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Operator: Hello, and welcome to the Procore Technologies, Inc. Q3 2025 Earnings Call. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand over to Alexandra Geller, Head of IR to begin. Please go ahead. Alexandra Geller: Good afternoon, and welcome to Procore's 2025 Third Quarter Earnings Call. I'm Alexandra Geller, Head of Investor Relations. Before I begin today's call, I wanted to share that Howard Fu, our CFO, is unexpectedly out of the country attending to a sudden family emergency and will not be joining today's earnings call. For that reason, with me today are Tooey Courtemanche, Founder, President and CEO; and Matthew Puljiz, Senior Vice President of Finance, who will be joining in Howard's place on a onetime basis. You will hear from Howard again soon. Further disclosure of our results can be found in our press release issued today, which is available on the Investor Relations section of our website and our periodic reports filed with the SEC. Today's call is being recorded, and a replay will be available following the conclusion of the call. Comments made on this call include forward-looking statements regarding, among other things, our financial outlook, go-to-market model, CEO transition, platform and products, customer demand, operations, stock repurchase program and macroeconomic and geopolitical conditions. You should not rely on forward-looking statements as predictions of future events. All forward-looking statements are subject to risks, uncertainties and assumptions and are based on management's current expectations and views as of today, November 5, 2025. Procore undertakes no obligation to update any forward-looking statements to reflect new information or unanticipated events, except as required by law. If this call is replayed or viewed after today, the information presented during the call may not contain current or accurate information. Therefore, these statements should not be relied upon as representing our views as of any subsequent date. We'll also refer to certain non-GAAP financial measures to provide additional information to investors. A reconciliation of non-GAAP to GAAP measures is provided in our press release and our periodic reports filed with the SEC. And with that, let me turn the call over to Tooey. Craig Courtemanche: Thanks, Alex, and thank you, everyone, for joining us today. Let's start with our Q3 performance, which represented another strong quarter. Some highlights include: revenue growth was 14.5% year-over-year, which is consistent with last quarter's growth and reflects our underlying business momentum and performance that we've seen this year. Non-GAAP operating margins increased quarter-over-quarter to 17%, reflecting our commitment to improving our efficiency profile. We had another strong quarter for large deals with the number of 6- and 7-figure deals accelerating to 31% year-over-year growth and the number of $100,000-plus ARR customers now totals more than 2,600. And our go-to-market model is yielding benefits, positioning Procore for efficient growth. Another very important highlight from the quarter was our announcement that Ajei Gopal would join Procore as our next CEO. Ajei officially steps into the role on November 10, at which point, I will focus exclusively on my role as Chair of the Board, where my commitment to our customers, the industry and Procore's mission will remain as strong as ever. I've had the privilege of serving as Procore's CEO for nearly 25 years, and it has been the honor of a lifetime. Needless to say, the Board and I were incredibly diligent and thoughtful in our search for Procore's next leader. And I can confidently say that we have found the ideal person, both in operational track record and in his sincere quality of character to guide Procore through this next phase of growth. Ajei has more than 35 years of proven experience, including leading a multibillion-dollar global technology company and driving shareholder value. He has relevant vertical software experience, most recently serving as the CEO at ANSYS. During his tenure, ANSYS significantly improved its operating performance and more than quadrupled its market value. His prior roles, including serving as operating partner at Silver Lake has shaped him into a versatile leader who knows how to scale innovation, navigate complexity and deliver lasting impact. Ajai's track record is clearly impressive, but his deep passion for transforming the physical world through digital innovation is what ultimately convinced me that he was the right choice. He recognizes and values the privilege of leading software companies that help its customers build things that are lasting, tangible and impactful. In his career, he has been inspired by the pride those creators felt in building something so transformative, and he sees the same pride in construction and in Procore's customers. That shared sense of purpose is why I know he is the right leader to guide us into the future. So you'll hear directly from Ajei later in the quarter once he officially steps into the role as CEO. Since this is my last earnings call at the helm, I want to take a moment and leave you with why I am so optimistic and confident about the future of Procore. First and foremost, let me remind you that construction is one of the largest and most essential global industries, estimated to reach $15 trillion in construction spend by 2030, and yet it remains one of the least digitized. With Procore as the clear category leader, I believe that this market is ours for the taking, offering tremendous opportunity for durable long-term growth. Construction is a massive yet cyclical industry that has been operating in a down cycle for quite some time, which has been a steady headwind to our business. For example, our focus area of U.S. nonresidential and multifamily construction has gone from growing 25% year-over-year in Q1 2023 to negative growth of 2% for the last 2 quarters as reported by the U.S. census. That represents a staggering 27-point reduction in growth over 2 years. And yet in that same 2-year period, Procore has continued to grow faster than this end market by approximately 10 to 20 percentage points. During that period, we also increased the annual construction volume committed on our platform by more than 30% even in the face of this headwind. And I am proud that in Q3, Procore reached another exciting milestone, surpassing $1 trillion in annual construction volume contracted to our platform across all global stakeholders. This clearly demonstrates our team's ability to execute and take market share even in challenging construction cycles. I want you all to know that when this cycle inevitably turns upward, and it will, we strongly believe this headwind will become a tailwind. My conviction for Procore's future is further reinforced by the strength of our platform. From day one, we've been solely focused on construction and have built the only unified construction platform that supports all types of projects from vertical to horizontal across the entire construction life cycle. By connecting people, processes and data in one place, we believe our platform is uniquely positioned to harness the power of AI for our customers. This was a key topic at our annual industry conference, Groundbreak, just a couple of weeks ago. We announced exciting new innovations, including our Agentic road map that harnesses our comprehensive and unmatched corpus of proprietary construction data to further extend our platform advantage. Our customers were able to interact with our agents on the expo floor, and they shared that they believe that these innovations will be game-changing for the industry. At Groundbreak, I met with our Customer Advisory Board. And during a Q&A session, unprompted our customers raised their hand one by one, sharing that Procore's partnership and unwavering commitment to our customer success is why they selected us and why they continue to stay with us. It was truly a powerful moment for me, one that reinforced the impact of our true partnership approach. Over our nearly 25-year history, this dedication has earned Procore the trust of the construction industry, which is paramount for a sector defined by high risk and tight margins. So I think this long-time customer quote for Brasfield & Gorrie sums it up well. "The Procore platform and the people behind it are enabling our teams to collaborate more effectively, operate more efficiently, raise the bar for excellence in project execution and drive innovation in how we work. We look forward to continuing to build on this partnership in the years ahead." My confidence in Procore's future is further bolstered by our commitment to improving our margin profile. While we have achieved 1,900 basis points of non-GAAP operating margin improvement since the start of 2023, this only scratches the surface of our profitability potential. Our business model offers substantial margin leverage. We're deeply committed to unlocking this potential and view continuous improvement here as a priority for our business. The changes implemented over the past year have positioned us for future leverage, and we currently see no structural hurdles that would prevent us from reaching our profitability milestones and compounding free cash flow per share. I also believe that we are in a stronger position with our go-to-market model, yielding positive benefits and improved execution. To share some specifics, we are seeing higher year-over-year pipeline conversion, improved expansion rates and lower voluntary sales headcount attrition. Our customers continue to share overwhelmingly positive feedback on the increased technical resources now at their disposal, which are making them even more successful, productive and efficient. Naturally, there are areas where we want to improve and continue to get better. But overall, we are pleased with how our team is executing. And of course, this motion continues to secure new logos and strengthen existing customer relationships. In Q3, we added new customers across all stakeholders, including one of the largest defense contractors in the world, a top 40 ENR general contractor, Valvoline Inc., one of Canada's largest electricity transmission companies, the Department of Transportation for a Mid-Atlantic state and Horowitz Mechanical. This quarter, E2Optics, a leading technology infrastructure contractor, also became a large new Procore customer. While they initially approached us for help with preconstruction, the conversation quickly shifted from software replacement for a specific pain point to full operational transformation. E2Optics chose Procore's unified platform to gain visibility and control across the entire project life cycle, connecting estimating, operations, resource management and analytics. The key differentiator for them was the power of Procore analytics and our reporting dashboards. By standardizing their data on our platform, they can now measure performance, fuel continuous improvement and finally unlock critical project data that's trapped in siloed systems. Moving forward, E2Optics will use Procore to build hyperscale data centers, health care, higher education and other commercial facility projects. Another new large logo win in the quarter was with the medical facilities arm of one of the largest managed care organizations in the U.S. In Q3, they purchased Procore to replace a host of fragmented solutions that led to inefficient processes and highly manual workflows. The decision to partner with Procore was driven by our proven ability to provide a construction-specific solution that streamlines operations and enhances scalability across their entire organization. They'll use Procore to build hospitals and medical office buildings across the country. We also had strong expansion wins across stakeholders in Q3, including a leading Irish construction company, ENR 23 Brasfield & Gorrie, a top 5 ENR 600 specialty contractor, Goodman Australia and a Fortune 200 natural gas company. One of our largest expansions in the quarter was a 7-figure win with a leading hyperscale data center campus provider. With major data center projects across the U.S., EMEA and APAC, they more than doubled their annual construction volume to $10 billion, and they went all in on Procore spanning the entire construction life cycle. A key driver in this deal was their interest in leveraging our new resource management products to create a system of record for assets and materials tracking as well as Procore Pay for lean waiver and compliance tracking. You may recall that resource management is a comprehensive offering of labor, equipment and materials, the most critical management areas for subcontractors and self-perform GCs, and it's an area that we have made significant investments in over the past years, beginning with labor, then adding equipment last year and closing the loop with materials set to launch next year. Another 7-figure expansion win was with related companies, one of the largest privately held real estate development and management firms in the U.S. Related had been using Procore on a few regional agreements. And in Q3, they displaced a host of incumbent vendors to expand enterprise-wide on Procore, adding volume and new products. With a large and growing pipeline of development, Related needed a scalable unified platform to connect teams, standardize workflows and deliver real-time visibility into project performance. Moving forward, Related will use Procore to execute on their expansive pipeline of large-scale commercial real estate developments as well as data centers and renewable energy projects. As you can see from these wins, our competitive positioning remains as strong as ever. We have a broad market opportunity that encompasses global general contractors, owners and subcontractors, and the landscape remains largely greenfield. And it's important to note that many of our largest deals are uncontested. In fact, half of our top 10 new logo deals this quarter, which included all stakeholders involved no other vendor in the prospects evaluation. While investors often assume that large upmarket transactions are competitive in nature, the reality is that our clear category leadership frequently positions us as the only viable platform that can digitize the construction industry. As you can hear from my remarks today, I have deep conviction in Procore's future. As Procore's founder, I am transitioning the company from a position of strength, ensuring that Ajei inherits a strong foundation for our next stage of growth. I believe that with Ajei leveraging his proven operational expertise as a CEO and my continued commitment to our mission and our vision as the Chair of the Board, we have an unbeatable combination. But more than that, and the time that we spent together, Ajei and I have grown close over a shared passion and appreciation for empowering the builders of the world with technology. We already met with several of our largest customers, and I have been impressed at how quickly Ajei has picked up on the nuances of the construction industry and how he's begun to build a rapport with industry leaders. And I am very confident he's going to continue to strengthen those relationships. I'm handing over the reins with complete confidence that Procore is in the right hands and has the opportunity to deliver substantial shareholder value. The road ahead for this company and for our industry has never looked more promising, and I fully intend to remain a shareholder. I just want to say thank you all for your support, and thank you, Ajei, and a big thank you to all Procore customers, partners, employees and shareholders who have helped us get to this point. We never could have done it without you. With that, I'm going to turn it over to Matt to walk you through our financial performance. Matthew Puljiz: Thanks, Tooey, and hello, everyone. Today, I'd like to cover how our Q3 performance is emblematic of our commitment to free cash flow per share improvement. You've heard us reference free cash flow per share as our North Star metric and the 3 ways in which Q3 specifically improved this are: one, durable growth; two, margin expansion; and three, modest share count growth. But first, let's cover our financial results for the quarter. Total revenue in Q3 was $339 million, up 14.5% year-over-year. Our Q3 international revenue grew 14% year-over-year and was impacted by currency headwinds. On a year-over-year basis, FX contributed approximately 1 point of headwind to international revenue growth. Therefore, on a constant currency basis, international revenue grew 15% year-over-year. Q3 non-GAAP operating income was $59 million, representing a non-GAAP operating margin of 17%. As for our key backlog metrics, current RPO grew 23% year-over-year and current deferred revenue grew 14% year-over-year. Now let me share some additional color on our performance. Beginning with the top line, we delivered another quarter of net new ARR growth that was notably faster than revenue growth. This strength came from multiple areas with outperformance from our owner and specialty contractor motions, strong growth from our mid-market team and continued execution in North America. Expansion was also strong within many of these dimensions, and we continue to see cross-sell improve its contribution to expansion bookings, which we largely attribute to our go-to-market operating model. We are very pleased with these results, particularly given this execution took place in a construction macro where the combined U.S. nonresidential and multifamily sectors had negative 2% growth. Procore's 14.5% growth is a premium of 16.5 percentage points compared to these sectors. We believe that continuing to execute the way we have will extend our category leadership and increase our market share. Our strength in the quarter also contributed to strength in cRPO. Keep in mind that this metric has been benefiting primarily from longer average contract duration, and we saw this dynamic increase further in Q3, which incrementally benefited cRPO. When normalizing cRPO for this dynamic, the year-over-year growth is consistent with both Q3 revenue growth and ending ARR growth. We expect this disparity could shrink as early as Q4 as we begin to anniversary the longer contract duration impact. Taking a step back, the decision by our customers to lengthen their contract terms is a powerful reflection of their long-term commitment to Procore's platform. In addition to durable growth, we also delivered another quarter of improvement in our non-GAAP operating margin, which increased 380 basis points quarter-on-quarter. We are proud of this progression, which did include some onetime benefits in G&A, primarily pertaining to facility and tax reimbursements. The entire management team remains aligned and committed to continued profitability improvement, and we believe we are well positioned for margin expansion in the years to come. From a share count perspective, our Q3 loss of diluted share count grew 1% year-over-year. Our lower dilution was driven by 2 factors: one, we continue to be disciplined in how we deploy equity compensation; and two, year-to-date, we have repurchased approximately $129 million in stock, representing 1.9 million shares. While our previously authorized repurchase program expired in October, we are pleased to announce that we have implemented a new repurchase program for another 1-year period for an additional $300 million. This new program maintains our flexibility to opportunistically deploy a lever in our capital allocation strategy to optimize long-term shareholder value. Our strong Q3 results reinforce the compounding power of our free cash flow per share algorithm, which can be summarized as: one, durable top line growth. We feel very good about our ability to execute and take market share even in a challenging construction cycle; two, continued margin improvement. We have demonstrated leverage in our model and are positioned for further margin expansion in the future. And three, we expect our diluted share count to grow modestly each year before repurchasing any shares. The combination of these levers is how we intend to compound free cash flow per share and drive shareholder value. With that, let's move on to our outlook. For the fourth quarter of 2025, we expect revenue between $339 million and $341 million, representing year-over-year growth of 12% to 13%. Q4 non-GAAP operating margin is expected to be 14.4%. For the full year fiscal '25, we are raising our revenue guide to a range of $1.312 billion to $1.314 billion, representing total year-over-year growth of 14%. We are also raising our non-GAAP operating margin guidance for the year to be 14%, which implies year-over-year margin expansion of 400 basis points. Regarding fiscal '26, we are generally comfortable with the Street's revenue dollar estimate per FactSet and do not feel the need to update estimates at this time. Given Ajei is starting as CEO next week, we want to provide them sufficient time to onboard and ramp before providing formal guidance. And before I close, on behalf of Howard and the entire Procore team, I want to say to Tooey, thank you. We are all grateful to have had this opportunity to work for you. Your authentic leadership has influenced us tremendously. And I know I'm not alone when I say that you have truly made this world a better place, not just because of the success of Procore, but also because of the success of our customers and the success of all the individuals you have impacted by your life's work. So from myself and on behalf of our leadership team, employees, customers and shareholders, we are thrilled that your mission continues here at Procore, and we look forward to supporting you in your next chapter as Chair of the Board. And with that, let's turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question for today comes from DJ Hynes of Canaccord. David Hynes: First, Tooey, congrats on all that you've accomplished. I know this isn't goodbye, but wishing you the best of luck in the new role. Maybe we can start -- I think you said in the past that perhaps the signal of a turning point in end market demand would start with the owners. So I guess the question is, is that still a reasonable way to think about things? And what are you seeing in that segment of the business? Craig Courtemanche: Well, let me start with what I'm seeing, and then I'll talk about the owners in particular. The headline is that what we're seeing in the macro environment is pretty much what we saw last quarter and the quarter before that and the quarter before that. So there really has not been a big change in the macro headwinds that are out there. But as I've told you in the past, I do believe that owners are -- that's where projects begin, right? And so the more owners get excited about building projects, the better it is for Procore because we sell to owners, GCs and subs. So in general, it is a good place to look for it. And as I said in my opening remarks, we do believe that this is going to -- this headwind will eventually turn, and we will have a tailwind. And -- but I do want to also caution you that when that happens, it takes time for projects to get green lit and to get permitted and to get put into construction volume before it hits Procore's revenue. But it is -- it will turn, and we're excited about that. David Hynes: Perfect. And then, Matt, maybe a follow-up for you. I mean the comment that stood out in your prepared remarks was that net new ARR growth came in notably faster than revenue growth. And I just want to unpack kind of what you're trying to convey there? And does that portend revenue growth acceleration here in the future? Matthew Puljiz: Sure. This was a very common question we got 90 days ago as well when we reported Q2. And so I'll just reiterate, we had another strong quarter. We're on pace for a strong year. And all of our commentary we made 90 days ago around our base case of growth, I would reiterate that today. If anything, the third quarter just increased our confidence in this topic. Obviously, there is an upside case, there's a downside case. We can talk about those if you're interesting. But right now, we're operating well within the base case, and we feel really good about that. Our optimism is high. Our confidence is high. And yes, we're looking forward to delivering a Q4 when we report in February. Operator: Our next question comes from Matthew Martino of Goldman Sachs. Matthew Martino: First of all, Tooey, I'd echo the congratulations on your last earnings call on retirement. Excited to see your impact as you continue to work behind the scenes with customers. For the first question I have here for Tooey. Tooey, I'd love to hear your perspective on how you think about the data center opportunity. I appreciate that this is a kind of 2%, 3% share of nonres historically, but there's been a flurry of major announcements in the past 3 months. Procore itself signed a large expansion in the quarter. Wondering if your thinking here has evolved on how impactful the data center build-out can be for Procore, especially with a few of your larger customers directly tied to the theme. And I have a follow-up. Craig Courtemanche: Yes. So Matt, first and foremost, I would have corrected you, but you've said it for me, which is data centers as exciting as they are, do not make up a very large portion of the overall construction economy. But I think that being said, first, I also want to say Procore has done very, very well in the data center world. We're everywhere, and it's something that we're very proud of. I mean it is a strength. But as you know, the construction economy is made up of many different sectors. And when one wanes, one waxes. And so we have a -- that is one example of an area in the market, which is doing particularly well. But you can also look at things like multifamily, which have been struggling for the last few years as a downward trend. So data centers are exciting. Everybody is talking about it, but it is a small portion of our business. Matthew Martino: Got it. And then, Matt, for you, nice to see cRPO hanging in there in the mid-teens. Could you maybe peel that back a little bit and give us a sense of how renewals trended in the quarter, whether you're seeing a higher proportion of stable or growing ACV commitments relative to the past few quarters? Matthew Puljiz: Yes. It was -- the 2 dynamics influencing the reported number were all of the strength Tooey talked about in the strong quarter. And I would include renewals in that category. It was very healthy in that regard. The other dynamic, obviously, is what we also called out in my prepared remarks around the contract duration ticking up. But the underlying health of the business, I would describe as stable to positive and trending in the right direction. So we feel pretty good about that. Craig Courtemanche: Yes. Matt, one thing that just jumped out at me, and that's why I put it in the prepared remarks is the fact that Procore now has $1 trillion of committed construction volume annually on our platform. And when I set out to start this business many, many years ago, I could have never imagined having that amount of impact on an industry, and it's just a testament to how we're doing with the new acquisition of customers as well as our expansion of our existing. Matthew Puljiz: And Matt, you might remember last November at the Investor Day, that number was roughly $900 billion. So it gives you another sense of how customers are feeling about their renewal activity with us. Operator: Our next question comes from Brent Thill of Jefferies. Brent Thill: Tooey, the cRPO, I think, is the highest growth you've seen in 7 quarters. And I'm just curious if there's anything to consider? Is that just a sign of, hey, ongoing continued good execution, macro may be opening up a bit or any other factors on that side? And I had a quick follow-up. Craig Courtemanche: I'm going to let Matt start, and I'm going to come in over the top. Matthew Puljiz: Yes. Brent, so the 2 drivers of the cRPO performance are: one, strong quarter. We can talk about our category leadership. I'll let Tooey cover that. And then obviously, the second dynamic is the increasing contract duration that we've been having. When you -- normalizing for all of that, the underlying cRPO growth rate is very consistent with the revenue growth rate in the quarter. But I'll let Tooey explain like thematically what's been happening in the business. Craig Courtemanche: Well, so as you hear me say all the time, Brent, that first and foremost, the opportunity is just -- is so large. The TAM is so big. And also the fact that we are the system of choice for the industry when it comes to construction management, primarily because we're the best platform that's out there. And I think the other contributing factor is our go-to-market motion has been very strong, and it's driven by an extremely good brand presence in the markets that we serve. So all of that just reflects the strength of us and how we're feeling -- how our customers feel about us. Brent Thill: Okay. And just on the go-to-market too, you mentioned it's yielding benefits. I know many of the changes are in the rearview mirror. But where have you started to see kind of the biggest improvements in the field? What has been maybe your and Larry's proudest moment of what the changes? Is there 1 or 2 areas that you're -- you can point to and highlight that this has been a great outcome? Craig Courtemanche: Yes. So I would say, primarily, the customer intimacy that we have generated through providing additional resources to our customers to make them more successful is something that really is driving a lot of goodwill, which leads to both revenue expansion on dollars committed as well as additional products being sold. So that has that downstream impact, which is really, really powerful. And so we have been kind of excited about that. And I don't know if you want to add anything. Matthew Puljiz: Yes. So I would talk about there's some pretty tangible benefits we've seen. Overall, improved execution, which is great. We've now had a few quarters in a row, really began in Q4 of last year and it's continued in Q3 of this year. We've got higher pipe conversion, which is a great sign, improving expansion rates. We've actually had lower voluntary headcount attrition in sales and go-to-market, which is great. That keeps productivity online for a longer period of time. And then clearly, the big one is when you hear directly from customers themselves and Tooey touched upon that. So in aggregate, we feel like we're operating quite well. We think we are where we thought we would be. At the same time, there's no mission accomplished banner being hung up in the Procore offices here. We want to get better. We see opportunities to get better, and we will. But we're pleased where we are right now. Operator: Our next question comes from Saket Kalia of Barclays. Saket Kalia: Tooey, really nice way to cap off your term as CEO. So kudos. Tooey, maybe on that topic for you. I don't know if it's been said yet, but just congrats on hiring Ajei. I mean he did a great job at ANSYS. So great to see. Understanding that he hasn't started yet, what are some of his ideas about the business that maybe intrigued you during the search process? I'm curious. And I don't want to preannounce anything that he's planning, but I'm just kind of curious what was intriguing about some of his thoughts on the business? Craig Courtemanche: Yes. Well, so it was remarkable because early on in the conversations that Ajei and I were having, we kept honing in on our passions around serving the people who build the world around us. And his experience prior to his new role at Procore really, really -- is a good analog to what we're trying to do here. So first and foremost, that was kind of the moment where I think we both saw like, wow, this is something that could be great. And I've had the great privilege of getting to know Ajei over the last couple of months and even more in the last few weeks. But it just turned out that he is not only a great operator, but he's also just a great person. And I was driving into work this morning, thinking to myself like I am more confident now than I've ever been because I have so much faith in him, and he's such an inspirational leader. So that's a comforting place to be in this moment in my life. Saket Kalia: Yes. That's great. Matt, maybe a few for you for my follow-up. I know we don't talk about net revenue retention rates expressly, but it sounds like they're trending up. I was wondering if you could confirm that. And maybe more specifically, what products specifically are sort of driving what sounds like an improving NRR and whether we can -- we think it can continue into next year? Matthew Puljiz: Sure. So there's some puts and we disclose that metric every Q4. And when we report in February, we'll definitely quantify it. So I'll keep my answer qualitative to your point. But there are puts and takes going on in there. I would describe churn year-to-date as stable, which is good. I would describe expansion as improving. So those 2 things would be the tailwind going into NRR. The headwind would actually be the same dynamic that's happening in cRPO with the longer contract duration. One of the reasons why customers are electing to take longer-term contracts is the option to pool your construction volume. You may have heard us talk about this before, pooled models. Pooled models are a great option for customers. It's a win-win. We get a longer commitment. They get a lot more flexibility. We're quite happy about that. But those contracts do come with an NRR of 100% throughout that contract term. So that's the headwind. So I wouldn't be surprised we end up in a very similar place where we were last Q4. This is why it's not the best metric for us. You can see the financials may look good, but NRR may look unchanged for all the reasons I described. And then on the product front, if I had to single one, I would probably pick financials. But as you may have recalled, what we talked about at Groundbreak, we're pretty optimistic about what's going on in resource management. And there's -- those are things there that are going to be quite beneficial to us in the long term. Craig Courtemanche: I would drill in analytics as well. Our customers love our analytics product. Operator: Our next question comes from Jason Celino of KeyBanc Capital Markets. Jason Celino: Tooey, it's been a pleasure, and we'll still see you at Groundbreak. So you're not -- you won't disappear from our lives completely. But like taking a step back a little bit, I think when you guys went public 4 years ago, you had that chart showing that construction was second underdigitized industries. I know the industry has made a lot of progress over the last few years but... Craig Courtemanche: Agriculture and hunting, Jason, yes. Jason Celino: Yes. Yes. Good memory. When we think about what the next 5 years might look like, like where do you think the industry digitizes the most? Open-ended question, but thought I'd ask. Yes. Craig Courtemanche: Yes. By the way, this is one of the things that I just am so grateful for because we do have this corpus of proprietary construction data that is unprecedented. In this era of AI, I believe that we are extremely well positioned to drive tremendous productivity into the entire industry, from the owners to the GCs all the way to the subs. And it's because we have this data that we can share with the industry. So they don't have to make the same mistakes over and over again, and they can optimize their business. And the industry has been plagued for decades with a labor shortage. The more we can do to drive productivity into the organizations that we're serving, the better they perform as companies and the more grateful they are and the more they want to buy at Procore. So I'm really excited about our opportunity to leverage the data on the platform to enable this industry to get off the bottom of that list and move up. Jason Celino: Okay. Great. And then I think you're still beta testing some different pricing and packaging adjustments. Just curious how that testing is going and when we might hear more concrete details of when these changes will be rolled out across the board? Matthew Puljiz: Sure. I can take that one. So what Jason is referring to, if you don't know, is historically, our products have been sold a la carte. And we are in a pilot right now with a cohort of current customers and new logo prospects where we are offering our solutions in a kind of a good, better, best bundles and packages that are tailored to the stakeholder. So, so far, Jason, it's going quite well. I would say the feedback from customers has been positive in terms of the simplicity of the menu of options. If you want to land with a modest amount of solutions, you can and you have a very clear graduation path to adopting a bit more, and that was the downside to our prior, I should say, our current model right now. We're not really expecting this offering to really change the financial trajectory of the business. It's really just more about simplicity and having something very digestible for customers to kind of consume, so we can digitize them on their own journey path. Craig Courtemanche: And Jason, we've been hearing this for years from our customers that there's a certain subset of our prospects that would much prefer a simpler pricing model, so they don't have to go through the a la carte process. So this is just another example of Procore meeting our customers where they want us to meet them. And I am very excited that it is showing such positive results. Operator: Our next question comes from Joe Vruwink of Baird. Joseph Vruwink: Congrats, Tooey. The large deal activity is good to see. There's nothing that strikes me about the seasonality in 2Q and 3Q that's naturally conducive to large deals or surfacing large deals. I would think that 4Q is probably when more large deals tend to happen. So I just wanted to confirm that point that you're not pulling anything out of the pipeline early, that sort of thing. But more specifically, just asking about how the 4Q large deal opportunity is shaping up. And if the conversion rates you noted earlier stay at pretty good levels, could that maybe be an upside driver as you think about how you're going to exit this year? Matthew Puljiz: Yes, it's a great question. I'll start and Tooey can kind of come in over the top. So you're right, typically in software and certainly at Procore's history, you do not see the large deal activity in the middle of the year. You typically see it in Q4. It's difficult for us to discern if this is a new pattern given it's a small sample size. But I do think the one large change from our past to today is we are in a little bit of a different operating model. So we are giving the team credit for that. I would say our Q4 pipeline is healthy. I like the breadth of it. We have a large quantity of different stakeholders, different geos, different deal sizes, frankly. So whether the large deal activity continues in Q4 or not remains to be seen, but our optimism is quite positive in Q4. Craig Courtemanche: I guess the only thing I'll add is, I said this in the opening remarks, and Matt just alluded to it, but the success in the quarter was based on a broad set of stakeholders, right? So we're no longer a company that relies super heavily on GCs. We have a very strong owners business and a subcontractor business as well. And so going into Q4, it's nice to see that mix across all stakeholders. Joseph Vruwink: Okay. That's great. And then I wanted to ask, I know you kind of addressed 2026 with where Street estimates are. I guess, leaving that aside for a moment, I think in the past, another way you typically addressed forward revenue potential is to steer folks back to your cRPO growth. And so if that's growing very near revenue today, I would normally think about that type of growth rate as maybe a starting point for what next year's revenue can be. Without getting super explicit on the exact number, is that relationship still applicable here? Or has something changed about cRPO where it's not going to have that relationship anymore? Matthew Puljiz: I would say that relationship would still exist, but I do think we have to remember, we are getting a new boss on Monday. And when we want to provide our formal guide for next year, we'll do that in February. And then I think that's probably the best point in time to talk about next year more specifically than we have done this year. But we can't speak about Q3. We can talk a little bit about our confidence level in this current quarter. That remains. And I would use that information as you wish. Operator: Our next question comes from Joshua Tilton of Wolfe Research. Joshua Tilton: Congrats Tooey on a great run. And congrats, Matt, on tonight, you did a great job. Two questions for me. Maybe the first one, kind of a follow-up to Saket's question, but a little bit more direct. Tooey, you're messaging how you feel you're leaving the company from a position of strength. So as you transition the leadership role from a position of strength to somebody who we also agree with you is going to be a great leader, where do you just see the -- where do you see the place that Ajei can maybe make the biggest positive improvement to the business over the next few years? Craig Courtemanche: Well, as I mentioned, Josh, when I went out searching for the next leader of Procore, the primary driver I was looking for is somebody who's actually seen this before. They've taken a business from $1 billion to $3 billion to $5 billion and that they actually know and have the pattern recognition to do so and to do so successfully. The other piece was across the fact that Ajei has so much experience building a global business, building out partner ecosystems, all the things that are kind of the next phase needed for Procore. So I think he brings a toolbox with him that is filled with the tools that are required to build the future of Procore. Joshua Tilton: Helpful. And then maybe just a follow-up for Matt. Also maybe I acknowledge it's a little too early here. But I guess when we think about Ajai's ability to make all those changes that you just mentioned 5 seconds ago, you're very clear on the call that you guys are committed to expanding margins going forward. Do you feel like you can remain committed to that margin expansion while also giving Ajei the room that he needs to improve the growth profile of the business if he believes that that's the right path for Procore going forward? Matthew Puljiz: Short answer is yes. I think the range of magnitude and the exact quantification of that needs to be determined, which I think your question is very spot on and fair and quite frankly, something we'll be talking about a lot internally over the quarter before we lock this plan. But we have been spending some time with him already before his formal start date. And I'd just echo the comments Tooey made. This is a very credible operator. He has really asked a lot of excellent questions to us. And I'm speaking -- I'm filling in for hour tonight, but I think it's very safe to speak on his behalf by saying our job is to give him as many options and paths and flexibility as possible. And we are guiding for 400 bps of non-GAAP EBIT expansion this year. I think that's a very doable number next year. And I think it's likely we go a little bit higher than that. But beyond that, I think it's appropriate for him to get into the seat and then we can actually deliver something next year. Joshua Tilton: Super helpful. Congrats again, and we're very excited to see what Ajei can do. We agree on everything you said about it. Operator: Our next question comes from Ken Wong of Oppenheimer. Hoi-Fung Wong: Since we're coming off of Groundbreak, Tooey, would love to get some feedback from you in terms of kind of how customers were talking about the competitive landscape? What were you hearing in terms of your product versus one of your larger peers out there? Any kind of changes out there that you were picking up on? Craig Courtemanche: Great question, Ken. I have to be totally honest with you. I didn't talk to one customer who brought up a competitor once at Groundbreak. So that didn't happen. But let me focus on the feedback that we got. The feedback is that our customers and our prospects that attended Groundbreak were yet again blown away by the achievements we've done over the last 12 months since the last one. And we are just getting very, very positive feedback. I want to tell you, too, they're very excited about AI, right? And as you know, this is going to change the world, and we're really bullish on it. I received an e-mail yesterday from one of the -- the CEO and the Chairman of the Board of one of the largest construction companies in America talking about wanting to partner with me and partner with Procore on -- to get like a front row seat to Procore's AI strategy as well as getting access early to our tools. So there is a lot of excitement around the things that Procore can do. And yes, so that was no real talk to talk about competition at all. Matthew Puljiz: But Ken, it's Matt. I would add, as far as actually what like the internal data shows, I'll just reiterate what Tooey had said in his prepared remarks, we feel like this dynamic is quite favorable to Procore, and we stand behind our past disclosures on this front. It's been very consistent, very positive. So we feel quite good about it. We respect our competitors quite a bit, but we are very confident in ourselves to continue our category leadership. Hoi-Fung Wong: Got it. And then maybe just quickly, and I know you've touched a lot on the kind of the longer duration. I guess when you're looking at that data, any sense how much of that is maybe product driven in terms of kind of customers wanting to commit more because of product and therefore, it makes sense to maybe stretch things out. How much of that is the go-to-market, obviously, pushing up enterprise, you'll naturally see longer-term deals. Any context you can give us in terms of kind of some of the key components you think might be kind of pushing customers in this direction? Matthew Puljiz: I think all the things you bring up are fair and are contributing. A couple of things to note. Our go-to-market folks, they're not incentivized to sell a 3-year contract over a 2-year contract. So the duration or the term is very much determined by the customers themselves. Now some may want a longer period of time to ramp into greater amount of products as you're bringing up. But if I had to pinpoint one specific cause or one specific driver, it probably has to do with these pooled contract models. And it's really about having more flexibility to deploy volume given there might be uncertainty into their project schedules. That would probably be the single biggest driver. But yes, as we move more upmarket, as we establish more strategic relationships with these customers, all of that's going to come with longer duration. Craig Courtemanche: I'd also point out that I firmly believe that we are so mission-critical to the customers that we serve and that it only makes sense for them to make a longer-term investment in us. It's very difficult to rip and replace all of the things that Procore does. So when you make a commitment to Procore, you're making a commitment, and that's, I think, a testament to how mission-critical we are. Operator: Our next question comes from Daniel Jester of BMO Capital Markets. Will Hancock: This is Will Hancock on for Dan Jester. So you guys touched a bit on the macro environment, but just wondering if you'd be able to share any additional color on the current demand environment, if you're seeing traction in international geos given your guidance and sales changes to give regions added layer of support? Craig Courtemanche: Maybe I should just start by saying I'm going to reiterate, no change notably at all in the macro environment, still a challenging macro environment, both in the U.S. and abroad. And so not a lot to say there. I don't know if you want to. Matthew Puljiz: No, I concur. It's been very consistent, not getting worse, not getting better. It's been quite stable, but it's been a steady headwind for us. Craig Courtemanche: But I will say we're very, very optimistic about our performance facing these headwinds and it's something that we're proud of. Matthew Puljiz: That's right. Yes. And when it does turn, we expect it will be a tailwind to the business. It's just difficult to determine when that will occur. Will Hancock: Great. That's helpful. And then a quick one here on the 4Q guide. How should we think about hitting that top end of the range? And what kind of assumptions did you guys factor in on the lower bound? Matthew Puljiz: I would say regarding our guidance, the philosophy has not changed. And so you can kind of trace that back to what we have done in the past and what we've delivered, and we've applied that same mentality to the fourth quarter. So we continue to be confident and stand behind that guide. Operator: At this time, we will take no further questions for today. So therefore, that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Operator: Good day, and welcome to Peakstone Realty Trust's Third Quarter of 2025 Earnings Call and Webcast. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to Steve Swett, Investor Relations. Please go ahead. Stephen Swett: Good afternoon, and thank you for joining us for Peakstone Realty Trust's Third Quarter 2025 Earnings Call and Webcast. Earlier today, we posted an earnings release, supplemental and updated investor presentation to the Investors page on our website at www.pkst.com. Please reach out to our Investor Relations team at ir@pkst.com with any questions. The company will be making forward-looking statements, which include any statements that are not historical facts, on today's webcast. Such forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our annual report on Form 10-K and subsequent filings with the SEC. Additionally, on this call, the company may refer to certain non-GAAP financial measures such as funds from operations or funds from operations, adjusted funds from operations, EBITDAre, adjusted EBITDAre and same-store cash net operating income. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and filings with the SEC. On the call today are Mike Escalante, CEO and President; and Javier Bitar, CFO. With that, I'll hand the call over to Mike. Michael Escalante: Good afternoon, and thank you for joining our call today. Our strategic transformation into an industrial-only REIT focused on growth in the industrial outdoor storage sector continues to advance. As of October 31, our Industrial portfolio generates more than 60% of our ABR. Through disciplined office sales, strong IOS leasing and targeted IOS acquisitions, we have strengthened our balance sheet, reducing debt by approximately $450 million and improving total leverage to 5.4x on a pro forma basis. With solid liquidity and a growing IOS investment pipeline, we remain confident in our strategy and our ability to continue creating value for shareholders. During and after the third quarter, we continued making progress on our office dispositions. As of October 31, we sold 12 office properties totaling approximately $363 million, leaving just 12 remaining office properties in our portfolio. Buyer interest, including from existing tenants, has been strong, and we expect to complete the sale of a majority of these properties by the end of this year with a few transactions potentially closing in the first quarter of 2026. Let me now turn to our IOS portfolio, where market fundamentals remain solid, characterized by strong tenant demand and persistent supply constraints. These dynamics continue to keep vacancies low and support healthy rent growth. Against that backdrop, we continue to deliver strong results across both our IOS operating and redevelopment portfolios. During the quarter, we executed new leases, renewals and proactive lease modifications across our IOS portfolio, generating more than $1 million of incremental IOS ABR. These transactions brought the IOS operating portfolio to 100% leased and overall achieved weighted average re-leasing spreads of 116% on a cash basis and 120% on a GAAP basis. Let me provide more detail on the transactions that drove these results. In Philadelphia, we signed a new 8-year lease for 1.6 usable acres that is expected to commence in the first quarter of 2026, following the completion of landlord improvements. The lease includes 7.7% average annual rent escalations and filled what had been our only vacancy in the IOS operating portfolio. In Houston, we executed a new 5.1-year full-site lease for 10 usable acres. The prior lease was set to expire in 2028 and included a below-market fixed rate renewal option. To capture embedded value, we proactively terminated that lease and simultaneously replaced it with a new lease at re-leasing spreads of 9% on a cash basis and 7% on a GAAP basis. The new lease includes 3.5% annual rent escalations. And in Norcross, Georgia, we proactively downsized the existing tenant, renewing them for 2 years and simultaneously signed a new 2-year lease for the remaining acreage, keeping the 8.7 usable acres fully leased. Together, these transactions produced strong re-leasing spreads of 239% on a cash basis and 251% on a GAAP basis with weighted average annual escalations of 3.3%. In our IOS redevelopment portfolio, we executed a full site lease at our property in Savannah, Georgia, which commenced in July. The lease, which delivers over $500,000 of incremental ABR with 4% annual rent escalations was previously disclosed. Overall, this performance highlights our ability to drive internal growth and capture the mark-to-market opportunity within our IOS portfolio. We intend to build on this progress as we advance our strategy. Turning now to acquisitions. Let me briefly describe the 3 IOS properties we acquired this quarter for a total of approximately $58 million. The Atlanta property is a 27 usable acre site acquired for approximately $42 million. At closing, it was 100% leased by 2 tenants with a 5-year WALT and 3.8% weighted average annual rent escalations. The Port Charlotte property is a 9.2 usable acre site acquired for approximately $10.4 million. At closing, it was 100% leased by 3 tenants with a 6.8-year WALT and a 3% weighted average annual rent escalations. Both of these latter acquisitions were previously disclosed. Our third acquisition was a 2.5 usable acre site in Fort Pierce along Florida's East Coast. We acquired the property for $5.3 million. It includes upgraded yard space and a newly renovated building that supports yard operations. The site is fully leased by a single tenant that utilizes it to store and distribute HVAC and plumbing supplies. The lease has a remaining term of approximately 10 years and includes 2.5% annual rent escalations. Now turning to our traditional Industrial portfolio. This quarter, as part of our ongoing portfolio optimization, we sold 3 properties for approximately $72 million. These assets, 2 flex properties and 1 manufacturing facility, are located in Baltimore, Detroit and Cleveland markets and were sold at a combined cap rate of 6.9%. Each asset was sold to a long-term net lease focused buyer. These transactions reflect our continued effort to enhance the overall quality of our traditional industrial portfolio. We remain disciplined and opportunistic in managing these assets, consistent with our approach across all of our real estate. Going forward, we do not anticipate broad sales activity within our traditional industrial portfolio. And with that, I'll turn the call over to Javier to walk through our financial results and capital markets activity. Javier? Javier Bitar: Thanks, Mike. To begin, I'd like to explain a nuance to our reporting this quarter. The 16 remaining office properties we owned as of September 30, all of which were classified as held for sale and 11 of the office properties we sold prior to that date were classified as discontinued operations. As a result, these assets and related results are reported separately on our financial statements for all periods presented. Now I'll cover several key financial highlights for the quarter before turning to a few pro forma metrics that reflect activity completed after quarter end. For the quarter, total revenue was approximately $25.8 million from continuing operations, which excludes revenue from office discontinued operations of approximately $25.2 million. Net income attributable to common shareholders was approximately $3.5 million or $0.09 per share. FFO was approximately $18.3 million or $0.46 per share on a fully diluted basis. Core FFO was approximately $19.1 million or $0.48 per share on a fully diluted basis. AFFO was approximately $18.6 million or $0.47 per share on a fully diluted basis, and same-store cash NOI increased 3.7% compared to the same quarter last year. Moving on to our balance sheet. At quarter end, total liquidity was approximately $438 million, consisting of cash and available revolver capacity. Our cash balance, excluding restricted cash, was approximately $326 million, and available revolver capacity was approximately $112 million. We had approximately $1.05 billion of total debt outstanding, consisting of $800 million of unsecured debt on our credit facility and the remainder being nonrecourse secured mortgage debt. After deducting cash, our net debt was approximately $725 million. As of quarter end, 76% of our debt was fixed, including the effect of our forward starting floating to fixed interest rate swaps totaling $550 million, which converts SOFR on our unsecured debt to a fixed rate of 3.58%. These swaps took effect July 1 of this year and will remain in place through July 1, 2029, unless we choose to terminate them in connection with future debt paydowns. After giving effect to these swaps, our weighted average interest rate for all debt, both secured and unsecured, was approximately 5.46%. Next, I'd like to mention the impact of certain post-quarter activity. Subsequent to quarter end, we utilized proceeds from office dispositions to pay down an additional $240 million on our unsecured credit facility. On a pro forma basis, after giving effect to this paydown and other post-quarter activity, our total debt outstanding is $811 million. Our net debt is $615 million. Our total liquidity is $420 million, and our net debt to adjusted EBITDAre ratio is approximately 5.4x, which is below our target level of 6x. Additionally, we want to provide some clarity around the timing, amount and use of proceeds from our remaining office sales. As Mike mentioned, we expect to complete a majority of these sales by the end of this year with a few transactions potentially closing in the first quarter of 2026. Total proceeds from these transactions are expected to range from $300 million to $350 million, and we intend to further strengthen our balance sheet by using approximately $250 million to $300 million of those proceeds to pay down debt. Finally, for the third quarter, as previously announced, we paid a dividend of $0.10 per common share on October 17. The Board of Trustees also approved a fourth quarter dividend in the amount of $0.10 per common share that is payable on January 19 to shareholders of record on December 31. With that, I'll turn the call back over to Mike. Michael Escalante: Thanks, Javier. This quarter marks another milestone for Peakstone with industrial assets now generating 60% of our ABR. Our strategy remains focused on growth in the IOS sector supported by strong supply and demand fundamentals. Our IOS market insight, tenant relationships and execution capabilities position us to capture opportunity, drive growth and create value for our shareholders. With that, we'll now open the call for questions. Operator? Operator: [Operator Instructions] And our first question here will come from Dan Byun with Bank of America. Keunho Byun: From the prepared remarks, it sounds like you will pay down additional $250 million to $300 million of debt. When should we expect an acceleration in IOS acquisitions? Or are current levels a good run rate for that? Michael Escalante: Yes. So Dan, thanks for joining the call. I think that the reality of what we have right now is, as you can tell and mentioned, we've got ample liquidity and our debt ratios are below long-term targets. So we'll continue to do disciplined -- we're going to be disciplined in our management of our growth and the strengthening of our balance sheet. So as you know, there's not a straight line in the way we've conducted that. But if you look all the way back to first quarter of this year, we were as high as 7:1. So we're pretty pleased with the fact that we've been able to reduce it down to a 5.4% ratio, which gives us a little bit of leeway there. Keunho Byun: Got it. And congrats on bringing down your leverage below your goal here. I guess like just going back to the acquisitions, have you seen any increased competition for the IOS assets? And if so, like are you seeing the same private buyers or maybe even free players potentially? Michael Escalante: Yes. I don't know that I would call it increased competition. I just think there's more acceptance. And I think the other way to look at it is that the lender community has been more accepting. I think I mentioned that last quarter as well. That seems to be perpetuating itself. So one of the things that we have in terms of our abilities to address these matters is the fact that we've got a very flexible balance sheet with which to respond. We've shown that we can take down something that was relatively large, not that we're aiming to do that necessarily. But those factors in combination with really our platform being national in scope allows us to see a lot of activity across the country and really take a very disciplined approach to that. Operator: And our next question will come from Michael Goldsmith with UBS. Michael Goldsmith: Another quarter of strong same-store NOI growth. As you implement your portfolio optimization, what do you see as a sustainable same-store NOI growth for the portfolio? And when do you think you could -- do you have enough visibility where you could start guiding around that? Michael Escalante: Yes, Michael, we can appreciate that you're looking for that information. As you know, our business has been undergoing significant change and we are not providing guidance at this time. But I think we do provide a fair amount of information. We're very transparent. And so I think we provide you a fair amount of metrics. And if you look across our supplement and our IP to try and get you as much information as we can provide in that regard. We laid out in our IP, the growth that we have seen. And I think you've got the tools in essence to sort of put that together. Michael Goldsmith: Got it. And another quarter of solid leasing with some nice lease spreads and strong escalations, but it also looks like you had to put a little bit of money in where one property was under redevelopment, another required a little bit of landlord work. So I'm just trying to understand kind of like the -- if there is like tenant improvement dollars or just to think about the return on the money that you're putting in and then in turn, the lease terms that you get out of that. Michael Escalante: Yes. I think on balance, honestly, we've been surprised at how little money we've had to spend outside of our redevelopment opportunities and even inside of our redevelopment opportunities. So thus far, we've been able to achieve, in some of our leases, a fair number of deals with, frankly, no TI and very little downtime. So all said and done, the attributes that people have been mentioning about IOS, in our opinion, are frankly meeting the test of time. And certainly, that's proven out with our ability to operate the portfolio over the course of really a full year now. And so overall, I would tell you that we're quite happy with really what we've been able to achieve all the way across the board in terms of upticks in rents, lack of downtime, the interest in our sites and what we've been able to do on a proactive management basis. I could probably go on and on about that. But for now, I'll just leave it at that. Operator: Our next question will come from Anthony Hau with Truist. Anthony Hau: Congrats on the quarter. Mike, I might have misheard this earlier, but I think you mentioned that you guys have around -- you guys are going to have around $300 million to $350 million from office sales to pay down the debt. Is that additional $300 million of asset sales in the fourth quarter. Is that what you guys are gauging? Michael Escalante: Yes. So yes, you heard that that's the net proceeds from the remaining 12 assets that we're selling. Javier Bitar: In the range of $300 million to $350 million, Anthony. And with that, we said we would plan to pay down debt by somewhere in the range of $250 million to $300 million. So that is future sales. Anthony Hau: Okay. So that's on top of the $160 million you guys already announced, right? Javier Bitar: That's correct, yes. Anthony Hau: Okay. And how confident are you guys in achieving that pricing range? Are there like any active LIs or notable like tenant interest that's supporting that valuation? Michael Escalante: Yes, we're feeling pretty good about that, Anthony. Virtually, every asset is engaged at this point in time. And I think officially under control. We'd say that half of them are officially under control, but all of them are engaged. Operator: And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Michael Escalante: Thank you very much. I appreciate all your time today. It's a very exciting quarter for us to be able to tell you and regale you with all of our successes across the board, really disciplined office sales, strong execution across our IOS leasing and the ability to put some targeted acquisitions to work in the IOS subsector. So all of that for us has really rewarded the investors with great third quarter results. So thank you, and we're looking forward to our future. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Hello, and welcome, everyone, joining today's call, AMC Holdings Third Quarter 2025 Earnings Webcast. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions]. It is now my pleasure to turn the meeting over to John Merriwether. Please go ahead. John Merriwether: Thank you, Sabrina. Good afternoon. I'd like to welcome everyone to AMC's Third Quarter 2025 Earnings Webcast. With me this afternoon is Adam Aron, our Chairman and CEO; and Sean Goodman, our Chief Financial Officer. Before I turn the webcast over to Adam, I'd like to remind everyone that some of the comments made by management during this webcast may contain forward-looking statements that are based on management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these risks and uncertainties are discussed in our most recent public filings, including our most recently filed 10-K and 10-Q. Several of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the uncertainties inherent in any forward-looking statements, listeners are cautioned against relying on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. On this webcast, we may reference non-GAAP financial measures such as adjusted EBITDA and free cash flow. For a full reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier this afternoon. After our prepared remarks, there will be a question-and-answer session. This afternoon's webcast is being recorded, and a replay will be available in the Investor Relations section of our website at amctheatres.com later today. With that, I'll turn the call over to Adam. Adam Aron: Thank you, John, and good afternoon, everyone. Thank you for joining us today. At AMC, we're especially pleased that with revenue of precisely $1.3 billion and adjusted EBITDA of $122 million, yet again for another quarter, AMC Entertainment comfortably beat Wall Street consensus assessments for both our revenue and adjusted EBITDA. As has often been the case in the recent past, AMC's leading market position and the skills demonstrated in the implementation of our numerous and important marketing, operations and cost containment strategies allowed us for yet another time to overperform the expectations of those who underestimate us. As we look at AMC's third quarter results and for that matter, the full year-to-date, calendar year 2025 is turning out exactly, and I mean exactly as we have long predicted. Due primarily to the timing of major studio film release dates, a weak first quarter was followed by a blazing hot second quarter, which then was followed by a softening third quarter. We continue to expect, however, that the year will culminate in what we hope will be quite a strong year-end in quarter 4. Hello Oz with WICKED: FOR GOOD, hello Disney's AVATAR: FIRE AND ASH, Indeed, a broad array of appealing movie titles will be coming out before year-end. Our prediction of a so-so third quarter industry box office turned out to be true as the North American box office declined some 11% following tough comparisons against last year's strong third quarter. But when evaluating AMC's performance in the context of the third quarter's challenging industry-wide environment, I see our company firing on all cylinders, marketing prowess, operational strength, financial discipline, all are direct evidence that AMC is very well positioned to capitalize on the box office growth that we believe lies just ahead. Remember that about 2/3 of our incremental revenue drops to the adjusted EBITDA line. So when industry revenues rise, which we believe they will in Q4 of 2025 and again throughout 2026, AMC's financial results should rise even more rapidly. The third quarter industry-wide softness should not be a cause for alarm nor a harbinger of some negative trend about which to hand ring or worry. To the contrary, we expect that this will turn out to be the highest-grossing fourth quarter in 6 years. We also continue to believe that the size of the 2026 box office will be dramatically larger than that achieved in 2025. There are clearly bright spots in AMC's third quarter financial results that bode well for AMC, with an expecting rising industry-wide box office in the fourth quarter of this year and again throughout 2026. Specifically, AMC outperformed the industry, achieving all-time record admissions revenue per patron of $12.25. In addition, food and beverage continues to be a shining success for us as we achieved the second highest food and beverage revenue per patron in our company's entire 105-year history of $7.74. Combining revenue increases with aggressive cost management, it is noteworthy that in the third quarter, we grew our consolidated contribution margin per patron by 9.2% compared to the prior year, and this metric is now approximately 54%, 54% higher than it was pre-pandemic in 2019. The improvements in our efficiency as a company are one of the reasons we are standing proud and tall today. Despite an industry-wide box office that was well below the third quarter of last year, AMC also generated improvements to cash used in operations and in free cash flow when compared to the same time of a year ago. And also looking at the third quarter, it is especially satisfying to us that in the United States, during the third quarter, AMC significantly increased its market share. so much so that in looking at studio-reported grosses for the full year-to-date, January to September, AMC's market share increase handily outshined that of any other movie theater circuit in the country. AMC's share now approximates 24% of the domestic box office versus 15% for Regal and 15% for Cinemark. Taking out Canada, where we have no theaters, AMC has a 27% share of the U.S. box office, Regal and Cinemark 16% each. Marcus has just under a 3% share. No other U.S. circuit has even a 2% share. AMC is now about 50% larger than our 2 next nearest competitors. And we are 10-ish times the size or more of everyone else. Our market share increases this year are encouraging to us and a sign that our strategies are working. But it is simply the outsized magnitude of our market share that is so particularly compelling because, as the box office grows over the next 14 months, as we believe it will, AMC is better poised than anyone else to reap the benefit there from. We believe all this sets us up so very well as we look ahead, given what AMC believes will be a rebounding industry-wide box office going forward, coupled, of course, with all the actions and improvements being made specifically within and across AMC theaters in the United States and Odeon Cinemas in Europe. As previously announced, perhaps more important than any other accomplishment during the third quarter, AMC successfully completed several transformative capital markets transactions that greatly strengthen AMC's financial foundation. We refinanced $173 million of debt maturing in 2026 and equitized $143 million of exchangeable debt, the latter of which, in turn, was subsequently increased to $183 million of equitized exchangeable debt without the issuance of any additional equity or additional use of cash. Going forward, we will continue to take the necessary actions to enhance our balance sheet and position AMC to capitalize on what we believe will be a multiyear industry recovery. In conclusion, let me add that we are tremendously excited about the film slate coming in the remainder of this fourth quarter, both with blockbuster titles and also with more intimate storytelling. It all starts this weekend with Disney’s action-packed PREDATOR: BADLANDS coupled with Sony Pictures Classics NUREMBERG. In November, we also will have Lionsgate ‘s NOW YOU SEE ME NOW YOU DON’T, Disney’s family favorite ZOOTOPIA 2, , Paramount’s THE RUNNING MAN and Universal’s acclaimed and much awaited return to Oz with WICKED: FOR GOOD. Universal’s chilling FIVE NIGHTS AT FREDDY’S, Paramount’s animated adventure THE SPONGEBOB MOVIE: SEARCH FOR SQUAREPANTS, Focus Features’ SONG SUNG BLUE and the third chapter of Disney’s epic saga from the mind of the legendary James Cameron, AVATAR: FIRE AND ASH. What a lineup of movies. With that and all the other highly anticipated films that will be coming out in November, December, in addition, we believe the fourth quarter box office will surpass that of last year and knocks 2025 as the largest post-pandemic box office year yet. Of course, that all depends on ticket sales in November and December. We'll all know for sure in about a couple of months. To put an exclamation point on that expected box office growth in the near term, if one sets aside the anemic first quarter of 2025, the domestic industry-wide box office has actually been on a $10 billion pace since April 1. That is a number that is still very much larger than the calendar year box office recorded for either 2023, 2024, or the current year 2025. What's more knowing of the long list of great titles coming from our studio partners in 2026, we envision a strong and robust film slate is on the horizon for the full year ahead. Sean, let's go into the quarter in more detail. Sean Goodman: Thanks, Adam, and thanks, everyone, for joining us today. As predicted, the third quarter was relatively soft compared to last year. Nonetheless, while the North American box office was down 11%, AMC's consolidated admissions revenue was down by only 3.9% and domestic admissions revenue was down by only 5%. This reflects the meaningful growth in our market share, thanks to the power of our premium large-format offerings, unrivaled loyalty programs, innovative marketing, promotions, and pricing. This afternoon, I'd like to focus my comments on several key third-quarter performance metrics that clearly demonstrate the underlying strength of our business. Our consolidated revenue increased by 7.5% versus last year and is now 47% above pre-pandemic Q3 2019. This remarkable growth is driven by a 60.5%, that's 60.5 6.5% increase in food and beverage revenue per patron and 33.8% increase in admissions revenue per patron, all relative to Q3 2019. These are impressive metrics yet, but even more important is the incremental profit that we generate with each additional moviegoer. Our measure of this is contribution margin per patron, and we define it as total revenue minus both film exhibition and food and beverage costs divided by total attendance. In the third quarter, we grew our consolidated contribution margin per patron by 9.2% compared to the prior year, and this metric is now approximately 54% higher than in 2019. From a segment perspective, our U.S. operations delivered a truly exceptional quarter. Consider the following: in Q3 2025, our domestic adjusted EBITDA reached $111 million. This is nearly $4 million more than in Q3 2019, despite us selling $18.9 million or 31% fewer tickets than we did in Q3 2019. This achievement was possible because domestic revenue per patron was 50% higher and domestic contribution margin per patron was 57.5% higher than in 2019. Turning to our Odeon operations. The European industry was challenging in the third quarter, with attendance at our Odeon cinemas down 11.4% versus the prior year. Nonetheless, the business continued to deliver strong fundamental results with total revenue per patron up 13% and contribution margin per patron up 14.4% compared to last year. Total international revenue per patron is now up 37% versus 2019, and international contribution margin per patron is up 42.2% compared to 2019. These results are evidence that the box office does not need to fully recover to achieve pre-pandemic levels of adjusted EBITDA. This is thanks to a combination of initiatives focused on theater portfolio optimization, operational efficiencies, food and beverage innovations, industry-leading marketing programs, and the ongoing success of our AMC Go Plan. Over the last few years, we have taken meaningful steps to optimize our theater portfolio. This includes rent negotiations, the closure of underperforming locations, and selective capital deployment in new and existing high-performing locations. In 2025 alone, we closed 20 locations and we opened 3. And since January 2020, we've now closed 212 locations and opened 65 for a net reduction of 147 theaters or about 15% of our fleet. Going forward, we'll continue to strategically manage our theater portfolio to optimize profitability. Moving to the balance sheet. We ended the quarter with cash and cash equivalents of $365.8 million. This excludes restricted cash of $51.1 million. Our free cash flow in the fourth quarter will inevitably be dependent on the box office during the next 2 months. Provided this turns out in line with our expectations, we anticipate being free cash flow positive for the 9-month period ending December 31, 2025. From a capital expenditure perspective, we expect full-year 2025 CapEx net of lease incentives to be in the range of $175 million to $225 million. Our capital allocation priorities remain: one, maintaining adequate liquidity and financial flexibility; two, strengthening the balance sheet; three, elevating the guest experience; four, pursuing high-return growth initiatives. This disciplined approach to capital allocation reflects our commitment to building an increasingly strong and resilient company to deliver long-term shareholder value. Since the beginning of 2022, we've now lowered the principal value of our debt, finance leases, and COVID-related lease deferrals by nearly $1.5 billion, and we're not yet done. We'll continue to take decisive steps to strengthen our balance sheet so that we are increasingly well-positioned as the box office recovery continues. In closing, AMC's third-quarter results underscore the meaningful progress that we have made over the last few years. With promising fourth quarter already underway, a robust firm slate ahead, and an improving capital structure, we believe AMC is exceptionally well positioned to capture the full benefit of the industry's continued recovery and to deliver long-term value for our shareholders. With that, I'll pass the call back over to Adam. Adam Aron: Thank you, Sean. Before we take your questions on this webcast, I'd like to touch briefly on 5 different points. First, AMC Theaters distribution took another bold and new step forward in the third quarter of 2025 when we partnered again with the iconic one and only Taylor Swift to highlight the debut of the 12th studio album in her astonishing career. All the planning occurred within the third quarter for our theatrical release on October 3 to 5 of the 1 weekend screening of Taylor Swift: The Official Release Party of the Showgirl. This unique theatrical event was showcased on approximately 6,500 movie theater screens in the United States and across some 56 countries, generating some $50 million in box office receipts in a weekend, $34 million domestically, and another $16 million internationally. We're proud that Taylor Swift, the official release party with Show Girl, came in at #1 in the domestic box office for its opening weekend. We're also proud that it was graded an A+ on CinemaScore and in the high 90s on Rotten Tomatoes. And as a result, that we put so many smiles on the faces of millions of Taylor Swift fans globally. These impressive results speak to the strength of AMC's innovative distribution abilities, not only bolstering AMC's results but also contributing to the health of the overall industry. The numbers of the Taylor Swift project speak for themselves. To that end, here's a number for you, 7.5. 7.5 you ask, it is incredible to think, but from start to finish, from the time of our very first phone call about this potential project to generating from some 56 countries, fully $50 million in box office ticket sales receipts, plus, of course, food and beverage revenues in addition, AMC pulled all this off in only 7.5 weeks, 7.5 weeks from first conversation to completed project. And going back to the concept of our success in increasing AMC's outsized market share in the U.S. and Canada, of course, we take some real satisfaction that our normal market share has now grown up to 24%. But on the Taylor Swift official release party of the Sogirill event, AMC's market share was an eversoullant 36%. As excited as we are by the numbers, it is especially gratifying to us that after our immensely successful 2023 experience with Taylor, she came back to AMC for another round in 2025. What a compliment it is to AMC that the Swift family was so pleased with us that they came back another time. I've said this often before, but I want to say it again. Our every interaction with Taylor, with everyone in the Swift family, and all the people in our camp, all those interactions, every single one has been nothing less than a true joy and an honor and a privilege for AMC. I say this with all the sincerity I can muster. Thank you, Taylor. We are so proud to be a small part of your team. This all leads us to believe, by the way, that while our bread and butter will always remain the vast output of the current studio system in the future, there also is clear opportunity on an incremental basis for AMC to create and distribute more theatrical content. Second point, speaking of adding more content for our screens, I am especially optimistic that we can do more on a cooperative basis with Netflix. During the third quarter, we opened a new dialogue between AMC and Netflix that led to our showing KPop Demon Hunters over Halloween weekend. Not surprisingly, given our array of theaters and our loyal customer base, AMC generated more than 1/3 of all the U.S. theater guests seeing KPop last weekend. The talks with Netflix are in their infancy, and we do not know yet the ultimate size there can be for this potential cooperation. There is much still to work out, especially, for example, on Windows. But even so, realizing that Netflix is a great company and the largest streaming service on the planet with an enormous amount of content, and that AMC is the largest movie theater chain in the world, sitting here today, I am highly confident that there is more to come with our 2 companies working cooperatively together. Stay tuned. Third, again, on generating more content, given the success we've demonstrated with Keller Swift and Beyonce, and when you factor in that we have now built the technical capability, and this is unknown to many of you, to be able to live broadcast events to 277 of our 530 theaters in the United States and to a similarly large percentage of our theaters in Europe. I believe there is dramatic opportunity for AMC to broadcast live concerts and live sporting events on our giant screens. We intend to make this pursuit one of our highest priorities for 2026. Fourth, when talking of giant screens, no one in our industry is anywhere close to AMC in the area of offering premium large-format screens, extra-large format screens, and other premium experiences. With 223 IMAX screens globally and right at around half of the IMAX screens in the United States, we are a significant recipient to share in IMAX's obvious success. Heretofore, our recent monies have been concentrated on improving the quality of our IMAX screens, enhancing them greatly through a multiyear effort to convert almost all of them to the much preferred IMAX with laser at AMC concept and format. That format includes laser projection, much enhanced sound, more attractable visual inauditorium aesthetics, and more comfortable seating. Depending upon your view of the terminology, that effort to upgrade our IMAX theaters to IMAX with laser is now either in the back stretch or the home stretch such that we are now turning our attention to another notion that we have, in fact, entered into discussions with IMAX about once again increasing the number of our IMAX locations as well. Similarly, we are so incredibly pleased with our investment in Dolby Cinema PLFs, which are doing so, so very well for AMC. We currently have 177 installed globally. And as we announced earlier this year, we are so confident in our success with Dolby Cinema that we would like to grow that count of Dolby auditoriums by around 25% over the next few years. And while today, we only have 6 ScreenX auditoriums and no 4DX auditoriums, again, early this year, we signed an agreement with CJ to exponentially increase our count of their 2 premium offerings within the AMC and Odeon fleet of theaters. Not to be outdone only by our so-called third-party PLFs, AMC also has 147 of our own house brand PLFs, primarily branded Prime in the United States and iSense in Europe. I would expect that in the next couple of years, our house brand PLF locations will also grow in numbers, and specifically that with Prime in the United States, we will double, possibly even triple, the number of our Prime auditoriums. And in a fast-moving advance for AMC, we've moved ever so quickly to introduce what we call our extra-large format screens with our new XL offerings, which I might add command a price premium in ticket price. Launched just 1.5 years ago, we already have 151 XL screens installed and delighting moviegoers, 67 in the United States and 84 in Europe. By next Christmas, that number should about double. I expect that we'll have in the vicinity of around 300 or so XL screens in full operation a year from now. You all likely know that premium large-format and extra-large format screens greatly appeal to moviegoers. But what I find particularly impressive is that we have pulled off this great commitment to increasing and enhancing our premium experiences, all the while living within our very tight $175 million to $225 million annual net capital expenditures targets. And finally, the fifth point, as you might expect, AMC is actually -- is actively canvassing how AI, artificial intelligence, can be used both to make our company more efficient, but also to dazzle our guests. We're already using AI internally in many ways, and our use cases will increase dramatically in 2026 and beyond. But especially interesting, during the third quarter, we found our first way to participate in AI-powered technology that already is dazzling those people seeking engaging out-of-home entertainment. In August, we made a single-digit multimillion-dollar equity investment in Nova Sky Stories, a company brilliantly conceived and led by its visionary founder, Tesla Board member, Kimbal Musk, and brother of Elon. Nova Sky Stories was created a few years ago when Kimbal acquired the formal aerial drone division of Intel. He has since turned its cutting-edge and leading AI-powered technology into also storytelling aerial drone shows that fascinate both free guests and paid ticket buyers alike, key in on that paid ticket buyers notion as Nova Sky Stories creatively lights up the dark evening skies with its just wonderful light shows. Nova's most recent effort was in September, a truly mind-bending Grace for the World concert and aerial drone light show that took place over St. Peter's Square in Rome in full cooperation with the Vatican in conjunction with its Jubilee. You can see footage on Disney+, which telecasted live, and stunning excerts can be found throughout YouTube. The next incredible NovaSkytory show will take place at the Rose Bowl in Los Angeles just next weekend on Saturday, November 15. For more information, check out www.novaskystories.com, that's NOVA for novaskystories.com. In addition to just investing in this company with what we expect will be its explosive growth financially in 2026 and 2027, there is much that AMC Entertainment can and will do together in cooperation with Nova Sky Stories. More details about that to come in the coming year. I'll wrap up our webcast today by saying that AMC is so very excited about the 8-week sprint that we have in front of us to finish out 2025. Over the next 2 months, it will be movie after movie after movie. I can't wait for Norberg this weekend. And I was not alone when I found my sight crying in a movie theater while I was viewing an advanced screening of Focus Features' movie coming out of Christmas, the remarkable Songsun Blue. After all, as our very own Kidman has said for some heartbreak feels really good in a place like this. And of great importance financially to AMC. Advanced bookings for Wicked: For Good are Through the Roof. They exceed the advanced bookings that we previously had at the same time before release for the original Wicked movie of a year ago, which itself was a global Triumph, both for Universal and for AMC. And then what is there to say that James Cameron, storyteller extraordinary. The entire world is on pins and needles waiting to see your latest short of the masterpiece, Avatar Fire and Ash. With that, Sean, let's go to questions from our shareholders and from analysts. Operator: [Operator Instructions] And we'll take our first question from Eric Wold with Texas Capital Securities. Eric Wold: A question a little bit on kind of the concessions and ticket prices. I know, obviously, you had some great success driving up the per patron spending over the past couple of years with a lot of the initiatives you've had within the theater. Just want to talk about kind of the baseline pricing kind of below the surface given the consumer environment we're in right now. Maybe talk a little bit about the pricing power, maybe the price increases that you've been kind of pushing through on both tickets and concessions. I guess starting with tickets, have you been pushing up baseline ticket prices kind of across the board? Or has the focus mostly been on the various premium pricing options, IMAX, and consumers kind of choose to pay the higher prices for the premium auctions versus raising prices across the board on all tickets? And then on concessions, kind of what are your thoughts on kind of price increases up and beyond the need to offset kind of inflationary headwinds right now, if you feel that's something that moviegoers would be accepting in this environment or if that's something that you think is kind of -- that maybe kind of need to wait a little bit as we get a little further into '26. Adam Aron: That's a question. Thank you, Eric. Nice to talk to you again, as always. I have to be very -- we're happy to talk to the point, but I got to be very careful because to talk about pricing thoughts on a going-forward basis because that could be interpreted to mean signaling to competitors. But I can comment on our pricing actions previously, and you can read into those whenever you want to read into those. If you look at our ticket pricing of $12.24 that was achieved in the third quarter, which is on a consolidated basis, it was the highest number we've ever had in our history. And if you look at our ticket pricing, it's risen pretty substantially over the past several years. It's moved in the past much faster than general consumer inflation. And I would especially point you not only to looking at our consolidated prices, but looking at our prices by geographic segment. Our prices have increased in Europe and our prices have increased in the United States as well. But I think what's really interesting is, yes, some of those price increases derive from our growing commitment to PLFs. But we've also not been shy in taking ticket pricing up. And in fact, if you go back to May of 2025, just 6 weeks before the third quarter began, knowing that we had some big movies coming in June and July, we did take across-the-board price increases, not at all of our theaters in the United States, but I would say most of our theaters in the United States. And those price increases vary theater by theater and market by market. But prices did go up. And they went up because we think -- again, I want to be careful only to talk about what we've done looking backwards, not looking forward. Our thoughts then were we ought to cleverly price. It goes back to your very first economics class in the Freshman college when you learned the laws of supply and demand and the laws of charging prices in the peak and charging different prices in the so-called off-peak, charging more in periods of high demand and charging less in periods of low demand. So we have not been shy in taking prices up at those theaters with the most demand. We have not been shy in taking prices up on Friday and Saturday nights when demand for our theaters is at their peak. But one of the things that gave us comfort in being able to put those prices -- those price increases into place is that we also have been maniacal in finding intriguing ways to discount prices for bargain hunters. And the 2 biggest examples that come to mind are A-List. We now have almost 1 million members of our A-List program. And those people, it's out of -- this is -- we have a similar program in Europe, I might call limitless. But just talking about A-List in the United States. It's only 1 million consumers, just under. So only 1 million consumers out of a population of 330 million people. But these people account for 15% of our total patronage at AMC. That's like an incredible number from only 1 million people. And those people are paying between $20 and $28 a month. And on average, they're seeing 2.4 movies a month on average. But they're entitled to see 4 movies a week. That's theoretically 17 movies a month. And they're getting all that for -- depending upon what geographic market they live in, between $20 and $28 a month. For people who want to seek out a bargain, that's a good bargain. The second bargain that comes to mind in what I think was a bold initiative by AMC that was announced effective with Tuesday, July 8, and Wednesday, July 9, and what we said would be a permanent feature going forward. We expanded our long-time discount Tuesday offering for AMC Stubs members to discount Tuesday and discount Wednesdays for AMC Stubs members. Now it's free to join AMC Stubs, and you can do it instantly merely by giving us your e-mail address. So anybody who wants to take advantage of the new Tuesday, Wednesday discounts can do so. We stepped -- we made the level of the discount much more dramatic by positioning it as a 50% discount to the typical evening list price on a standard auditorium. So it's a powerful discount. It's available on twice the number of days per week that it was for the last 15 or so years when the movie industry thoroughly had discount Tuesdays. The fact that we now have 50% off Tuesdays and 50% off Wednesdays also is a tremendous enrollment device to encourage moviegoers to join AMC Stubs because they only get the discount if they're AMC Stubs members. But as I said, you can easily and instantly join. And so like AMC is committed to offering bargains -- but we're also -- we've also proven in the past that we believe we not only can offer premium experiences, which in themselves command premium prices, but we believe and we demonstrated through our past actions, again, not signaling about the future, that we are willing and able to raise price across the board. As for food and beverage pricing, I'll let Sean talk to that and our otherwise compression strength in the area of concessions. Sean Goodman: Thanks, Adam. Clearly, food and beverage is a key focus area for us, as one would expect, right, because of the profitability of that segment. And when we look at our food and beverage business, the key drivers of our food and beverage per person are the percentage of people participating going to the concession stands and buy food and beverage, the number of units that they buy when they go to the concession stand, and the price they pay. And if you look at the increase in food and beverage per person versus pre-pandemic levels, all 3 of those factors, all 3 participation units per transaction, and price has been part of that significant increase in food and beverage. If you look just at Q3, then in Q3, the percentage participation and the price were the biggest drivers of our food and beverage increase. To drill down on the price aspect of that food and beverage per person in a little more detail, I think there's a couple of factors here. One is the price is impacted by mix, right? What are our guests buying. And as we've added collectible concession vehicles, we increasingly focused on movie-themed drinks and movie-themed cocktails, that's really helped to increase the price, even if actually the price for the regular item hasn't changed that you have that positive mix impact, and we see that still being very, very beneficial for our business. The other thing to say about price is we've been very analytical with the data that we have on pricing. So really looking at individual theaters, individual market locations, where can we take price, where should we reduce price. We're very focused on that. And then we're always offering opportunities in discounts, as we spoke about the discount days, if you look at the food and beverage, we have discount food and beverage offerings on those discount ticket days as well. So there's something available for the consumer in. But again, it's sort of food and beverage is really critical to our business and been a big part of why we've been so successful in our per-person metrics as we've gone through the recovery. Adam Aron: And if I can add, Eric, sort of I think getting to the thrust of your question as opposed to the factual answers, I think you were trying to inquire, do we think with angst in the general economy, and like are we somehow constrained by consumer sentiment that somehow our pricing actions will be limited. And again, I don't want to make any kind of speculative comment about what we will do in the future. But I would like to point out this fact. I don't feel -- I think we have to be -- I always say you want to be prudent in not taking prices up too quickly. But I don't feel any price limitation from our clientele. The fact that our premium screens sell out first tells us something. The fact that we introduced 151 XL screens that already were screens that already existed in our theaters. They are bigger than the other screens in our theaters, and we just slot the XL logo on the door to remind people it was a bigger screen and that we're able to command almost a 10% price premium from those XL screens. But here's one other little factoid that shows you that I believe that our consumer is willing to pay for what we offer. Our merchandise business was literally nonexistent 3 years ago. nonexistent. I mean, like $0 in revenue for merchandise. This year, 2025, globally, U.S. and Europe combined, it's going to be over $65 million. And if you look at the price points of some of these merchandise items that we're selling at the concession stand, it's not hard to find items that are priced at $15.99, $19.99, $29.99, more than $30 a pop. And like literally, one of our biggest problems is that we're selling out too quickly. We are often sold out. We're sometimes ordering 50,000, 100,000 of these units in the United States alone, and we're selling out on the first night or 2. It's a high-class problem. And you do have to order this stuff 9 months in advance and get it shipped in economically. But I mean, it's just another example. Consumers are willing to reach into their pockets to pay us for the experience that we offer, provided that we do a good job of it. And that's why we work so hard to keep our theaters in good shape. That's why we work so hard to keep our film crew staff motivated and treating our guests well. And just look at the results. highest ticket prices in our history, second best food, and revenues per patron -- I guess it's ticket prices per patron in our history, second highest food and beverage revenues per patron in our history achieved in this third quarter. With that, operator, I think we're going to turn to some shareholder questions. Sean, what's the first question from our shareholder base? Sean Goodman: Yes. There's been a lot in the press about the Warner Bros situation, and people are interested in what our comments on that are. Adam Aron: So it's a little premature to speculate about what's going to happen at Warner Bros. There are some obviously who believe that Warner Bros will stay independent. There are others who obviously are aware of Paramount's repeated offers. There are other potential suitors for Warner who seem to be emerging. Let me just say this because it's not a reality yet, and so there's no real need to speculate too much. I would like to comment that AMC is thrilled beyond thrilled that David Ellison and his organization, led by Jeff Shell, have bought Paramount. We think they're going to do a spectacular job, and they have committed to greatly increasing the movie count that Paramount will be releasing going forward. Paramount was down to 7 movies a year. We think that Paramount is on record as saying they want to more than double that movie count as quickly as they can under the ownership of David Ellison. Similarly, Warner Bros has told us that they also -- I think they were down to 11 movies in 2025. And they also would like to be and are committed to increasing the release of more movies in 2026 and beyond. That also is very good for AMC. So I guess with respect to any potential studio consolidation, our attention will be laser-focused on one issue and one issue only. And that is the count of movie releases that's coming up from studios. Clearly, if it's more movies, that's good for AMC. And if it's less movies, that's not as good for AMC. So we're watching closely. And what we're watching more than anything else is will the number of movies being issued going forward go up or not. Next question. Sean Goodman: We've had -- and we were just talking about it a few moments ago, we've had a couple of quarter-after-quarter of really, really strong performance metrics for the business. And kind of related to the question we just discussed as well is people are asking how sustainable is that? Can we continue to keep these key performance metrics at this high level as the industry box office continues to recover? Adam Aron: I'm completely convinced that we can keep these metrics strong, that they are, in fact, not flukes but sustainable and that we can grow them. And what gives me that confidence is we've been growing them now for 6 years, since 2019, or really in the last 3 years since the box office sort of got semi-respectable post-COVID. And we apply as a company so much attention and brainpower, mental acuity to getting those metrics up. They didn't happen by accident. And we'll apply that same emphasis on keeping those metrics strong and growing, looking ahead. There are 2 numbers that kind of fed my head more than anything else about how AMC survived the last 5 years, because look, I mean the industry box office is still 20% down from pre-pandemic levels. That's a problem. Some people don't want to admit that's a problem, but that's a problem. It would be much easier for us if we can see the box office grow to what we hope will be a much larger pace in 2026 than it's been in the last 3 years. And as I said in my prepared remarks, if you look at the 9-month period from April 1 to December 31, 2025, the industry has not been on the $9 billion pace that it will probably be on for 2025 calendar year, but a $10 billion pace. And it sure be nice if that's the pace that we have going forward. In a rising box office environment, AMC does very well because 2/3 of our incremental revenue drops the EBITDA line. It's not a linear relationship between rising box office and rising EBITDA. It's an exponential relationship between rising box office and EBITDA. So the same attention that we're paying to keeping these metrics strong comes much more easily in a growing box office. The other metric, the number that -- or I said there are 2 numbers that float in my head. Look at our contribution per patron. Our contribution per patron pre-pandemic 2019 versus say, it's up 54% in 6 years, 54% increase in contribution. We would not be alive today had it not been for our ability to increase our contribution margin by 54%. We are simply a much more efficient operator than we were pre-pandemic, and we don't need the box office to come all the way back to pre-pandemic levels for us to be very successful at the EBITDA line. This other number that floats in my head, of course, is we raised $4.5 billion of equity over the past 6 years and $2 billion of debt, which we have since repaid off not only the $2 billion that we raised, but we paid off more than $1 billion more than that. So our debt levels are actually lower today than they were going into the pandemic. But we still owe so much gratitude to our shareholder base, especially our retail shareholder base, who stayed with us all these years because their belief in our future, their willingness to let equity come into our coffers to keep our cash reserves robust and healthy and strong are why we made it. Next question. Sean Goodman: Do you want to comment a little bit about the M&A environment? We recently noticed Connapolis' acquisition of Imagin Entertainment, and any thoughts on the M&A environment in this industry for us? Adam Aron: Sure. So we ended the third quarter with $363 million of cash on hand. Every dollar of that cash is earmarked. So now is not a great time for us to be diverting cash to other strategies other than running our company well and strengthening our balance sheet. Similarly, we are out of shares. So it's not like under the current situation, we could use share equity capital as a currency for M&A activity. Having said that, over time, our cash reserves will grow from whatever means. And when I look at the M&A environment, it looks quite attractive to us right now. Cinnapolis, a high-quality operator in Europe, bought 14 movie theaters in the United States at 5x trailing EBITDA, 5x. Now it's only 14 theaters. Like you couldn't buy AMC for 5x EBITDA because we're 900 theaters, not 14. But it does tell you that there are plenty of movie theater circuits out there who have less than 1% market share, less than 2% market share, where we, AMC, if we had cash to deploy for M&A purposes, could pick them up at levels at bargain levels and then arbitrage them into being worth much more if they were part of the AMC network. And not only much more merely because we trade at higher multiples than what you might pick up some of these circuits for the cheap, but also because if those theaters were run by AMC, we believe they would do better. We have better marketing strategies. We have better purchasing power. And I think our ability to deliver the numbers bottom line beat a lot of the smaller operators who are still around, and what is still a quite fragmented industry, 40% of the industry is still coming from very small operators. So I think the M&A market is ripe for us to move if we have the resources to move. Today, we don't have those resources. But I can tell you that we are paying a lot of attention to M&A activity. We're still analyzing a lot of potential combinations, small ones, not necessarily big ones. It appears to us there are -- there is opportunity out there for us at hand when it's the right time for us to move intelligently, and that is as we can do it without compromising either our cash reserves or our absolute commitment to strengthening the balance sheet. Sean Goodman: Final question here regarding the loyalty programs. We provided a lot of additional benefits to our loyalty members recently. And so people are just asking for an update about that. How is that going with things like discount Wednesdays? So we did just add a significant benefit by adding discount Wednesdays to the mix of discount Tuesdays. Adam Aron: Remember, one of our tiers of AMC Stubs is AMC Stubs A-List. Back in May, we enhanced the benefits of A-List. A-List was quite successful for us before. You used to be able to see 3 movies a week, now you can see 4 movies a week. We made it much easier to use the A-List program because you no longer need to fish for a state ID, a driver's license to get in, you're using A-List just as a flash your phone because we added a picture ID to your profile within our A-List within the app, within AMC app for A-List. So like that's all we did, add a lot of benefit. But the results are just great. A-List started out right after COVID when we reopened theaters in 2020, having only about 500,000 members. It's up to close to 1 million. So that's doubled over the last 5 years. We also introduced a new tier of Stubs, our loyalty program on January 1 called Premier Go, which gives people double the points generosity that a so-called insider, a member of our free tier, gets and gives them other benefits. It's a path to getting from insider to Premier. Premier, you got there by paying $15 a year, now $18 a year, speaking of price increases. Now $18 a year. I guess my marketing department would assist. I say it's $17.99. So it's not quite $18, right? In the consumer head, we only raised it by $2, not $3. But with Premier Go, you get this increased generosity level. It's not all the way to the generosity level of Premier because Premier is a 5x level of discount. But you earn Premier Go not by paying us a $17.99 purchase price, but you earn it basically by seeing -- making 8 visits a year to our movie theaters, which isn't that hard to do. And the number, we didn't have one single member in our Premier Go tier on December 31, 2024. Sitting here today, we have between 600,000 and 700,000 of them. And by definition, they're seeing 8 movies or more a year. Like this is really good for us. So our knowledge of loyalty programs continues to be enormous. We continue to reap great benefits from it. And we're doing this not only in the United States. In 2025, we launched a points-based loyalty program in the United Kingdom. The U.K. has always had -- not always, but it's for a long time, has had actually ever since we bought it in 2016, has had its limitless program, which was a model for A-List. But we now have a loyalty scheme in the U.K., just like we have Stubs here in the U.S. And that loyalty program in the U.K. is also being spread to some of our other country territories across Europe. So this is an area where we know we're doing, and we're -- and it's one of the reasons why we're optimistic for our future. With that, I think is that the last question for today. So I'd just like to close by telling you all, I don't know where you're going to be Friday night, but I'm going to be at an AMC theater watching Nuremberg. It's going to be a really great movie, I think, starring Russell Crowe. And my goodness, the movies we have coming out over the next 8 weeks, it's a parade of one great title after another. I think I can say with some degree of confidence, America and the world is going to be in movie theaters in November and December. We hope we can count you among them. Thank you for listening to us today and joining. We'll talk to you again soon. All the best. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Magnus Ahlqvist: Good morning, everyone, and welcome to our Q3 report. We continue to develop on a good path, execute on our strategic focus areas and are glad to report a solid set of results for the third quarter. The organic growth in the quarter was 3% and North America and Ibero-America both contributed with solid growth. And now to a highlight. The operating margin was 8.1% in the quarter. We had solid improvements across all segments as well as in the Services and Technology & Solutions business lines. And as announced last quarter, we are closing down the government business within Critical Infrastructure Services. And adjusted for this business, the organic sales growth was 4% and the operating margin was 8.3%. EPS real change was strong at 19%. And the operating cash flow is above 100% in the quarter, and we continued to improve the leverage and the net debt-to-EBITDA ratio is now at 2.2. The business optimization program that we initiated at the beginning of this year is contributing and the vast majority of the cost savings have now been executed. So shifting then to the performance just for an overview in the business lines and the segments. And as stated, we are recording significant margin improvements in both business lines. Continued strong Technology & Solutions margin development with 50 basis points to 11.7%. And the sales growth in Technology & Solutions was 4% in the quarter. This is below our target, but we have a strong offering, and we have taken actions to increase the focus on client engagement and commercial development, and I expect these actions to generate stronger momentum in the coming quarters. The margin in Security Services improved 30 basis points to 6.9% and this was supported by high margin on new sales, portfolio management and strong development of the Aviation business, while the SCIS business hampered. Growth in Security Services was 1% in the quarter, and the growth rate in Services is negatively impacted by active portfolio management and the SCIS business. But important, we expect to finalize the active portfolio management work in Europe and Ibero-America during the first half of 2026 and that work is progressing according to our plans. So with that, let's move then to the segments. And as always, we start with North America, where we are pleased to report solid organic sales growth at 6% and a record Q3 operating margin. Healthy portfolio volume development and price increases in the Guarding business were key drivers of the growth and continued double-digit growth in the Pinkerton business contributed and the performance in the Technology business also supported. Technology & Solutions growth was 2% in the quarter. And similar to the previous quarter, growth in Technology was decent, but we had lower Solutions growth. And we are fine-tuning our go-to-market approach with Solutions in North America, where we leverage our in-house technology capabilities in a much better way than before. And with these changes now being in place, I expect improved growth in the coming quarters. We improved the operating margin in the Guarding and Technology business units to 9.5%, and this was supported by good cost control and leverage. So all in all, very strong performance and a record Q3 operating margin in North America. And moving then to Europe, where the operating margin improvement stands out as the highlight of the quarter. The organic growth was 2%. Price increases, impact from Turkey and aviation supported, while active portfolio management had a clear negative impact on the growth in the quarter. Sales growth in Technology & Solutions was 4% and slightly below our expectations. The operating margin improved with 70 basis points to 8.4%, and this is a significant improvement and is the result of strong execution on all strategic priorities by our European teams. And as commented, we continue to address and renegotiate the low-performing contracts in the services business in Europe. This has a clear negative impact on the growth in the short term, but it's fully in line with our strategy and the plans that we set a couple of years ago. And we expect the work where we're addressing the low-margin contracts to be completed during the first half of 2026. So all in all, very good development by European teams and also here an operating margin at a record level. We then shift to Ibero-America, where we're also pleased to report good organic growth and solid margin improvement. The organic growth was 5%. This was driven by high single-digit growth in Technology & Solutions and price increases in the Services business. And similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress and driving conversions to Technology & Solutions. The operating margin improvement was solid in the quarter, and the majority of the improvement is related to improvement in the services business, but some temporary one-offs also contributed. So all in all, a very good quarter also in Ibero-America. And looking then at the performance across the group, we are driving disciplined execution of the strategy, and I'm really pleased to see strong execution across all segments and from all the teams. Our customer offer is stronger than ever before, and we're also glad to report improving client retention. So with that overview, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And we start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 60 basis points, leading to a currency adjusted operating profit growth of 11% in the quarter. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the third quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.3%. And this is higher than our target to have an adjusted operating margin of 8% in the second half year of 2025 and puts us in a good position to achieve the target as we are closing the year in the fourth quarter. The close down of the government business itself is progressing according to the plan that we laid out in the second quarter and had limited impact on the operating result in Q3. Looking then below operating result, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. Items affecting comparability was SEK 1.5 billion, where we in the third quarter have made a provision of USD 154 million for the government business close down, in line with what we communicated in Q2. The remaining SEK 65 million of IAC is related to the ongoing transformation and business optimization programs. Both programs are running according to plan and the full year forecast of SEK 375 million for both programs combined remains unchanged to our previous guidance. And as Magnus mentioned earlier, we have executed the business optimization program well and the vast majority of the target SEK 200 million run rate cost savings by the end of 2025 has been executed in the third quarter. And as we're looking into 2026, we are planning to continue to reduce the investments under IAC in comparison to the SEK 375 million this year. I will come back with more details to you in Q4. Our finance net came in at SEK 419 million, which is a reduction of SEK 158 million compared to last year, and we continue the positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year, we expect the finance net to land in the range of SEK 1.8 billion to SEK 1.9 billion, which is a material decrease compared to the SEK 2.3 billion we had in 2024. Moving to tax. Here, our full year forecasted tax rate is 29.2%. The increase compared to our full year 26.7% estimate in the second quarter is mainly due to the $154 million closedown cost where we expect around 60% of the total cost to be tax deductible over time. Adjusted then for the closedown impact, the full year forecasted tax rate is 26.8%, in line with our previous communication in Q2. All in all, a strong quarter where our currency adjusted EPS growth, excluding IAC, was 19% in Q3 and 18% for the first 9 months of 2025. We then move to cash flow, where our operating cash flow was solid at SEK 3.3 billion or 106% of the operating income. This despite some negative timing impacts from Q2, as I mentioned in the previous quarter. Both our DSO and our general working capital position continued to improve and supported a good outcome in the quarter. The free cash flow landed at SEK 2.7 billion, supported by solid operating cash flow, the reduced interest payments due to the lower interest rates and debt levels and temporary positive tax timing impacts in the U.S., and we expect a majority of the positive timing impacts to reverse in the fourth quarter. For the first 9 months of the year, we have strengthened our operating cash generation, having an operating cash flow of 74% of our operating income compared to 58% last year. We are in a good position to meet our full year target of an operating cash flow of 70% to 80% of operating income, where we always target to be at the upper end of that interval. This despite that we have one additional payroll in our U.S. Guarding business in Q4, which will impact the fourth quarter cash flow negatively approximately USD 40 million. This is a negative timing impact that we have every fifth or every sixth year in the U.S., and this timing impact is relevant for Q4 as well as for the full year 2025. In 2026, we will then be back to the normal payroll pattern with 1 less payroll compared to this year. We then have a look at our net debt, which was SEK 33.4 billion at the end of the quarter. This is a reduction of SEK 2.6 billion compared to Q2, mainly supported by the strong free cash flow generation. In the quarter, we also had SEK 308 million of total IAC payments, where SEK 175 million of this was the second payment related to the U.S. government and Paragon settlement. The residual is mainly related to the ongoing transformation and business optimization program and the government business close down, which was SEK 43 million in the second quarter. And as a reminder, the total Paragon settlement amount is USD 53 million, which we pay in 3 approximately equal installments. We have now made 2 payments and the third and final payment has been made in the fourth quarter. Moving then to the right-hand side, where the net debt to EBITDA was 2.2x. This is 0.5 turn improvement compared to Q3 last year, where the positive EBITDA development, good cash generation and the strength in Swedish krona all supported positively. And we are well below our target net debt-to-EBITDA of less than 3x and expect to continue to deleverage our balance sheet in the short term. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, strong liquidity, and we remain without any financial covenants in our debt facilities. And after a period of important refinancing focus, our main focus in the second half of 2025 is to use the strong cash generation from the business to amortize debt. In the quarter, we have repaid SEK 1.4 billion of debt. And in the fourth quarter, we plan to amortize approximately SEK 2 billion on the term loan maturing next year. This will continue to support our cost of financing going forward, and we will have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Very good. Thanks a lot, Andreas. And before we open up the Q&A, I'd just like to share a few reflections regarding the longer-term development and also a little bit looking ahead. So back in 2022, when we did the STANLEY acquisition, we accelerated the work to change the profile of Securitas to create a company with the strongest technology and digital offering to our clients in combination with high-quality Guarding services. We also shared the ambition to improve the operating margin from the prior decade, where we have been around 5% to achieve around 8% by the end of 2025. And we outlined the main focus areas to drive this improvement to 8%. And I think those of you who are following us, you're familiar with the bridge here. We exceeded 8% operating margin in Q3, and Q4 is seasonally somewhat lower margin, but we're on a good track to deliver on this ambition in the second half of this year. And while the impact from M&A activity has been limited in recent years, we have made considerable progress in the other areas. And we're about to finalize the heavy lifting work with active portfolio management and strategic assessments. But this work has been very important to create a sharper and more focused company where all the business that we are running is fully aligned with our strategy. And when you're looking at SCIS, and this is more related to a question we received a couple of times, -- the close down here and the result doesn't really represent a significant part of our overall business. It is only around 1% of the operating result. So while large in volume, very limited in terms of the operating result impact from that close down. And when I look at the strategic assessments, the remaining assessments that we have under consideration now represent approximately 1% of group sales. So we are nearing the completion of an important phase with important work. It has been rigorous and hard work, but it's been important to shape a stronger and a more focused company. And just to repeat the message also from the second quarter, we have received a question on a number of occasions on what basis we consider reaching the 8%. And as communicated earlier, if we reach the 8% operating margin in the second half of this year, excluding the SCIS business that we're closing down, we will have achieved the ambition. And delivering on this ambition is an important milestone since it represents a historical shift in the profitability profile of Securitas. But having said that, it's just a milestone on a longer journey. And talking about that journey, we have come a long way in shaping the new Securitas to be a sharper and a much stronger company. And when you take a little bit of a longer-term perspective, we are operating in a market with good growth, which is spurred by increasing threat levels, increased demand for digital and technology solutions and where we are uniquely positioned with the investments we have done in the last 5 to 6 years. And we have intentionally transformed and repositioned our portfolio to the parts of the market where there is good underlying growth and the real security needs are more important than the price per hour. And we partner with our clients for the long term, investing into the relationship, and we are building the best security solutions based on the client needs, leveraging technology, digital people and more and more real-time insights. And all of this has also led to much more profitable Securitas today compared to the 5% company we were for many years. Today, we're executing on our plan to get to 8%, as stated in the second half of this year. And we have also been able to lift the margin for 19 consecutive quarters and at the same time, deliver strong EPS growth to our shareholders. And in the increasingly complex and volatile macro environment, we're also a resilient business with the majority of our revenue is recurring and with an excellent client retention of 90%. And all of this has also been elevated or translated into higher cash flows where we are now delivering cash flow above our financial targets, and this has also contributed to an accelerated deleveraging after the STANLEY acquisition. So we're now in a position that is much, much stronger, and we can continue to invest into the growth of our business. So as we're finalizing the strategic phase, we're a much stronger company, very well positioned in an attractive market to increase our focus on profitable growth. And as more and more units reach the required profitability levels, so that means for good sustainable business, they also gained the right to shift focus on driving profitable growth. And looking at the longer term, we will continue to improve the margin as we are building scalable solutions to our clients. So we stay focused, confident and also very excited about our longer-term opportunities, and we're looking forward to sharing more in the Capital Markets Day in June. So with those perspectives, we can conclude this Q3 presentation. We're executing according to our plans, deliver strong margin with 8.1% in the quarter, EPS improvement of 19%. So with that, let us open up the Q&A session. Operator: [Operator Instructions] The next question comes from Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. First one on Technology & Solutions or T&S, you had 4% in real sales growth this quarter. And on paper, the target the Board stated out for Securitas to achieve a growth within T&S of 8% to 10% sounds like it's congruent with its target of achieving 8% in EBITDA margin with the T&S having higher margins. But the outcome since your CMD seems to show that you've been forced to prioritize portfolio management at the expense of growth within T&S, at least short term. Is that a fair description, would you say? And your position now at sort of 8%, would that allow you to shift your focus more towards T&S growth? Magnus Ahlqvist: Thanks, Raymond. Well, we -- just to put some context on the Technology & Solutions growth, this is obviously a long-term target. I believe that we are very well positioned. We've spent a couple of years doing very diligent and robust work in terms of the integration. When you're looking forward, we feel confident that we're going to be able to drive the growth here at a really healthy pace. Where are we right now on that? Well, we're mostly, as we've communicated before, done with the integration work. What we are doing now based on the strength in the offering is that we're investing more in commercial capability based on the strong offering that we have. And we're also fine-tuning in a number of parts of the organization. And some of that fine-tuning is related to how we become better at cross-selling, how we start to become better at actually leveraging the combined client base. We're also aligning incentives. I should also say that it's a little bit of a mixed picture when you look at the growth rate in technology, if you look at the growth rate in solutions. Solutions, we've had really strong traction in North -- sorry, in Ibero-America, good traction in Europe. But in North America, as I've explained in the last couple of quarters, we also under new leadership, did a little bit of a reboot in terms of the organization setup. And it was the right time to do that because historically, when we didn't have strong technology capability, we're also working with other companies to help us with the technology part of the solution. Today, our own technology team is the main partner and provider. And that enables us to build a much more efficient and also much more scalable platform for the longer term. And there, why growth has been flat now in the last couple of quarters in North America, I expect that now based on the actions that we've initiated to really improve in terms of the growth. So I believe that we are in a good phase and also in really, really good shape to drive this one, but also some fine-tuning and optimization is needed and also some of the commercial investments. Andreas Lindback: In relation to the 8% target, we should say that in 2023 and 2024, we had stronger Technology & Solutions growth that have supported us on our journey to 8%. And although it is 4% now in the quarter, we still have a positive mix effect compared to the Guarding business and how that is growing as well. But one final lens on it. When we said 8% to 10%, that also included one part of M&A activities where we have said that we have done less as well. So that is one of the reasons then why we are not coming all the way up to the 8% to 10% target because it's mainly within Technology & Solutions which our M&A activities would be geared against. Raymond Ke: Right. That's very helpful. And then maybe sort of a follow-up, if you could maybe provide a bit more color with regards to how you intend to accelerate T&S growth, mainly to help us analysts better understand the pace of growth acceleration that we should be expecting across your segments going forward? Magnus Ahlqvist: Yes. So if you look at that, it is very much related to what I mentioned. So strengthening and investing a bit more in the commercial capability. We have really strong offering. I've recently also been with a number of our clients in the U.S. a couple of weeks ago. Feedback is strong. partnerships are strong and our clients and also new clients are also looking at Securitas as the main partner. So we are well positioned. And I think that is the key point. So our offering is strong, but I think that we will benefit from also investing a little bit more in the commercial resources and capability as we go forward. And then as I mentioned, we're also working in a much more diligent and intentional way now in terms of how we are leveraging existing client base for cross-selling. These are things that also relate a little bit to the work that we've done in the last couple of years to also have the right types of tools and digital platforms to enable that together with incentives as well to be able to drive it at scale. So I feel that we are in a good position here to drive this at a healthy clip going forward. Raymond Ke: Just one final, maybe sort of a detail on this, but could you elaborate on -- you mentioned the positive one-offs that boosted the margins in Ibero-America. Maybe I missed that, but how big were they? And how should we think about them going forward? Andreas Lindback: This is related to some reduced provisions related to legal cases. So there was a positive impact to the operating margin in the Ibero division. Normally, we mentioned something when it impacts at least 0.1% margin-wise in Ibero in the segment Ibero. In this case, it was a bit more than 0.1%. But just to help out there. But then important to say as well that the majority of the margin improvement in Ibero-America was driven by operational improvements, not this one-off related items. And on a total group level, it doesn't have any material impact whatsoever. Operator: The next question comes from Daniel Johansson from SEB. Unknown Analyst: I am [ Andreas ]. I'll limit myself to 2 questions here, I think. Maybe starting a bit on the cash flow. You had another quarter here with a very strong cash flow, and you're in a very good position from a balance sheet perspective. And all else equal, you probably deleveraging further here going into Q4. So I'm wondering a little bit on how you think about capital allocation here for the coming quarters and year. I mean you have a target of 3x net debt to EBITDA. There's a wide margin to that target already. You're through a quite heavy investment period. You're planning to amortize debt. So do you have enough interesting M&A in the pipeline that you would like to pursue? Or is there an opportunity for higher shareholder remuneration through extra dividends or share buybacks? Yes, if you can help me a little bit to understand on how you think about the balance sheet from here. Andreas Lindback: Thank you. When it comes to capital allocation priorities, number one, as you say as well, is to below 3%, which we are with good headroom as well when it comes to our leverage point. Priority #2, invest to drive the growth in our Solutions business. We have a CapEx guidance of around 2.5% of sales, and that we will continue to do. Priority #3 for us is the dividend to our shareholders, 50% to 60% of net income to be paid out on an annual basis. And then priority thereafter is related to bolt-on M&A activities. And here, as you rightfully say, there has not been so much activity. We have opened up for it, but we have also been focused really on driving the organic improvements in the business. We have also been focused on the strategic assessment program. So that is something that we will work on accelerating, although like you say as well, there is not a big, huge pipeline right now today, but that will, over time, start to increase. And then after that, I mean, if we don't find enough acquisitions, so to say, then we will continue to deleverage our balance sheet here. And over time, we can consider any other shareholder returns, but it's not a topic today and in the short term. And then we will have to come back to you on a more longer-term view in our Capital Markets Day here in June. Unknown Analyst: Understood. And then maybe a smaller question on the other segment. If I understand it correctly, SCIS still hampering you on a year-to-year basis. But when I look at the other segment, the loss is only SEK 56 million, so quite in line with last year. Is that due to continued good performance in AMEA and lower group costs or anything more of a one-off nature in there? Or yes, what explains that you don't have a bigger loss given SCIS is still negative, it seems? Andreas Lindback: No big one-offs. You're right. Our business in AMEA -- Africa, Middle East and Asia and the Pacific are performing well, which is supporting other. Group cost is under control. So there is no major changes there. And then we have the residual performance in the SCIS business. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Just mindful of the kind of portfolio management comments, you said that they will continue in Europe, America into the first half. So is it right to assume that, that kind of very low single-digit growth kind of profile that we've seen for this year in those regions, but at least continues in the first half next year? I'm just keen to understand how you see the potential timing and shape of growth recovery there? And that's the first question. Secondly, just a quantification question on the tax timing comment that you made in terms of the unwind in the fourth quarter. Exactly what does that mean in terms of the impact on cash flow? And as I just think about the 3% organic growth number that you posted in Q3, what is the pricing component of that versus volume, just at an average group level? Just keen to understand where pricing is. Magnus Ahlqvist: Thanks, Allen. So on the active portfolio management, if you're looking at the current trading, it's a several percent type of impact that we're seeing on the numbers that we're reporting in the last couple of quarters. So that's the reason we highlight that there is a significant impact. We don't provide guidance, but we continue to work as we've done before. It's obviously to take care of our clients in a good way, do this in an orderly fashion. But I also call it out because it is important that we also complete that work and get that work behind us because the sooner that we do that, we can also start to focus more on profitable growth again. So that's really the perspective. But we don't provide any guidance. But I think going back a number of years, a lot of people were wondering, okay, does this mean that you're going to shrink significantly in business, et cetera? Well, as you know, over many, many years, that hasn't happened because we also have had a healthy intake in terms of new business. So we're on the right path, but we also need to finish that job, very important in Europe and Ibero-America. Then if you compare a little bit to North America, you also see the benefit there. We were done with this work earlier in North America, and they're obviously also back to much healthier growth levels, and that really contributes. So this is all part of the plan, but good thing now is that we're now kind of nearing completion of that work in the next couple of quarters. Andreas Lindback: When it comes to the 3% growth, the majority of that is price. And where we do have volume increases is in our North American business, where we have seen a good portfolio development. And it's also a very good place to have a good growth given the margin profile that we are having in our North American business. They have been through the [ APM ] program, as Magnus has just talked about. And now we are turning that business more and more into growth focus. So it's really good to see the growth numbers and the volume development in the North American business. But all in all, on the group level, most of the 3% is price. When it comes to the cash question related to tax, we have had some positive timing impacts both in Q2 and Q3 in the U.S., and we expect that to reverse in Q4. And we have talked about USD 30 million, USD 40 million of negative impact in Q4 on the cash flow related to that. Allen Wells: Can I maybe just one quick additional follow-up. Just mindful of U.S. government shutdown at the moment. Is there any impact in your business there? I guess most of it might be in SCIS, which is closing down. But I'm just wondering if there's any impact over the last month or so in terms of Securitas there. Magnus Ahlqvist: No, there is no significant impact. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Only one question from my side. Looking at the business you've reshaped now quite impressively in the past 3 years in my book at least. And looking now forward in the market, if you could help us pin down the, let's say, tendering activity that you see. How is the market in light of all the uncertainty we see with the headlines every now and then and tweets and so forth. So curious to understand the overall market tendering activity and where you see yourself in light of your profitability journey now when it comes to maybe win ratios that you have seen or foresee going forward to not only defend the 8% margin, but in light of being able to propel further upwards? Magnus Ahlqvist: Thanks, Viktor. I think this is a part that we are very excited about, and I appreciate your comment. It's been quite heavy lifting within the business over the last 4, 5 years in terms of shaping the company into the profile that we now start to become. Very intentional work. We followed by the book, most of the things that we set out to do internally 5, 6 years ago and executed on those. So I think that we are -- as a company, we're in a much stronger position. And when I look at the market, we're also -- I mean, we're operating in large, growing, attractive markets. So we're in a very good position also to tap into that and to leverage that with the strength of the offering that we have. The kind of uncertainty that we're seeing around the world, and this is obviously related to geopolitical uncertainty. It's also related to increasing crime and risk levels. My clear takeaway from a number of the client discussions, and I mean we are serving many of the most reputable companies in the world. They are looking in light of that for a strong partner, a really, really trustworthy and reliable partner that has strong capabilities. And those capabilities to us are very much focused on technology, digital and our services capabilities that we have in our portfolio. So I think that we are really well placed in that, and there is also a healthy market. An important shift that we have been able to achieve in the last 5, 6 years is that we have been much more granular and also much firmer in terms of what are the profitability levels that we need for the business to be sustainable. And I think that has been as the market leader in our industry, that has been really, really important work for us to carry out. But then when you're looking at the market because that's obviously more on a macro level, we also then have a strong position. We know the market is growing, but we're also in the last 4, 5 years, also focusing in on the segments where we see that there is a very clear security need. There is a focus on quality. And some of those that -- where we're also enjoying very, very good growth today. Examples are in technology segments. It's in the data center segments, pharmaceuticals, defense, just to mention a few. And what I'm seeing here is that the positions that we have built a few years ago we just continue to expand and grow those ones. And that gives me a lot of confidence that we are really in a much better position today, much more intentional and in a good position as well to now after we get a lot of the heavy kind of lifting work behind us to also optimize a little bit more in terms of continuous margin improvement, but also then really doubling down on more profitable growth because we have a strong offering and we want to grow, but we need to get some of that work done. But the good thing now is that now it's not 4 or 5 years out. It's a couple of quarters out. And I think that is the exciting position that we are in right now. So I believe we're in a good position, Viktor, and also a good market. Viktor Lindeberg: And by your comment, it does not really sound that clients are waiting to make decisions. It seems the market is progressing as it usually does. No incremental hesitation. Is that a fair assumption? Magnus Ahlqvist: I think so. This is a fairly slow moving and fairly conservative industry from my perspective. But it's also based on security is so important that most of our clients, they are also very deliberate in terms, okay, what are the things that we need in our security solutions and who is the partner going to be. And for that reason, some of the selling cycles are a bit longer, but the way that we build our business is very much focused on long-term value creation. So once we are in a relationship with a client, we usually develop that continuously and over time, and that is a real position of strength for us. But I wouldn't say that there is a hesitancy in that sense. It's rather the question, how can you help us and really leverage technology and digital capabilities that we have and that are also out there in the market to be able to run a more effective and more efficient security program. And there, I feel that the kind of the increasing complexity from that perspective it is clearly in our favor because then most customers also realize that it doesn't make any sense for them to invest in all of that capability. It requires real deep know-how that we have in our technology business that we're building digital capabilities and also much stronger guarding capabilities. So it's matching in a really good way. And that's the reason I'm saying I think we're in a really good position when I look at the next 5 to 10 years after a period of really reshaping the company. Operator: [Operator Instructions] The next question comes from Simon Jönsson from ABG Sundal Collier. Simon Jönsson: I just have a follow-up question on the M&A in Technology & Solutions specifically, of course. Just wondering where you think or where you see that the market is currently in terms of multiples paid for acquisitions of the kind of assets that you are looking for ballpark figures would be fine. Andreas Lindback: Thank you. Given that we have not been so active in the market, I would not really comment upon that today, to be honest, as well. That's something I need to come back to. But the things that we have done have been more or less on the same levels as -- I mean, same levels as we have done bolt-ons before. I think we should take out the STANLEY transaction that was one big transaction, generally speaking, where we have said that we paid a premium to get that down. So the multiples in the technology market is lower than that for sure. But I haven't seen any trend of reduced multiples later over the last years. So normally, in the technology space, you would pay double-digit multiples -- low double-digit multiples. And then it all depends on what kind of cost synergies that we have and, of course, revenue synergies as well. So those are the comments I would like to give at this point in time, Simon. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Very good. Thanks a lot, everyone, for joining us today. We continue on a good path as stated and excited about the next phase in our journey. Thank you.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to ACADIA Pharmaceuticals' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Al Kildani, Senior Vice President of Investor Relations and Corporate Communications at ACADIA. Please go ahead. Albert Kildani: Good afternoon, and thank you for joining us on today's call to discuss ACADIA's third quarter 2025 financial results. Joining me on the call today from ACADIA are Catherine Owen Adams, our Chief Executive Officer, who will provide some opening remarks; followed by Tom Garner, our Chief Commercial Officer, who will discuss our commercial brand, DAYBUE and NUPLAZID. Also joining us today is Elizabeth Thompson, PhD, Executive Vice President, Head of Research and Development, who will provide an update on our pipeline programs; and Mark Schneyer, our Chief Financial Officer, who will review the financial highlights. Catherine will then provide some closing thoughts before we open up the call to your questions. We are using supplemental slides, which are available on our website, Events & Presentations section. Before proceeding, I would like to remind you that during our call today, we will be making several forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including goals, expectations, plans, prospects, growth potential, timing of events, future results and financial guidance are based on current information, assumptions and expectations that are inherently subject to change and involve several risks and uncertainties that may cause results to differ materially. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date, and we assume no obligation to update or revise these forward-looking statements as circumstances change, except as required by law. I'll now turn the call over to Catherine for opening remarks. Catherine Owen Adams: Thank you, Al. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report another strong quarter for ACADIA with solid execution across our commercial portfolio and continued momentum positions us well for a strong finish to 2025 as we lay the foundation for sustained growth into 2026 and beyond. We delivered total revenues of $278.6 million this quarter, up 11% from a year ago, reflecting the strength of our commercial portfolio. This performance underscores our ability to execute on multiple fronts while building for future growth. Starting with DAYBUE, we're very pleased with our progress. Following the expansion of our field force earlier this year, the benefits of which are now starting to materialize, I'm excited to share that we achieved our largest sequential increase in referrals since launch. This meaningful sequential growth reflects the impact of our expanded team into the community setting, giving us confidence that we will continue to see benefits from our broadened physician reach. During the third quarter, DAYBUE generated $101.1 million in net sales, including contributions from both U.S. sales and named patient supply programs outside the U.S. We shipped the highest number of DAYBUE bottles ever in a single quarter. In total, we shipped to over 1,000 unique patients globally, an exciting milestone for the company. Importantly, patient persistency remains stable, underscoring the sustained benefit DAYBUE delivers to patients and their families. Moving to NUPLAZID. We delivered an exceptional quarter with net sales of $177.5 million, marking our strongest sales quarter ever. The momentum we are now driving gives us tremendous confidence in NUPLAZID's potential to unlock higher growth in the coming years. To ensure we capture this opportunity, we're making strategic investments in a meaningful field force expansion. The impact of this field team expansion, combined with our direct-to-consumer campaigns creates a powerful combination that we believe will drive sustained growth and value maximization for NUPLAZID. We're looking to build on our commercial success by advancing our pipeline of novel product candidates, including the recent initiation of one Phase II and one Phase III trial. I'll now turn the call over to Tom to cover our commercial performance. Thomas Garner: Thank you, Catherine. I'll begin with DAYBUE, where we delivered another strong quarter of commercial execution. DAYBUE sales were $101.1 million in Q3, representing our highest revenue and total prescription volume in any quarter to date since launch. As Catherine noted, for the first time since approval, the number of unique patients receiving DAYBUE worldwide exceeded 1,000 in a single quarter for an actual count of 1,006. This achievement reflects not only our progress in the U.S. but also from patients now starting to access DAYBUE through our named patient supply programs internationally. We're seeing strong early indicators from our field force expansion. Referrals are leading the way with the highest quarter-over-quarter increase since DAYBUE's launch in 2023. This momentum is translating into other key performance indicators such as broadening prescriber reach with 956 physicians having now written at least one prescription for DAYBUE. Our sales teams are now gaining real traction with call volumes on our expanded target customer base increasing over 20% versus Q2, supported by a similar increase in the number of educational programs we delivered, both of which are important levers in helping to educate prescribers on the benefits that DAYBUE has to offer. Importantly, adoption is broadening beyond Centers of Excellence, or COEs, with community-based physicians accounting for 74% of new prescriptions in Q3. We're also seeing a meaningful uptick in scripts from nurse practitioners and physician assistants, reinforcing that our strategy to expand in-person efforts into the wider Rett treating community is working. These trends position us well to reach more Rett patients who could benefit from DAYBUE. Even with this progress, overall market penetration remains relatively low at about 40% in the U.S. and only 27% in the community setting where the majority of Rett patients are treated. This continues to represent a substantial growth opportunity for the brand. Looking at age demographics, penetration among patients under the age of 11 is over 60%, but amongst older patients is significantly lower despite growing real-world evidence of DAYBUE's positive impact in this group. As we expand our reach beyond COEs, we see this segment as a significant growth driver for 2026 and beyond. Long-term persistency remains a key strength for DAYBUE, reflecting its sustained clinical benefit and strong patient engagement. With another quarter of maturity in our data, persistency rates remain above 50% at 12 months and greater than 45% at 18 months. The strength of these metrics are important as they further reinforce not only our confidence in DAYBUE's therapeutic value but also our outlook for sustainable long-term growth in the U.S. Internationally, our named patient supply programs continue to gain traction. All 3 distribution partners are now actively shipping to patients in the EU, Israel, Middle East and Latin America. Looking ahead, we remain confident in DAYBUE's growth outlook, driven by sustained demand generation supported by our strategic field force investments, strong persistency metrics and expanding global access. These factors are critical because they are -- not only validate the long-term value of DAYBUE for patients but also create a durable foundation for revenue growth. While we began to see the initial positive impact from the field force expansion in Q3, we expect meaningful benefits to accelerate through Q4 and into 2026. In summary, DAYBUE is well positioned to capture significant market opportunities in the U.S. and internationally, reinforcing our commitment to delivering both patient impact and shareholder value. Now turning to NUPLAZID, where we delivered record performance with net sales of $177.5 million, representing 12% year-over-year growth, driven by 9% volume growth. This reflects strong underlying demand for NUPLAZID among patients with Parkinson's disease psychosis, or PDP, and the success of our commercial strategy, coupled with the unwavering focus of our customer-facing teams on executional excellence. Referrals were a key driver of this momentum, increasing 21% year-over-year. This growth signals increasing awareness and confidence among health care providers in identifying and treating Parkinson's-related hallucinations and delusions earlier in the course of the disease. New prescription volumes grew 23% in Q3 compared to the same quarter last year, representing the strongest year-over-year increase since 2019 and were up 9% sequentially. This inflection point demonstrates that our patient engagement campaigns and HCP outreach are translating into tangible prescribing behavior. It also underscores their belief in NUPLAZID's differentiated profile as the first and only FDA-approved therapy for PDP with a well-established safety and efficacy record. Taken together, we believe these trends are an important leading indicator of future prescribing behavior and reinforce the strength of NUPLAZID in meeting a critical unmet medical need. As a reminder, the U.S. PDP market represents a significant opportunity. There are approximately 1 million Parkinson's patients with an estimated 50% experiencing hallucinations and delusions at some point during the course of the disease. This translates into a substantial number of patients who could benefit from NUPLAZID, underscoring the long runway for growth. Looking ahead, we see significant opportunity to build on this momentum. Our reach and frequency model is driving broader prescribing patterns across a wide range of HCPs and our direct-to-consumer campaigns are raising awareness of PDP symptoms while highlighting NUPLAZID as the first and only approved treatment. To fully realize NUPLAZID's long-term potential and capitalize on the brand's strong momentum, we are making strategic investments, including a 30% increase in our customer-facing team starting in the first quarter of 2026. This expansion will allow us to reach newly activated physicians and improve pull-through. We are approaching this expansion thoughtfully to maximize near-term efficiency and long-term impact. Our various consumer initiatives are driving awareness and creating demand with our expanded field force ensuring we efficiently convert that demand into prescriptions. In summary, the NUPLAZID fundamentals are strong. The market opportunity is substantial, and we have a proven strategy designed to capture it. With a differentiated product profile, accelerating demand indicators and targeted investments in our commercial model, our ambition is not just to grow but to become standard of care for these patients. I'll now turn the call over to Liz. Elizabeth Thompson: Thank you, Tom. I'm pleased to share some updates on our pipeline, where we continue to make encouraging progress across multiple programs that hold meaningful potential for the future. We've achieved some important milestones recently, including the successful initiation of our Phase II study for ACP-204 in Lewy body dementia psychosis and the initiation of our Phase III study of trofinetide in Japan. Looking ahead, our next expected milestone is the initiation of a Phase II study for ACP-211 in the fourth quarter of this year. We are developing ACP-211 in major depressive disorder, a common condition with significant unmet need. Then in Q1 2026, we expect to initiate our first-in-human study of ACP-271 in healthy volunteers. To our knowledge, this will be the first time a GPR88 agonist enters the clinic, and it moves us along the path of development, targeting the indications of tardive dyskinesia and Huntington's disease. We also have important projected study readouts coming. We anticipate reporting results from 4 Phase II or Phase III studies between now and the end of 2027, underscoring both the breadth of our pipeline and the momentum behind our R&D strategy. Our next major readout is expected to be ACP-204 in Alzheimer's disease psychosis in mid-2026. We're particularly excited about this opportunity and what success could mean for the future trajectory of our company. The unmet need here is substantial. The market opportunity is large, and we have built this program based on a substantial body of learnings from pimavanserin at both the molecule and the trial level. Now switching gears to our international expansion efforts. First, I wanted to provide an update on the regulatory process in the EU for trofinetide. We've been informed by EMA that the earliest that a scientific advisory group could be held would be January. Given this, we now anticipate a CHMP opinion in the first quarter and the EC regulatory decision following the standard regulatory time line. Meanwhile, in Japan, we've successfully initiated our Phase III study, representing a key step towards potentially bringing trofinetide to patients in this important market. Now before I close, I wanted to take a moment to acknowledge and thank everyone involved in our COMPASS Prader-Willi syndrome study and the ACP-101 clinical development program. We are so grateful for the dedication and contributions of the patients, families, study site personnel and physicians who participated. While the outcome wasn't what we hoped for, we hope that learnings from the trial will benefit the Prader-Willi community, and we're actively sharing our insights while we work to add the findings to the scientific literature. Our pipeline continues to represent a powerful engine for future growth as we look to advance therapies for underserved neurological disorders and rare disease communities. We anticipate continued activity across our pipeline over the coming years with multiple programs progressing through key stages of development. As a reminder, across our 8 disclosed programs, we anticipate initiating 5 additional Phase II or Phase III studies between now and the end of 2026, demonstrating the depth and diversity of our development portfolio. And of course, we anticipate reporting 4 Phase II or Phase III study results in 2026 and 2027. And now I'll pass over to Mark for a review of our financials. Mark Schneyer: Thank you, Liz. Let me walk you through our third quarter financial results. We delivered an excellent quarter that underscores the robustness of our commercial portfolio, which enables us to generate strong revenue and cash flows while continuing to invest strategically in growth opportunities. The third quarter was strong across the board with $278.6 million in total revenues, up 11% year-over-year. DAYBUE achieved net sales of $101.1 million, up 11% year-over-year, all of which is attributable to volume growth. The gross-to-net adjustment for DAYBUE in the quarter was 22%. NUPLAZID delivered net sales of $177.5 million, up 12% year-over-year, with 9% of that growth attributable to volume. The gross-to-net adjustment for NUPLAZID was 25%. Turning to operating expenses. R&D expenses were $87.8 million in the third quarter, up from $66.6 million in the third quarter of 2024, with the increase primarily attributable to higher clinical trial expenses from our ACP-204 LBDP and ACP-101 programs and personnel expenses, partially offset by lower clinical spend from programs that have completed. SG&A expenses for the third quarter were $133.4 million, essentially flat with the prior year. Turning to the balance sheet. We ended the quarter with $847 million in cash compared with $762 million at the end of the second quarter. Looking ahead to our full year 2025 guidance. We're making targeted updates that reflect our strong performance and outlook. For NUPLAZID, we're raising the lower end of our guidance range and increasing at the high end to $685 million to $695 million, up from $665 million to $690 million, reflecting the momentum we're seeing in the business. For DAYBUE, we're modifying to include contribution from our named patient supply programs and narrowing our prior guidance range and now expect $385 million to $400 million compared with prior guidance of $380 million to $405 million for U.S. only. Regarding operating expenses, we now expect R&D expenses of $335 million to $345 million compared with prior guidance of $330 million to $350 million. For SG&A expenses, we now expect $540 million to $555 million compared with prior guidance of $535 million to $565 million. Our financial strength positions us exceptionally well to finish 2025 strong while making the investments necessary to drive sustained growth in 2026 and beyond. I'll now turn the call back to Catherine for closing remarks. Catherine Owen Adams: Thank you, Mark. As we wrap up today's call, I wanted to emphasize our commitment to finishing 2025, getting over $1 billion in total revenues, positioning ACADIA for continued growth in 2026 and beyond. We continue to be confident in the stability and growth trajectory driven by our new sales team for DAYBUE, reflected by the over 1,000 patients globally who are now on treatment. We're focused on unlocking NUPLAZID's full potential with our strategic field force expansion and proven patient engagement campaigns. And we now have the elements in place to further accelerate that growth. We are dedicated to advancing our robust pipeline, as Liz has described, and look forward to the 4 major readouts expected in 2026 and 2027. We also continue to focus on expanding our portfolio through business development with our strong balance sheet providing flexibility to pursue partnerships and acquisitions. Ultimately, our mission drives everything we do, to turn scientific promise into meaningful innovation that makes a difference for underserved neurological and rare disease communities around the world. We are here to be their difference. I'm excited about what lies ahead for ACADIA, and I'm confident that our strategic investments and unwavering focus on our patients will deliver value for all of our stakeholders. And with that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] That first question comes from the line of Ritu Baral with TD Cowen. Ritu Baral: I wanted to ask about the expanded NUPLAZID client-facing force. Catherine, how is that organized? Is it along the lines of focus on the newly activated prescribers? How should we think about it in terms of community versus long-term care facilities, which is a way that historically ACADIA has broken up the population for NUPLAZID? And which of those 2 has the most likelihood for continued growth as you see the market right now? Catherine Owen Adams: Thanks, Ritu. Appreciate the question. I'm going to ask Tom to explain. He's been leading this charge for us. So Tom? Thomas Garner: Thank you for the -- thanks for the question. So as we think about the expansion that, as we mentioned, we plan on executing in Q1 of next year, there's a few different factors, I would say, are playing into our thinking. So as you think about kind of the new writer base, if we look at kind of dynamics during Q3, we actually saw that in terms of our overall prescription volume, 26% actually came from new writers. So I think this really talks to the way that our campaigns are working, the execution of