comes from Ron Josey with Citigroup. Jamesmichael Sherman-Lewis: This is Jamesmichael Sherman-Lewis on for Ron. First here, on CG Discover, now more deeply embedded, can you help us understand how this new car buying journey and purchase funnel differs from traditional car buying? Clearly, we're seeing traffic and conversion ramp, but curious how you see user engagement in this channel's contribution evolve longer term? Jason Trevisan: Happy to. This is Jason again. So Discover is definitely a new experience and one that is getting great traction as we talked about, sort of explosive growth, granted it's early, but explosive growth. So I mean, the key thing to recognize is that it's outside of the structure of the SRP or search results page. And so think of it more as a conversation versus a filter-driven onetime query. And so you -- and I'm sure I encourage you to use it and try it if you haven't. But you can ask questions naturally. You'll get explanations and follow-ups, and you can then continue those follow-ups and ask questions that build on prior questions. And so the discovery goes beyond listings. It actually reasons with the shopper. It explains why cars are ranked the way they are. It offers side-by-side comparisons. It offers contextual intelligence, market value ownership costs, confidence scores, YouTube videos, side-by-side comparisons of different makes and models that we offer. And so -- it also offers things that would be outside of a search. So whereas a typical search might offer just sedans, this may offer based on your inputs, some small or midsized SUVs that would solve some of the things you're looking to solve that aren't a sedan. And so it's actually making recommendations outside of what you're specifically prompting. It creates a ton of opportunities for us on our platform. It also offers opportunities, though, for dealers because they're going to learn a lot more about the consumer and what they're looking for through the information that we share on the dialogue. And so it really is a 2-way conversation. What it's leading to is shoppers who use it do almost 3 follow-up prompts. And so it is a conversation. It's converting from a vehicle detail page to a lead at much, much higher rates. And then those leads are much richer to the dealer because we're passing along a lot of that information. So it really does -- it helps the consumer, it helps the dealer and it helps us. And it's built for agentic expansion. And so the architecture of it allows very easily things like personalized deal alerts, watch lists, comparison across trims and markets as new cars come out. And so it's beginning to and will easily act on behalf of the consumer for future opportunities created by what the consumer has given to the agent. So we're really excited about it. It is not, by any means, a glorified filter, which some other folks are doing. And so we think that it's going to be a really big opportunity for us that can scale nicely. Jamesmichael Sherman-Lewis: That's helpful color. Follow-up, if I may. As we look out to 2026, can you unpack the key investment areas across product, international brand or other areas? And any changes to relative investment intensity versus 2025's investment year? Jason Trevisan: I wouldn't say there's change to relative intensity. I think what we're really excited about, we had said a couple of quarters ago that we were going to increase investment. And I think this quarter in particular, is showing a lot of the benefits of that. We have shown a really quick speed to market with a lot of our introductions. We're showing much deeper engagement, PriceVantage, New Car Exposure, Dealership Mode, Discover. And so we're going to continue to invest in, as you said, product, go-to-market, international and focus on getting adoption of those across the 4 dealer pillars and across deeper consumer engagement. And so I would say, if anything, this sort of reinforces our confidence to continue growing our investments in mostly AI-centric innovation across both dealer and consumer, but we're going to be smart about it. I mean I think we've proven the ability to be really disciplined and to prove execution has to follow innovation and that we're -- we pride ourselves on being a company that balances long-term sustainable growth, high-quality revenue with margin. Operator: Our next question comes from Ryan Powell with B. Riley Securities. Ryan James Powell: It's Ryan on for Naved. I wanted to ask on Dealership Mode. Obviously, you mentioned some good metrics on initial adoption. What kind of consumer insights are you able to generate from users engaging with Dealership Mode? Does this have anything to do with improving recommendations for users? And then I have a follow-up. Jason Trevisan: Sure. So well, number one, to maybe state the obvious, it's giving us a lot of information about who actually goes to the dealership, which may seem like a basic thing. But prior to this, that was oftentimes something that we had to triangulate into. And so this gives us a lot more fidelity on that. Number two is it helps us and it helps the dealer, frankly, probably more than us, understand what other cars a consumer is interested in to compare, and it helps the dealer cross-sell. I mean a good percentage, I think a lot of times, a surprisingly high percentage of consumers who buy a car through our platform at a dealer end up buying a car that is different from the one that they submitted a lead on. And so