the field force. And it's been that kind of underlying dynamic that we've actually seen throughout the year but actually accelerated in Q3 that's really given us the confidence to pull forward this investment into Q1 of next year. In relation to your question regarding community versus LTC, actually, we're seeing growth across all channels. We're seeing growth both in the community setting and in the LTC setting as well. And there are various channels that we see the NUPLAZID scripts being pulled through. So in essence, we're investing in both. If you're looking at it from an absolute kind of percentage terms, we're actually investing slightly more on a percentage basis in the community, but at the same time, we are going to be modestly increasing our LTC team just given the dynamics that we're seeing in that space as well. So long story short, we're investing in both and at the same time, making sure that wherever we see a NUPLAZID script, we're able to pull that through as optimally as possible. Operator: Your next question comes from the line of Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: I have one on ACP-204. With the top line data for Phase II coming out middle of next year, I'd be curious if you could comment briefly on what you would see as a clinically meaningful score on the SAPS-H+D score and also, if you could just discuss related to that why that particular scale is a good one to use in this context. Catherine Owen Adams: Thanks, Yigal. Liz is leading that for us, so I'm going to ask her to comment on the scales and the confidence around both [indiscernible]... Elizabeth Thompson: Yes, absolutely. Thank you. So I'll go in reverse order, I suppose, and start with SAPS-H+D and why we landed there for Alzheimer's disease. So SAPS-H+D is actually an end point that we do have some experience with in our prior pimavanserin trials. It was involved in the pivotal study for PDP, and it was also part of the relapse criteria in HARMONY. And so overall, we feel like we have a good understanding of that end point and its responsiveness. It is well set to measure the domains that we think are important in this patient population. And it's one of several end points that are in the literature that are supported as being relevant for this patient population. We are measuring other things as well. So that is how we landed on this as the primary end point for the Phase II portion of this study. In terms of how we're looking at this, I'll -- first, I'll note the powering piece, and then I'll talk a little bit about what we're looking for in this trial. In terms of how we size the trial, we actually did this on effect size, and so we're looking for roughly a moderate effect size, a 0.4 effect size on SAPS-H+D. But really, what we're looking for in the Phase II is to continue to understand how we progress towards our overall target product profile for 204, and that certainly has an efficacy component to it, but it also is about making sure that this is appropriate for use in this patient population. I think there are a number of important unmet needs here, sparing cognition, avoiding daytime sleepiness or sedation, avoiding increasing risk of falls or fractures, avoidance of motor adverse effects. So there's a number of things we're going to be looking for that we feel good about based on what we know about 204's profile, but we're sort of holistically going to be looking at the profile of the drug in this trial. Operator: Your next question comes from the line of Tess Romero with JPMorgan. Tessa Romero: So for DAYBUE, you cited the highest quarter-over-quarter referral growth since launch this quarter. Double clicking, how do you think new patient starts will look sequentially here over the next few quarters in light of the growth you are seeing? And second one is just a quick housekeeping. When do you think you will finish enrollment in the Phase II trial in ADP? Catherine Owen Adams: Thanks, Tess. I'll ask Tom to kick off about the referral dynamics we're seeing and we saw in the quarter and then Liz to talk about 204. Thomas Garner: Yes. So thank you for the question. In terms of DAYBUE and referral dynamics, we're really encouraged by what we saw. In Q3, we saw actually our highest rate of referrals since essentially launch. And if you look over the last 12 months, we're really growing at a pretty decent rate now, which is very encouraging. In terms of pull-through, just given standard dynamics that you would expect, it does take some time for a referral to then become an actual new-to-brand prescription. Given the dynamics that we saw during Q3 and the acceleration that we saw, we would anticipate that we'll continue to see growth in actual active patient counts through Q4 into 2026 and beyond. Catherine Owen Adams: Liz, do you want to touch on 204? Elizabeth Thompson: Right. Sorry, 204. So again, just reiterating the [ predicting ] midyear for top line results here. We're really keeping a careful eye on enrollment for the right patient populations. I don't have an exact date of final enrollment here, but we anticipate that, that would be occurring sort of in the Q2-ish time frame to enable that midyear. Operator: Your next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Congrats on the quarter. Maybe another question on 204. Can you talk a little bit about maybe the overall study conduct, how you're feeling about that? And are there any -- I guess, any -- have there been any -- or will there be any looks at the blinded safety data that might inform the potential around having the QTc prolongation advantage or anything you could learn about things like risk of falls or some of the other aspects of the profile that you talked about that could give you kind of an early read into that? Catherine Owen Adams: So first, overall, pleased with how the study is progressing thus far in terms of behavior of sites, investigators, the patient population that we're getting in there. We are laser focused on making sure that we are getting the right patients in here, trying to -- not trying to, we are verifying them with biomarkers to make sure that this is a biologically confirmed Alzheimer's diagnosis, which we think is going to be important. From a blinded safety perspective, I'd say a couple of things. We do have a DSM-V that looks after this on an ongoing basis. So we would get any indication of anything that is concerning from that perspective, and thus far, they've been supportive of continuing the study on as planned. And we do monitor on an ongoing basis from just sort of medical monitoring perspective. That said, I don't like to comment on data from ongoing blinded trials because you never really know how that's going to sort out across arms. Operator: Your next question comes from Ash Verma with UBS. So Youn Shim: This is So Youn on for Ash. Just wanted to get back to the risk-adjusted peak sales guide that you have provided at your R&D Day. What is your latest thought on the $2.5 billion and $12 billion peak sales you provided on risk-adjusted and nominal basis? Catherine Owen Adams: It's a little bit difficult to hear, but I think what you asked was how our -- how we're commenting on our peak potential that we talked about at R&D Day and our expectations for the commercial portfolio within that same discussion. So let me talk about the overall aspirations for ACADIA. R&D Day, we shared that we aspire to achieve a $12 billion top line should all of our pipeline programs hit during the next 2 to 3 years. And as you know, unfortunately, our 101 program did not hit, and so we would take about $800 million to $1 billion from that top line expectation. So we would now, if we were speaking about the same thing, aspire to achieve the $11 billion total peak sales of our currently shared portfolio within that same group of compounds. In terms of our commercial aspirations, we shared the $1.5 billion to $2 billion for our commercial brands, NUPLAZID and DAYBUE, and we are still absolutely committed to deliver on that and look forward next year to share a little bit more clarity about both of those brands and our expectations for each of them so that you can understand where we see both of those in the next 2 to 3 years. Operator: Your next question comes from the line of Sam Beck with Deutsche Bank. Samuel Beck: This Sam on for David Hoang. Just a quick one from us on NUPLAZID. If you could just provide a little bit more detail on any drivers you're seeing behind the higher average net selling price in the quarter, that would be great. Catherine Owen Adams: Yes, I'll ask Mark to take the net selling price question around NUPLAZID. Mark Schneyer: Yes. I think at this point, I think when you take all the puts and takes that go into pricing and the fact that the majority or the supermajority of sales for NUPLAZID are for Medicare-based patients, kind of our year-over-year pricing is about the rate of inflation. That's been our expectation the whole year, except for the kind of onetime pricing benefit in the first quarter, and that's really what we saw in this quarter. Operator: Next from the line of Evan Seigerman with BMO Capital Markets. Malcolm Hoffman: Malcolm Hoffman on for Evan. For DAYBUE, with the CHMP opinion expected in the first quarter next year, how can you make sure scripts kind of get off the ground quickly after what could be a positive opinion there? Catherine Owen Adams: I'll let Tom take that. He's leading our European team. We're all getting ready for that right now. So Tom, why don't you share our plan? Thomas Garner: Absolutely. So thank you for the question, Malcolm. So as you'd imagine, there's a significant amount of energy being put behind our launch readiness planning in Europe. We're going to be following kind of the standard track that you see for any approval in Europe, so we will be out the gate first in Germany. And I can tell you, we're already gearing up to make sure that the team is ready to go there. So we already have a small group of key account managers. We have a handful of folks working on the medical side of the organization, and they've been very actively engaged already with prescribers -- well, actually with Rett treaters from across the universe. I mean, as you would imagine, each of the European markets looks very different to the U.S., but we are making sure that we have the right infrastructure in place, the right focus in place. And I'm pleased to announce that actually in this quarter, we opened our compassionate use program in Germany and have already had a number of requests from German HCPs to enroll their Rett patients in that program, which we think is a very nice kind of early indicator of enthusiasm to use the product. And obviously, we'll be making sure that, that experience is positive as we build out towards the launch. Catherine Owen Adams: Do you want to share a little bit more about the other countries who have also opened their program in the last quarter? Thomas Garner: Sure. So also pleased to announce that we have just opened programs in Italy and France. Again, we're pursuing wherever the regulatory and legal frameworks allow us to do so in early engagement programs. And as we mentioned on the call, we also have our ongoing rest of world patient access programs as well, which, again, encouragingly, we continue to see ad hoc requests in an unsolicited fashion coming through to the [indiscernible]. Operator: Your next question comes from the line of Sean Laaman with Morgan Stanley. Sean Laaman: I have a question on the 30% increased investment to NUPLAZID. I guess, could you describe in percentage terms of how many new prescribers you might be reaching with that investment? And what's the headroom there before you get near saturation? And if you can provide any guide on quantifying what the cost of that investment is, that would be really useful. Catherine Owen Adams: Yes. I'm going to let Tom talk about the increase, and we'll go from there. Thomas Garner: So as I mentioned a few minutes ago, we actually saw a very nice uptick during the quarter in terms of new prescriptions increasing through actually new writers, which was over 25% in the quarter. As we look ahead to kind of opportunities for growth and as we've really kind of done a deep dive on what that assessment looks like and where we see the opportunity, we see a ton of opportunity across a wider group of customers that we've been actually calling on to date. Just for reference, historically speaking, we've generally called on neurologists. We've called on some movement disorder specialists and some psychiatrists. But as we look at that 26% who are new to writing prescriptions for NUPLAZID, a ton of those are now coming from primary care. They're often nurse practitioners or advanced practitioners that are now writing NUPLAZID. And in reality, we want to ensure that wherever that prescription is written, whether it be for a patient in the community or in the LTC setting that we're really highlighting the benefit that NUPLAZID can offer. And just as a reminder, in terms of headroom, our share in terms of NBRx remains in the mid-20% range. So if you just think about the upside opportunity that we have, given the size of the overall PDP population in the U.S., there is still significant headroom for growth. And that's what we're aiming to tap into in 2026. Catherine Owen Adams: And I'll let Mark share a little bit more about how we plan to make that investment. Mark Schneyer: Yes. I think in terms of people, it's about 50 customer-facing reps. I think you can certainly use standard benchmarks for what that cost is. We don't dive into the exact cost at this level of detail but consider 50 reps plus some home office support and other things that go around that for the kind of overall investment. And we'll just share this kind of within our guidance for SG&A expenses next year. Operator: Your next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: I maybe just wanted to ask about why you think now is the right time to add to the field force for NUPLAZID. And how are you deciding like what is the right size? Is this a final change or final increase that you think you need to make? Or are there certain targets that you might be monitoring? And if so, can you kind of share a little bit about how you are thinking about needing more or less people as this launch matures? Catherine Owen Adams: Yes, Tazeen, let me start, and then I'll let Tom dive into a little bit more of the details. I think as I came onboard last year in September, the team had just started their DTC communications, both the unbranded and the branded. And we weren't sure how impactful that was going to be. We knew it probably would have some traction. But again, we haven't really been in the DTC space for a while since pre-COVID, and we wanted to understand the impact of that type of DTC investment. We've now got a year under our belt, and we can see and you can see in the numbers real traction in terms of carers and their families being made aware of what the symptoms of Parkinson's disease can be beyond motor and then those sort of awareness levels now translating into moving into the physician office and physicians now also with our increasing real-world evidence and data generation around NUPLAZID being confident in prescribing it for the right patient to treat their hallucinations and delusions. So all of those metrics have come together. And with the important IP win that we had for NUPLAZID, allowing us to continue to feel confident about our IP runway in the U.S., we felt it was time to reassess the opportunity for NUPLAZID. Tom has been leading that reassessment. And from that, he has made the decision, and we have as a management team, that it's right to invest now. And so maybe, Tom, you can talk a little bit more about some of those investment decisions. Thomas Garner: Yes. I mean, I think, Catherine captured it really well. I mean it's really been a story of momentum this year for NUPLAZID, and Q3, in particular, has really seen this kind of step change in how we're seeing referrals across the board. And I think given that momentum, that gave us the opportunity and the lens to really have another look at what our customer model look like, especially as you think about the world where we're seeing a number of new prescribers outside of our core kind of target base really beginning to latch on to the benefit that NUPLAZID can offer and really engaging with this community in terms of where they're engaging with health care professionals, which, as a reminder, it can be quite challenging to get time with a neurologist or with a PDP specialist. And we think that with this expanded reach, we'll be able to actually help these patients really understand the benefit that they can afford and see with NUPLAZID beyond what we're doing today. So it's about really capitalizing on momentum and then ensuring that we have the right structure in place for both today and tomorrow, to your question, that we believe will put us in a really very strong position to maximize the opportunity ahead. Catherine Owen Adams: And just a final thought. We've been very focused at ACADIA on ensuring that we are building a company that's built on a foundation of analytics and insights and data. And within the new expansion, it's being fueled by analytics, data and insights, and we'll be using both that and AI on top of it to ensure that we really efficiently now find our patients and target them and so I think the combination of the new data being sort of driven by a focus on analytics technology. We have a new CIDO in place to help us drive that, and so I feel very confident that it will not only be an efficient focus but also a very effective one. Operator: The next question comes from the line of Jack Allen with Baird. Jack Allen: Congrats to the team on the progress made over the course of the quarter. I wanted to ask on the European opportunity for DAYBUE. I just want to [indiscernible]... Catherine Owen Adams: Jack, you just cut out at the end. I heard reimbursement in Europe. Could you just maybe just repeat the question for us? Jack Allen: Yes, sorry about that. I hope you have me better now. Yes, I wanted to ask about reimbursement in Europe. I know there were -- in Canada over the summer and wondered what your thoughts are and your early conversations are around payers in Europe ahead of a potential European launch for DAYBUE. Catherine Owen Adams: Thanks, Jack. So yes, we are obviously in the middle of discussions and thinking right now around reimbursement in Europe. And you're right, we did have a disappointing decision in Canada. Tom, do you want to share a little bit more about how we're thinking about reimbursement in terms of the sequential approach to that in Europe? Thomas Garner: Absolutely. So as I mentioned a few minutes ago, our plan would be that we launch first in Germany. And as a reminder, in Germany, as we launch, we have 6 months of repricing, which we will obviously think very carefully about what that looks like, especially just given some of the other dynamics that we continue to monitor across the board, such as MFN. But I think given the engagement that we've already started with payers and clinicians, we remain pretty confident actually that our European clinicians and the broader environment are seeing the benefit that DAYBUE can offer. And I think as we continue to generate new real-world evidence in the U.S., we're going to ensure that we leverage that as we go into discussions with European payers and beyond as well to really ensure that the value of DAYBUE is fully understood and realized across the markets where we're launching. So more to come. But again, I think we're excited about the opportunity in Europe and look forward to putting DAYBUE into the hands of many more patients who clearly deserve this treatment. Operator: Your next question comes from the line of Paul Matteis with Stifel. Julian Hung: This is Julian on for Paul. I guess just on ACP-204, I was wondering if you guys could clarify the exposure response relationship you've sort of seen from pimavanserin and the work you've done on ACP-204. You often allude to like your learnings that you've had from development as well -- from an execution perspective as well as from a scientific and biological perspective and why you believe greater potency with ACP-204 will translate to greater clinical benefit. Catherine Owen Adams: Liz? Elizabeth Thompson: All right. I'll try and get all the things that were in there. So starting with the exposure response. So both in the Alzheimer's disease population as well as in Lewy body, we do have some information from pimavanserin suggesting that with higher levels of exposure, you are able to get to higher levels of improvement on the clinical end points and that the median exposure that we're able to achieve with pimavanserin leaves some of that efficacy on the table. So it's sort of midway through that exposure response downward curve. And the reason for that, of course, is that, unfortunately, with pimavanserin, there was a tendency towards QT prolongation, which limited the ability that we could dose range. So we were not able to push the average patient up to the near maximal efficacy that you could get with a higher exposure level. With 204, we don't have that problem. So thus far, our nonclinical and our clinical data are supportive of the fact that there is not a signal of QT prolongation here. And overall, our experience has been such that it is supportive of moving to our current clinical doses, which we're looking at in our Alzheimer's and Lewy body programs, where the lower dose is roughly equivalent to the exposure with the marketed dose of NUPLAZID and the higher dose is roughly twice that. So those are the pieces that give us some optimism that we have the possibility of exploring higher levels of efficacy. But even if we are not able to actually achieve higher levels of efficacy with the higher doses, we do think that there are some program learnings that we're able to apply here. Certainly, in both cases, we have programs that are focused specifically on the disease under study. The pimavanserin data in Lewy body is promising, but it's a limited number of patients. And the Alzheimer's program had a single dedicated study and then a subgroup in an overall study. So here, we're going to be able to bring to bear much more robust data evaluating both of these disease states. So those are the things that we take together to give us some real enthusiasm about 204, which, again, we see as potentially having the possibility of really changing the trajectory of this company. Operator: Your next question comes from the line of Marc Goodman with Leerink Partners. Basma Radwan Ibrahim: This is Basma on for Marc. We have a question on DAYBUE. You mentioned that the penetration is lower in the patients older than 11 years old. Do you believe that this lower penetration is driven by the higher discontinuation in this age -- in this older age group? The reason why we're asking this question is we would expect that the improvement in communication skills and other effects may be minimal in the older patients and maybe that's a lack of effect to drive greater discontinuations. And also, could you clarify whether the age of Rett patients, in general, seeking treatment is skewed to the younger age group or it's basically uniform across the different age? Catherine Owen Adams: Thank you. I think there's some important opportunities there to clarify what the data actually says about DAYBUE efficacy across the age groups and to share a little bit more about what we're seeing in the field. So Tom, do you want to answer it? And if, Liz, you've got any efficacy points to add on top, that would be good. Thomas Garner: Absolutely. So thank you for the question. So I mean, going back to the original premise. Do we think that the reason that we are slightly lower penetrated in patients greater than 11 years and older is due to discontinuations? I don't think that that's the case. I mean, essentially, what we have to remember is the vast majority of patients who have been kind of treated so far, again, if we look at penetration by age are those in the 2 to 4 age bracket. Newly diagnosed patients, they're easy to identify, and they generally fall under the focus of the center of excellence. And I think that that's a group that we've been able to penetrate very early on. If you look at the last quarter, interestingly, 65% of our patients were actually older than the age of 11, so it's a group of patients that we believe that we can really begin to penetrate further still. And especially with our LOTUS real-world evidence generation, which, as a reminder, has patients as old as 60 included in it, we do continue to see a group of -- well, we continue to see patients seeing benefit irrespective of age. And this has been part of the strategy as we've extended our reach beyond centers of excellence because many of these patients who are slightly older, unfortunately, they sit within the community setting. They may not be under the care of a COE, and they may not even be aware of DAYBUE. In fact, we just heard about a patient story yesterday for a patient in Kansas, who was receiving Rett -- sorry, DAYBUE for the first time but before they came into the center have never even been made aware of DAYBUE. So I think it really does talk to the fact that we have more work to be done, both in terms of educating the community about what Rett is and what to look for and at the same time, ensuring that they understand the benefit that DAYBUE can offer to these patients irrespective of their age. Catherine Owen Adams: Liz, do you want to enhance a little bit on that? Or is there anything you want to add about the data that we've shared? Elizabeth Thompson: Sure. I mean -- so I agree with everything that Tom said there. I think that going back even to the original clinical trial, there is supportive data suggesting that there's efficacy in patients above 11 as well as below 11, though it is a somewhat smaller proportion of our overall patient population. But exactly, as Tom said, we've also been tracking these patients in LOTUS as well and see evidence of improvement in those patients as well. So I think that it is an increasing body of evidence that supports the fact that DAYBUE does bring benefit to patients in line with the indication, which is not restricted in terms of the age. Catherine Owen Adams: Yes, I think that's the key. We see DAYBUE efficacy across age ranges, and we want to ensure that neurologists and treating physicians are educated about the data and don't have preconceived notions about specific efficacy in specific age groups. And that's a big focus of Tom and Allyson and the team as we move into next year to really ensure that, that data is shared specifically to encourage the physicians that aren't so well versed in Rett to really look at the data and think about it for all patients, not just younger patients. So with that, it's a good question, isn't it? Operator: Your next question comes from the line of Ami Fadia with Needham & Company. Poorna Kannan: This is Poorna on for Ami. Congratulations on the quarter. My first question is we've seen some IRA impact feedback coming for therapies such as AUSTEDO. Is there any read-through for NUPLAZID based on this? Is this more positive than you expected? And my second question is, how is ACP-211 differentiated from SPRAVATO and the emerging psychedelic class in depression? Catherine Owen Adams: I'm going to ask Mark to answer the IRA question first, and then I'll ask Liz to talk about the differentiation of ACP-211. Mark Schneyer: I think on the IRA, there's not a great comp yet for NUPLAZID as NUPLAZID is the first and only approved therapy for its indication, and so it doesn't have competition with other branded agents as well as we haven't seen a comp like that go through the IRA negotiation. So simply speaking, I think we'll see how this evolves as and if NUPLAZID goes through negotiations or others in a more comparable situation, and that may or may not have read-through for what a NUPLAZID negotiation may look like. Elizabeth Thompson: As far as -- switching gears quite a lot to 211 as far as 211 is concerned. So we've designed 211 as an oral therapy, and what we're hoping for here is the potential for ketamine-like efficacy or SPRAVATO-like efficacy with a very different patient experience in terms of the degree of required in-office monitoring. And the data that we have so far supports that, both in terms of animal models that suggest efficacy as well as lacking sedative impacts or dissociation. And in healthy volunteers in our Phase I study, we've demonstrated the ability to reach high doses with no sedation and minimal dissociation. We think if this reads through in our upcoming clinical trials, we are looking to start this Phase II in 211 before the end of this year. And we designed this, of course, to look at efficacy but also very importantly, to rule out unacceptable levels of sedation and dissociation. So we think that there is a potential for a really appealing product here. Operator: Your next question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: On the LBD psychosis study, can you just help us understand the rationale for enrichment of the Phase II with the additional patient groups, including LBDP and the PDP population instead of just focused on Lewy body dementia psychosis specifically? Elizabeth Thompson: So Lewy body dementia psychosis is sort of an umbrella term that actually encapsulates dementia with Lewy bodies as well as Parkinson's disease dementia psychosis. And so what we're looking to do in our Lewy body program is actually ensure that we're looking at roughly equivalent numbers of both of those 2 patient populations to understand any similarities and differences in terms of how they behave. This will help us in terms of designing what future studies could look like. When we look at the population in the pimavanserin data set that is specifically that Lewy body dementia psychosis, the numbers are relatively small, but it is very promising data, and that's part of what had us move this program forward and part of what makes us enthused about it. Operator: Your last question comes from the line of Sumant Kulkarni with Canaccord Genuity. Sumant Kulkarni: You're investing more on NUPLAZID, and there have been some questions already about that. But we're finally seeing some excitement in the Parkinson's market. Then, AbbVie recently announced the sales force expansion on the strength they're seeing for VYALEV and the potential approval for tavapadon. So how do you think this additional focus on the Parkinson's market from a relatively large player might influence the market or diagnosis rates for psychosis associated with Parkinson's? Catherine Owen Adams: So I'll start and then maybe give a perspective from Tom. I think -- so let's just start by reminding everybody that NUPLAZID is the only branded product approved for Parkinson's disease psychosis. But as we see more activity in an overall Parkinson's market, I think what history would tell us is that once more -- once larger companies are in the market talking about Parkinson's disease more fulsomely with more people, there does tend to be an increase in terms of awareness of different elements of the disease. And as Tom has already alluded to, 50% of patients suffer from psychosis or suffer from the hallucinations and delusions of Parkinson's at some point during their journey. And so it wouldn't be unsurprising to sort of see that rate increase. What we do know right now is that there's a relatively low-level awareness amongst families and caregivers of those symptoms, which is why we've been putting effort behind the unbranded campaign. And that would still have to be true because those sort of non-motor-related symptoms generally go undiscussed and unfocused on by the physicians and their families. And what we have understood is that we need to continue to talk about them to ensure that those questions are raised. As we continue to educate physicians with our expansion, Tom, I think we probably hope to see that the physicians are starting to learn more about it themselves. But I don't think without us, it's going to be sort of a natural place for them to go with other companies. What would you say on that? Thomas Garner: No. I mean one thing I would say, I mean, I think it's well recognized that Parkinson's in general is one of the fastest-growing neurological disease types in the United States. As a reminder, there's estimated to be about 1 million patients with Parkinson's in the U.S. And as we kind of then take a step down into those patients who are actually diagnosed with hallucinations, delusions, it's somewhere between 40% and 50% of that population at any given time. By our estimate, there's about 130,000 of those patients who are actually diagnosed an atypical and psychotic during the course of the disease. That's not to say there's more work to be done here because I think if you look at most patients as they go through their Parkinson's journey, to begin with, they are fully focused on the movement elements of the disease. And unfortunately, not everybody is educated on hallucinations, delusions that can commonly concur. And I think one of the key calls to action that we're trying to drive at the moment that if a patient, even if early in their disease course, is experiencing hallucinations or delusions, that, that is a trigger point to start treatment. That's a trigger point to make sure that they're engaging with an HCP, whether it be a neuro or it be their primary care physician to make sure that they're having that dialogue to ensure that appropriate action can be taken. We believe that that's where, quite honestly, NUPLAZID can play a really critical role just given its profile, given its safety profile and given the growing body of evidence that Catherine mentioned earlier on. So I think taken together, clearly more upside, and I think that that's one of the reasons that we have decided that now is the time to really up-invest in our customer-facing approach to NUPLAZID as we look forward. Catherine Owen Adams: Now is the time, is a great way, I think, to end that question. Thanks very much. Operator: Since there are no further questions, I'll pass it along to Mrs. Owen Adams to proceed to closing remarks. Catherine Owen Adams: Thanks, everybody, for your questions. We're really excited about what lies ahead for ACADIA, and we look forward to our next call. Operator: Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Zalando publication of the Q3 Results 2025 Conference Call. I'm Vicky, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Patrick Kofler, Director of IR. Please go ahead, sir. Patrick Kofler: Good morning, and welcome to our Q3 2025 earnings call. Today, I'm joined by our co-CEO and Interim CFO, David Schroder. David will kick it off with a business update before he walks you through the financial development of the quarter. Finally, David will discuss our outlook and will be available for questions afterwards. As usual, this call is being recorded. The live webcast as well as the replay of the call will be available on our Investor Relations web page later today. I will now hand it over to David. The floor is yours. David Schröder: Thanks, Patrick. Good morning, everyone, and thank you for joining today's call. We continue to execute on our ecosystem strategy at full force, and the third quarter demonstrates its effectiveness in capturing profitable growth across both of our B2C and B2B segments. Our strong Q3 results incorporate, for the first time, the fully consolidated financial results of ABOUT YOU effective July 11, the closing date of the transaction. Final step of the squeeze-out will -- which implies the delisting of ABOUT YOU will happen very soon. With our continued strong performance in the third quarter, we are well on track to achieve this year's combined guidance and to make further progress towards our midterm targets for 2028. Let me now walk you through the 5 key highlights of the third quarter on Page 2. Number one, we are pleased to report strong financial performance in Q3 2025, demonstrating our resilience in what still is a dynamic geopolitical and macroeconomic landscape. We achieved 6.7% year-on-year pro forma GMV growth, with an even stronger pro forma revenue growth of 7.5%, on top of a strong prior year baseline. Our profitability also remained solid with adjusted EBIT reaching EUR 96 million, slightly surpassing last year's figures despite negative impact from the inclusion of ABOUT YOU. Number two, in B2C, we continue to expand into lifestyle with a key focus on sports this year. Today, we announced an exciting new partnership with the German Football Federation, DFB. I'll come back to these very exciting developments in a moment. Number three, our B2B segment continued its double-digit growth trajectory. We are pleased to highlight several successful large-scale client go-lives and extensions, along with enterprise merchant wins for both ZEOS and SCAYLE. Further details on this will follow shortly. Number four, as already announced, we are equally excited to welcome Anna Dimitrova as new CFO to Zalando. She will officially start on January 1, 2026. Throughout her career, she's been responsible for all aspects of finance, including Capital Markets and Investor Relations. Her experience in fast-moving capital-intensive technology-driven sectors positions her perfectly to support Zalando's ecosystem strategy, and work with our teams to seize the exciting opportunities ahead. And number five, on the back of our strong year-to-date performance, we are confirming our combined guidance for full year 2025, including ABOUT YOU from the 11 July 2025 closing date onwards. Let me now elaborate on the progress of our B2C strategy as detailed on Slide 3. To briefly recap, with our ecosystem strategy, we are extending Zalando's reach and relevance beyond fashion into broader lifestyle areas, playing an even more important role in our customers' lives. This involves creating a distinct and engaging experience that positions us as the go-to destination for sports enthusiasts. Our strategy continues to yield positive results, demonstrated by sustained customer growth and double-digit GMV increases in our sports proposition last year and this year. Furthermore, we are strengthening our commitment to authentically integrate Zalando into sports culture through strategic partnerships. I'm just very excited to announce a significant stride in these efforts today, an extensive partnership with the German Football Federation. Until 2030, Zalando will be a main partner for the men's, women's and youth national teams. The new sponsorship agreement presents an unparalleled opportunity to significantly elevate Zalando standing as a leading football destination. Following the same playbook, we also made significant strides to boost Zalando's awareness and consideration as a running destination. We've entered partnerships with the Rotterdam Marathon, the Copenhagen Half Marathon, and Berlin Marathon, all with the aim of inspiring runners across Europe. Let's now turn to the latest developments in our B2B business. With our B2B business, ZEOS, we are building the operating system for fashion and lifestyle e-commerce in Europe, unlocking and accelerating digital business opportunities for brands and retailers. Building on our unique infrastructure and technology capabilities, we are now scaling and enhancing our offering with a particular focus on logistics and software. Regarding logistics, we already announced our large-scale strategic partnership with British retailer, NEXT, last November. This collaboration has successfully launched in September this year in 21 markets on next.com and additional European marketplace businesses. We are pleased to announce that British retailer, Marks & Spencer, has expanded its collaboration with ZEOS as well. Having already utilized ZEOS for its marketplace business, the partnership now covers fulfillment for the brand's entire Continental European e-commerce business to take full advantage of one single stock pool. With the acquisition of ABOUT YOU, we also complemented our software offering with SCAYLE, a leading enterprise digital commerce platform. This shop system allows us to better support the most important channel of our merchants with their own e-comm. After the initial go-live of the partnership, we are very thrilled to see the go-live of DEICHMANN on SCAYLE shop system in its key market, Germany. DEICHMANN is the market leader in European shoe retailing. We are equally happy to celebrate another key merchant win, namely Netto Marken-Discount, the German discount grocer. This partnership is a great example that SCAYLE is the perfect shop system for implementing modern retail concepts in different verticals, efficiently and at scale. This concludes our key business updates. Let's now take a look at our Q3 financials. In doing so, let me first focus on our group level figures on Page 5. All presented financial figures are as reported figures, including ABOUT YOU's results from the 11 July 2025, closing date onwards. Additionally, GMV and revenue growth are presented on a pro forma basis. For the corresponding prior year period, historical pro forma figures include ABOUT YOU's results from the 11th of July 2024 onward. In Q3, we sustained our profitable growth trajectory. GMV saw a reported growth of 21.6%, while reported revenue grew by 26.5%. This increase was primarily due to the inclusion of ABOUT YOU. Pro forma GMV grew by 6.7% and pro forma revenue increased even more by 7.5%, supported by strong performance of Zalando Marketing Services, ZEOS Fulfillment and SCAYLE, all of which contribute revenues but are not included in our GMV figures. Our focus on driving profitable growth is also reflected in our adjusted EBIT performance. On a reported basis, combined adjusted EBIT including ABOUT YOU, reached EUR 96 million, slightly surpassing last year's figure of EUR 93 million. On profitability, the inclusion of ABOUT YOU acted as a headwind and resulted in an adjusted EBIT margin of 3.2%, 0.7 percentage points below last year's level. Our combined Q3 results once again underscore our consistent progress in achieving profitable top line growth, while simultaneously facilitating investments that cultivate long-term value. Now let's examine the performance of our B2C segment in more detail on Page 6. In Q3, revenue grew by 27.9%, exceeding the GMV growth rate. The strong reported growth was predominantly driven by the inclusion of ABOUT YOU commerce business. Additionally, growth in Zalando B2C was supported by strategic growth investments, such as the Zalando launch in Portugal and the rollout of our upgraded Zalando Plus program. Plus now serves more than 13 million customers. Furthermore, we saw a successful start to the autumn/winter season and particularly strong growth in our lounge, sports and beauty categories. Continued strong growth in Zalando Marketing Services also contributed to B2C revenue growth. Adjusted EBIT declined to EUR 77 million, with the adjusted EBIT margin decreasing to 2.8% due to the inclusion of ABOUT YOU's Commerce business. Before we move on to our customer metrics, I want to briefly highlight something I'm incredibly excited about, the unmatched scale of our total combined customer base following the ABOUT YOU transaction. As you can see on Slide 7, teaming up with ABOUT YOU is a clear testament to our strong position as one of the leading multi-brand fashion and lifestyle groups across Europe. Together, we now serve a combined active customer base of more than 60 million customers. This supreme scale does not only showcase our strong standing in Europe, but further broadens our market reach and provides us with the opportunity to actively influence and shape the European fashion and lifestyle industry hand-in-hand with our more than 7,000 partnering brands. More than 5 million customers already take advantage of both the Zalando and ABOUT YOU platform. They exhibit a significantly higher spending compared to customers that only shop on either Zalando or ABOUT YOU. At the same time, the share of -- the high share of unique customers on both platforms is a clear testament to the appeal of our dual brand strategy, which we are going to leverage going forward to drive growth and to cover an even larger share of the EUR 450 billion European fashion and lifestyle market. Let's now move on to Page 8 and look at the remaining customer metrics of the combined group. With the inclusion, spending per customer held steady at around EUR 300. This was due to the increased spending from customers using both platforms, which compensated for the lower average spend of customers who use the ABOUT YOU platform less frequently. Let's now turn to Page 9 and take a closer look at our B2B segment performance. In Q3 2025, our B2B segment achieved combined revenues of EUR 277 million, marking a 15.6% increase year-over-year. The growth in our B2B segment was primarily fueled by ZEOS Fulfillment, which includes both Zalando Fulfillment Solutions and multichannel fulfillment. Additionally, the inclusion of SCAYLE supported revenue growth. Adjusted EBIT for the B2B segment reached EUR 20 million. The adjusted EBIT margin saw a strong increase of 4.3 percentage points, reaching 7.1%. This improvement was driven by efficiency gains in ZEOS Fulfillment and the inclusion of SCAYLE. Let's now move on to the group P&L on Page 10 and focus on the Q3 performance on the right-hand side of the table. With the change in reporting scope to include ABOUT YOU, all cost lines and the adjusted EBIT margin have been impacted. Group gross margin decreased year-over-year by 1.1 percentage point to 39.6%. More details to follow on the next slide in a moment. Fulfillment costs increased by 0.6 percentage points to 24.3% of revenue, and marketing costs rose to 9.3% of revenues, both primarily due to the consolidation of ABOUT YOU. Meanwhile, the consolidation positively affected admin costs, which improved by 0.6 percentage points. Overall, we delivered a lower adjusted EBIT margin of 3.2%. Now let's examine the gross profit development in more detail on Page 11. Our Q3 group gross profit was impacted by 3 main factors: factor number one, Zalando B2C negatively impacted the group gross margin by 0.7 percentage points. We saw negative impacts from active customer participation in commercial events, strong growth in our lounge business coming with a structurally lower gross margin and the planned revenue deferrals from our updated loyalty scheme. At the same time, we benefited from positive contributions of our partner business, including Zalando Marketing Services. Factor number two, the revenue contribution from ABOUT YOU's commerce business, which currently operates with lower gross margins and a lower partner business share, negatively impacted the group gross margin by 0.6 percentage points. And factor number three, B2B revenues positively impacted group gross margin by 0.2 percentage points. This was due to efficiency gains in ZEOS Fulfillment and the inclusion of SCAYLE as a high gross margin software business, both of which positively affected B2B gross margins. Looking ahead, we remain fully committed to our midterm group level gross margin target of around 40% by 2028. Turning now to Slide 12 for net working capital. Our net working capital continues to be negative in Q3 at minus EUR 141 million. Compared to last year, we see an increase of more than EUR 100 million. Inventories were higher, predominantly reflecting the inclusion of ABOUT YOU. Let's now take a look at Slide 13. As of the close of the first 9 months of 2025, our cash and cash equivalents stood strong at EUR 1.3 billion. This figure represents a decrease of EUR 1.3 billion from the EUR 2.6 billion recorded at the end of last year, primarily due to the paydown of convertible bonds and the consideration transferred for the ABOUT YOU acquisition. This concludes the financial performance review. Let's now move on to the outlook on Page 14. Today's strong Q3 results confirm that we are fully on track to achieve our combined guidance for the financial year 2025, as provided in August. Based on current trading and looking ahead at Cyber and Christmas peaks on the horizon, we anticipate a strong finish to the year, with mid-single-digit pro forma GMV growth in Q4. As a team, we are fully focused now on providing our customers with great experiences, and our partners with top-notch service during the upcoming peak season. For the upcoming year, our ambition remains clear. We will continue to deliver on our ecosystem strategy, accelerate growth and increase profit across both our B2C and B2B segments, fully in line with our midterm guidance. This will be supported by both accelerated growth of our platform business in B2C and further scaling of B2B, delivery of cost synergies enabled through the combination of Zalando and ABOUT YOU as well as continued cost efficiency measures. This concludes our presentation for today. Let's now open for Q&A. Operator: [Operator Instructions] First question from Adam Cochrane, Deutsche Bank. Adam Cochrane: The first question I got is on the basket size that you've reported, you've got the combined number. How has the sort of basket size progressed over the period? I know that as you're gaining new customers, they generally come in at a slightly lower average basket size. Is it possible to give us any sort of view on how the existing customer base basket size is evolving? And then obviously, you've got the new customers coming in. And then you've got the acquisition of ABOUT YOU as well. It's quite hard to get a picture of what's going on within the basket size. And then secondly, in terms of the B2B business, how is it evolving without the benefit of SCAYLE? And within SCAYLE, would you guys give any view on -- you've dropped in a few names there of clients. How much EBIT do these clients generate from the SCAYLE operation? Just so we get a flavor for talking about Netto as an example or DEICHMANN. I don't want them exactly, but how much EBIT do these clients generate for the group? David Schröder: Adam, thanks for your questions. I mean, looking at basket size development, I think the most important thing to understand, and as we've explained when we released our strategy, is that our key goal is really to increase GMV spend per customer, right? So our key focus is on the wallet of customers rather than the basket size of each individual purchase because ultimately, that's what we need to drive to drive customer lifetime value and to also obviously drive value of the business. That being said, obviously, we have taken measures over the past years, as you know, to improve our order economics also on individual orders, and that has led to an increase in average basket size actually both on Zalando and ABOUT YOU. And yes, that's also a trend that we actually expect to continue in the future. But as you know, what we are even more focused on at the moment, is to drive more frequency, frequency of engagement through our inspiration and entertainment efforts, but also frequency of shopping, especially through our loyalty program, Zalando Plus. And then on your second question regarding developments in B2B. I think I'm happy to confirm that even without including SCAYLE, our B2B business looks very strong, continues its double-digit growth trajectory that we've also talked about earlier this year, predominantly driven by ZEOS Fulfillment. And as we've also commented already in the presentation, the margin also without SCAYLE is up year-over-year in that business. And SCAYLE is contributing obviously even more revenue growth due to the first time inclusion on an as reported basis and then also obviously supports the margin due to the strong software gross margins, which then also leads me to the second point that you asked for. So if we look at SCAYLE specifically, obviously, it's a high gross margin software business, meaning that we -- if we add meaningful revenue which, in the case of large enterprise merchants can be right in the millions. There's also a strong drop-through of that revenue on to the bottom line. Operator: The next question is from William Woods, Bernstein. William Woods: The first one is just on, obviously, you're engaging in kind of more sponsorships with the German Football Association, et cetera. Do you think that this will become a larger portion of the business? And do you think the marketing spend might have to come up over the next couple of years? And the second one is similar to Adam's question, just on the active customer growth. Can you give some color on who you're acquiring either by gender, age category? And are you seeing similar retention rates? And then where do you think there's further room to go in terms of acquiring customers? David Schröder: Sure. Yes. So maybe taking a step back on sports in general, right? I mean, as you know, we -- as one pillar of our B2C strategy, we are definitely keen on expanding more into lifestyle areas beyond fashion. We see this as a key way to drive share of wallet and GMV per customer, as I also just explained on Adam's question. And especially the sports business is appealing there, right? Because sports, in a way, very nicely brings together style, culture and obviously, also performance. And we see that there's generally a high interest from our customers in that category, and that's why we also enjoyed significantly double-digit growth last year and also seeing strong growth this year. And for us, the sponsorships are now really an opportunity to, yes, further step up our game in sports and further raise awareness and consideration with customers to continue to grow that category very strongly. In terms of the implication that has on our marketing spend, I think what we rather see it as a reallocation of marketing spend within the marketing budget, so we don't intend to increase our marketing spend on a relative basis. I guess we've always said, over time, we rather aim to take it down in relative terms over time, and that is still very much true today. For us, it rather means, yes, we refocused some of our marketing spend on these big partnerships because we think they are an interesting new way to engage with customers, especially when it comes to these exciting new lifestyle propositions. And we've seen it work very well with the running sponsorships that we've done this year. So as we talked about in the presentation, several partnerships with key marathon events. And in the running category, we've seen even higher growth rates than in sports overall. So I think we have strong proof points that exactly this strategy is working, and we're now using the same playbook for football. Also ahead, obviously, of the large-scale events coming up next year with the World Cup in the U.S., Canada and Mexico. And then second question on active customer growth. I mean, we are very happy actually at both Zalando and ABOUT YOU to see this strong active customer growth continue. I think it shows us that we are far from reaching maturity levels anytime soon. I mean as we've talked about multiple times, the market is huge. Our market share, even combined, is still very small. And we continue to attract customers across all our markets, really, right? So even in more mature regions like DACH, still looking strong on new customer acquisition. It's also broad-based across age groups, across also the different propositions, which also provide us with a new angle obviously, to attract customers, right? So some customers now are also coming to us because of beauty, because of sports, because of kids, right? And I think that is very much explaining the strong traction that we are seeing on the active customer side. Operator: The next question from Georgina Johanan, JPMorgan. Georgina Johanan: I've got 