this helps the dealer in that regard. It helps us -- and again, the dealer understand financing needs, having a calculator there looking at financing options is really valuable because the dealer wants to get them in the right loan. And it just allows them to -- we have -- that's primarily AI built tool and the consumer can engage with that. And all of the things that I just talked about with Discover are happening in Dealership Mode. And so again, it's -- we call it lead enrichment here, but it keeps enriching and enhancing our leads. And so we just capture more and more data on the consumer. So consumers often cite the in-dealership experience as a time when they're trying to comprehend a lot of data, understand a lot of different things thrown at them, and this helps them do that, but it also helps the dealers, and you need to be a paying dealer to be part of this. It helps the dealers understand their customers much, much better. Ryan James Powell: Great. That's very helpful. And then secondly, on CG Discover. So it was also live in the second quarter. What do you think led to the pretty significant increase in adoption amongst users? Jason Trevisan: I mean the biggest thing is we made it more available. It was in testing mode, an earlier form of testing mode as we gain more confidence and saw the increased engagement of consumers saw all the stats that we shared on improved conversion rate, all the rich data that we were getting, we made it more available and realized pretty quickly that it was helping both consumers and dealers. And so I would say that's the primary one. It's definitely improved. We continue to work on it. It's gotten better. But I would say the biggest thing is just exposure to our audience. Like this quarter, we released it in the app. It had not been in the app before. And app is our fastest-growing channel. And so putting it on that really accelerated things. Operator: Our next question comes from Rajat Gupta with JPMorgan. Rajat Gupta: I wanted to ask a little bit zooming out on the industry backdrop. Clearly, there have been some signs of stress on profitability at some large used car dealers, some stress at like smaller independents as well. And we're also seeing some of the -- at least the publicly listed franchise dealers seeing some profit pressure in the near term. But cyclically, it looks like inventory is going up, which should be supportive for your business. I'm just curious what are you hearing from customers in terms of budgets? In response to an earlier question from Chris, you mentioned maybe they're consolidating their vendors. I'm just curious like what's the latest that you're hearing on their planning as we head into '26? And I have a quick follow-up. Jason Trevisan: Yes, I can start, and Rajat and Sam may add to it. So we oftentimes will try to distill down macro factors into just a few key points. And we've also said that our business as a subscription business and dealers need to sell cars in good times and bad is pretty resilient to a lot of the cyclical trends that exist, even seasonal trends. And furthermore, as the largest marketplace with dealers consolidating spend, we're, I think, even more immune and sound. And then lastly, I would say used cars tend to fluctuate far, far less than new cars. And so we're in a bit of a sheltered harbor in that respect, too. So we do, though, try to acknowledge macro factors. So number one, retail sales for used cars are up mildly. Number two, days on market and -- days on market are down a little bit, but frankly, call them flat, and they're actually rising sequentially right now, but they're pretty steady year-over-year, rising a little bit right now. And pricing is up a little bit, not very much. Inventory, as you just said, is up significantly. It's up double digits. Year-over-year, it's up 10%. I think, though, the biggest thing in all of that is that consumer sentiment is down. And interest rates, I mean, granted, they dropped recently, but they still remain pretty high on a relative basis. And so consumer sentiment down, interest rates still elevated, pricing not having come down and inventory up. And you've got dealers that need to move cars and need to sell cars. And oftentimes, it's better for them to market smarter than it is for them to drop prices. And we are the largest scale and typically surveyed or frequently surveyed as the best ROI. So they may have some profit pressure. Their advertising spend has steadily climbed year-over-year based on the publics anyway. And we tend to be gaining -- we are gaining share every quarter. So we don't face a lot of pressure despite what dealers may be facing as margin pressure. Samuel Zales: Rajat, sorry, I'll just add that the other immunity to short-term pressures that Jason mentioned is the breadth of our dealer base. We appeal to the small independent to the multisized independent and franchise dealer and those national accounts you speak to. Our consumer base will buy from all of those types of dealers. And so our breadth, and we're not tied to one particular segment. We have the largest base of dealers that continues to grow. And I'd just add, again, the New Car Exposure product that we launched just in the last quarter was a relevance to dealers saying, hey, there's a high price point for new cars. Can you help us be more profitable selling those new cars? So giving them an opportunity to win their make in a local market, convert consumers who are coming in saying, I might