2, please. The first one was just on the synergy guidance of EUR 100 million, I think. Just any updated thoughts on that from the early work that you've been able to do? And then secondly, I think just following on from, I think, Adam's question on SCAYLE, I think I'm right in saying that ABOUT YOU's guidance historically was for about EUR 25 million or so of EBITDA for their fiscal '25 from that business. It would just be really helpful even if it was on a one-off basis to understand the sort of level of depreciation that was going through SCAYLE, just so we could get a sense of that EBIT contribution, please? And then just sticking with SCAYLE, I know ABOUT YOU has talked about the potential for U.S. client wins. So just wanted to understand if that was something that you were still targeting under your ownership, please. David Schröder: Sure, Georgina. So on synergy guidance, I think nothing has changed since the last update. If anything, I guess, we are becoming more and more confident with every day that we are working together, that we'll be able to deliver on the synergies that we promised and might even find new ones along the way. I think one thing to still keep in mind, we already mentioned that several times in the past, is that the largest amount of synergies is obviously backloaded. So we'll mainly then hedge the outer years, 2028, 2029. But obviously, we are working hard to enable those synergies already with the actions that we are taking today and also next year. But yes, we'll be happy to provide further updates as we move along, most likely already then with our full year results in March next year. On SCAYLE, I think I'm afraid that I can't help you out on the specific details. You asked for what I can confirm, however, is that the strong gross margin and also EBIT contribution that SCAYLE has talked about in the past. It's also something that is obviously now driving our B2B business forward. As you can imagine, we've now reporting on a combined basis, we are also taking the same approach to capitalization that we are taking for Zalando overall. So no difference here in the treatment going forward. And with regards to the U.S. opportunity, indeed, this is potentially one of the biggest opportunities for additional SCAYLE momentum in the future. As you know and have seen, the momentum is very strong in Europe already. But obviously, the total addressable market could be significantly expanded if we gain a foothold in the U.S. And so it's a key priority for us as a group and for the SCAYLE team in particular. I'm definitely happy to report that there are several key discussions in, yes, what I would call close to final stages. So I would say, stay tuned for further updates to come in that regard. Operator: The next question from Sarah Roberts, Barclays. Sarah Roberts: Two from me, please. Firstly, digging into the B2C Zalando gross margin moving parts a little bit more. Could you walk us through the key moving parts of the B2C gross margin? We know there's some impact from partner program and ZMS, some headwinds from loyalty, but can you quantify these? And then how much of the pressure on gross margins reflect a more price-sensitive or promotional consumer? And then secondly, the M&S partnership for ZEOS looks like a strong win. Could you share a little bit more color on its potential contribution to B2B revenues? And give us a sense of when we might start to see those revenues coming through for B2B? David Schröder: Yes. So on B2C gross margin, I mean, the overall impact is something that you see very transparently, I guess, in the bridge that we provided. In terms of the quantitative impact of the different factors influencing, especially the Zalando B2C gross margin, I think I'm definitely happy to tell you how they rank, right, in terms of how much they influence the picture. The biggest impact definitely comes from the commercial activations that were very successful across our destinations in Q3, considering also that, that is seasonally a quarter very much driven by commercial activations with end of season sales, for example. Yes, second largest impact then came from the lounge business, showing very strong traction and I think also allowing us to have a strong offer for value-focused and value-conscious consumers in the current market environment. I think that's the key strength of the group that we can also cater to these needs, whereas our main destination, as you know, is more geared towards quality full price. And then the smallest impact, but that's one we already flagged to you same time last year, essentially came from the continued rollout -- successful rollout of the loyalty program, which saw a 30% increase in active memberships quarter-over-quarter. And then obviously, it's also reflected in our gross margin on the B2C level. These are the negative ones. I guess, on the positive side, obviously, we did -- as we commented, we did benefit from the higher gross margin of our partner business, especially also the continued double-digit growth of our Zalando Marketing Services. And yes, then coming to your question on the Marks & Spencer partnership, I mean, I'm personally super happy actually to see that after this landmark deal with NEXT, we are now seeing also strong interest from other brands and retailers to go for a similar setup, essentially trust us, not with just a part of their business, but go all in with the ZEOS solution, especially to leverage its full advantages across Continental Europe, where I would say our network is really one of a kind in fashion and lifestyle, and also is able to deliver superior performance in terms of customer service and cost efficiency at the same time. I think the deal here is further testament to that. And as you can imagine, we are also talking to some other clients for similar moves. And yes, we'll see that impact come through next year. As usual, there's a bit of integration and onboarding work that needs to happen, has also happened with NEXT, but as you can imagine, the more we do these kinds of rollouts, the better we get, the faster we get and the faster we can also scale our B2B business going forward. And so we expect it to also contribute to our growth acceleration next year. Operator: The next question from Frederick Wild, Jefferies. Frederick Wild: I'm afraid, I've got 3. So first of all, could you give us a bit more detail about current trading? Particularly, was it consistent across October and any trends there? Second, is the gross margin year-on-year move in Q3 a good guide for Q4? Because I was looking at the fact that ABOUT YOU seems to have structurally lower margins in Q3, so should we see some recovery in year-on-year gross margin in Q4? And then finally, I'd like to understand, please, what the partner program GMV mix was in the quarter, both for the combined group and for Zalando stand-alone? David Schröder: Sure. Yes. I mean on current trading, I think we see ourselves very much on track to hit our full year guidance. As we said, we expect, on a pro forma business -- basis, sorry, mid-single-digit growth in Q4. And that is very much supported by what we've seen so far. So we're not betting like on an acceleration in the -- what you could call second half of the quarter, but it's very much what we've also seen so far, and basically expecting that to continue throughout the remainder of the quarter. Now gross margin-wise, I think Q3 definitely can serve as a good indication for Q4 in the sense of the effects that we just talked about, right? The impact from the inclusion of ABOUT YOU, the impact from commercial activations, impact of a fast-growing launch, impact of loyalty program, accounting effects. I think all these are very much going to persist in Q4. And that's why I think that gives you a good indication for what to expect also next quarter. And then last but not least, I think looking at partner program performance in terms of GMV growth, we saw both retail and partner business grow almost equally strong in the third quarter. And so that also then implies that there's no bigger change in mix on the Zalando side. Keep in mind, obviously, that the partner share on the ABOUT YOU side is significantly smaller, but it's also accelerating as they are now driving the platform transition to a true marketplace model on the ABOUT YOU side. Operator: The next question is from Yashraj Rajani, UBS. Yashraj Rajani: I've got 2, please. So the first one is, how does your role as an aggregator change with the advent of Agentic AI, please? Like what are you doing to ensure that you are a beneficiary of AI traffic rather than being adversely impacted by agents directing customers to brand websites rather than your website? So that's the first one. The second one is -- you made a comment that you are far from maturity and still growing. Appreciate it's still quite early to comment on next year, but does that comment mean that you can potentially accelerate GMV growth next year? Or do you think that at this point, it's better to be conservative and potentially a mid-single-digit GMV growth for next year is a reasonable place to be, which is where consensus is? David Schröder: Sure, yes. Thanks for your questions. I mean, on agentic -- and I think that's very much in line with how you've seen Zalando act in the past, right? So when we see shifts in the industry, be it early on the shift from web to mobile, then later, obviously, also seeing other shifts in the industry towards more inspirational formats and so on, I think we've always had the ambition to lead that change and to also leverage these shifts as an opportunity to strengthen our business, to accelerate our growth and to, yes, obviously, also grow our share. And we think the same way about agentic, and that's also why we decided to really act early. You've seen that happen for example, through our targeted efforts to develop our very own Zalando system, which is an agentic interface on our own premises. We've, yes, I think learned a lot. We've also managed to roll it out and scale it over time. And we're obviously, looking at other use cases as well, I think especially important to consider that, yes, the opportunity in the end is also huge on the B2B side of the business as many brands and retailers are asking themselves these questions, how to grow their business and continue to engage with customers in an agentic environment, and I think SCAYLE can also obviously play a key role in enabling them for that future. And that's why, yes, we continue to embrace that opportunity and make sure that once again, similar to the shifts in the past, we come out strong and use it as a way to further strengthen our position in the industry without being naive, of course, right? So we also know there are potentially areas of this development that we need to have a careful eye on. But yes, I think the key focus is really on the opportunity that it creates for us. Regarding next year, and as also stressed during my outlook presentation, I think, yes, indeed, we are aiming to accelerate growth further next year. And so I think that's something you should expect from us. We definitely expect it from us, going forward, in line with really the midterm guidance that we have provided to you a while ago. Operator: The next question from Richard Chamberlain, RBC. Richard Chamberlain: Two also for me, please. I just had, first of all, a question about inventory. How are you feeling about the composition of your inventory at the moment? How fresh is the inventory overall? And then the second one is on the midterm gross margin target of 40%. Can you just remind me what the key drivers you think are for improvement to get to that level? Will that come from more buying and procurement? Or will that come more from improved full-price sales? David Schröder: Sure. So on inventory, I think we feel very good about our inventory position. I think it has enabled us to also have the right offer for customers. It has enabled a strong season start already in September and now continued good trading in the months thereafter. I think it's really important to realize, I made that comment earlier that the quantitative impact you see us report is mainly due to the inclusion of ABOUT YOU, right? And so if you -- yes, if you would essentially consider that impact and the remaining increase on the Zalando side is comparatively small and hence, very much in line also with the growth rates that we are driving at the moment. Now on the gross margin outlook. We are very much focused on gross margin, as you know, and we also are very committed to achieving the around 40% that we guided towards for 2028 as part of our midterm guidance. And the building blocks really remain the same, right? So on the B2C side, we see further opportunity to increase the retail margin, more full price sell-through. Also, obviously, thanks to economies of scale, better cost of goods and so on. I think the other key part, obviously, is that as we continue to increase the platform part of our business or the partner business and especially also Zalando Marketing Services, we add a lot of high gross margin revenue, which will also contribute to an increasing B2C gross profit margin over time. And then what obviously also contributes to the 40% outlook is the B2B business, which is growing strongly, but which comes with a structurally lower gross margin, though that obviously does not mean that it comes with a structurally lower adjusted EBIT margin, right? So on adjusted EBIT, as we've seen this quarter, actually B2B can be a very strong contributor and will definitely also be going forward. But yes, gross margin, especially on the logistics revenues, is obviously lower than on the retail side. Operator: The next question from Clement Genelot, Stifel. Clement Genelot: Only one from my side. So just as a follow-up on the agentic, as we have -- well I recently seen the multiplication of partnerships in the U.S. between OpenAI and online platforms. On your side, would you be open to the idea of striking similar partnership with OpenAI or other AI chatbots in Europe? David Schröder: Yes, definitely. I mean, I think we've been successful in the past when driving innovation with a combination of in-house efforts and then also partnerships. I think our -- the very initial development, for example, of our Zalando Assistant, also came about by leveraging OpenAI technology. But I think important for us as part of our strategy, and that's also what I meant earlier with we don't want to be naive, right, is that while we like these partnerships, we don't put all our eggs in one basket. So the approach we are generally taking is to be model agnostic. It's hard to say who will win in the end, right, and what model will be best for which use case. And therefore, we continue to experiment with different models, and we also build our tech stacks in a way that we can easily exchange models depending on who performs best at a given point in time. But I think, yes, this general approach of co-innovation with strong partners is one we will continue to leverage going forward. Operator: Next question from Mia Strauss, BNP Paribas. Mia Strauss: And maybe just -- I think you've talked about the commercial environment a bit. But how would you characterize the promotional environment at the moment before even heading into the key trading events? And then just secondly, can you just remind us of what is your marketing strategy on social media? So I think the point was touched on about redirecting to brands websites, but how do you bridge the gap to be redirected to Zalando's platform? David Schröder: Sure Mia. So in terms of the promotional environment, I think we've basically seen a continuation of what we already saw in the past quarters. No surprise, right, given the continued rather muted macro environment also in some of the key countries in Europe, for example, Germany consumers, in general, I would say, remain a bit more price conscious and value seeking. That's why we see strong responses to our commercial activations. That's also why, especially our lounge business is performing particularly well. And yes, obviously, we are taking that into account when we optimize our go-to-market strategies for the current environment. But for me, that's more tactics, right, where, obviously, we need to make sure that we always stay relevant for consumers and fulfill their needs in pursuit of long-term customer value accumulation. What it does mean is that we change on our general strategic direction, right? So we continue to see our role in the industry as a role that supports brands that also drives quality and is not overly focused on price. Now coming to your second question on engaging customers on social media. Obviously, we are very active on social channels, and it's also an important part of our content strategy, not just in terms of customer acquisition, but also -- yes, sometimes the first steps of an inspiration journey, obviously, start on social media. We do a lot on our own, but we also do joint campaigns with key partners through ZMS. However, I think it's important to understand that our primary goal is really to engage customers on our own premises. And that's why we typically construct these campaigns in a way where, yes, you might see your first hook on a social media app, but then we aim to move customers into a funnel where they then continue their inspiration journey on Zalando. And I think that's especially where new innovations like our Zalando feed experience, which we talked about in our half year report, in which we've now rolled out to a number of countries successfully, where these innovations can also help us further drive user engagement because they allow a much more immersive, much more content-rich experience than what we were able to offer before. And I think it also really blurs the lines a bit between the inspiration you can get on social media and what you see on Zalando. And yes, the first reactions from customers in terms of how much engagement they show in each visit, but also in terms of frequency of visits are very promising. And that's why we will continue on that path. So essentially considering ourselves our own best marketing platform, while obviously working also with social media outlets going forward. Operator: The next question is from Anne Critchlow, Berenberg. Anne Critchlow: I've got 2 questions, please. The first one is in terms of the seasonal promotions and commercial activations. Just wondering if there's been any shift from Q4 into Q3 this year in terms of the weighting? And also whether you think there's been a shift to the start of the autumn/winter season, particularly in the DACH region from Q3 into Q4, maybe from a weather perspective? And then the second one, please. Just in terms of the virtual fitting room, whether you're getting any different results, any developments there? Any other initiatives on size and fit? And also, if you could talk a little bit about the differences between the return rate between that Zalando and ABOUT YOU. David Schröder: Sure. I mean in terms of seasonal development, I think everything that we've seen so far points to a very normal seasonal pattern. Had a good start to the season, but also then the usual, I would say, timing and also performance of mid-season sale. And that's also why we expect similar trends to continue throughout the upcoming peaks. So nothing unusual, I would say, very much in line with what we've seen in the past. And then in terms of size and fit, it remains a key strategic topic for us, predominantly also because we think it differentiates us from other platforms to provide our customers with superior size and fit advice. We've seen very good responses in the past. And that's why we're doubling down on these investments. Virtual fitting room, I think, is working well. I think the key task here for us is to scale it to more products over time because it's really, yes, much harder to scale in a way than the pure data-driven size advice that we already offer for the bulk of our products. You need much more information about each single product than you need if you just try to match a size with a customer, but we are confident that, that will unlock the next level of size advice to improve the customer experience and to also further reduce size-related returns. When we look at return rates overall, and I think that's also to be expected given that we sell largely similar items on ABOUT YOU and Zalando. After all, if you look at same geo and similar items, I think the return rate is really not so different between the 2 platforms. Operator: The last question comes from Vandita Sood, Citi. Vandita Sood Chowdhary: I just have 2 quick ones. Firstly, could you give us an update on how the integration with ABOUT YOU is evolving and if you are expecting any sort of changes to the synergies that you guided to before, basically not being too significant this year? And also if there's any seasonality between the third quarter and the fourth quarter in that? And then secondly, I saw that you're now buying back some shares just for the employee program. Just wondered how you think about the timing of when you do these and how we should model it? David Schröder: Sure, Vandita. Thanks for your questions. I mean, on ABOUT YOU, as I said earlier, I think everything is working super well so far. Both teams are excited to team up. I think we've seen very good traction on now also executing against our ambitious plans to drive value strategically and financially, and so we are very confident to achieve the synergies we outlined to you in our half year call also with the ramp-up over the next few years. Obviously, much more impact to come in later years due to the nature of the synergies. And yes, as I also said earlier, I definitely see an opportunity to also identify additional sources of value creation over time, be it in the stand-alone business ABOUT YOU or also through synergies between our activities in B2C and B2B. So no changes. I think just more certainty and confidence that we'll deliver on what we shared. And then on the share buyback, I think that is really to be seen in light of what we also did in the past, right? So very regular procedure, a very similar amount as well, up to EUR 100 million to fund our existing share-based compensation programs. We expect these shares to be bought over the course of the fourth quarter. And as usual, you will also see the reporting of the share buyback on our website. Operator: This was the last question. I would like to turn the conference back over to you, gentlemen, for any closing remarks. David Schröder: Sure. Thank you very much. So yes, great questions, great discussion. Thanks for your interest, as always. Let me take this opportunity to wrap up with the key takeaways of today. As you can see, our ecosystem strategy and the integration of ABOUT YOU are progressing very well. In the first 9 months of 2025, we delivered strong growth and increased profitability, and we are fully on track to deliver on our combined guidance for 2025 and also on our midterm guidance beyond. So thanks, everyone, for joining today's call. Have a nice day. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to today's Legrand 2025 9 Months Results Conference Call. For your information, this conference is being recorded. [Operator Instructions] At this time, I would like to hand the call over to CEO, Mr. Benoît Coquart and CFO, Mr. Franck Lemery. Please go ahead, sir. Benoît Coquart: Thank you very much. Good morning, everybody. Franck Lemery, Ronan Marc and myself are happy to welcome you to the Legrand 2025 9 Months Results Conference Call and Webcast. Please note that as usual, this call is recorded. We have published today our press release, financial statements and a slide show to which we will refer. I begin on Page 4 with the 3 key highlights of this release. First, Legrand delivered robust sales growth and very solid margins over 9 months. Second, we are sustaining a strong acquisition momentum and, third, our 2025 full year target rate in July are confirmed. So moving to Page 6. I will start with an overview of sales. Over 9 months, excluding FX, our sales grew by plus 14.5%. This includes an organic growth of plus 8.2%, driven by an outstanding performance in data centers of well above plus 30%. This also includes a positive scope effect of plus 5.8%. And based on acquisitions announced and their likely date of consolidation, the full year impact of scope changes should be around plus 5%. For exchange rates, the effect was a negative minus 2.2% in the first 9 months of 2025. And based on the rates of the month of October, it would be around minus 3% for the full year. On Page 7, you will find the key takeaways per geography on a like-for-like basis. In Europe, in a market that remains overall contrasted, sales were up plus 1.5% over the first 9 months of 2025. In North and Central America, sales were up a strong plus 18%, driven by an outstanding performance of data center offerings. Finally, in the Rest of the World, sales increased by plus 2.5% with growth in Asia Pacific and the Middle East, partially offset by a retreat in South America and Africa. Overall, at group level, as expected, most of the organic growth is coming from data centers that represent 25% of our sales at the end of September, while our sales in residential and other nonresidential buildings are flattish with residential slightly down. These were the main comments I wanted to share on sales. I will now hand over to Franck for more color on our financial performance. Franck Lemery: Thank you, Benoît , and good morning to all of you. I will start on Page 8 with adjusted operating margin. At September end, we recorded a solid adjusted operating margin of 20.7% after acquisition. This represents 20 bps of increase year-on-year, including 10 bps on organic improvement and 10 bps favorable impact coming from acquisitions. The group's profitability over the first 9 months demonstrates the strength of our strategic model and the solid capacity for execution and adaptation, notably, amid evolving global trade policies. Going now to Page 9. The net profit stood at EUR 892 million, representing 12.8% of our sales. The increase coming from operating profit is partially offset by the impact of financial results and a modest rise in corporate income tax. The free cash flow came to EUR 871 million, growing plus 16.3% over the same period of last year. This concludes our key financial topics I wanted to share with you this morning. And I'm now handing over back to Benoît . Benoît Coquart: Thank you, Franck. We are now moving to Page 11, detailing our recent acquisitions. Since Jan, we have announced 7 acquisitions, all in buoyant markets tied to the energy and digital transition for a total acquired annualized sales of approximately EUR 500 million. It includes Avtron, Page 12, a very promising leader in North America and a highly strategic acquisition. First, Avtron strengthens our presence in growing data centers, gray space and energy transition in North America. Second, financial metrics are robust, close to $350 million of sales with high profitability. Third, the transaction is fully compliant with our usual financial criteria of value accretive deals. By the way, I'm happy to confirm that we have just closed the deal a couple of days back. These transactions illustrate our ability and expertise in continuously strengthening our leadership in buoyant fields of activity. To conclude this section on Page 14, we confirm the 2025 full year targets we raised in July '25, building on the achievements we've just mentioned. And taking into account the first 9 months of 2025 results, we target for the full year sales growth organic and through acquisitions, excluding currency effects of between plus 10% and plus 12%. This includes expected organic growth of plus 5% to plus 7% and growth from acquisitions of approximately plus 5%. And adjusted operating margin after acquisitions of 20.5% to 21% of sales. And at least 100% CSR achievement rate for the first year of the 2025-2027 road map. Those were the key topics of this release. I suggest we now switch to Q&A. Operator: [Operator Instructions] We will now take the first question from the line of Daniela Costa from Goldman Sachs. Daniela Costa: I have 3 questions, but they are quick. But the first one is in terms of looking at your guidance and given what you've done already in the first 9 months, the -- I guess, if you take the midpoint of the organic sales growth, you're expecting a flat Q4, which implies -- seems to imply sequentially even more deceleration than what a tough comp means. Can you talk through what would be the things that would get you to that level and why? The other 2 questions are quicker are just where was data center growth and what was your pricing and tariff headwinds? Benoît Coquart: Okay. Daniela, I will take the 3 questions. I will start actually by the data center growth because it explains a lot about our performance in 2025. So as I told you, over the first 9 months of the year, we grew well above 30% in data center. For the full year, we are somehow raising our guidance target for data center growth. We expect now that we should grow in data centers by about 30% in 2025 full year. As you remember that we started the year hinting that we would grow from 10% to 20%. Then we narrowed that and we increased it 3 months back by saying that we should grow 20% to 25%. And we now believe that given what orders in hand and so on and so forth, that we should grow 30%, which is a good performance because at the end, it would imply that over 2 years compounded, we would have grown 50% in data centers, 50%, 5-0. Plus 15, 1-5 in 2024, plus 30, 3-0 in 2025. So plus 50%, which, by the way, is pretty in line with what our listed peer has released because I trust is also at about plus 50% of what we are. So it's a very good performance, probably slightly above what the data center market growth is doing. And we believe that nice growth will continue into 2026. Now the fact is that we have a demanding basis for comparison. You remember that in 2024, we started the year very flattish in data center in Q1. And then we did plus 10%, plus 20%, plus 30%. In other words, in H2 2024, we had a plus 25% growth with an even higher Q4. So the visible deceleration, if I may say, is purely visible. We are at about plus 50% over 2 years. We're going to be close to plus 50% in Q4. But we have to acknowledge the fact that the basis for comparison in H2 and especially in Q4 is demanding for data center. So that's the story of this year as far as data center is concerned, very sustained growth all over the year, no deceleration, but a demanding basis for comparison. So it explains clearly the perceived deceleration that you are mentioning. Now if you look beside data center as a total of our sales, year-to-date, over 2 years, we are at plus 7%. And the midpoint of Q4 would imply 2 years plus 6%. Now it's not forbidden to think that we could do better than the midpoint. But again, the whole visible deceleration, if I may say, is coming from a base for comparison, not from a weaker data center business. As far as the building piece is concerned because I remind you that, of course, 25% of our sales is growing fast, but we also have 75% of our sales made in buildings. It is pretty flattish. As I said in my introduction with commercial being slightly better than resi, mostly because resi is very down in China and a little bit down in the U.S. But overall, it remains pretty flattish, and we don't expect it to recover in Q4. So to make a long story short, the story of 2025 is going to be a very strong sustained growth in data centers of about 30% and somehow quite a flattish building business with probably non-resi, a little bit better than resi. As far as pricing is concerned, which was your last question, we have a selling price over the first 9 months of the year of plus 1%. And for the full year, we will continue to do a bit of pricing. So for the full year, our pricing should be at about plus 1.5%. So if you look on a quarter-by-quarter basis, you will basically have Q1 pretty flat, Q2 plus 1%, Q3 plus 2%, Q4 plus 4%. This is more or less, let's say, with rounded numbers, the pattern of pricing. So our strategy has been, since the beginning of the year, to do progressive pricing, not too aggressive because, of course, we want to keep our competitive positioning. We are doing it to compensate the impact of tariff. I can share another number, which is interesting. Our purchase price are up by about plus 4% over the first 9 months of the year, entirely due to tariff. Yes, Q4 is -- sorry, plus 3%. Franck is mentioning. So pricing, again, 0 in Q1, plus 1% in Q2, plus 2% in Q3, plus 3% in Q4. And the net of all that, let's say, over 12 months is approximately plus 1.5% over the full year. Does it answer your question, Daniela? Sorry, I was a bit long, but I thought it was interesting to give you as much granularity as possible. Daniela Costa: Perfect -- just on the Q3 data center growth, I got the full year at 50%, but I'm not sure maybe I got lost. Benoît Coquart: Well, it's -- for the first 9 months, it's well above 30%. So it remains above 30% in Q3, and it will be about 30% for the full year. Operator: We will now take the next question from the line of Gael de-Bray from Deutsche Bank. Gael de-Bray: I have a couple of questions, please. The first one on pricing. It appears that the 1.5% price increase for the full year is a bit lower than what you had suggested previously. So do you think the price negotiations have changed versus a couple of quarters ago? I mean, have they become any harder? Or is it still the same environment, especially in the U.S. where data center customers are paying for the speed of delivery? So that's question number one. Benoît Coquart: Well, yes, you are true. When we released our 6 months number, we said that we would be close to 2%. Now we are more, let's say, guiding for 1.5%. The key difference is coming from tariff actually. So it's not that we have more difficulties to pass on price increases. But 3 months back, we told you that the tariff impact on a yearly basis should be somewhere between USD 140 million and USD 180 million on a full year basis. We now believe that it's going to be between $110 million and $130 million. So less negative impact, if I may say, coming from tariff. Well, I'm not sure I have to explain why. It's a very fluid situation. Things are moving almost from one week to another. So total impact, USD 110 million to USD 130 million; of which, let's say, $70 million to $80 million are already in the 9-month numbers. So we still have a bit to come in the last quarter. Hence, less need to do pricing. Now if I take one step back, I can confirm that the pricing environment hasn't changed. Our customers are always looking carefully at the price increases. They want to make good deals, whether in data centers or elsewhere. This hasn't changed. But at the same time, we keep our ability to do a bit of pricing because we have many other topics in which to play. Availability, as you rightly mentioned, reliability of our solutions, quality of our aftersales service and so on and so forth. So no change in pricing environment, but a little bit less impact from tariff. Gael de-Bray: Okay. Understood. And then the second question is on the incremental margin. I'm just curious as to kind of the outlook for incremental margins. I mean, in Q3, the margin was flat. But if revenues are looking better, let's say, in the course of 2026 in the European residential market, can we assume that we will also see much higher incremental margins with support from a better mix? Benoît Coquart: Well, guys, you are becoming greedy. We have a long-term guidance, which is 20%. For the fifth year in a row, we'll be above this guidance because we are shooting for 20.5% to 21% EBIT margin, which we believe is a pretty healthy level of margin. For '26, let's discuss that in February, if you don't mind. What I can confirm during this call is that, as you know, we raised our margin target in July, and we are confirming that we will be between 20.5% and 21%. And by the way, we are right in between over the first 9 months of the year with this 20.7% margin. For the '26 topic, let's discuss that in February. Gael de-Bray: And is there any reason to think that the usual negative margin seasonality in Q4 will not apply? Benoît Coquart: Well, again, you know our targets. So we have a year too margin, which is between 19.9% and 21.8%. If you look at what we did over the past 5 or 6 years, we've done both. So there's no reason to believe why our guidance margin wouldn't be met. So we were comfortable of the fact that we will be between 20.5% and 21%. Now if you want me to give you a bit more color on what happened in 9 months, it's a very, very clear story. As you could see in the numbers, we have a margin which is up 20 bps, right, at 20.7%, with a bit of evolution coming from acquisitions. So without acquisitions, our margin would be up 10%. Well, it would be up -- sorry, not 10%, 10 bps. It would be up 30 bps if we take out the other expenses, as you know, because you know Legrand well, you know that our EBIT margin is after one-off exceptional and so on. So it's plus 30 bps, of which minus 40 bps from gross margin, plus 70 bps from leverage on SG&A, all those numbers being like-for-like. So minus 40 bps gross margin, it's the fact that our pricing is not fully compensating in margin inflation, which was expected and plus 70 bps on SG&A is leverage coming from the growth. So it's a pretty clear-cut story. And I confirm that our P&L is well under control and that we will land where we said we would land. Gael de-Bray: Okay. Do I have time for just one more question. Benoît Coquart: Well, a quick one, Gael, because you have a couple of colleagues that are queuing. Gael de-Bray: Yes. So a very quick one. I mean, Eaton and Schneider have made big moves into liquid cooling recently. And I know you have, well, some kind of an offering here in rear door heat exchangers. I'm just wondering if you can increase the scale of that business so that it can really compete against the likes of Schneider, Eaton and Vertiv? Benoît Coquart: Well, it's increasing fast. And the growth rates are pretty impressive on this business, even though it's a small one. Of course, we are always looking at opportunities to expand our portfolio and to grow faster. So if we find good opportunities for additional customer catch for capacity expansion or even for M&A, why not? Now it is a fact that in this business, specifically this one, the price of the assets have gone up very significantly. And you know that, at Legrand, we are not found of deals where you have a return on invested capital of 2% or 3%. So yes, we will -- so we are growing fast already from a small base. We look at opportunities to expand. But of course, we will do it with our traditional value-accretive approach. And by the way, it's worth mentioning that even though we are less exposed to cooling than Vertiv, overall, those were the numbers I was mentioning a little bit earlier. Over 1 year and 2 years, we are growing as fast as Vertiv. So we don't need to be much bigger in liquid cooling in order to sustain very, very rapid growth. Operator: [Operator Instructions] We will now take the next question from George Featherstone from Barclays. George Featherstone: So I just wanted to start with a bit of a follow-up on the fourth quarter implied guidance. Because given your message on pricing up 3% in the quarter, it sort of implies that you're expecting volumes to come down based on your full year guidance. So what would be the reason for that? That would be the first question, please. Benoît Coquart: Well, it depends where you put yourself in the guidance. If you are in the mid, yes; if you are up, no. Well, again, I don't want to spend too much time on that. It's purely basis for comparison. To give you the numbers, Q4 was up by more than 6% last year. First 9 months were down about 1% last year. So there's a significant basis for comparison, which we highlighted already 3 months back and which we are highlighting again today. No change in trend. I really -- I cannot say it louder than that. No change in trends as far as data center is concerned. No change in trend, neither actually positive nor negative when it comes to the building side. So it's purely basis for comparison. It was factored in our initial guidance back in February. It was factored in our upgraded guidance back in July, and it is factored in the fact that we are confirming the guidance today. George Featherstone: Okay. And then maybe just on the data center business. You've been quite helpful in the past, giving us some color on backlog and visibility you have. Is there any color you can give on that again? And then maybe on the orders for the quarter, just sort of growth rates so we can frame that? Benoît Coquart: No, no, it's a fair question. Well, the KPIs are pretty well positive. We have a book-to-bill in Q3, which is still above 1% -- sorry 1, by 1%. We have a backlog which is above USD 1 billion. So no worries at all when it comes to, let's say, the leading indicator of our data center business. We have a good inflow of orders. We are looking with great interest at all the investments, which have been announced by the big guys and which says a lot about the potential business in '26 and '27. So again, I read a few notes this morning saying that our sales are a bit disappointing, but I want to say clear and loud that we are extremely confident on the fact that we're going to grow nicely of data center business in 2025, again, by about plus 30% and that this trend should continue going into 2026. No worries at all of the fact that this business would slow down. It will not. George Featherstone: Okay. Just maybe if I could just press you a little bit more on that. Some of your peers have talked to order growth in the third quarter of over 65%, 70% year-over-year. And the more exposure you have to white space and areas like cooling, the stronger that number is. Can you give us some context where your orders year-over-year landed relative to those peers? Benoît Coquart: Well, yes, the comparison is a bit difficult from one player to another because either you are on product families where you have shortage, in which case, orders are placed sometimes a year or 2 in advance, right? Or you are on business families where you don't have shortage because the companies have managed to increase capacity in the right pace, in which case, the orders do not need to be placed a year or 2 in advance. So I'm not sure it is relevant to compare the order growth of the company X to the order growth of the company Y. What matter is really the book-to-bill, number one. And at the end, what matters is the actual sales. And again, we've been consistently telling you for 5 years now that our sales growth in data centers were, at worst, comparable to what our peers were releasing and quite often better. And again, looking at what we're going to do in '25 and what we did in '24, this is exactly what we are demonstrating. So there's no worry at all. Again, on the data center front, we have very good inflow of orders from all customers. There's no customers missing, if I may say, from all geographies. It's not solely a U.S. stuff, but we have a good inflow of orders coming in Southeast Asia, in Western Europe, in Eastern Europe, in Africa and so on and so forth. And we are confident on the fact that this business is going to continue to perform very well in the quarters to come. Operator: We will now take the next question from the line of Jonathan Mounsey from BNP Paribas Exane. Jonathan Mounsey: I just want to really understand how the business mix, maybe pricing power ultimately is evolving. I mean, we all know that I think you've delivered price rises every year, at least going back to the '90s. And this pricing power has obviously protected margins in many environments. But I'm just wondering now over the long term going forward, you have 1/4 data centers. It seems to me the business model, the go-to-market is not the traditional construction building go-to-market via distributors selling to electricians. Instead, you're competing for tenders into hyperscalers, et cetera. I'm just wondering what that means for the through-cycle pricing power. It seems to me that while things are great today, and I'm not calling the end to that, at some point when volume growth maybe slows or industry capacity catches up with the growth, is this really altering the through-cycle pricing power of your group to be -- to have an increasing proportion of it dominated by data centers? Benoît Coquart: Well, I don't believe that our pricing power came from the fact that we are selling or building stuff through distributors. The pricing power is coming from the fact that price matters a lot for our customers, contractors, whether big or small, but it's not the #1 criteria. The #1 criteria is, let's say, 3 or 4 first criteria is, are the products reliable? Will I have to come back on site to fix a quality issue? Are the products available very easily? Can I save time when installing the product and so on and so forth. And the same applies to data center customers. I can tell you that the Amazon, Google, Microsoft of the world are very price sensitive. They've always been very price sensitive. But on top of price or even before pricing, they want to make sure to have the product on time. They want to make sure that once the product is installed, things will work because any service interruption is a loss of money. They want to make sure that if there is an issue, somebody will fix it quickly on site within a few hours and so on and so forth. And of course, they want to have all that in a cost competitive way. So in other words, I don't believe that the fact that we are doing 25% of our sales in data center change anything when it comes to our pricing power. And going forward, I'm confident on our ability to pass on small price increases year-on-year, providing, of course, we are doing things well when it comes to product quality, service and so on and so forth. So no, I don't believe it will change anything as far as pricing is concerned. And actually, if you look at the past couple of years, we've not done a lot more pricing nor a lot less pricing in data centers than in building. So the pricing pattern has been more or less similar. Jonathan Mounsey: Okay. Just as a follow-up, thinking about the inherent lumpiness of data centers. I mean we can see that consensus maybe struggle somewhat to forecast the growth rate, at least on a quarterly basis as we see this quarter. I'm just trying to think -- maybe you give us some color on the largest customers and projects. I mean, after all the growth we've seen over the last 12 months, what's the kind of typical mix in terms of hyperscalers, say, or the top 5 projects that you sell into? I mean, do they represent a considerable amount of the data centers exposure? And how fast does that sort of mix evolve? In a couple of quarters, could it look radically different? Just trying to understand what the sales mix looks like on those 2 axes and, therefore, maybe better understand how the sales bridge works for data centers. Do you basically just track data center CapEx? Or is our revenues at least on a quarterly basis, often quite concentrated around, say, a few big projects and customers? Benoît Coquart: Well, we'll give you probably a bit more color in February because, of course, we are performing this kind of analysis, but not necessarily on a quarter-by-quarter basis. Now to be a bit candid, the difficulty to forecast is your difficulty to forecast, not our difficulty to forecast. Because from the very beginning of the year, we highlighted the basis for comparison, number one. And number two, again, I'm saying it clear and loud, and I cannot be clearer and louder, but a plus 30% growth in data center in 2025, following a plus 15% growth in 2024 is very good performance, slightly above the market and completely consistent with what the only other peer releasing its numbers, i.e., Vertiv has announced. Midterm, we are -- we said in July that we expected the market to grow in the low teens. I don't know if it's going to be 10%, 12% or 14% throughout 2030. So we've been very clear on the numbers. We've been very clear on the basis for comparison. Now to be a bit more precise, the performance in the first 9 months of the year is not coming from 1 single customer nor from 1 or 2 big projects that would have been game changers as far as performance is concerned. So it's, of course, pulled a lot by hyperscalers because those are the guys spending the most money, but it's not the only one. Colocation is growing nicely. We are also active on other type of customers. We also have some business going through distributors to data center guys, especially aftermarket or smaller type of data centers. The growth is about the same in the 3 geographies: North America, Europe and Rest of the World. Of course, data centers represented the first 9 months of the year, 40% of our sales in North and Central America. So the total impact on our global performance is much higher in North and Central America than elsewhere. But as far as the growth is concerned, it's pretty the same between the 3 zones. So again, it's nothing special to mention except that the market has been growing nicely, and we will grow by a great plus 30%. And going forward, we expect some growth to continue. And we will try to give you more color in February where we will have more detailed analysis by type of customers and so on and so forth. Operator: We will now take the next question from the line of Alasdair Leslie from Bernstein. Alasdair Leslie: Just a sort of follow-up questions really. Sorry, I don't want to re-litigate this too much, but I know you say no change in data center trends quarter-on-quarter. But can we just kind of definitively rule out any kind of mix impacts in the quarter in terms of project deliveries? I know it's lumpy. So maybe last quarter, we just kind of had a lot of larger orders, just the kind of mix impacts or any capacity issues, capacity constraints, execution issues in Q3? Just so we're absolutely clear, there's no [indiscernible] in trends... Benoît Coquart: You're trying to understand whether there was a problem in Q3 or there will be a problem in Q4 in data center. The answer, again, read on my leaps, if you could. The answer is no. Everything is going very fine. The business is great. We have very strong sales, very strong orders, and we're going to grow 30%. Now you may have included in your model a growth of 40% or 50%, but we've never guided for that. Our previous guidance for data center was 20% to 25%, and we are even upgrading this guidance, telling you that it won't be -- 2025, it will be closer to 30%. So there's nothing specific happening except that, again, I can only remind you the pattern of last year, 0, plus 10%, plus 20%, plus 30% when it comes to our data center sales quarter-by-quarter in 2024. So it's purely entirely basis for comparison. Things are going very nicely in the data center business. Alasdair Leslie: Fantastic. Thanks for confirming that. And I guess just a follow-up question. I think you've got 12 months visibility from your backlog. That obviously stretches now, I guess, across most of 2026. So I guess, are you seeing indications in that pipeline that maybe deployment growth could be even higher in '26 than 2025? Benoît Coquart: Well, be careful. I'm not sure I would call that visibility. Yes, indeed, our backlog is mostly over a year. It doesn't extend much beyond 1 year. Now we've always been very careful in mechanically extrapolating a backlog into sales for many good reasons because backlog orders can be pushed, that can be canceled, they can be doubled down actually. So I wouldn't go as far as extending the backlog -- I mean, mechanically, let's say, converting the backlog into sales. When it comes to our 2026 guidance, both for total sales and for its 2 components, i.e., building and data center, we will do that in February. We are releasing our 9 months numbers. It's a bit too early to give you a guidance for '26. Operator: We will now take the next question from the line of Phil Buller from JPMorgan. Philip Buller: Can I ask why you've chosen not to narrow the range at this point in the year? It sounds like you're very confident about landing above the midpoint of the data center outlook in Q4. You sound very confident about -- it sounds like actually you just upgraded the data center outlook underlying for H2. So I'm struggling to understand what end markets has led you to keep the lower end of the range unchanged? And the follow-up to that is, I know it's a bit early to talk about 2026, of course, I was hoping you could offer your current thoughts on what you're seeing on the EU resi end market and the U.S. office market going forward? Are there signs of green shoots? Or have you seen anything this quarter that has made you more or less positive on the outlook for those 2 key markets? Benoît Coquart: Well, it's not Legrand practice to narrow the range in November, and we still have a quarter to go. We still have 75% of our sales in the building where we have absolutely zero visibility. So we decided to keep the guidance as it is. I'm not sure it would have helped a lot the market to narrow the guidance. So we talk a lot about data center because it's the most exciting piece of the business today. It's growing fast and so on and so forth. But don't forget that on 75% of our business, we have no visibility. As far as the building is concerned, I cannot, of course, comment on '26. I can do the same comment as 3 months back. We see some positive signs. I can give you an example, France, for example. If you look at the building permits in France, there has been a sequential improvement quarter-on-quarter for the past 4 quarters. And if you look at the last 12 months ending September, it's up mid-single digit, which is a good signal, and we like to see that. And it's consistent with the fact that 2025 will be the third year in a row of market going down. Now of course, when will it translate in our sales, this is always the same question mark. We are quite late in the cycle, and we love to see those early signs of improvement, but we prefer, of course, to see them flowing into our P&L. So -- and the same would apply for the commercial building in the market. We see also positive signs. You all have seen, especially you, some iconic building being built and opened in the U.S., which we love to see. Those are signs that the market is not bad and that some investors are starting to come back. But again, those are early signs, not yet flowing into our P&L. As far as guidance on '26 is concerned, of course, we'll discuss that in February when we release our full year numbers. Operator: We will now take the next question from the line of Max Yates from Morgan Stanley. Max Yates: I just wanted to ask around prebuying. And I guess you've continued to talk about prices rising into the fourth quarter. And I guess I just want to understand your sort of level of confidence around whether you have seen in perhaps your kind of non-data center business, any prebuying from your distributors? And to what extent can you actually have good visibility on this? Is it an easy thing to check? Or is it really sort of something qualitatively that you have conversations with your distributors about, particularly in the U.S., obviously, where the price rises are most significant? Benoît Coquart: No, it's quite difficult to measure because we don't have 2 distributors. We have a lot of them. And -- but -- so it's more based on conversations we have with them rather than a solid fully reliable KPI that we would track. Based on our conversation, we don't believe