want a used car, I might want a new car. Oh, my payments might be similar on both. I'm going to buy that new car. We're helping them create the profitability in a market trend that we saw coming very quickly and built a product to get there and make them more profitable. So I think it's that breadth of dealer base that also adds to the immunity of short-term impacts and our constant growth through those cycles in the macro environment. Rajat Gupta: Understood. That makes a lot of sense. And just one quick follow-up. I hear a reiteration of the double-digit revenue growth exit rate unless it was meant to be just a fourth quarter number when you mentioned that last call. Could you just give us an update on that? And then how should we think about as we head into '26, the trade-off between growth and margins like you had in the last 2, 3 quarters? Jason Trevisan: Rajat, can you -- I got the second part of the question, relationship growth and margins in '26. Can you repeat the first part of the question about Q4? Rajat Gupta: It was on a Q4 question. I think you mentioned on the last 2 earnings calls that you expect to exit the year at double-digit revenue growth for Marketplace. I wasn't sure if that was an implied fourth quarter number or you meant exiting the year into '26 with double-digit revenue. I did not hear an update on that today. So I'm just curious if that is still on track. Jason Trevisan: Yes. I think that -- my hunch is that the comment made was in reference to Q4 being a Q4 year-over-year revenue growth rate. And -- but then if you look at what that implies for a full year, you would -- the math would illustrate that, I think, is also a year-over-year or a full year year-over-year double-digit growth rate. So I think the Q4 guide sort of answers both of those questions. And we obviously haven't commented on '26. And so from a growth and margin standpoint, I would probably cite back to comments we've made in the past couple of quarters and this quarter around our enthusiasm around the investments, the growth they're driving, the [ CarSID ] trends we talked about and the speed with which we're introducing new products. Operator: We move to our next question from Andrew Boone with Citizens. Unknown Analyst: This is [ Briana ] on for Andrew Boone. You mentioned that 80% of managed leads in October chat and text were handled by AI and that 91% of employees are using AI internally, which has reduced reliance on outsourced teams. Where do you see still the biggest friction points either internally or across dealer workflows where AI can further improve efficiency within the business? And how should we see that coming through on the margin? Jason Trevisan: And is your question related to friction in our business or at dealers' businesses? Unknown Analyst: Within dealer businesses. Jason Trevisan: Within dealer businesses. Well, I think one of the biggest areas of opportunity in the dealers business, two dimensions. One is how all of their different steps of their workflow tie together. So -- and you've heard us talk about that, and that's what we're focused on is how can they source smarter, price smarter based on retail signals that they're seeing. Dealers have, for a long time, been making purchase and appraisal decisions on wholesale data, and that's just not as useful to them. They're more interested in retail data, what can they sell the car for, how much demand does that car have today. Same with conversion. And so how all of the steps of their workflow tie together is one area. The second area is around predictability. It's -- I can use the same example, which is not only were they using wholesale data, they were using wholesale data for appraisal that was 30 days or 60 days old. And so using AI, a lot of our insights and our PriceVantage tool and other things that we're providing them now are about predicting what the environment will be, what the implications will be 30 days from now once they have the car and once they price the car and merchandise it, et cetera. So those would be the 2 dimensions. Internally, it's about speed of development and execution and quality of product. And so I think that shows up in a lot of different ways in product and engineering, but also in other parts of our company. It shows up in how well we serve our customers with our sales team and account management teams, knowing exactly what they should be talking about with our customers. And so I don't think it's friction internally. I think it's just how quickly we can build the internal agents and the internal products to be faster. At the dealer, I think it's those 2 vectors and how quickly they can change behavior to capitalize on those vectors. And so that's what we're trying to help them do with account management. We are -- and how that translates -- you asked how that translates into the results. I mean, I think that's about growth and speed of growth for us, and that's how we're thinking about it more so than a margin enhancer in the near term. Operator: Ladies and gentlemen, that concludes our question-and-answer session for today. I would now like to hand the conference over to Jason Trevisan for closing comments. Jason Trevisan: Thanks. I would just like to thank all of our colleagues certainly here at the company, all of our customers and everyone who joined us on this call tonight. Have a great evening. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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