there's been any prebuy. So no prebuy. The reason being that -- or no significant prebuy, let's say. The reason being that it's super complicated to estimate what the impact of the tariff is going to be. See what happened with China, 100% additional tariff, then negotiations, it was canceled. So my feeling is that our distributors are not playing this game of prebuying. All the more as they have the ability to pass on price increases pretty quickly to the market. So I think no significant prebuy. No significant other, let's say, technical impact in 2025. So the number of days is not really playing significantly. We haven't seen any inventory building or destocking from our distributors in a given geography, no significant. So I don't believe that any of those technical factors, if I may say, has played on the performance. Max Yates: Okay. And maybe just a very quick clarification. When you were talking about your data center business for next year, I wasn't sure if I heard you say we're going to grow 30% in 2025. And that is a good expectation for next year in '26. Did I hear you say that or not? Benoît Coquart: No, no. I didn't say that at all. Good that you asked the question. No, I -- so sorry to guys, if I wasn't clear. I said, we grew significantly higher than plus 30% over the first 9 months of the year. We're going to grow 30% in 2025 for the full year. For 2026, we don't know yet, and we will give you a guidance in February 2026. And for the market throughout 2030, we still expect to grow mid-teens. Of course, I'm not guiding for a plus 30% in 2026 in data centers. Good that you asked that question. Operator: We will now take the next question from the line of Ben Uglow from Oxcap. Benedict Uglow: On -- within North America, and obviously, I'm trying to back out the portion of non-data centers. Is it correct to think that your underlying growth rate outside the data center business is year-over-year down mid-single digit or more. And it does look as though that, that's worse than the preceding quarter. I may have gotten the wrong end of the stick and these, day I say, these mini models don't really work. But I did want to understand your take on what the underlying trend, year-over-year growth trend is in the non-data center portion in North America. And if there is a change, is that due to residential or office or what's going on there? Benoît Coquart: Yes. Well, no, actually, if you look at the first 9 months of the year, in North America, the residential is down. The nonresidential is slightly up. And given the relative size of each of the 2, overall, it's probably about flat. Flat plus, if I may say, because we have a bigger exposure to non-resi and resi in the U.S. So -- which implies, of course, that the data center is growing nicely. Benedict Uglow: Yes. I guess my question is, sequentially, is there any divergence -- i.e., between 2Q and 3Q, and I apologize for being unbelievably short term, but is there any change in that trend? Or would you say it's the same? Benoît Coquart: No, it's about the same. No significant change in trend. Now of course, the numbers can slightly change one way or the other, but we're not seeing any significant change in trend between H1 and Q3. Benedict Uglow: Understood. And then my follow-up is just on North America, in terms of the operating margin, could you give us a sort of sense or a flavor of the margins that come into your data center backlog versus what your, let's call it, traditional business has been? How potentially accretive or non-accretive to the divisional margin could that be? Benoît Coquart: Well, I don't want to be too specific on North America or the rest of the -- so let me take this question at the group level. There's no significant difference between our data center business margin and our non-data center business. So of course, let's say, the geography of the profitability could be a bit different. In other words, you can have a lower gross margin, lower SG&A. But the net of that is that we have approximately the same profitability between data center and building. This is at group level. There's no reason to believe that it's different at a geographical level. Operator: We will now take the next question from the line of Eric Lemarie from CIC Market Solutions. Eric Lemarié: I've got a first one on data center in the U.S. and on market shares. Could you tell us if Legrand still hold leadership position in the U.S. in busbar and in PDU for data centers? Or did you observe any change in market shares in data centers? Benoît Coquart: Well, we tend to assess our market shares on a yearly basis more than on a quarterly basis. But yes, I can confirm without any doubt that we are leaders in both busway and PDUs as well as a few other product families actually. So to maybe one step back, our market shares in the product families in which we operate have been pretty healthy. When we look at our growth rate compared to the market growth rate, I can confirm that we are doing pretty well. I don't want to be too specific on a number of product families. But yes, to answer your question, yes, we remain by far leaders in those 2 product families. Eric Lemarié: And maybe if I can follow-up one still on data centers. If I'm not wrong, Legrand doesn't seem to be listed as an NVIDIA partner in the website of NVIDIA. And I was wondering if I was wrong or any thought why actually you are not listed? Benoît Coquart: Well, actually, you have -- a lot of people are releasing press releases about the partnership with NVIDIA. A lot are queuing to apply for being NVIDIA partners. We love NVIDIA. We work very, very well with NVIDIA. But we are maybe -- we have a different commercial approach. So we like partnerships. We like working together. We like developing concepts. We like selling products. We are a bit less obsessed by saying that clear and loud to the market. Operator: We will now take the next question from the line of Benjamin Heelan from Bank of America. Benjamin Heelan: I just wanted to ask a question on pricing again, and thank you for the phasing of pricing through the year. Is there a way to disaggregate how you're seeing pricing in data center and your data center exposure versus the rest of the business? And the reason I ask is because some of the competitors in Europe have talked about deflation in certain parts of the market. And also across the data center infrastructure kind of wider piece, you are seeing some very, very strong pricing trends in certain areas of that. So just interested in terms of how you're seeing your pricing in data center and how we should think about that medium term? Do you have pricing power? Do you think you can see good pricing there medium term? Benoît Coquart: No, we haven't seen anything of specific pricing pressure, neither in Europe nor elsewhere on data center. Again, referring to what I was saying a bit earlier in this call, data center customers are price sensitive, but it hasn't changed. They were already price sensitive a year or 2 back, and they remain price sensitive. But it does not, let's say, hamper our ability to do price increase because, again, price is not the only criteria in the customers' mind. Now be careful because there was huge price increases apparently in some spaces in the U.S., especially in gray space in the U.S. because of a lack of products. Like transformers or stuff like that. So when people were ordering products, it could take as much as a year or 2 before they got delivered. And apparently, a number of players have increased significantly their price. But we are not in a great place in the U.S. As far as our products are concerned, the lead time has always been pretty reasonable, 8 weeks, 10 weeks, 12 weeks. And we've always had a reasonable price increases. And we believe that because we are reasonable and doing it carefully, we believe that we keep our ability to do further price increase in the years to come. So no significant changes in trends when it comes to pricing vis-a-vis neither data center customers nor building customers. Operator: We will now take the final question from the line of Nick Housden from RBC Capital Markets. Nicholas Housden: Just a quick one. I was wondering if you could just give us an update on how your energy transition segment is performing? Any growth rates, regional commentary, some commentary in terms of product lines, just anything, that would be great. Benoît Coquart: Yes. It's indeed a good question because the call has been much focused on data center, but the rest also matters. So as I said, for the first 9 months of the year, apart from data center, our sales are flat, and it means slightly up in the energy transition segment. Slightly down in what we call Essentials, so the traditional product families of Legrand and digital -- and sorry, smart home or digital lifestyle. So energy transition are slightly up. Well, of course, why only slightly up? Well, it's because a lot of those products are exposed to the building market. So when you have the residential market being very down in China, for example, whatever the quality of your products and whatever the strength of your market share, your sales are going down also. So that's what I can tell you, slightly up versus essentials and digital lifestyle, slightly down. Operator: I would like to turn the conference back to Benoît Coquart for closing remarks. Benoît Coquart: Well, thanks a lot for your time. I hope we answered all questions you had. If not, well, Ronan and the financial communication team are at your disposal for further clarification. Thanks a lot. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Edna Koh: Okay. Good morning, everyone, and welcome to DBS' third quarter financial results briefing. This morning, we announced third quarter profit before tax up 1% to a record $3.48 billion and ROE of 17.1%. 9-month total income and profit before tax reached new highs. As per our norm, our CEO, Tan Su Shan; and CFO, Chng Sok Hui, will start by sharing more about the quarter. Both will be speaking to slides, which you will see on screen. The slides can also be found on our Investor Relations website. And thereafter, we will take media questions. So without further ado, Sok Hui. Sok Hui Chng: Thanks, Edna, and good morning, everyone. I'll start with Slide 2. We delivered a strong set of results in the third quarter. Pretax profit rose 1% year-on-year to a record $3.48 billion with ROE at 17.1% and ROTE at 18.9%. Total income grew 3% to a new high of $5.93 billion. Group net interest income was little changed as strong deposit growth and proactive balance sheet hedging mitigated the impact of lower rates. Fee income and treasury customer sales reached new highs, led by wealth management, while markets trading income increased on lower funding costs and a more conducive trading environment. For the 9 months, pretax profit rose 3% to a record $10.3 billion as total income increased 5% to $17.6 billion from growth across both the commercial book and markets trading. Net profit was 1% lower at $8.68 billion due to minimum tax of 15% that has come into effect. Asset quality remained resilient. The NPL ratio was stable at 1.0% while specific allowances were 15 basis points of loans for the quarter and 13 basis points for the 9 months. Allowance coverage was 139% and 229% after considering collateral. Capital remained strong. The CET1 ratio was 16.9% on a transitional basis and 15.1% on a fully phased-in basis. The Board declared a total dividend of $0.75 per share for the third quarter, comprising a $0.60 ordinary dividend and a $0.15 capital return dividend. Slide 3, third quarter year-on-year performance. Compared to a year ago, third quarter pretax profit was 1% or $42 million higher, while net profit declined 2% or $73 million to $2.95 billion due to higher tax expenses from the global minimum tax. Commercial book net interest income fell 6% or $238 million to $3.56 billion as the impact of lower rates was partially mitigated by balance sheet hedging and strong deposit growth. The group's net interest income of $3.58 billion was little changed. Fee income rose 22% or $248 million to a record $1.36 billion, led by wealth management, while other noninterest income increased 12% or $61 million to $578 million as treasury customer sales reached a new high. Markets trading income rose 33% or $108 million to $439 million due mainly to higher equity derivative activity. Expenses increased 6% or $144 million to $2.39 billion, led by higher staff costs as bonus accruals grew in tandem with a stronger performance. The cost-to-income ratio was 40% and profit before allowances was 1% or $35 million higher at $3.54 billion. Total allowances fell 5% or $6 million to $124 million. Specific allowances remained low at $169 million or 15 basis points of loans. $45 million of general allowances were written back mainly due to a large repayment. Slide 4, third quarter-on-quarter performance. Compared to the previous quarter, net profit was 5% or $130 million higher. Commercial book net interest income fell 2% or $67 million as net interest margin declined 9 basis points to 1.96% from lower Sora. Group net interest income was 2% or $70 million lower. Fee income rose 16% or $190 million, led by wealth management. Other noninterest income grew 11% or $56 million, driven by higher treasury customer sales. Markets trading income was 5% or $21 million higher. Expenses increased 5% or $123 million from higher bonus accruals. The cost-to-income ratio was stable. Total allowances were 7% or $9 million lower. Slide 5, 9-month performance. For the 9 months, total income and pretax profit reached new highs. Total income rose 5% or $777 million and pretax profit increased 3% or $260 million to $17.6 billion and $10.3 billion, respectively. Net profit was 1% or $111 million lower at $8.68 billion due to higher tax expenses. Commercial book net interest income declined 3% or $310 million to $10.9 billion due to a 27 basis point compression in commercial book net interest margin. Group net interest income rose 2% or $211 million to $10.9 billion as the impact of lower interest rates was more than offset by balance sheet hedging and strong deposit growth. Fee income grew 19% or $599 million to a record $3.80 billion as wealth management and loan-related fees reached new highs. Other noninterest income of $1.65 billion was only 2% or $32 million higher due to nonrecurring items in the previous year. Excluding these items, treasury customer sales grew 14% to a new high. Markets trading income of $1.22 billion rose 60% or $456 million, marking the second highest level on record. The growth was due mainly to higher interest rate and equity derivative activities. Expenses increased 6% or $377 million to $6.88 billion with a cost-to-income ratio stable at 39%. Profit before allowances grew 4% or $400 million to a record $10.7 billion. Specific allowances remained low at $439 million or 13 basis points of loans, while general allowances of $143 million were taken. Slide 6, net interest income. Group net interest income for the third quarter of $3.58 billion was 2% lower from the previous quarter and little changed from a year ago. Lower interest rates impacted net interest margin, which declined 9 basis points quarter-on-quarter and 15 basis points year-on-year to 1.96%. We continue to mitigate the impact of lower rates through two factors. The first is proactive balance sheet hedging, which has reduced our net interest income sensitivity and cushioned the impact of lower interest rates. Second is strong deposit growth, which was $19 billion during the quarter and $50 billion from a year ago. The growth in deposits exceeded loan growth, and the surplus was deployed into liquid assets. This deployment was accretive to net interest income and return on equity, though it modestly reduced net interest margin. For the 9 months, group net interest income rose 2% to $10.9 billion despite a 9 basis point compression in net interest margins to 2.04%. The resilience in net interest income reflects the combined effects of balance sheet growth and of hedging. Slide 7, deposits. During the quarter, the strong momentum in deposit inflow was sustained with total deposits rising 3% or $19 billion in constant currency terms to $596 billion. The growth was led by CASA inflow of $17 billion, most of which was in Sing dollars. The CASA ratio rose to 53%. Over the 9 months, deposits grew 9% or $48 billion, with more than half of the increase from CASA. Liquidity remained healthy. The group's liquidity coverage ratio was 149%. And net stable funding ratio was 114%, both comfortably above regulatory requirements. Slide 8, loans. During the quarter, gross loans was little changed in constant currency terms at $443 billion. Increases in trade and wealth management loans were partially offset by a decline in non-trade corporate loans from higher repayments. As deposit growth outstripped loan growth, surplus deposits were deployed to liquid assets. This deployment was accretive to net interest income and ROE while it modestly reduced net interest margin. Over the 9 months, loans rose 3% or $14 billion led by broad-based growth in nontrade corporate loans. Slide 9, fee income. Compared to a year ago, third quarter gross fee income rose to a record $1.58 billion. The increase was broad-based and led by wealth management, which grew 31% to a new high of $796 million from growth in investment products and bancassurance. Loan-related fees were up 25% to $183 million from increased yield activity. Transaction services and investment banking fees were also higher. Compared to the previous quarter, gross fee income rose 13% led by wealth management. For the 9 months, gross fee income reached a record $4.48 billion, led by new highs in wealth management and loan-related fees. Slide 10. Slide 10 shows the wealth segment -- wealth management segment income. The third quarter wealth management segment income grew 13% year-on-year to $1.54 billion. The growth was driven by a 32% increase in noninterest income, which more than offset a decline in net interest income from lower rates. For the 9 months, wealth management segment income grew 10% to a record $4.38 billion due to a 28% rise in noninterest income. Assets under management grew 18% year-on-year in constant currency terms to a new high of $474 billion. The percentage of AUM in investments also reached a new high of 58%. Net new money inflow was $4 billion. Slide 11, customer-driven noninterest income. We have introduced a new slide to provide a clearer view of noninterest income, which is driven by customer activity. This comprises two components in the commercial, both net fee income and treasury customer sales. For the fee and treasury customer sales fall under different lines of the P&L financial statements due to accounting treatment, they should be viewed equally as they are both driven by consumer and corporate customers demand for financial products. For the third quarter, customer-driven noninterest income grew 22%. Net fee income rose 22% to $1.36 billion while treasury customer sales rose a similar 21% to $581 million, both were at new highs and led by strong wealth management activity. For the 9 months, customer-driven noninterest income rose 17%, driven by record net fee income and treasury customer sales. Slide 12, expenses. 9-month expenses rose 6% from a year ago to $6.88 billion due to higher staff cost from salary increments and bonus accruals. The cost-to-income ratio was stable at 39%. Third quarter expenses were 6% higher than a year ago at $2.39 billion, led by higher staff costs as bonus accruals rose in tandem with a stronger performance. Compared to the previous quarter, expenses grew 5%. The cost-to-income ratio was at 40%. Slide 13, nonperforming assets. Asset quality was resilient. Nonperforming assets declined 1% from the previous quarter to $4.63 billion. New NPA formation at $113 million for the quarter was below the recent quarterly average and was more than offset by repayments and write-offs. The NPL ratio was stable at 1.0%. For 9 months 2025, new NPAs were $449 million, significantly lower than the $739 million from the prior period. Slide 14, specific allowances. Third quarter specific allowances amounted to $170 million or 15 basis points of loans, stable from the previous quarter. For the 9 months specific allowances were $430 million or 13 basis points of loans. Slide 15, general allowances. As at end September, total allowance coverage stood at $6.43 billion, with $2.35 billion in specific allowance reserves and $4.07 billion in general allowance reserves. The general allowance reserves comprised 2 components: baseline GP and overlay GP. Baseline GP refers to the GP set aside for base scenarios. In addition to the base scenarios, we incorporate stress scenarios for macro uncertainty and sector-specific headwinds. As at 30th September 2025, the total GP stack of $4.1 billion comprise baseline GP of $1.6 billion and overlay GP of $2.5 billion. You may recall that we had increased GP overlay by $200 million during the first quarter this year to incorporate tariff uncertainty. Slide 16, capital. The reported CET1 ratio declined 0.1 percentage points from the previous quarter to 16.9%, driven by higher RWA and partially offset by profit accretion. On a fully phased-in basis, the pro forma ratio was stable at 15.1%. The leverage ratio was 6.2%, more than twice the regulatory minimum of 3%. Slide 17, dividend. The Board declared a total dividend of $0.75 per share for the third quarter, comprising an ordinary dividend of $0.60 and a capital return dividend of $0.15. Based on yesterday's closing share price and assuming that total dividends are held at $0.75 per quarter, the annualized dividend yield is 5.6%. Slide 18, summary. So in summary, we delivered a record third quarter and 9-month pretax profit with ROE above 17%. Total income was also at a new high as we sustained the strong momentum in wealth management and deposit growth while mitigating external rate pressures through proactive balance sheet hedging. As we enter the coming year, we'll continue to navigate the pressures of declining interest rates with nimble balance sheet management and our ability to capture structural opportunities across wealth management and institutional banking. So thank you for your attention. I'll now hand you to Su Shan. Tan Shan: Thanks, Sok Hui. So hello and good morning. As you have now seen our numbers and Sok Hui's comments, I will say that the Q3 was a solid quarter. I think the team delivered a solid quarter in spite of very strong interest rate headwinds, especially in Singapore. We had a record top line total income, record fee income, record treasury sales and record PBT. Of course, tax we had to pay the minimum tax. So that took off some of our net profit upside. And I guess from my slide, the -- both the fact that we had some nimble hedging, and we were able to capture some opportunities when the market became volatile, speaks to our resiliency, so was hedging as well as some fixed rate assets. And what was also pleasing was the fact that we saw huge amount of deposits coming back to us. A large chunk of that was also CASA. So at $19 billion quarter-on-quarter growth, a lot of that surplus deposits was deployed to HQLA. And in terms of the structural growth, I think we have both structural and cyclical growth. And both the structural and cyclical growth came into gear in Q3 because the capital markets were very strong. So we saw strong momentum in wealth management fees, up 23% quarter-on-quarter, 31% year-on-year. These are very strong numbers. And whilst wealth management AUM remained very high, I think what was also pleasing is we are seeing the momentum also travel to the retail and retail wealth segment as well. We're trying to get more of that digital flows back and so we had a whole refresh of our digital wealth strategy, which is now yielding fruit. So that's also quite pleasing to see. The second market and cyclical opportunity is in capital markets in both ECM and DCM. So for DCM, as rates come down, corporates are coming back to the market and we are winning market share. I told our DCM team that I think we have a right to win in the global market. And so, to my surprise actually, starting from a very low base, we're now #6 in the Middle East. For example, in the MENA league table as of October 2025, we did 32 DCM issuances, including 13 public bond deals. And we're #1 in private placement league table for the key Middle East banks. So I think if we put our minds to it, we can execute. And I think both the capital markets, GCM, DCM, ECM pipeline looks good. The wealth pipeline looks good and the FICC pipeline looks good, right? So these are both cyclical and structural opportunities to capture more loan fees -- sorry, to capture more fees. The other momentum is in loan fees. You saw the loan fees up 20% year-on-year. That's also structural. Because as I alluded to the last 2 quarters, I think that speaks to IPG's focus on winning market share, wallet share and mind share and having expertise in the industries that we cover and we target. So both the loan-related fees and market trading as well was very strong, up 33% year-on-year. Very strong equity derivatives activities from clients, strong warehousing gains, good customer flows. Then I want to talk about additional assets. I alluded to this also in the last quarter where we talked about the whole digital asset ecosystem and how we had a head start and how we want to continue to drive this head start. And I think the GENIUS Act changed everything, as I said before. And we are still waiting to see how regulations turn out because different regulators have different priorities and different time lines and different ordinances. But we've gone ahead. I mean, for example, this quarter, we issued some structured notes. So we tokenized structured notes on the Ethereum blockchain. We've also announced that we are working with Franklin Templeton's BENJI fund to list that on our digital exchange. We're also working with Ripple to use -- to get Ripple -- to use Ripple currency, digital currency into -- in and out of the BENJI money market fund as well. So we're pretty active in the tokenized ecosystem. We've been tokenizing deposits for a while now, and that's also seeing a lot of customer interest. And we've also started to look at the potential for repo and collateralize use cases as well for tokenized money market funds. Asset quality, as Sok Hui alluded to, pretty resilient. NPL ratio at 1%. And again, I think this speaks to the discipline of the team. Many years back, before COVID, we started to watch-list industries or sectors that we felt were to come under scrutiny or under some pressure. That's worked out for us. So we have been quite early in monitoring clients that might get into problems. And in fact, if you see, we had quite a fair amount of loan repayments in Q3 this year. And surprisingly, that came out of Hong Kong, primarily in Hong Kong real estate. So I think we've been pretty disciplined in who we bank with. We've onboarded and banked really the big blue chip companies. Our LTVs against real estate is pretty conservative. And that's why I think our NPA formation remains at a multiyear low. Next slide, please. So I've been traveling quite a fair bit in Q3 for the IMF and IIF Board meetings in Washington, to the FII in Saudi, the Hong Kong MA, Monetary Authority Financial Leaders Conference this week and to visit my colleagues in IBLAC in China visiting regulators and colleagues in our core markets, Taiwan, China, I'll be in India next week, et cetera. And I will say that there's a lot of momentum in deal flow. There's a lot of momentum in the U.S., certainly in the whole tokenized, stablecoin, digital asset ecosystem. Outside the U.S., there's a lot of momentum in terms of trade -- potential trade flows, both because customers want to diversify their supply chain and also customers are looking for new markets to grow. So this shift in trade and investment flows is something that our team is very focused on, and we're looking at growing the pipeline, say, intra-regional trade between Asian countries, ASEAN countries, China to ASEAN countries, Singapore, China, et cetera. There's been a lot of two-way conversations and the upscaling of the China agreements that most countries in ASEAN have has also been put in place. China GCC trade also is projected to double to $1.9 trillion by 2025. So there's some good structural shifts in global macro flows, and we want to play into that. I talked about the capital markets revival. You all know about the long pipeline of deals in Hong Kong and China. We're trying to play to our strength there as well. Singapore also has a strong pipeline and the MAS' recent measures to rejuvenate the markets here, the equity market development program, seems to be working as well to create some liquidity and some momentum. I was struck also by the concentration of the market cap of the U.S. U.S. still is about 70% of global market cap valuation at $72 trillion, Hong Kong at $7 trillion, China at $13 trillion, Singapore at $0.6 trillion. I think there could be next year, let's see, maybe valuations will change. But the good news is, as I said, the pipeline for ECM remains very strong in our part of the world in Asia ex-Japan. Another theme I want to talk about was the internationalization of the RMB and also the revitalization of the Chinese market. You see that from the authorities talking about high-quality growth. You see also a lot of investments in AI and chips. The enterprise use of AI is formidable and their commitment to internationalizing the use of RMB for global trade, that figure has quadrupled over the last 3 years. That's also admirable. The Southbound Bond Connect is also busy. That's also quite good structural growth in wealth management onshore in China. So wealth, global net wealth reached $512 trillion in 2024. I think that's grown a lot this year because of the market moves and also some wealth creation at the high end. So we remain committed to our strong focus on wealth management. The teams that Tse Koon and his team hired over the last couple of years are starting to mature and yielding returns for us. Similarly, for IBG, the FICC focus, the institutional client focus is also yielding good returns. I've gone to see several global sovereign wealth funds with my team, pension funds with my team. And I think DBS has a role to play with these global II and FICC clients across various products from custody to FICC flows to digital flows to ECM, DCM block placements to repos, reverse repos, et cetera. So I think playing to our strengths in wealth and FICC is structural focus, I've said this time and time again, I feel like I'm a grandmother nagging, but I do believe that these two growth pillars will continue to yield returns in the next few years. And in terms of other big theme, of course, everyone is talking about AI, generative AI, agentic AI, when will agents start using -- when will customers start using their own agents to deal with bank agents, et cetera. Suffice to say, we've been at the forefront of this. We have been rolling out both horizontal and vertical use cases. Some working out quite well, some less well. But I think the momentum continues to be pretty strong. And we're working with various partners, both in the U.S. and elsewhere in Asia to accelerate the tech adoption. And what's pleasing to me is pretty much most of our staff have started to use it. They're saving time, they're taking a lot of productivity saves in the more mundane work, like writing credit memos, KYC, transaction screening. And our wealth managers are using it also to good stead in our wealth Copilot. Our tech guys are using it for coding, for developing. So I think there's good momentum there, and that will continue to evolve. Last but not least, I talked about the growing interest in tokenization of stablecoins. As you know, we had a head start in 2021. We will continue to support regulators in their quest to stay ahead of the trends. Right now, our key focus is on tokenizing deposits. For stablecoins, we will play where there is a play in different jurisdictions. But I think that regulations have to evolve there for us to have a clearer look. In the meantime, we believe that we can play a role, like more of a picks and shovels kind of role in the whole asset ecosystem, whether you want to tokenize your assets, you want to tokenize your deposits, you want to trade on our digital exchange, you want to custodize with us, you want to use it for payments, et cetera, we've learned how to do it end-to-end. So I think that's also a differentiator for us. So the right side is a short pitch of DBS as a differentiator bank, increasingly in a bifurcated volatile world with geopolitics being volatile. I think our clients are looking for a safe neutral bank for their long-term needs, right? And I think DBS plays to that. We've been recognized by Global Finance, it's Asia's safest bank now for 17 years running. And we're ranked #2 globally amongst the 50 top safest commercial banks. So I think being safe, being dependable plays to our strength, and I think we have a right to win more market share. As a diversifier bank, we are now seeing global ultra high net worth thinking they should have a bank in Europe or Switzerland, a bank in the U.S. and quite possibly a bank in Singapore and that bank should really be us. MNCs and FIs as well are looking for a diversifier bank for both the custody needs and their transaction needs, and I think that plays to our strength. As a disruptor bank being an innovative -- having an innovative head start, the fact that we can work with the likes of Franklin Templeton or Ant or JD or any of these big platform companies means we are a head start. We've been holding a lot of teach-ins for our clients. And as the world starts using more generative and agentic AI, we want to be at the forefront of that as well. As I said before, I think the fact that we've organized our data, the fact that we've organized our tech and the fact that we organized our people and processes quite a few years ago, thanks to Piyush and the team's foresight, I think we've created a digital and data moat to be able to embrace these big AI moves that are upon us. So last but not least, the digital and data capabilities I've talked about. We were just recognized the World's Best AI Bank at Global Finance Inaugural AI Awards this year. We've implemented over 1,500 AI models, 370 different use cases, and we hope to create an impact of $1 billion in AI this year. Okay. So next slide is the 2026 outlook. And we are looking for total income to hold steady to 2025 levels in spite of significant interest rates and FX headwinds. We're looking at Sora to hold at current levels of 1 -- well, to hold at the sort of the 1 month and 3-month MAS bill levels at about 1.25. That means there's a 60 basis point decline from this year's average. We're looking at three Fed rate cuts next year. And we are also looking -- well, we're also using for our forecast a stronger Sing. So there, you have significant interest rate headwinds and FX headwinds, which we want to make up for with volume growth and fee growth. So the commercial book noninterest income growth to be in the high single digits. And the reason for that is whilst we have great headwinds on the loan side, we also have tailwinds in terms of our cost of funds because of our floating liabilities as well, mostly in dollars. We are looking to continue to have mid-teens growth in wealth management and also in FICC and to maintain our cost income ratio at the low 40% range. And SP, we've assumed that it will normalize to 17 to 20 basis points. So far through cycle, this has worked and asset quality remains resilient. We're comfortable, but we're not complacent. We're still watching constantly to assessing our different exposures for impact from trade, geopolitics, real estate, et cetera. And so if the macro conditions stay resilient, we could actually also have some rooms for GP write-backs. And if conditions soften, we have quite a lot of buffer, as you heard from Sok Hui earlier on through our allowance reserve and our strong capital ratios. So we're looking for net profit to be slightly below 2025 levels or pretty flat. That's it from me. Thank you very much. Edna Koh: Thank you, Su Shan. We can now proceed to take questions from the media. [Operator Instructions] We have a question from Nai Lun from BT. Tan Nai Lun: This is Nai Lun from BT. I just want to check, right? Because I understand you have a $200 million GP already taken at the start of the year. But then are you foreseeing like you to take more of that, especially as you mentioned, you have some macroeconomic uncertainties or sector-specific headwinds? Sok Hui Chng: Yes. So let me clarify. I will say that actually our stack of total GP $4.1 billion comprise two components, right? The baseline GP and the overlay GP. And the overlay GP is quite substantial at $2.5 billion. If you look at our September last year, it will be about $2.3 billion because we did top up $200 million this year. In the second quarter, we said it's actually sufficient. So we are not topping up. So just to convey that we are actually very adequate in terms of our general provision levels. Tan Shan: I would say even more than adequate. Sok Hui Chng: Yes, more than adequate because we actually exceeded the MAS 1%. Edna Koh: Okay. A question from Goola. Goola Warden: Congratulations on the very good results in the current environment. Can I ask at least three questions. Okay. So the first one would be on the capital return and the share buyback? Because I think that Sok Hui has said that you are committed to paying $3 in total dividends for this year and next year and 2027, is it, could you just correct me on that if that's wrong? So -- and then there is -- there was a share buyback program and how much of that have you completed? Because it looks like a very low percentage based on -- I must have missed out, I look back, 10% to 12%, I'm not quite sure. So what -- I mean what happens if you don't complete it within the time frame? And what are the other avenues for management to return the earmarked amount to shareholders. That's one question. Should I carry on? Okay. Then you mentioned that your deposits -- because you've got more deposits than -- a lot more excess deposits will be deployed into HQLA, are these local government bonds, are these U.S. government bonds or are they corporate bonds? And what's the currency and duration like? I mean you don't have to say the company or the country, but just an idea of whether they're Sing dollars or non-Sing dollars. And the last question is funding related. But again, you have no AT1s anymore based on your current -- your third quarter. So what are your funding plans? AT1s, are they cheap now? Or is there any reason -- is there any regulatory reason why you don't have any? That's it. I think that's it. I mean two more general questions, but only when everyone else is answered. Tan Shan: Thanks, Goola. I'll take the first one, this is Su Shan and then Sok Hui will take the HQLA and AT1 question. So on the dividends, we've always said that our stock, we had $8 billion of excess stock of capital to return. We remain committed to returning that. $3 billion was allocated to share buybacks. We've done about 12% of that. And our philosophy is to buy it when the market is bad, right? So that's the philosophy. We don't want to chase it up. And the $5 billion is to be returned to shareholders through capital, the capital return dividends. So as you can see, we've got many different things in our toolbox to pay our shareholders back. You've got your normal dividend, of course. You've got step up dividend, then you've got the capital returns dividend and then you have the stock buyback and so based on that we intend to keep to that $8 billion commitment. Goola Warden: How much of that $8 billion has been returned? Sok Hui Chng: The share buyback, 12% would be $371 million. Tan Shan: Yes. And then the dividend return was $850 million. It's $0.15 per share per quarter, if you remember. Goola Warden: I mean, how much of the $8 billion is just... Tan Shan: So in total, we basically use 15% of the $8 billion. Goola Warden: Oh, okay. So there's a lot more. 1-5 percent. Tan Shan: No, but the $5 billion is committed, right, because it's $0.15 per quarter. So that $0.60 a year. So that's committed. So over 3 years, that will be all paid back. Goola Warden: Okay. And the 3 years is '24 -- '25, '26, '27, right? Tan Shan: Yes, correct. Sok Hui Chng: We started in '25 for the capital return dividend. Tan Shan: '25, '26, '27. So we will end by end '27. Sok Hui Chng: Correct. Maybe the only thing I would add is that we also communicated that we would be able to step up ordinary dividends $0.06 in the fourth quarter for 2025 year and then 2026 year. Goola Warden: By $0.06 is it on the... Sok Hui Chng: By $0.06 in the fourth quarter, which means the full year impact is $0.24. Goola Warden: And the full year impact will be next year, right? Sok Hui Chng: No, we'll step up end of this year. So you get it approved at the AGM in March 2026. And then it will actually flow through. So the full year impact is $0.24 for ordinary dividend. So what you see on the slide as $0.60 would then step up to $0.66 per quarter. And then you still have your $0.15 on the capital return dividend, which we have committed up to FY 2027. Goola Warden: HQLA and the AT1, yes. Sok Hui Chng: Okay. So your next question was about the HQLA. So you see on my slide, in the loan slide, you see that loan, actually, the growth rate was slower than the deposit growth. And for 9 months, our HQLA, which you can also see in the Pillar 3 disclosure is actually up $30 billion, and these are all in high-quality liquid assets. So they are in government securities, they are in U.S. government securities. These are the main items where we have seen the increase. So very, very safe assets. And then you had a question on the AT1 because the -- our CET1 is already at such a high level. Transitional basis, we're at 16.9%. So there's no point raising AT1. The CET1 currently doubles up. So for AT1, the spec is already quite a lot. So we don't intend to actually sort of pay up for AT1 until the need arises because you see on the slides as well. Goola Warden: Look, it's not a regulatory thing with the stuff that's going on with Credit Suisse and UBS and what Basel I doesn't want, right? Tan Shan: It's just AT1s because they don't have enough CET1s, right? Sok Hui Chng: So regulators set CET1 minimum, AT1 and Tier 1 and then total. So it's a stack. So if your CET1 is really well above the minimum, they can come towards Tier 1 capital. Goola Warden: Okay. Okay. That's all I have on that. I'm just wondering what's the difference between your structural tailwinds and your cyclical tailwinds. That's the other sort of general question. And the other one is you said that bancassurance was one of the reasons why you have a fee income. You've got a bancassurance agreement with Manulife. And I'm just wondering, that one is 15 years. How much longer does that have to run? And what is the state -- I mean is it performing to what Manulife wants? Tan Shan: Okay. So on your question around what are the difference between a structural and cyclical tailwinds. So cyclical tailwinds to me are what are cyclical. So when markets are strong, stock markets are up, money supply is up, et cetera, that's sort of cyclical. Structural is more long term. So where you have demographics, demographic reasons or structural reasons for the growth. So for me, the cyclical tailwinds was the markets were very strong, right? Q2, Q3, the markets were strong after Liberation Day, the rally was a lot higher than most people expected. The structural tailwinds I talked about was the fact that there is structural wealth creation. So the wealth management team remains structural growth for Asia and frankly, for the rest of the world, for the U.S., particularly. And then the structural growth in FICC, II, assets under management, quite a lot of these funds. There are clients, they've seen trillions of dollars in asset growth. So you've got these two growth pillars that are structural. On Manulife, I think we signed in 2015, it was 15 plus 1, so 16 years in total. Sok Hui Chng: So it was till 2023. Tan Shan: 2023. So the partnership has been growing really well. It's been fantastic actually. Tse Koon, you want to say anything? Shee Tse Koon: Yes, I think it's gone very well. So I mean, earlier on, when we talk about our wealth fees, right, the wealth fees growth has been a factor of both investments and insurance at the same time. Tan Shan: So there is a need for insurance like state planning, et cetera. And that is another structural theme, Goola, because you look at China, silver economy, Singapore, Hong Kong, all these people need to plan. And actually, that's our USP, right? We're good at onboarding these clients, discussing their long-term plans, putting it in a state planning, helping to plan for the next generation, for their own life, et cetera. And that creates a very sticky long-term relationship for your wealth clients. And Manulife has been a great partner in helping us to design suitable products for our customers, having a portfolio approach and thinking very long term. They're long-term investors in Asia, good credit rating, et cetera. So they've been a very good partner. Edna Koh: Next question from Bloomberg, Rthvika. Rthvika Suvarna: So I'm with Bloomberg. My name is Rthvika, and I had two questions for Su Shan. You've talked about wealth as a structural growth pillar with mid-teens growth targeted. Given recent high-profile wealth scandals in the region involving RMs and client fund misappropriations, what safeguards do you have in place? Are you seeing any reputational or compliance headwinds? And what do you think of extra regulatory scrutiny off the back of these scandals? How does this affect Singapore as a wealth hub? Tan Shan: Okay. I'll start and then Tse Koon is going to weigh in. So I think by the way, we have well presence in all our core markets. So it's not just Singapore, right? But of course, Singapore is a major financial hub for us and for many of our peers. And I will say that it's -- the bar has been set very, very high right now in Singapore and in all the major jurisdictions. The bars are set very high for KYC and AML, number one. Number two, there's been very rigorous source of wealth declarations and we all need to triangulate with proof of documents, et cetera. And there's no let up in these high standards. It still takes a fair amount of time to onboard a new client because of these. And transaction surveillance remains a key part of triangulating for bad money, right? Every bank sees what they see, right? So if you don't see the flows between the Middle East and the U.S., for example, and you will only see the flows from your bank to another party. And so when you have big scandals like this, it beholds multiple countries and jurisdictions to work together to be able to triangulate the global flows because otherwise, most banks will see their own bilateral flows, and they don't see the other flows. And you need to put the pieces of the jigsaws together to see that, oh, there is a trend or there's scams or there are all these patents. So I will say that it's these kind of global transaction surveillances remain a challenge. In Singapore, we set up with the regulator something called COSMIC, which has been a good platform on which we can look at sort of -- the banks can work together to weed out the bad actors. And I think that that's been working. It's just -- it's pretty new, but that's been working. But it takes multiple parties to work together to be able to catch these -- and catch them early. Shee Tse Koon: Can I just add to that. And I would say that Singapore is clearly a very, very strong wealth management hub, all right? And it has been growing very, very steadily over the last couple of years. If we look at the standards that we have, right, I would say that it's something that is aligned with those that are global wealth hubs, right? If you look at whether or not there are issues that have been -- that have risen, I'll say there's nowhere where you will never -- there will never be a zero kind of situation. The important thing is that there is robustness from which the typologies, new typologies that we see will lead us to continue to sharpen our capabilities. And we can see in Singapore, the big difference in Singapore is that when things happen, I think the industry comes together very, very quickly between regulators, law enforcement and the industry to just handle it. And I think that in itself speaks volumes of the strength of Singapore as a continued wealth hub. So I don't see any of these being a hindrance to Singapore becoming a world hub. In fact, this speaks to the very strength of Singapore being a wealth hub. Rthvika Suvarna: Are there any other broader risks that DBS is weighing out that could affect Singapore's reputation as a wealth hub globally? Shee Tse Koon: Sorry, I don't quite get that question. Rthvika Suvarna: Yes, like any other -- I mean any other like threats, I suppose, aside from the scandals? Shee Tse Koon: I'm not sure if you are specifically asking about DBS per se. Tan Shan: He's asking about Singapore. I will say I beg to defer. I think your question, you're asking if there's any risk, I would say that Singapore's status as a clean hub has been reinforced by the swift action taken by [Technical Difficulty], number one. The rule of law here is strong, right? We are open for -- Singapore as a hub is open for business. It's a diversifier hub, as I said to you earlier on, and it's a digital hub. And there's enough wealth practitioners here of high quality and standards. And I believe that the authorities are protecting the reputation and the standards here rigorously. The bar is high. I'll tell you the bar is high for KYC and sort of wealth verification. So I don't know where you're going with this question, but I will say that the fact that -- and we're very open, right? When the scammers are caught, it's open, it's all declined. So I will say that it should reinforce the seriousness that Singapore takes in keeping the standards high. Shee Tse Koon: I guess there are -- so I say risk, right? When we're talking about risk, I think the inherent risk is no different in the financial industry wherever you operate, right? The difference is we have robust standards, and we deal with it swiftly. If you're asking for further the risk of Singapore being a wealth hub, I think actually what we have done as a nation will enhance that. And in my interactions with clients, I think there continues to be a very, very strong interest. And as you can see, the performance of the wealth management business, I think that speaks volumes as to the robustness of the continued growth. And if you ask me whether there's a risk of us being a wealth hub, the answer is no. Edna Koh: We are now at 11:42. I think that might be all the time that we actually have because we have an analyst briefing at 11:45. So I think we will wrap things up here right now. Thank you, everyone, and we'll dial out here. Tan Shan: Thank you. Sok Hui Chng: Thank you. Edna Koh: Thank you.
Operator: Hello, and welcome to the Commerzbank AG Conference Call regarding the third quarter results of 2025. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay in the Internet. [Operator Instructions] The floor will be opened for questions following Bettina Orlopp's and Carsten Schmitt's presentation. Let me now turn the floor over to our CEO, Bettina Orlopp. Bettina Orlopp: Good morning, everyone, and welcome to our earnings call. Our growth story in Commerzbank continues, and we have achieved the best 9 months operating result in the history of Commerzbank. This strong momentum also drives our outlook. With increased expectations for net interest income, we are very confident to deliver on our targets in 2025. I will present to you the financial overview after 9 months of this year and the key strategic topics before Carsten will walk you through the financial performance of the third quarter. Let me start with our view on the last 12 months. It was a special journey that we embarked on. Based on an exceptionally good team spirit, we created a very strong momentum for Commerzbank. We developed our momentum strategy with ambitious targets for 2028, 50% cost-income ratio, 15% return on tangible equity and 100% payout each year. In this process, the extremely high commitment of everybody involved was as important as the bare numbers and targets. And this has translated into strong focus on delivery. The success is impressive. 13% loan growth in Corporate Clients, 8% growth in fee income and a 11% increase in total revenues are proof of the strength of our Team Yellow. This is, however, only possible because we have a strong and robust business model that meets the needs of our clients. We further strengthened our client franchise and are proud of the deep relationships -- deep client relationships, I have to say, that are underpinned by many awards we have won. The very good performance and positive prospects have also driven our share price, which has almost doubled in the last 12 months. Based on our team spirit, our well-established client relationships and with some support from macro developments, I see a lot of further potential to be lifted. Our focus on shareholder value will also be further strengthened by the employee share program, which has started in October and aims to make every employee a shareholder of Commerzbank. Now let us have a look -- a closer look at the 9 months financial performance of this year. The material growth in fee income and around EUR 500 million higher revenues in mBank, including less burdens from the provisions of FX loans have led to the record operating result after 9 months. Together with high cost discipline, this growth is reflected in the cost-income ratio of 56%, which is exactly where we wanted to be on the path towards increasing efficiency going forward. In terms of return on tangible equity, we have achieved 10% after 9 months when excluding the restructuring charges. The double-digit return level is our new baseline for growth from 2026 onwards and demonstrates the significantly increased strength of Commerzbank. The high revenue growth of 11% is based on our significantly increased fee income. But equally important is a very successful management of net interest income in an environment of significantly lower rates compared to last year. The decrease of just 1% in NII provides us with lots of confidence for the next quarters. At the divisional level, the somewhat lower net fair value result in Corporate Clients has been broadly offset by the strong fee income in PSBC, and the group overall benefited from the strong trajectory in mBank. So the first 9 months have been very successfully -- successful financially. And this also applies to the implementation of our strategy. Let me highlight five areas in which we have made significant progress. First, on customer focus. Since last month, the new client coverage model in PSBC Germany is live. Key elements are personal one-on-one relationships for affluent clients and more time for high-quality advice in wealth management. Second, on growth. Based on our deep client relationships in Corporate Clients, we are the leading go-to bank. This has led to significant capital accretive loan growth of 13% in the last 12 months. Carsten will further elaborate on this. Important to note is that this growth is thanks to strong ties with our clients rather than any pricing concessions. Third, on AI. We already reported on use cases such as fraud detection and AI-assisted documentation for advisory calls with Corporate Clients. One of the latest applications is the AI enhancement of our KYC processes. Fourth, on costs. The implementation of the restructuring program is fully on track. The latest milestones have been the successful completion of all negotiations with the workers' representatives and the offering of part-time early retirements to a selective group of people. The acceptance rate of almost 50% is very high. And fifth, on capital. In Q3, we have successfully completed our first SRT of the year. The EUR 3 billion notional and EUR 1.6 billion RWA relief came at low cost in the area of 1% of RWA. This is very capital efficient. And in placing the first loss, we also achieved some risk mitigation. We plan for further SRTs in the weeks to come. All these achievements and the financial performance contribute to the confidence of the regulators into Commerzbank. This is reflected in our improved SREP results with a 10 basis points relief in Pillar 2 requirement. Looking into the next years, our regular planning update has confirmed our strategy. A few topics of special strategic importance have been identified and addressed. First, we stay focused on our growth path and pay special attention to the German stimulus package. This is a meaningful additional catalyst for our financial performance. Second, AI is one of the most important drivers to transform our bank and ensure increasing efficiency levels. What we have seen so far is just the beginning, and we will further invest heavily into AI. One example is the support of our staff in the advisory center. Live transcription of calls, proposals for client solutions and support for outbound calls will contribute to increasing efficiency and client satisfaction. And third, we strive to optimize the deployment of capital above 13.5%. Besides capital return by means of dividends and share buybacks, this includes the exploration of further organic growth opportunities as well as inorganic options such as bolt-on acquisitions. In an ongoing screening, all options must meet our investment criteria in terms of business fit and value accretion. Now back to macro and the German stimulus. The German investment package for defense and infrastructure, combined with legislative changes such as taxation relief and depreciation rules will significantly support our growth ambitions. Within our GDP forecast of 1.2% for 2026, we expect a considerable fiscal stimulus of 0.8% of GDP. The recently weaker German economic data do not contradict the expectation that a more expansionary fiscal policy will boost the economy. The budget for 2025 and the law on the extrabudgetary fund only came into force at the beginning of October. Hence, the positive impact will only be visible in future economic data. Furthermore, the federal government has shifted a considerable amount of investment spending from the core budget to the extrabudgetary fund in the budget for 2026. This increases the federal government's financial leeway and it can quickly increase other expenditures. This will help the economy in 2026 and 2027, even if the extra spending is partially directed at consumption instead of investments. The halving of the ECB deposit rates to 2.0% also points to higher economic growth. The positive view into 2026, however, still needs to translate into higher economic activity of corporates and especially the German Mittelstand. In this regard, the highest business expectations since 2022 according to the [ ifo] survey are positive. So sentiment has improved, the Mittelstand still remains cautious when it comes to investments in Germany. Bureaucracy energy prices and shortage of skilled workers still weigh on the business prospects of many corporates. Government-induced reforms to tackle these issues are important to unfold the huge potential of the stimulus package. Now let's move on with our own capital return program. We are very well on track and plan for a steady increase in capital return. Our currently active EUR 1 billion buyback program for 2025 is progressing well, and we have applied for a second tranche of up to EUR 600 million. Once we have a clear view on the full year results, we will decide on how much we will propose as dividend for 2025 and what the exact size of the second share buyback will be. Both steadily increasing dividends and the flexible use of buybacks will remain integral parts of the capital return program. Returning 100% of net profit after AT1 translates into attractive capital return yields of 8%, increasing to 11% over the next years. This is a key element of our strategy and our equity story. Let me now conclude with our outlook for 2025. Based on the strong performance after 9 months, we raised our outlook for net interest income from EUR 8 billion to EUR 8.2 billion. Furthermore, we improved our expectation for the risk result to below EUR 850 million. We stick to our cost-income ratio target of 57% and our target for the net result of EUR 2.5 billion, which translates into EUR 2.9 billion when excluding the restructuring charges. And we consider this to be the floor of our full year expectations. And we maintain our expectations for the CET1 ratio of at least 14.5% at the end of this year. Looking at 2026, our view is also very positive. The strong NII trajectory and the macro tailwind from the German stimulus forms significant support for our momentum strategy. With the presentation of our full year results next February, we will provide the full view on our outlook for 2026. Now let me hand over to Carsten for the financial performance of the third quarter. Over to you, Carsten. Carsten Schmitt: Thank you, Bettina, and good morning, everyone. It is my pleasure to present the results of the quarter. Let's start with a brief overview. Based on strong revenue growth, the operating result is up 18% compared to Q3 last year. The net result is lower, but only due to a one-off tax effect from DTAs driven by the reduction of the German corporate tax rate from 2028. Net RoTE thus came in at 7.8% for the quarter. For the whole financial year, we are on track to reach our RoTE target despite the tax effect; thanks to the good underlying performance of the business. The CET1 ratio of 14.7% is 18 basis points higher than in Q2 and fully in line with our target of at least 14.5% by year-end. I will now go through the details, starting with revenues. In the quarter, we achieved a 7% increase in revenues compared to last year. Net interest income is holding up very well, being on the same level as Q3 last year despite significantly lower ECB rates. In net commission income, we have maintained our momentum with income growth in line with our target of around 7% year-on-year. While opposing effects are largely canceling out, the net fair value result is marginally negative due to a minus EUR 34 million valuation effect from our holding in eToro. Other income, excluding FX loan provisions, mainly stems from a positive hedge result. Now [Technical Difficulty] in more detail. All customer segments grew their business year-on-year with mBank additionally benefiting from a one-off from the cards business. Corporate Clients generated good revenues in the generally slower summer quarter. Trade Finance has increased revenues despite the ongoing weakness in exports, and Capital Markets had a very healthy syndication business. The biggest increase came from Lending, where fee income linked to loan origination was significantly higher, in line with volume growth. Green Energy was especially strong. Private and Small-Business Customers in Germany continued to grow the fees from Securities business, both from securities volumes and transactions compared to last year. In Payments, the higher account fees that were introduced at the end of Q2 are starting to contribute. We have finished the first round of reach out to customers with a good acceptance rate. It has also resulted in customers increasing volumes. Asset Management benefited from higher transaction fees at Commerz Real and growth with wealth management products. With our ongoing initiatives, we have maintained momentum and are on track to reach our growth target for the year. Let's move on to interest income. We again had some headwinds from rates. In Q3, ECB rates were on average 25 basis points and Polish rates 50 basis points lower than in Q2. Nevertheless, net interest income is nearly on the same level as in Q3 last year. This clearly demonstrates the resilience of our business model. In Corporate Clients, net interest income is up compared with Q2 and Q3 last year. Lower funding costs for trading positions and higher income from the lending business were the main drivers. The lower funding costs linked to lower ECB rates are, however, partly offset in net fair value of trading book positions. In PSBC Germany, net interest income is up year-on-year and on the same level as in Q2. The effect of lower ECB rates and our investment in promotional offers for new deposits were offset by increased contributions from the replication portfolios and mortgages. In mBank, the lower NII results mainly from the cut in policy rates. The effect has been offset by higher net fair value from derivatives. In Others & Consolidation, NII is also lower, mainly due to rate cuts. Again, there is a positive offset in the net fair value result from derivatives. Looking at volumes, we had a very strong quarter. Corporate Clients has continued to grow the loan business with all customer groups. The loan volume is now up 13% year-on-year. The deposit volumes have been stable. PSBC Germany has maintained stable site deposit volumes and increased call money by almost EUR 8 billion with the promotional offers in July. This strong inflow has led to an expected uptick in the average deposit beta to 42%. In the mortgage business, the volume of new contracts has increased further, indicating a recovery in demand as house prices have stabilized and interest rates have reached a steady level. The outstanding volume is somewhat lower due to seasonally higher early repayments. On the next slide, I will give you more details on the loan growth in Corporate Clients. As mentioned, Corporate Clients is well ahead of its 8% annual growth target and achieved this growth based on our diversified franchise. This franchise extends to customers worldwide who have a connection to Germany. It also includes the foreign activities of German companies. As expected, with the sluggish German economy, there has been only moderate growth with corporates in Germany. In contrast, demand from the public sector has picked up over the last quarters. Another area of growth has been green infrastructure, both inside and outside of Germany. We have steadily grown the portfolio over the last years. We expect this to continue despite the changes in the political environment, given the economic attractiveness of the projects we are involved in. Also, demand outside of Germany has been healthy. Around 80% of the growth has been equally spread across Europe and the U.S. and the rest came from Asia. The new business has been diversified by sector with the largest demand from energy, chemicals and consumption. Finally, in line with our Momentum strategy, we expanded our relationship with Institutionals, especially financial institutions in emerging markets in loan and trade finance products. All this business has been generated at attractive risk-adjusted margins as we maintain our focus on the RWA efficiency of our client relationships. Looking into 2026, we expect demand in Germany to pick up as the extra spending by the German government should start stimulating the economy. The significant growth we have seen in renewable energy and in financing for the electricity grid as well as guarantees for the defense projects are first halving us. We are, therefore, confident that we will maintain our profitable growth trajectory. This brings me to the next slide with the outlook for NII. On the back of the successful loan growth and deposit management of the last quarters, we again raised our NII outlook from EUR 8 billion to around EUR 8.2 billion for the year. We believe that we have reached the trough in interest income in the second half of this year. For Q4, we do not expect significant deviations of the main drivers and net interest income should therefore be on the same level as in Q3. We anticipate an ongoing increase in contributions from the replication portfolio, offset by slightly higher deposit beta and continued volume growth. The contribution from mBank will be somewhat lower due to the expected rates development in Poland. 2025 proves that our business model is holding up well even during a rate cut cycle with ECB rates on average around 1.5% lower than in 2024. While lower rates have reduced NII in 2025, we also had a positive effect in the net fair value of around EUR 300 million. For 2026, we expect ECB rates to remain at the current level. We, therefore, do not anticipate the contribution of positions that are rate sensitive to ECB interest rates to change significantly, neither in interest income nor in the fair value result. With an expected EUR 2 billion NII in the fourth quarter, we, therefore, start with a baseline of EUR 8 billion NII for 2026. From this starting point, the main drivers of net interest income in 2026 will be rising contributions from the replication portfolios and continued growth, partially offset by headwinds from the beta and rate cuts in Poland. In total, these drivers should contribute approximately EUR 400 million, resulting in an expected net interest income of around EUR 8.4 billion. This is a good basis to reach our profitability target for 2026 and subsequent years. Now to costs on Slide 19. We have continued to manage our operating expenses in accordance with our target cost-income ratio of 57% for 2025. The main driver of costs, excluding mBank, has been personnel expenses. Half of the increase is attributable to planned increases and half to valuation effects of a higher share price on equity-based compensation. Additionally, in H1, we had impaired intangibles of EUR 65 million of Aquila Capital, which is reflected in the cost line. mBank has, as planned, a higher cost increase from significant investments in business growth. Additionally, compulsory contributions were higher. For Q4, we expect higher costs than in Q3 as there will be some seasonal effects, further growth in mBank and higher personnel costs as we continue to ramp up shoring and sourcing centers to transfer further tasks currently done in Germany. After booking the momentum restructuring expenses in Germany in the first half of 2025, we booked the majority of the provisions for staff reductions at our international locations in Q3. In Q4, we expect an additional booking of less than EUR 20 million. The next slide covers the risk result. The risk result came in at EUR 215 million. This is fully in line with our expectations. The portfolio continues to be resilient. And while the -- while we expect a somewhat higher risk result in the longer fourth quarter, we are very confident that we will end up below EUR 850 million given the good performance so far. As this has been a topic recently, we have added a slide on our NBFI portfolio in the appendix. This portfolio mainly reflects our well-established Institutionals business in Corporate Clients, which we are very comfortable with. Our exposure to private credit is not noteworthy. We have no direct exposure to U.S. private credit markets. This concludes the view on the key line items. I've already covered the main drivers of the excellent operating results and will therefore focus on the tax rate. With 36%, the tax rate was well outside our normal range of 25% to 30%. This is primarily due to a change in the German tax law. From 2028, the corporate tax rate will be reduced in 1% steps from 15% to 10% in 2032. While this will be positive long term, it reduces the current value of future tax credits. We, therefore, had to reflect this in the DTAs that we hold and is a one-off event. In case the proposed tax increases in Poland come into law, we will have an opposite effect in Q4 with a write-up of Polish DTAs. Overall, we expect the 2025 tax rate to be rather in the upper half of our expected range of 25% to 30%. The next slides cover the results of the operating segments, starting with Corporate Clients. As already mentioned, Corporate Clients had a good performance in the quarter, increasing the operating result by 15% year-on-year. Revenues benefited from the strong loan growth and the good Capital Markets business. This is most visible in International Corporates with 14% higher revenues and the strongest loan growth. In Mittelstand and Institutionals, the business has also performed well. However, the effect of lower rates on deposits could not be fully compensated. And finally, the risk result has remained well contained, supporting the operating result. PSBC Germany has also improved its operating results, both year-on-year and quarter-on-quarter. As mentioned, the main revenue drivers have been the Securities business, the new account fees as well as some contribution from loans and deposits. In Private Customers, the investment and promotional offers had the expected impact in Q3 and will start to pay off in 2026. Asset Management held revenues on the level of Q2 in the rather slower summer months. mBank has maintained its profitability nearly at the record level of Q2. As expected, provisions for FX loans have been lower than in the previous quarter, and we expect Q4 to be the last quarter of sizable provisions. In September, mBank published its new strategy until 2030. mBank targets continued growth with the ambition to reach a 10% market share in Poland. With this growth and a target cost-income ratio below 35% before banking tax, mBank will materially contribute to the financials of the group. For 2026, mBank aims to start paying a dividend. This will ultimately benefit Commerzbank shareholders as it supports our capacity to distribute capital. Others & Consolidation reported an operating loss of EUR 53 million in the quarter, nearly on the same level as Q3 last year. Year-to-date, the operating result is plus EUR 66 million, in line with our expectation of a more or less neutral result for the full year. Revenues are slightly higher than Q3 last year with lower NII compensated by the fair value result. Compared to Q2, there has been some additional valuation effects. Most noteworthy has been our stake in eToro. In Q2, we booked a gain of EUR 63 million following the IPO, while we needed to book a valuation loss of EUR 34 million in Q3 as the share price fell during the quarter. We will also see some effects in Q4 depending on share price performance. On the next slide, I will cover the RWA and capital development. The CET1 ratio stood at 14.7% at the end of the quarter, up 18 basis points from Q2. There were two main drivers. Risk-weighted assets are lower as RWA from loan growth were more than offset by an SRT issuance and model effects. We plan to issue further SRTs in Q4, optimizing the return from the loan book of corporate clients. At the same time, capital has increased as the deductions from Prudential Valuation were lower due to decreased market volatility after spiking up in spring of this year. In line with our distribution target of 100%, we have not included the quarterly profit for the calculation of the CET1 ratio. In total, we have already dedicated EUR 2.1 billion for distribution to shareholders in the first 9 months of the year. The MDA has gone up from 10.2% in Q2 to 10.4%. The reason is the introduction of a countercyclical buffer in Poland. A similar impact is expected in Q3 next year when the Polish countercyclical buffer is increased further. Finally, we have received the SREP letter from the ECB. Our 2026 capital requirements were lowered by 10 basis points. For us, this is a recognition of our solid business model and our increased resilience in recent years. As we must hold only part of the regulatory capital requirements as CET1, the MDA will be reduced by around 6 basis points effective from January. The outlook for 2025. As already mentioned, we have improved our outlook for NII from EUR 8 billion to EUR 8.2 billion and for the risk result from around EUR 850 million to below EUR 850 million. We confirm all other targets. We continue to expect growth of the net commission income of around 7% compared to last year, a cost-income ratio of 57%, a net result of around EUR 2.5 billion, and a CET1 ratio of at least 14.5%. We will provide our outlook for 2026 alongside the full year results in February. We clearly see upside of NII -- on NII compared to our original plan that we published in February and expect support from an improving macro environment. Thank you very much for your attention. Bettina and I are now looking forward to taking your questions. Operator: [Operator Instructions] The first question at this point comes from Benjamin Goy, Deutsche Bank. Benjamin Goy: Two questions, please, on net interest income. The first, thanks for Slide 17, the breakdown on the Corporate Clients growth, but maybe you can speak a bit more about your growth expectations for corporates in Germany and when this is going to inflect, whether it's early '26 or a bit later? And then secondly, you also mentioned that your '26 NII is likely impacted by higher deposit beta, which you consistently -- I think, conservatively assumed. So just wondering what increase you have expected? And how much was actually the comdirect campaign in July increasing the deposit beta last quarter? Bettina Orlopp: Thank you, Benjamin. So I mean, what is the outlook for corporates in Germany? You see that the growth is also already now in Germany when it comes to public institutions and also partly Green Infrastructure. But the majority we expect for 2026, one factor will be clearly the stimulus package of the German government. But then also given the improving business sentiment, which we see, there should be also more activity, specifically from Mittelstand clients for Germany. And there is apparently also the Made for Germany initiative, which means to have significant investments in Germany in the coming years. And on NII 2026, I hand over to Carsten. Carsten Schmitt: Yes. Thanks, Benjamin. Let me start with the increase in the deposit volume that we've seen in the third quarter. As you asked for it, so in July, we increased our deposit volume by around EUR 8 billion from the offers that we had out via comdirect. This led to an increase in the beta. On the personal customer side, we expected this, which is why you also see the beta coming up in Q3 to 42%. We've now said that we expect a slight increase into Q4, which is not stemming from the personal customer business, but rather from the Corporate Clients side. Given the generally lower rate environment at the moment, it becomes harder to actually fully transmit the rate cuts into the client business. And hence, you have a structural increase of the beta from that side. So for the full year, we are still expecting an average beta of around the 40% mark we indicated beginning of the year, potentially minimally higher. And for '26, as you asked for the development towards the EUR 8.4 billion NII, for '26, we expect that the current rate environment actually will come with the same strain on the corporate client beta. On the personal customer side, as mentioned, we expect this to come down again in Q4 and then manage it as we go in the quarters of next year. Operator: The next question comes from Tarik El Mejjad, Bank of America. Tarik El Mejjad: Just a couple, please. On cost savings, can you update us a bit on the progress on the different initiatives you've launched with your CMD earlier this year and how you're confident to deliver especially the trajectory on that? And second one on the capital. So if I understand well, by year-end, we will have a better view on the mix between the cash and buyback. So you say paying 100%, is it possible to pay more than 100% if you are above 14.5% CET1? Because we know that it will be EUR 1.6 billion or so of buyback, and then the components on the cash, given where you trade, could that be higher to lead you more than 100% from this year? Because I think that now what we need to look at is the 14.5% CET1. Bettina Orlopp: So Tarik, thank you for your questions. On cost savings, we make very good progress. First, when it comes to the restructuring program itself and the headcount reductions, we concluded all necessary negotiations with the workers' council, and we have already announced all structural changes, and we are in the process of implementing them. And we also started with one instrument, which is kind of a part-time retirement program, which has a benefit that people stay on for the next 1 to 3 years, so you can really manage transition and then they will go in the passive retirement phase. And we had a very high acceptance rate higher than we expected with 50% of the people we address that to. And then all other social instruments are also now available. And therefore, we are very much developing according to plan. When it comes to the necessary measures, when it comes to efficiency, streamlining, AI showing, we are also showing exactly the progress we expect. We are delivering AI use cases day by day. One can really say there's a lot of speed in that. And also the sharing activities are ongoing. We have already hired a number of people in Sofia, in KL for the different teams. So all well underway and on track. When it comes to capital, actually, I mean, we are paying more than 100% because we have the benefit that we can exclude the restructuring costs from our payout ratio. So if you take really the net result after restructuring costs, we will pay out more than 100% this year. But we will stick with 100% net income after AT1 before restructuring costs because that is exactly what we aligned also with the regulator as a basis for our share buyback requests. But the clear mix between dividend and share buybacks, we will finally decide. When we see the results, it's clear that we want to show a very attractive dividend as well. We now had EUR 0.30, EUR 0.65. And apparently, we want to have a further increase also given that share price has nicely improved over the last months, and it will be very attractive, and it will be a very attractive mix. And as said, the EUR 1 billion share buyback program is currently underway. The next one we have just applied for and then the rest, we will update in February. Operator: The next question comes from Jeremy Sigee, BNP Paribas Exane. Jeremy Sigee: Two questions, both on capital, please. Firstly, is there anything specific coming in Q4 that would bring the 14.7% down to 14.5%? Or does the sort of greater than 14.5% mean actually it could stay at 14.7%? So anything specific you're expecting in Q4? And then the second question I had was on your Slide 6, when you talked about sort of future strategy elements, topics of special strategic importance for the coming quarters, you mentioned optimizing deployment of capital above 13.5% target. Are there any new ideas that you have in mind or any new areas of focus? Or are you just reflecting something that's already a core plank of your strategy? Bettina Orlopp: Thank you, Jeremy. I mean on capital, we always know that a 0.1% up and down can also be just reflected by currency changes, FX changes and stuff like that. But overall, we expect more growth to come in Q4, and that will have an impact. There will be also more SRTs to come, but that's the whole story around that. When it comes to future capital deployment, I mean, we're thinking about investments all the time. The whole discussion around AI, specifically Agentic AI is accelerating. So we definitely also think to invest more into it to accelerate certain things. And then we explore -- as we have said beforehand, we explore different M&A opportunities to make sure that we can strengthen our business model. But the problem is they have to meet very strict criteria because we have very clear targets out there when it comes to 2028. So it needs to be value accretive and supporting our growth ambitions, but also our profitability ambitions for the years to come. Operator: The next question comes from Kian Abouhossein, JPMorgan. Kian Abouhossein: The first one is related to loan growth in the Corporate Clients where you have given very helpful details on Slide 17. Can you talk about the asset spread margin environment in the different areas? And what are you doing differently versus peers, which is driving this very strong growth rate that we are seeing? And the second question is on PSBC deposits, where we've seen also very strong growth. And should we be looking for more flattish growth going forward? How should we look around deposit growth in PSBC? And in this context, you mentioned that the structural hedge could grow from EUR 147 billion, which was flat. Wondering how should we think about the deposit growth and in conversion, the structural hedge? Is there any guidance you can give us? Bettina Orlopp: Let me start off with the PSBC deposit growth. I mean, the deposit growth has been very much supported by the attacker products, which we have seen in July. We now have stopped them. But overall, when you look in our plans, that has not changed. We plan for an average deposit growth of approximately 2%, and that is also very much coming by what our clients do, but also we definitely want to grow with our client base. And for the rest, I hand over to Carsten. Carsten Schmitt: Yes. Maybe to then also add to your question regarding the structural hedge position. We have an unchanged position regarding the replication portfolio coming from Q2 to Q3. And as you know from the slides, we have EUR 147 billion currently in this portfolio. Given the changed deposit structure that we're having now or size of the portfolio, we will, of course, look at potentially increasing this. So this is something we'll decide during Q4 and then update you on it. I would also like to remind you that we have in total EUR 200 billion plus in deposits that we can model and always sort of remain a distance to what we actually have in the model. So there is room to look at that, and we will do this during Q4. Then on your first question regarding loan growth on Corporate Clients and the margin development, I would like to pull this into two directions a bit. First and foremost, you've seen that we saw a healthy loan growth, especially on the International side. We grow the portfolio on that end, as mentioned, has good margins. The business is contributing. So we are actually seeing a healthy increase. And it is mainly coming, quite frankly, Kian, from our point of view, coming from the deep relationships we have with our customers and the international presence that we are offering with our outlets internationally. So that basically allows us to accompany them whenever there's financing needs coming up. And looking a bit more into the domestic part and the growth, especially when it comes to the public sector, to the municipalities, we interpret this as the first pickup of the infrastructure packages that also have been announced by the government. This business is a fantastic business when it comes to the risk position of the book. It, of course, also comes at slightly lower margins. But I would also like to say that in this space, municipalities -- or not necessarily only the municipalities, but also municipalities [ operates ] like suppliers, et cetera. And those usually from a margin perspective, go a bit more into the Mittelstand territory. So hence, growth in the book at good margins and rather accreting to the RWA efficiency of the book. Operator: The next question then comes from Borja Ramirez with Citi. Borja Ramirez Segura: I have two, these are on the NII. Firstly, I would like to ask on 2026, could you disclose the deposit beta that you are assuming? Because I think there was some comment on corporate deposit beta rising maybe because of higher -- of lower margins. But then also the retail deposit beta, I think maybe that's maybe improving as your attacker products are repriced at lower rates. So that would be my first question. And then my second question would be if you could kindly provide a bit more color on the moving parts in the 2026 NII. For example, I think there is -- I think you guided for EUR 300 million of benefit from the replication portfolio in 2026. In NII, I have slightly higher EUR 400 million because you [indiscernible] and also you increased the portfolio. So if you could kind of add more details there, please? Carsten Schmitt: Borja, thank you very much for the questions. Let me start with the first one on the deposit beta. Again, I would like to start with 2025. You've seen that we came sort of from a low level, which was steadily increasing over the year as expected. Q3 is now a bit higher coming in mostly because of the attacker products we had out in July. And as mentioned, we expect actually the private customer beta to come down again in Q4. So the main driver for the slightly higher beta that we expect for the end of the year comes from the Corporate Client business. All in, the beta, as mentioned earlier, will remain actually at a level of 40%, maybe 40.5% for the year as we expected. And running into '26, the beta from an expectation perspective will likely be driven by the Corporate Client side, where we see basically an unchanged beta landscape compared to Q4. You mentioned briefly sort of the impact from our attacker products on the personal customer side. I would like to make the point, the deposits that we actually got in beginning of July are term deposits. And while that always has a short-term impact on the beta, the longer-term benefit of actually having these deposits in the bank actually will be contributing in '26. Then the second question on the EUR 400 million increase of NII in '26. We will expect for '26 a pretty much unchanged at least ECB rate environment. So expect this to be flattish. The replication portfolio actually will be the driver with the investments and the position we have in the replication portfolio, we do see the stabilization effect. And as you've also seen in the last quarters, we continuously actually increase the average return out of that portfolio. So that will be the main driver. And then, of course, we will see growth effects and a slight negative coming from mBank given the Polish rate environment and expected a slightly higher beta next year. But that's the main drivers for the EUR 400 million so that we will see a positive development from EUR 8.2 billion, sorry, to EUR 8.4 billion next year. Operator: Okay. Then I think the next question comes from Tobias Lukesch, Kepler Cheuvreux. Tobias Lukesch: Also quickly touching on the NII again and the outlook for '26. You guided for this EUR 8.4 billion. I was just wondering what the net fair value expectation is in your old strategy at the CMD at EUR 0.5 billion, but you also had EUR 0.4 billion for '25, which is now still confirmed at EUR 0.3 billion. So I was just wondering if this still holds up and what your total view on this combined revenue contribution is. And secondly, basically on the cost side. So if I understand your guidance correctly now for '25, you have this EUR 200 million more in NII. At the same time, a EUR 70 million tax effect leaves us with EUR 140 million, which is more or less eaten up by higher costs. On the share price, I mean, one could hope it, but it's rather unrealistic to see the same compensation potentially for next year. So I was just wondering like what you see in terms of like this kind of cost development, how it will come back and how you will steer that basically into the future? Carsten Schmitt: Yes. Thank you very much, Tobias. Starting with the NII for '26, and you referred to specifically regarding the net fair value. So for '25, so for this year, we have a net fair value contribution, which is linked as we always refer to it to the NII to the degree of EUR 300 million. This is a change coming out of last year. So the reason why we listed this explicitly when going into the year and guiding for the NII was that in the rate declining environment, we wanted to also express it's not only the NII, but also partially contribution from derivatives that help us on the NII side. Now going into '26, we are guiding the NII for EUR 8.4 billion, but we expect a flat rate environment and hence, also no significant movements on the net fair value result stemming from the NII position. Hence, EUR 8.4 billion and at the moment, flat, so no additional contribution from the net fair value for '26. Then towards your second question regarding the cost side. I think you went through that quite nicely. We have some effects that you listed, which we also mentioned in the speeches regarding our '25 development. When we look at the operational, let's say, cost level and development that we're seeing in the bank, we're seeing a very disciplined way the bank is managing its costs at the moment. So looking into '26, we are basically very confident that we are running with the level that we have guided in the Capital Markets Day. As you know, we're steering for cost-income ratio. 56% is the target that we set for next year. And at this point, we hold clearly towards that 56%. Tobias Lukesch: If I may, again on this net fair value. I'm a little bit puzzled, to be honest, because with the CMD, you guided for EUR 8 billion NII in '26 and EUR 0.5 billion net fair value, which makes EUR 8.5 billion. If I understand you correctly, now you're guiding for a combined EUR 8.4 billion only for next year. And also again, on the '25, I don't get this unchanged EUR 0.3 billion net fair value result. I mean we're at a negative minus EUR 60 million, if I'm not wrong. And that would indicate a kind of EUR 350 million contribution in Q4. So how is that to read and to square? Carsten Schmitt: Yes. I think that's a super fair question. So first of all, Tobias, on '26, to be absolutely clear, we have EUR 8.4 billion expected NII and unchanged net fair value expectation of EUR 0.5 billion. So that stands. I was referring mainly to the net fair value we expect from the NII side. So for '26, no change in the net fair value guidance to be absolutely clear here. Then coming back to '25, the net fair value, in essence, is made up of multiple positions. One position is the net fair value, which we have from interest rate-related positions. That is the EUR 300 million that we mentioned. These are included as one portion of the net fair value, and they hold. We see them at the moment in the books. And given the current rate environment, we don't expect them to change towards the end. What's also included in net fair value is then the positions from our Capital Markets business, that is contributing to it. And the third position, which is contributing to net fair value is general valuation effects. And those have to be seen in combination with the other income. And if you combine those positions, so the net fair value that we have as a run rate at the moment, the other income and if you exclude from that the FX mortgage provisions which we hold for mBank, then you actually end up with a value around the EUR 250 million mark for '25. And hence, we stand with that guidance. Operator: The next question comes from Riccardo Rovere, Mediobanca. Riccardo Rovere: Again, on NII. If you look at the loan book, EUR 263 billion at the end of the 9 months is -- this is the average, is 2.5% higher than the average since the start of the year. And then in 2025 -- '26, you're going to have a support from the fiscal boost in Germany, 1.2% in GDP. This is real, then you add 2 percentage points from inflation. So the loan book will continue probably to grow in Germany. I don't know if it's 3.5% or something like that is reasonable or not. And then you have Poland, which is supposed to grow more than that, while your NII is supposed to grow 2%. So you are implicitly plugging in a fairly decent, I would guess, margin compression. While the rates are supposed to be stable, at least in Europe, but Europe is 70% to 75% of your business and Poland is 25%, 30%. So given that in 2025, your NII guidance went from 7.8% to 8%, then 8.2%. I'm just wondering whether the approach you have in the 9 months '25 when you set the 8.4% is with some caution, some prudence as you have constantly done throughout 2025. This is the first question. The second question I have is on the call money, core deposits in PSBC. As I understand, the promotional offer was in July, if I understood it correctly. So that means that the impact on NII should more or less be fully visible in this set of numbers. More than that, why are you gathering this -- why you're doing this promotional offer still? And then the other question I have is on the medium- to long-term funding, the amount has gone up dramatically over the past -- since the start of the year is almost, if I'm not mistaken, kind of EUR 20 billion or so, kind of EUR 18.5 billion in debt securities. It went from EUR 45 billion, something like that EUR 53 billion to more than EUR 70 billion. What is -- why has this gone up so much? And what is the spread that you get? Because the feeling I have is that then you invest in debt securities on the asset side. And I was curious to know what kind of debt securities this amount of money is invested in. That's just to have an idea. Bettina Orlopp: Yes. Thank you, Riccardo, for your questions. And specifically the first one, as you know, we like this wording of floor. And yes, we are always conservative, and you know that. So when it comes to next year, what are the driving factors? So first of all, we plan for another 8% loan growth in Corporate Clients. That's for sure, and that will be also supported by everything we see in the moment when it comes to the stimulus package. And I think we have proven nicely that we are able to organize that given the 13%, which we have shown year-to-date. However, what you need to keep in mind is two things. One is clearly Poland, which will also see nice growth on the loan side, but we will -- we expect a further decrease in interest rate levels there that will have a negative impact. And what Carsten said before on the deposit beta that you need to take the fourth quarter basically as something which will also drive then the full year 2026, and that will be a slightly higher deposit beta on [Technical Difficulty] which we have seen for this year. That is at least our assumption, and that is also the assumption which we have embedded in our plans back at the Capital Markets Day. If you look in this document, we always spoke about 41% for this year. Now it's 40% most likely, which would then go up to 44% until 2028. And that's just a reflection. It's lower than we thought, but there is still some increase in the deposit beta. When it comes to the -- so yes, you can say that the EUR 8.4 billion is clearly, again, a floor number and nothing else. And when it comes to the call money, we have that in July. We stopped the program actually after 3 weeks because we had so much inflow. But most of this money runs until January, February. And in the moment, we do only have our normal offers out there and nothing specific. And on funding, I hand over to Carsten. Carsten Schmitt: Yes. On the funding side, Riccardo, we had planned -- in terms of debt instruments, we had planned for around EUR 10 billion-plus for the full year, and we're currently standing at around EUR 11 billion in terms of funding. In terms of the spread across different instruments, we actually had a wide variety in the market this year from AT1 to AT2 issuances, et cetera. So basically, we had the full spread and made use of the market environment to do our regular sort of refunding activities. So actually, the funding plan is pretty much in line with our plan. We extended it a bit in Q4 effectively to make use of the current market environment. And also, I should say, looking a bit back into the first half of the year, we know that the markets are not always there when you want them to be there. So we basically looked a bit into stabilizing the funding position, but pretty much in line with the plan, maybe a bit on the upside. Also, given the current market environment and the spreads that we are seeing -- attractive spreads for the re-issuances, so generally, you can expect that we improved our funding cost position overall in the book throughout this year. And given that we hold the margins actually on the asset side steady, this will be contributing to our business plan. Riccardo Rovere: Very clear. Just maybe a quick follow-up. On the loan growth in PSBC Germany, the book is fairly stable at EUR 125 billion. Do you expect that the easing by the ECB is going to have an impact at some point in 2026 here? Bettina Orlopp: You mean on the private client side? Riccardo Rovere: Yes, exactly. On the retail side in Germany. Bettina Orlopp: Yes. I mean what we currently see is already much more activity again. So the mortgage activity has increased. Basically, it's back to the levels which we have seen pre-COVID. And there's just a time effect in there because people start a mortgage, but then until they really take the money, it takes a while because its most of the time, just paced in construction. So yes, we expect a loan growth for next year also on the PSBC side. Operator: The next question comes from Anke Reingen, RBC. Anke Reingen: There's two areas, please. The first is just coming back on the very strong corporate loan growth in Q3. Some of this seems to be a bit more short term in nature as in Working Capital and Trade Finance. And given Q4 is normally seasonally a bit weaker, I just wanted to confirm that you expect there shouldn't really be a reversal in Q4 from these levels. And then secondly, you talked at the beginning about your wealth management initiatives. And I just -- I'm sorry, I'm not -- can't really fully remember, but what you mentioned, is this incremental to your plan? And maybe can you just sort of give us an indication of how much it currently contributes to your revenues and what you sort of like size as an opportunity? Bettina Orlopp: First, we do not expect any reversal on the loan growth for the fourth quarter. And second, on wealth management, I mean, this is a core element of our Momentum strategy. So it's fully embedded in the plans. It's -- I mean, one of the factors which should drive our net commission income, the 8% or 7%, the 8%, which we have seen year-to-date, but also the 7% we expect for the years to come. And what we have now done is we basically intensified the coverage of clients. So there are more relationship managers to cover these groups of clients. We have wealth management centers. We also have new locations. We opened a number of new locations in Germany this year, and they will be a significant driver for the net commission income growth. We do not really say how much percentage-wise it is. Operator: The next question comes from Máté Nemes, UBS. Mate Nemes: I have two of them, please. The first one would be a follow-up on deposits, specifically the strong call money inflows. Can you talk about the retention rates that you've observed on such attacker products once the high interest period ends in the past 1 to 2 years? Would love to know what is your experience on that front, how sticky those new funds are? The second question would be on the risk result or risk costs and specifically your guidance. So in the first 9 months, you had EUR 515 million in risk results. And clearly, you revised your guidance down for the full year to below EUR 850 million. I'm just wondering what prevents you from being more specific on the full year risk results. It seems like there is an awful lot of room between the current result and the upper end of the guidance. Would you expect anything sort of inorganic in the fourth quarter, any model changes? Why not, let's say, a somewhat more precise lower guidance? Bettina Orlopp: Well, thank you. Yes, on the call money, the inflows and now you're asking what do we expect. I mean we can only speak for the past programs because the attacker products, which we have laid out in July are running, as I said, until January, February. So we will only see in the new year how sticky it is. You really have to differentiate between the two client groups, Commerzbank clients and comdirect clients. Commerzbank clients actually, whatever we get there is more sticky than on the comdirect side. And at the comdirect side, we also have more of these, I call them, interest rate hoppers. But still, we have been pleasantly surprised by the stickiness of how many clients still also keep their money with us. That is also due to the fact that most of the time, we also couple that with really client onboarding. We have a very attractive brokerage offering at the comdirect side, and that is clearly something which we combine also with new clients. So overall, so far, we have been rather pleasantly surprised on how much call money stays with us after the attacker products. But the risk result, I mean, totally clear, we see it the same. However, it's a long quarter, and this is why we, as always, stay a little bit cautious. We do not see anything specific. We do not expect anything specific, but it is a long quarter, which runs until February. So we're just leaving a space. There are not specific model changes planned or something like that. I mean there's always a time there are model updates, but nothing specific here. And that's also very confident. I mean, we wouldn't have changed it to below EUR 850 million if we would not believe that it comes lower than the EUR 850 million, which we originally laid out. But how much in total, we really will see in February when the quarter ends. So I think we are at the end of this call. Thank you very much for your questions. We are looking forward to further discussions with you and wish you now a great and sunny day. Thank you.
Edna Koh: Okay. Good morning, everyone, and welcome to DBS' third quarter financial results briefing. This morning, we announced third quarter profit before tax up 1% to a record $3.48 billion and ROE of 17.1%. 9-month total income and profit before tax reached new highs. As per our norm, our CEO, Tan Su Shan; and CFO, Chng Sok Hui, will start by sharing more about the quarter. Both will be speaking to slides, which you will see on screen. The slides can also be found on our Investor Relations website. And thereafter, we will take media questions. So without further ado, Sok Hui. Sok Hui Chng: Thanks, Edna, and good morning, everyone. I'll start with Slide 2. We delivered a strong set of results in the third quarter. Pretax profit rose 1% year-on-year to a record $3.48 billion with ROE at 17.1% and ROTE at 18.9%. Total income grew 3% to a new high of $5.93 billion. Group net interest income was little changed as strong deposit growth and proactive balance sheet hedging mitigated the impact of lower rates. Fee income and treasury customer sales reached new highs, led by wealth management, while markets trading income increased on lower funding costs and a more conducive trading environment. For the 9 months, pretax profit rose 3% to a record $10.3 billion as total income increased 5% to $17.6 billion from growth across both the commercial book and markets trading. Net profit was 1% lower at $8.68 billion due to minimum tax of 15% that has come into effect. Asset quality remained resilient. The NPL ratio was stable at 1.0% while specific allowances were 15 basis points of loans for the quarter and 13 basis points for the 9 months. Allowance coverage was 139% and 229% after considering collateral. Capital remained strong. The CET1 ratio was 16.9% on a transitional basis and 15.1% on a fully phased-in basis. The Board declared a total dividend of $0.75 per share for the third quarter, comprising a $0.60 ordinary dividend and a $0.15 capital return dividend. Slide 3, third quarter year-on-year performance. Compared to a year ago, third quarter pretax profit was 1% or $42 million higher, while net profit declined 2% or $73 million to $2.95 billion due to higher tax expenses from the global minimum tax. Commercial book net interest income fell 6% or $238 million to $3.56 billion as the impact of lower rates was partially mitigated by balance sheet hedging and strong deposit growth. The group's net interest income of $3.58 billion was little changed. Fee income rose 22% or $248 million to a record $1.36 billion, led by wealth management, while other noninterest income increased 12% or $61 million to $578 million as treasury customer sales reached a new high. Markets trading income rose 33% or $108 million to $439 million due mainly to higher equity derivative activity. Expenses increased 6% or $144 million to $2.39 billion, led by higher staff costs as bonus accruals grew in tandem with a stronger performance. The cost-to-income ratio was 40% and profit before allowances was 1% or $35 million higher at $3.54 billion. Total allowances fell 5% or $6 million to $124 million. Specific allowances remained low at $169 million or 15 basis points of loans. $45 million of general allowances were written back mainly due to a large repayment. Slide 4, third quarter-on-quarter performance. Compared to the previous quarter, net profit was 5% or $130 million higher. Commercial book net interest income fell 2% or $67 million as net interest margin declined 9 basis points to 1.96% from lower Sora. Group net interest income was 2% or $70 million lower. Fee income rose 16% or $190 million, led by wealth management. Other noninterest income grew 11% or $56 million, driven by higher treasury customer sales. Markets trading income was 5% or $21 million higher. Expenses increased 5% or $123 million from higher bonus accruals. The cost-to-income ratio was stable. Total allowances were 7% or $9 million lower. Slide 5, 9-month performance. For the 9 months, total income and pretax profit reached new highs. Total income rose 5% or $777 million and pretax profit increased 3% or $260 million to $17.6 billion and $10.3 billion, respectively. Net profit was 1% or $111 million lower at $8.68 billion due to higher tax expenses. Commercial book net interest income declined 3% or $310 million to $10.9 billion due to a 27 basis point compression in commercial book net interest margin. Group net interest income rose 2% or $211 million to $10.9 billion as the impact of lower interest rates was more than offset by balance sheet hedging and strong deposit growth. Fee income grew 19% or $599 million to a record $3.80 billion as wealth management and loan-related fees reached new highs. Other noninterest income of $1.65 billion was only 2% or $32 million higher due to nonrecurring items in the previous year. Excluding these items, treasury customer sales grew 14% to a new high. Markets trading income of $1.22 billion rose 60% or $456 million, marking the second highest level on record. The growth was due mainly to higher interest rate and equity derivative activities. Expenses increased 6% or $377 million to $6.88 billion with a cost-to-income ratio stable at 39%. Profit before allowances grew 4% or $400 million to a record $10.7 billion. Specific allowances remained low at $439 million or 13 basis points of loans, while general allowances of $143 million were taken. Slide 6, net interest income. Group net interest income for the third quarter of $3.58 billion was 2% lower from the previous quarter and little changed from a year ago. Lower interest rates impacted net interest margin, which declined 9 basis points quarter-on-quarter and 15 basis points year-on-year to 1.96%. We continue to mitigate the impact of lower rates through two factors. The first is proactive balance sheet hedging, which has reduced our net interest income sensitivity and cushioned the impact of lower interest rates. Second is strong deposit growth, which was $19 billion during the quarter and $50 billion from a year ago. The growth in deposits exceeded loan growth, and the surplus was deployed into liquid assets. This deployment was accretive to net interest income and return on equity, though it modestly reduced net interest margin. For the 9 months, group net interest income rose 2% to $10.9 billion despite a 9 basis point compression in net interest margins to 2.04%. The resilience in net interest income reflects the combined effects of balance sheet growth and of hedging. Slide 7, deposits. During the quarter, the strong momentum in deposit inflow was sustained with total deposits rising 3% or $19 billion in constant currency terms to $596 billion. The growth was led by CASA inflow of $17 billion, most of which was in Sing dollars. The CASA ratio rose to 53%. Over the 9 months, deposits grew 9% or $48 billion, with more than half of the increase from CASA. Liquidity remained healthy. The group's liquidity coverage ratio was 149%. And net stable funding ratio was 114%, both comfortably above regulatory requirements. Slide 8, loans. During the quarter, gross loans was little changed in constant currency terms at $443 billion. Increases in trade and wealth management loans were partially offset by a decline in non-trade corporate loans from higher repayments. As deposit growth outstripped loan growth, surplus deposits were deployed to liquid assets. This deployment was accretive to net interest income and ROE while it modestly reduced net interest margin. Over the 9 months, loans rose 3% or $14 billion led by broad-based growth in nontrade corporate loans. Slide 9, fee income. Compared to a year ago, third quarter gross fee income rose to a record $1.58 billion. The increase was broad-based and led by wealth management, which grew 31% to a new high of $796 million from growth in investment products and bancassurance. Loan-related fees were up 25% to $183 million from increased yield activity. Transaction services and investment banking fees were also higher. Compared to the previous quarter, gross fee income rose 13% led by wealth management. For the 9 months, gross fee income reached a record $4.48 billion, led by new highs in wealth management and loan-related fees. Slide 10. Slide 10 shows the wealth segment -- wealth management segment income. The third quarter wealth management segment income grew 13% year-on-year to $1.54 billion. The growth was driven by a 32% increase in noninterest income, which more than offset a decline in net interest income from lower rates. For the 9 months, wealth management segment income grew 10% to a record $4.38 billion due to a 28% rise in noninterest income. Assets under management grew 18% year-on-year in constant currency terms to a new high of $474 billion. The percentage of AUM in investments also reached a new high of 58%. Net new money inflow was $4 billion. Slide 11, customer-driven noninterest income. We have introduced a new slide to provide a clearer view of noninterest income, which is driven by customer activity. This comprises two components in the commercial, both net fee income and treasury customer sales. For the fee and treasury customer sales fall under different lines of the P&L financial statements due to accounting treatment, they should be viewed equally as they are both driven by consumer and corporate customers demand for financial products. For the third quarter, customer-driven noninterest income grew 22%. Net fee income rose 22% to $1.36 billion while treasury customer sales rose a similar 21% to $581 million, both were at new highs and led by strong wealth management activity. For the 9 months, customer-driven noninterest income rose 17%, driven by record net fee income and treasury customer sales. Slide 12, expenses. 9-month expenses rose 6% from a year ago to $6.88 billion due to higher staff cost from salary increments and bonus accruals. The cost-to-income ratio was stable at 39%. Third quarter expenses were 6% higher than a year ago at $2.39 billion, led by higher staff costs as bonus accruals rose in tandem with a stronger performance. Compared to the previous quarter, expenses grew 5%. The cost-to-income ratio was at 40%. Slide 13, nonperforming assets. Asset quality was resilient. Nonperforming assets declined 1% from the previous quarter to $4.63 billion. New NPA formation at $113 million for the quarter was below the recent quarterly average and was more than offset by repayments and write-offs. The NPL ratio was stable at 1.0%. For 9 months 2025, new NPAs were $449 million, significantly lower than the $739 million from the prior period. Slide 14, specific allowances. Third quarter specific allowances amounted to $170 million or 15 basis points of loans, stable from the previous quarter. For the 9 months specific allowances were $430 million or 13 basis points of loans. Slide 15, general allowances. As at end September, total allowance coverage stood at $6.43 billion, with $2.35 billion in specific allowance reserves and $4.07 billion in general allowance reserves. The general allowance reserves comprised 2 components: baseline GP and overlay GP. Baseline GP refers to the GP set aside for base scenarios. In addition to the base scenarios, we incorporate stress scenarios for macro uncertainty and sector-specific headwinds. As at 30th September 2025, the total GP stack of $4.1 billion comprise baseline GP of $1.6 billion and overlay GP of $2.5 billion. You may recall that we had increased GP overlay by $200 million during the first quarter this year to incorporate tariff uncertainty. Slide 16, capital. The reported CET1 ratio declined 0.1 percentage points from the previous quarter to 16.9%, driven by higher RWA and partially offset by profit accretion. On a fully phased-in basis, the pro forma ratio was stable at 15.1%. The leverage ratio was 6.2%, more than twice the regulatory minimum of 3%. Slide 17, dividend. The Board declared a total dividend of $0.75 per share for the third quarter, comprising an ordinary dividend of $0.60 and a capital return dividend of $0.15. Based on yesterday's closing share price and assuming that total dividends are held at $0.75 per quarter, the annualized dividend yield is 5.6%. Slide 18, summary. So in summary, we delivered a record third quarter and 9-month pretax profit with ROE above 17%. Total income was also at a new high as we sustained the strong momentum in wealth management and deposit growth while mitigating external rate pressures through proactive balance sheet hedging. As we enter the coming year, we'll continue to navigate the pressures of declining interest rates with nimble balance sheet management and our ability to capture structural opportunities across wealth management and institutional banking. So thank you for your attention. I'll now hand you to Su Shan. Tan Shan: Thanks, Sok Hui. So hello and good morning. As you have now seen our numbers and Sok Hui's comments, I will say that the Q3 was a solid quarter. I think the team delivered a solid quarter in spite of very strong interest rate headwinds, especially in Singapore. We had a record top line total income, record fee income, record treasury sales and record PBT. Of course, tax we had to pay the minimum tax. So that took off some of our net profit upside. And I guess from my slide, the -- both the fact that we had some nimble hedging, and we were able to capture some opportunities when the market became volatile, speaks to our resiliency, so was hedging as well as some fixed rate assets. And what was also pleasing was the fact that we saw huge amount of deposits coming back to us. A large chunk of that was also CASA. So at $19 billion quarter-on-quarter growth, a lot of that surplus deposits was deployed to HQLA. And in terms of the structural growth, I think we have both structural and cyclical growth. And both the structural and cyclical growth came into gear in Q3 because the capital markets were very strong. So we saw strong momentum in wealth management fees, up 23% quarter-on-quarter, 31% year-on-year. These are very strong numbers. And whilst wealth management AUM remained very high, I think what was also pleasing is we are seeing the momentum also travel to the retail and retail wealth segment as well. We're trying to get more of that digital flows back and so we had a whole refresh of our digital wealth strategy, which is now yielding fruit. So that's also quite pleasing to see. The second market and cyclical opportunity is in capital markets in both ECM and DCM. So for DCM, as rates come down, corporates are coming back to the market and we are winning market share. I told our DCM team that I think we have a right to win in the global market. And so, to my surprise actually, starting from a very low base, we're now #6 in the Middle East. For example, in the MENA league table as of October 2025, we did 32 DCM issuances, including 13 public bond deals. And we're #1 in private placement league table for the key Middle East banks. So I think if we put our minds to it, we can execute. And I think both the capital markets, GCM, DCM, ECM pipeline looks good. The wealth pipeline looks good and the FICC pipeline looks good, right? So these are both cyclical and structural opportunities to capture more loan fees -- sorry, to capture more fees. The other momentum is in loan fees. You saw the loan fees up 20% year-on-year. That's also structural. Because as I alluded to the last 2 quarters, I think that speaks to IPG's focus on winning market share, wallet share and mind share and having expertise in the industries that we cover and we target. So both the loan-related fees and market trading as well was very strong, up 33% year-on-year. Very strong equity derivatives activities from clients, strong warehousing gains, good customer flows. Then I want to talk about additional assets. I alluded to this also in the last quarter where we talked about the whole digital asset ecosystem and how we had a head start and how we want to continue to drive this head start. And I think the GENIUS Act changed everything, as I said before. And we are still waiting to see how regulations turn out because different regulators have different priorities and different time lines and different ordinances. But we've gone ahead. I mean, for example, this quarter, we issued some structured notes. So we tokenized structured notes on the Ethereum blockchain. We've also announced that we are working with Franklin Templeton's BENJI fund to list that on our digital exchange. We're also working with Ripple to use -- to get Ripple -- to use Ripple currency, digital currency into -- in and out of the BENJI money market fund as well. So we're pretty active in the tokenized ecosystem. We've been tokenizing deposits for a while now, and that's also seeing a lot of customer interest. And we've also started to look at the potential for repo and collateralize use cases as well for tokenized money market funds. Asset quality, as Sok Hui alluded to, pretty resilient. NPL ratio at 1%. And again, I think this speaks to the discipline of the team. Many years back, before COVID, we started to watch-list industries or sectors that we felt were to come under scrutiny or under some pressure. That's worked out for us. So we have been quite early in monitoring clients that might get into problems. And in fact, if you see, we had quite a fair amount of loan repayments in Q3 this year. And surprisingly, that came out of Hong Kong, primarily in Hong Kong real estate. So I think we've been pretty disciplined in who we bank with. We've onboarded and banked really the big blue chip companies. Our LTVs against real estate is pretty conservative. And that's why I think our NPA formation remains at a multiyear low. Next slide, please. So I've been traveling quite a fair bit in Q3 for the IMF and IIF Board meetings in Washington, to the FII in Saudi, the Hong Kong MA, Monetary Authority Financial Leaders Conference this week and to visit my colleagues in IBLAC in China visiting regulators and colleagues in our core markets, Taiwan, China, I'll be in India next week, et cetera. And I will say that there's a lot of momentum in deal flow. There's a lot of momentum in the U.S., certainly in the whole tokenized, stablecoin, digital asset ecosystem. Outside the U.S., there's a lot of momentum in terms of trade -- potential trade flows, both because customers want to diversify their supply chain and also customers are looking for new markets to grow. So this shift in trade and investment flows is something that our team is very focused on, and we're looking at growing the pipeline, say, intra-regional trade between Asian countries, ASEAN countries, China to ASEAN countries, Singapore, China, et cetera. There's been a lot of two-way conversations and the upscaling of the China agreements that most countries in ASEAN have has also been put in place. China GCC trade also is projected to double to $1.9 trillion by 2025. So there's some good structural shifts in global macro flows, and we want to play into that. I talked about the capital markets revival. You all know about the long pipeline of deals in Hong Kong and China. We're trying to play to our strength there as well. Singapore also has a strong pipeline and the MAS' recent measures to rejuvenate the markets here, the equity market development program, seems to be working as well to create some liquidity and some momentum. I was struck also by the concentration of the market cap of the U.S. U.S. still is about 70% of global market cap valuation at $72 trillion, Hong Kong at $7 trillion, China at $13 trillion, Singapore at $0.6 trillion. I think there could be next year, let's see, maybe valuations will change. But the good news is, as I said, the pipeline for ECM remains very strong in our part of the world in Asia ex-Japan. Another theme I want to talk about was the internationalization of the RMB and also the revitalization of the Chinese market. You see that from the authorities talking about high-quality growth. You see also a lot of investments in AI and chips. The enterprise use of AI is formidable and their commitment to internationalizing the use of RMB for global trade, that figure has quadrupled over the last 3 years. That's also admirable. The Southbound Bond Connect is also busy. That's also quite good structural growth in wealth management onshore in China. So wealth, global net wealth reached $512 trillion in 2024. I think that's grown a lot this year because of the market moves and also some wealth creation at the high end. So we remain committed to our strong focus on wealth management. The teams that Tse Koon and his team hired over the last couple of years are starting to mature and yielding returns for us. Similarly, for IBG, the FICC focus, the institutional client focus is also yielding good returns. I've gone to see several global sovereign wealth funds with my team, pension funds with my team. And I think DBS has a role to play with these global II and FICC clients across various products from custody to FICC flows to digital flows to ECM, DCM block placements to repos, reverse repos, et cetera. So I think playing to our strengths in wealth and FICC is structural focus, I've said this time and time again, I feel like I'm a grandmother nagging, but I do believe that these two growth pillars will continue to yield returns in the next few years. And in terms of other big theme, of course, everyone is talking about AI, generative AI, agentic AI, when will agents start using -- when will customers start using their own agents to deal with bank agents, et cetera. Suffice to say, we've been at the forefront of this. We have been rolling out both horizontal and vertical use cases. Some working out quite well, some less well. But I think the momentum continues to be pretty strong. And we're working with various partners, both in the U.S. and elsewhere in Asia to accelerate the tech adoption. And what's pleasing to me is pretty much most of our staff have started to use it. They're saving time, they're taking a lot of productivity saves in the more mundane work, like writing credit memos, KYC, transaction screening. And our wealth managers are using it also to good stead in our wealth Copilot. Our tech guys are using it for coding, for developing. So I think there's good momentum there, and that will continue to evolve. Last but not least, I talked about the growing interest in tokenization of stablecoins. As you know, we had a head start in 2021. We will continue to support regulators in their quest to stay ahead of the trends. Right now, our key focus is on tokenizing deposits. For stablecoins, we will play where there is a play in different jurisdictions. But I think that regulations have to evolve there for us to have a clearer look. In the meantime, we believe that we can play a role, like more of a picks and shovels kind of role in the whole asset ecosystem, whether you want to tokenize your assets, you want to tokenize your deposits, you want to trade on our digital exchange, you want to custodize with us, you want to use it for payments, et cetera, we've learned how to do it end-to-end. So I think that's also a differentiator for us. So the right side is a short pitch of DBS as a differentiator bank, increasingly in a bifurcated volatile world with geopolitics being volatile. I think our clients are looking for a safe neutral bank for their long-term needs, right? And I think DBS plays to that. We've been recognized by Global Finance, it's Asia's safest bank now for 17 years running. And we're ranked #2 globally amongst the 50 top safest commercial banks. So I think being safe, being dependable plays to our strength, and I think we have a right to win more market share. As a diversifier bank, we are now seeing global ultra high net worth thinking they should have a bank in Europe or Switzerland, a bank in the U.S. and quite possibly a bank in Singapore and that bank should really be us. MNCs and FIs as well are looking for a diversifier bank for both the custody needs and their transaction needs, and I think that plays to our strength. As a disruptor bank being an innovative -- having an innovative head start, the fact that we can work with the likes of Franklin Templeton or Ant or JD or any of these big platform companies means we are a head start. We've been holding a lot of teach-ins for our clients. And as the world starts using more generative and agentic AI, we want to be at the forefront of that as well. As I said before, I think the fact that we've organized our data, the fact that we've organized our tech and the fact that we organized our people and processes quite a few years ago, thanks to Piyush and the team's foresight, I think we've created a digital and data moat to be able to embrace these big AI moves that are upon us. So last but not least, the digital and data capabilities I've talked about. We were just recognized the World's Best AI Bank at Global Finance Inaugural AI Awards this year. We've implemented over 1,500 AI models, 370 different use cases, and we hope to create an impact of $1 billion in AI this year. Okay. So next slide is the 2026 outlook. And we are looking for total income to hold steady to 2025 levels in spite of significant interest rates and FX headwinds. We're looking at Sora to hold at current levels of 1 -- well, to hold at the sort of the 1 month and 3-month MAS bill levels at about 1.25. That means there's a 60 basis point decline from this year's average. We're looking at three Fed rate cuts next year. And we are also looking -- well, we're also using for our forecast a stronger Sing. So there, you have significant interest rate headwinds and FX headwinds, which we want to make up for with volume growth and fee growth. So the commercial book noninterest income growth to be in the high single digits. And the reason for that is whilst we have great headwinds on the loan side, we also have tailwinds in terms of our cost of funds because of our floating liabilities as well, mostly in dollars. We are looking to continue to have mid-teens growth in wealth management and also in FICC and to maintain our cost income ratio at the low 40% range. And SP, we've assumed that it will normalize to 17 to 20 basis points. So far through cycle, this has worked and asset quality remains resilient. We're comfortable, but we're not complacent. We're still watching constantly to assessing our different exposures for impact from trade, geopolitics, real estate, et cetera. And so if the macro conditions stay resilient, we could actually also have some rooms for GP write-backs. And if conditions soften, we have quite a lot of buffer, as you heard from Sok Hui earlier on through our allowance reserve and our strong capital ratios. So we're looking for net profit to be slightly below 2025 levels or pretty flat. That's it from me. Thank you very much. Edna Koh: Thank you, Su Shan. We can now proceed to take questions from the media. [Operator Instructions] We have a question from Nai Lun from BT. Tan Nai Lun: This is Nai Lun from BT. I just want to check, right? Because I understand you have a $200 million GP already taken at the start of the year. But then are you foreseeing like you to take more of that, especially as you mentioned, you have some macroeconomic uncertainties or sector-specific headwinds? Sok Hui Chng: Yes. So let me clarify. I will say that actually our stack of total GP $4.1 billion comprise two components, right? The baseline GP and the overlay GP. And the overlay GP is quite substantial at $2.5 billion. If you look at our September last year, it will be about $2.3 billion because we did top up $200 million this year. In the second quarter, we said it's actually sufficient. So we are not topping up. So just to convey that we are actually very adequate in terms of our general provision levels. Tan Shan: I would say even more than adequate. Sok Hui Chng: Yes, more than adequate because we actually exceeded the MAS 1%. Edna Koh: Okay. A question from Goola. Goola Warden: Congratulations on the very good results in the current environment. Can I ask at least three questions. Okay. So the first one would be on the capital return and the share buyback? Because I think that Sok Hui has said that you are committed to paying $3 in total dividends for this year and next year and 2027, is it, could you just correct me on that if that's wrong? So -- and then there is -- there was a share buyback program and how much of that have you completed? Because it looks like a very low percentage based on -- I must have missed out, I look back, 10% to 12%, I'm not quite sure. So what -- I mean what happens if you don't complete it within the time frame? And what are the other avenues for management to return the earmarked amount to shareholders. That's one question. Should I carry on? Okay. Then you mentioned that your deposits -- because you've got more deposits than -- a lot more excess deposits will be deployed into HQLA, are these local government bonds, are these U.S. government bonds or are they corporate bonds? And what's the currency and duration like? I mean you don't have to say the company or the country, but just an idea of whether they're Sing dollars or non-Sing dollars. And the last question is funding related. But again, you have no AT1s anymore based on your current -- your third quarter. So what are your funding plans? AT1s, are they cheap now? Or is there any reason -- is there any regulatory reason why you don't have any? That's it. I think that's it. I mean two more general questions, but only when everyone else is answered. Tan Shan: Thanks, Goola. I'll take the first one, this is Su Shan and then Sok Hui will take the HQLA and AT1 question. So on the dividends, we've always said that our stock, we had $8 billion of excess stock of capital to return. We remain committed to returning that. $3 billion was allocated to share buybacks. We've done about 12% of that. And our philosophy is to buy it when the market is bad, right? So that's the philosophy. We don't want to chase it up. And the $5 billion is to be returned to shareholders through capital, the capital return dividends. So as you can see, we've got many different things in our toolbox to pay our shareholders back. You've got your normal dividend, of course. You've got step up dividend, then you've got the capital returns dividend and then you have the stock buyback and so based on that we intend to keep to that $8 billion commitment. Goola Warden: How much of that $8 billion has been returned? Sok Hui Chng: The share buyback, 12% would be $371 million. Tan Shan: Yes. And then the dividend return was $850 million. It's $0.15 per share per quarter, if you remember. Goola Warden: I mean, how much of the $8 billion is just... Tan Shan: So in total, we basically use 15% of the $8 billion. Goola Warden: Oh, okay. So there's a lot more. 1-5 percent. Tan Shan: No, but the $5 billion is committed, right, because it's $0.15 per quarter. So that $0.60 a year. So that's committed. So over 3 years, that will be all paid back. Goola Warden: Okay. And the 3 years is '24 -- '25, '26, '27, right? Tan Shan: Yes, correct. Sok Hui Chng: We started in '25 for the capital return dividend. Tan Shan: '25, '26, '27. So we will end by end '27. Sok Hui Chng: Correct. Maybe the only thing I would add is that we also communicated that we would be able to step up ordinary dividends $0.06 in the fourth quarter for 2025 year and then 2026 year. Goola Warden: By $0.06 is it on the... Sok Hui Chng: By $0.06 in the fourth quarter, which means the full year impact is $0.24. Goola Warden: And the full year impact will be next year, right? Sok Hui Chng: No, we'll step up end of this year. So you get it approved at the AGM in March 2026. And then it will actually flow through. So the full year impact is $0.24 for ordinary dividend. So what you see on the slide as $0.60 would then step up to $0.66 per quarter. And then you still have your $0.15 on the capital return dividend, which we have committed up to FY 2027. Goola Warden: HQLA and the AT1, yes. Sok Hui Chng: Okay. So your next question was about the HQLA. So you see on my slide, in the loan slide, you see that loan, actually, the growth rate was slower than the deposit growth. And for 9 months, our HQLA, which you can also see in the Pillar 3 disclosure is actually up $30 billion, and these are all in high-quality liquid assets. So they are in government securities, they are in U.S. government securities. These are the main items where we have seen the increase. So very, very safe assets. And then you had a question on the AT1 because the -- our CET1 is already at such a high level. Transitional basis, we're at 16.9%. So there's no point raising AT1. The CET1 currently doubles up. So for AT1, the spec is already quite a lot. So we don't intend to actually sort of pay up for AT1 until the need arises because you see on the slides as well. Goola Warden: Look, it's not a regulatory thing with the stuff that's going on with Credit Suisse and UBS and what Basel I doesn't want, right? Tan Shan: It's just AT1s because they don't have enough CET1s, right? Sok Hui Chng: So regulators set CET1 minimum, AT1 and Tier 1 and then total. So it's a stack. So if your CET1 is really well above the minimum, they can come towards Tier 1 capital. Goola Warden: Okay. Okay. That's all I have on that. I'm just wondering what's the difference between your structural tailwinds and your cyclical tailwinds. That's the other sort of general question. And the other one is you said that bancassurance was one of the reasons why you have a fee income. You've got a bancassurance agreement with Manulife. And I'm just wondering, that one is 15 years. How much longer does that have to run? And what is the state -- I mean is it performing to what Manulife wants? Tan Shan: Okay. So on your question around what are the difference between a structural and cyclical tailwinds. So cyclical tailwinds to me are what are cyclical. So when markets are strong, stock markets are up, money supply is up, et cetera, that's sort of cyclical. Structural is more long term. So where you have demographics, demographic reasons or structural reasons for the growth. So for me, the cyclical tailwinds was the markets were very strong, right? Q2, Q3, the markets were strong after Liberation Day, the rally was a lot higher than most people expected. The structural tailwinds I talked about was the fact that there is structural wealth creation. So the wealth management team remains structural growth for Asia and frankly, for the rest of the world, for the U.S., particularly. And then the structural growth in FICC, II, assets under management, quite a lot of these funds. There are clients, they've seen trillions of dollars in asset growth. So you've got these two growth pillars that are structural. On Manulife, I think we signed in 2015, it was 15 plus 1, so 16 years in total. Sok Hui Chng: So it was till 2023. Tan Shan: 2023. So the partnership has been growing really well. It's been fantastic actually. Tse Koon, you want to say anything? Shee Tse Koon: Yes, I think it's gone very well. So I mean, earlier on, when we talk about our wealth fees, right, the wealth fees growth has been a factor of both investments and insurance at the same time. Tan Shan: So there is a need for insurance like state planning, et cetera. And that is another structural theme, Goola, because you look at China, silver economy, Singapore, Hong Kong, all these people need to plan. And actually, that's our USP, right? We're good at onboarding these clients, discussing their long-term plans, putting it in a state planning, helping to plan for the next generation, for their own life, et cetera. And that creates a very sticky long-term relationship for your wealth clients. And Manulife has been a great partner in helping us to design suitable products for our customers, having a portfolio approach and thinking very long term. They're long-term investors in Asia, good credit rating, et cetera. So they've been a very good partner. Edna Koh: Next question from Bloomberg, Rthvika. Rthvika Suvarna: So I'm with Bloomberg. My name is Rthvika, and I had two questions for Su Shan. You've talked about wealth as a structural growth pillar with mid-teens growth targeted. Given recent high-profile wealth scandals in the region involving RMs and client fund misappropriations, what safeguards do you have in place? Are you seeing any reputational or compliance headwinds? And what do you think of extra regulatory scrutiny off the back of these scandals? How does this affect Singapore as a wealth hub? Tan Shan: Okay. I'll start and then Tse Koon is going to weigh in. So I think by the way, we have well presence in all our core markets. So it's not just Singapore, right? But of course, Singapore is a major financial hub for us and for many of our peers. And I will say that it's -- the bar has been set very, very high right now in Singapore and in all the major jurisdictions. The bars are set very high for KYC and AML, number one. Number two, there's been very rigorous source of wealth declarations and we all need to triangulate with proof of documents, et cetera. And there's no let up in these high standards. It still takes a fair amount of time to onboard a new client because of these. And transaction surveillance remains a key part of triangulating for bad money, right? Every bank sees what they see, right? So if you don't see the flows between the Middle East and the U.S., for example, and you will only see the flows from your bank to another party. And so when you have big scandals like this, it beholds multiple countries and jurisdictions to work together to be able to triangulate the global flows because otherwise, most banks will see their own bilateral flows, and they don't see the other flows. And you need to put the pieces of the jigsaws together to see that, oh, there is a trend or there's scams or there are all these patents. So I will say that it's these kind of global transaction surveillances remain a challenge. In Singapore, we set up with the regulator something called COSMIC, which has been a good platform on which we can look at sort of -- the banks can work together to weed out the bad actors. And I think that that's been working. It's just -- it's pretty new, but that's been working. But it takes multiple parties to work together to be able to catch these -- and catch them early. Shee Tse Koon: Can I just add to that. And I would say that Singapore is clearly a very, very strong wealth management hub, all right? And it has been growing very, very steadily over the last couple of years. If we look at the standards that we have, right, I would say that it's something that is aligned with those that are global wealth hubs, right? If you look at whether or not there are issues that have been -- that have risen, I'll say there's nowhere where you will never -- there will never be a zero kind of situation. The important thing is that there is robustness from which the typologies, new typologies that we see will lead us to continue to sharpen our capabilities. And we can see in Singapore, the big difference in Singapore is that when things happen, I think the industry comes together very, very quickly between regulators, law enforcement and the industry to just handle it. And I think that in itself speaks volumes of the strength of Singapore as a continued wealth hub. So I don't see any of these being a hindrance to Singapore becoming a world hub. In fact, this speaks to the very strength of Singapore being a wealth hub. Rthvika Suvarna: Are there any other broader risks that DBS is weighing out that could affect Singapore's reputation as a wealth hub globally? Shee Tse Koon: Sorry, I don't quite get that question. Rthvika Suvarna: Yes, like any other -- I mean any other like threats, I suppose, aside from the scandals? Shee Tse Koon: I'm not sure if you are specifically asking about DBS per se. Tan Shan: He's asking about Singapore. I will say I beg to defer. I think your question, you're asking if there's any risk, I would say that Singapore's status as a clean hub has been reinforced by the swift action taken by [Technical Difficulty], number one. The rule of law here is strong, right? We are open for -- Singapore as a hub is open for business. It's a diversifier hub, as I said to you earlier on, and it's a digital hub. And there's enough wealth practitioners here of high quality and standards. And I believe that the authorities are protecting the reputation and the standards here rigorously. The bar is high. I'll tell you the bar is high for KYC and sort of wealth verification. So I don't know where you're going with this question, but I will say that the fact that -- and we're very open, right? When the scammers are caught, it's open, it's all declined. So I will say that it should reinforce the seriousness that Singapore takes in keeping the standards high. Shee Tse Koon: I guess there are -- so I say risk, right? When we're talking about risk, I think the inherent risk is no different in the financial industry wherever you operate, right? The difference is we have robust standards, and we deal with it swiftly. If you're asking for further the risk of Singapore being a wealth hub, I think actually what we have done as a nation will enhance that. And in my interactions with clients, I think there continues to be a very, very strong interest. And as you can see, the performance of the wealth management business, I think that speaks volumes as to the robustness of the continued growth. And if you ask me whether there's a risk of us being a wealth hub, the answer is no. Edna Koh: We are now at 11:42. I think that might be all the time that we actually have because we have an analyst briefing at 11:45. So I think we will wrap things up here right now. Thank you, everyone, and we'll dial out here. Tan Shan: Thank you. Sok Hui Chng: Thank you. Edna Koh: Thank you.
Operator: Hello. Welcome to the IMCD 2025 First 9 Months Results Conference Call hosted by Marcus Jordan, CEO; and Hans Kooijmans. [Operator Instructions] I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead. Marcus Jordan: Thank you very much, Elba. Good morning to you all, and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Kooijmans for the 2025 first 9 months results, which we published in a press release earlier this morning. The first 9 months of 2025 were generally characterized by challenging market conditions as a result of continued macroeconomic uncertainty, particularly around tariffs across all regions. This resulted in softer demand across a number of markets, limited order visibility and just-in-time deliveries. Moving on to the first 9 months numbers. You will find a summary of our financial results on Slide 4, whereby considering these continued challenging macroeconomic conditions, I am pleased with our gross profit growth in the first 9 months, which is up 5% on a constant currency basis to EUR 927 million. This increase is driven by a combination of organic performance, successful acquisitions and resilient gross profit margins. EBITA also increased by 1% on a constant currency basis to 340 -- sorry, EUR 394 million. And our cash flow of EUR 284 million was a bit lower compared with the first 9 months of 2024, driven by a combination of a slightly lower EBITA and a modest increase in working capital investments. As we mentioned in the half year call, we are actively working on reducing our inventory amount back to historical levels, but I also want to stress how important it is that during these uncertain times, we have inventory in place to fulfill the demands of our customers. If we now look at M&A, we announced 4 acquisitions in the first half of 2025. And in Q3, we were very happy to add another 2. In August, we announced the acquisition of Tillmanns in Italy, which operates across a broad way markets, including coatings and construction, food and nutrition and water treatment. Tillmanns have 78 people and had a revenue of EUR 143 million in 2024. I'm very proud of this acquisition as we've become a real powerhouse for our partners, teams and suppliers in Italy. In October, we also announced the acquisition of Dang Yong FT in South Korea, a company active in beauty and personal care with 14 people and EUR 34 million in revenue. We strengthened our position in South Korea, which, as you know, is one of the most innovative and largest Beauty & Personal Care markets in the world. On a full year basis, these 6 acquisitions will add around EUR 340 million revenue and 185 employees based on their last full year numbers before acquisition. Looking at our business segments. We have seen pharmaceuticals, food and nutrition, having the most solid performance in the first 9 months and our Beauty & Personal Care and Industrial segments being generally soft in demand across the 3 regions. Related to demand, we get a lot of questions around Chinese competition in our various markets. And during this year, it is fair to say that we have seen more competition from China. And whilst we are somewhat protected from this due to our specialty focused portfolio, we have seen some pricing pressure, primarily on the semi specialty components of our portfolio and especially in the APAC and LatAm countries. It is important to highlight that competition from China is nothing new to us. And we -- and as we have done throughout the history of IMCD, we regularly review the portfolio we have in all countries and markets to ensure we are for the longer term competitive and where necessary, adapt our portfolio accordingly, again, with the long-term growth of the company in mind. To summarize, despite the ongoing uncertainties in global trade and tariffs, our business model has shown resilience during the first 9 months of the year. We are further intensifying our efforts to drive cost effectiveness and commercial excellence throughout the company and ensuring that we have the right people and the right positions for the future. We are in the process of further strengthening our sales organization, both those on the road and inside sales specialists. At the same time, we're taking advantage of our digital initiatives to optimize other areas of the business. Overall, this will result in a reduction in the number of FTEs going forward. We are well positioned for the future through our adaptable specialty-focused portfolio, geographic and market diversity combined with advanced digital and supply chain capabilities, and we remain confident in the strength and long-term outlook of our asset-light business model. I would now like to hand over to our CFO, Hans Kooijmans who will give you an update on the numbers. Hans Kooijmans: Thank you, Marcus, and good morning, ladies and gentlemen. And I will, as usual, briefly summarize IMCD's results for the first 9 months before we go to Q&A. And I would like to start on Page 7 of the presentation. On this page, you can see ForEx adjusted revenue and gross profit both increased with, respectively, 6% and 5% compared to last year. Despite the challenging conditions, Marcus just mentioned, we still achieved a modest level of organic gross profit growth, along with a 4% increase as a result of the first time inclusion of acquired businesses. Gross profit in percentage of revenue slightly decreased to 25.2%. And about half of this 0.2% decrease is the result of the negative impact from acquisitions, acquisitions with, on average, a lower gross profit margin than group average. Furthermore, we saw the usual fluctuations in our product mix, currency impacts and changes in local market conditions. Then ForEx adjusted operating EBITA, which increased 1% to EUR 394 million. And this increase resulted from an organic decline of 3% that was more than compensated by the positive impact of the first time inclusion of the acquisitions. The reported EBITA and conversion margin both decreased. And this is mainly the result of gross profit growth that could not fully compensate inflation driven on cost growth. When you look at the cost growth, the year-to-date organic own cost growth came down to just below 4%. And compared to September 2024, the number of full-time employees normalized for the impact of acquisitions slightly decreased. ForEx adjusted net result on the next line, that decreased 9%. And in our trading update, we usually don't break down this difference in detail. However, it's fair to assume the main factors are similar to what you saw in our half year results, lower reported EBITDA and higher finance costs as the main drivers. And these higher finance costs in year-to-date 2025 are mainly the result of a bit more ForEx losses and lower gains from fair value adjustments of deferred considerations. Further, we reported and will report additional cost related to one-off adjustments to the organization. And these additional cost items are partly compensated by lower tax cost. At year-end, you could expect higher than usual additional costs related to one-off adjustments to the organizations. You know and we told you before that we are always cost conscious and prudent with our cost structure. However, as indicated also by Marcus, current market conditions, but also opportunities as a result of our digital investments allow us to reduce our fixed cost base and adjust the organization to changes in market conditions. Then on free cash flow, we reported cash conversion margin of 71%, which is slightly lower than the same period of last year. As mentioned in our previous call, we took additional measures to reduce our working capital investment, why we are careful to carry sufficient stock to fulfill our customer requirements. In our previous call, when we discussed the end of June figures, we reported that our working capital days were 6 days higher than the same period of last year. End of September, we were able to reduce this gap to 3 days. And we feel confident that we will report at year-end, a cash conversion ratio somewhere around high 80% or a low 90% number. Then on the next page, Slide 8, you will find a summary of a few key figures split into the various regional operating segments. When looking at top line and gross profit, we were able to grow organic as you can see in all 3 regions despite these difficult market conditions. We also had quite some currency headwinds when translating local results into the euro, most significant in APAC and the Americas. This currency translation impact is easy to quantify and report it as a separate line, but more complicated is calculating the operational impact of these currency fluctuations. It's obvious that these currency fluctuations had a negative impact in regions where it's common to quote in dollars and invoice in local currency. Therefore, it's fair to assume that these currency fluctuations this year negatively impacted our results in LatAm, APAC and a few EMEA countries. On the bottom of this slide, you will find EBITA margin conversion margin per segment, and we report a negative development in 3 of the 4 segments. And the only positive exception is Holdings where the cost in percentage of revenue ratio slightly improved due to lower holding cost. EMEA reports the biggest EBITDA and conversion of deviation compared to last year. And as mentioned in previous call, you should keep in mind that the majority of the global business group costs are reported in the EMEA region. And this then automatically leads to, in general, higher cost base. The biggest swings in results during the year were reported in the Americas and Asia Pacific. The America and APAC reported, respectively, a positive 21% and 7% organic EBITA growth in the first quarter, which turned into a minus 4% and minus 3% year-to-date September. Marcus gave you already a bit of color on the background. On Page 9, a summary of IMCD's free cash flow. The absolute amount of free cash flow was EUR 16 million lower than last year, and the cash conversion ratio was 71%. And lower EBITDA, a slightly higher working capital investment were the main drivers of the difference compared to last year. As mentioned before, we are confident that we will report at year-end a cash conversion ratio somewhere around the high 80% or low 90% number. Page 10, update on net debt and leverage. By net debt at the end of September was close to EUR 1.5 billion, slightly lower than end of September last year and EUR 228 million higher than the end of December. The year-to-date increase of our net debt position was, amongst others, impacted by a combination of on the one hand, positive operating cash flows, combined with cash outflows of EUR 281 million as a result of acquisitions and EUR 127 million dividend payment. Our reported leverage ratio, including the full year impact of acquisitions done was 2.6x EBITDA, which is similar to the leverage based on the definitions in our loan documentation. And then last but not least, on Page 12, you will find our outlook for 2025, and I assume everybody has already read the text in the press release. Therefore, I don't want to repeat it again loud. And I would like to hand over to Elba, the operator, to open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: I have 2 questions, please. So firstly, could you talk a little bit about how pricing has developed over the quarter? We had talked earlier in the year about stabilization, but I'm just wondering now how the combination of tariff-driven inflation and some of the increased competition you mentioned is driving pricing and how that has trended relative to your expectations? And then secondly, just on the competition from Chinese suppliers. We -- I think we spoke about this at the half year. So could you talk a little bit about how that has developed during Q3? Have you seen that competition step up, particularly as tariff noise has increased? And do you expect that to continue for the foreseeable future? And in that context, you mentioned keeping the portfolio under review. And so are there any structural changes that you're considering if you assume that, that competitive pressure will continue? Marcus Jordan: Annelies, thank you very much for the questions. I think in terms of pricing, what we can say there is that we haven't seen any real significant change during the quarter. We've seen, I would say, a little bit more normal pricing behavior where for some product lines, we've seen small increases. But also related to your second question, we have continued to see pricing pressure in certain areas and business lines on the semi specialty side from China. So I would say nothing, I would say, changed significantly since the last quarter. And then moving on to competition from China. Again, I wouldn't say that we've seen a very significant increase in the third quarter versus what we've seen in the past. I think generally, we have seen more competition this year than last. But I think also important to stress, as I mentioned, Chinese competition is nothing new. And I think then related to the structural change and how we review the portfolio. I think important to mention that we've had Asia sourcing offices in place in India and China for more than 20 years. Historically, those were very much focused on some of the product lines that actually were predominantly manufactured there. Pharmaceutical actives is a good example. But as you can imagine, we also use those sourcing offices sometimes to look at what are the white spots that we've got, particularly in countries that we're maybe freshly entering into. And so we do keep a very close eye on what is happening within the, let's say, China manufacturers looking at our portfolio. Still remaining very loyal to those long-term partners that we have and always been, I think, looking at the long-term growth of the company, making sure that we don't do knee-jerk reactions for what could be short-term market conditions. But again, I think the beauty of our business model is we've got a very agile product portfolio. We can adapt where we need to. But again, let's be cautious and make sure that we're doing that with a very long-term view. Operator: The next question comes from Matthew Yates from the Bank of America. Matthew Yates: I'd really like just to continue on the theme of that competitive pressure really. Looking at your Asian performance, it would be helpful to unpack that a little bit. I mean flattish top line feels respectable in light of the tariff uncertainty that the world is operating in, but then the 13% decline organically in EBITA suggest some competitive pressure or investment that you're making to drive future growth, I don't know. But when -- Marcus, when you talk about portfolio review, that to me, just sounds like walking away from business and accepting that there are product lines that are no longer profitable for IMCD to operate in. Is that fair? If so, how much of the portfolio are we talking and is there anything else you can do to sort of reinforce the business model and the pricing pressure you have in light of these challenges, I appreciate you're saying there's nothing new, but equally, at the same time, it does feel like it's intensifying or accelerating. Marcus Jordan: Okay. Matthew. Maybe if I speak a bit about the first point first and the Asia Pacific numbers. And I think the standout there, Matthew, is related to India. where we do see, I would say, quite a softness from a performance perspective during the third quarter. And if we dig a little bit deeper into that, I think that we can talk then the most, I would say, the largest effect is related to pharma. So I think we all saw the pharmaceutical tariff discussions, which took place during the third quarter that, of course, I would say, in general, quite some uncertainty. There was a big pharmaceutical exhibition in Frankfurt called CPHI last week. We had the opportunity there to speak to a broad range of our own suppliers and customers. I think everybody saw the same trend of that softness in the third quarter, but pretty much everybody is also speaking confidently that, that will be turned back to some kind of normality during Q1. So I think that this is a short-term thing. I think with regards to then walking away from certain business, that's definitely not the case. I think, firstly, if you look again at those long-term supplier relationships, which we have, also important to state that with the partners that we have, a lot of those partners also have assets in China. So they're able to also keep competitive. When we talk about reviewing the portfolio, again, this is nothing new. We constantly country by country, look at what are the white spots that we've got, how can we strengthen the business, how can we strengthen the portfolio but also looking at which, again, nothing new is are there pieces of business or particular product ranges where we can't be competitive. And typically then, that business has already deteriorated or is very small. So it's more a case of looking at how do we boost the business and grow the business again for the future rather than walking away from business that we have. Operator: The next question comes from Suhasini Varanasi from Goldman Sachs. Suhasini Varanasi: Just a couple for me, please. Can you maybe discuss how conversations with your customers are progressing? Are you seeing any signs of volume stability on a sequential basis at this point? And any color on the order book would also be helpful. And if you think about the gross margins in this quarter, it has deteriorated quite significantly versus the first half trends. You mentioned half of it was M&A. But the rest, is that basically the price pressure that you saw effectively? Marcus Jordan: Firstly, I would say, on the customers and kind of the volume stability or outlook, whatever, I would say that there's no change, unfortunately, in terms of the visibility that we have. So still, a very volatile order book, I would say, minimal forecasting, a lot of just-in-time deliveries. So I would say unfortunately, no general improvement there. And on the gross margin percentage, I think Hans kind of already covered that where I would say that there's nothing exceptional there. A little bit of dilution from the M&A impact, maybe product mix to a certain extent. But I would say nothing material. Operator: The next question comes from David Kerstens from Jefferies. David Kerstens: I've got 2 questions, please. First of all, on the stable organic revenues in the third quarter, that seems like a good performance against a substantially tougher comparative. I was wondering, can you highlight maybe some product market combinations where you see this improvement sequentially relative to the second quarter? Then the second question is on the balance sheet with leverage going up to 2.6x EBITDA and the Tillmanns acquisition not yet closed how do you see that leverage ratio develop into the fourth quarter towards the year-end and after the closing of Tillmanns? And does that still leave you with sufficient headroom for further M&A going into 2026? Or would you temporarily allow higher leverage given the short-term unfavorable market conditions? Marcus Jordan: I think with regards to the stable organic growth, I think behind the scenes, there's obviously an awful lot of work going into making that happen. I think if there's a market which has maybe stood out from a stability perspective, it's the food and nutrition space. I wouldn't say that there's a significant change between the quarters. But out of the different market segments, that's the most stable and robust that we've seen for this year. And then on the M&A and leverage, Hans? Hans Kooijmans: David, Hans here. On the leverage, I don't want to predict the leverage number for year-end, and you're right, I still need to pay. And I also need to close Tillmanns that we expect to do in the last part of this quarter if we get all the formalities done. If and when that happens, yes, leverage will move around that 2.6 number. I expect, so sufficient room to do further M&A. Typically, working capital will come down towards year-end, what we indicated as a cash conversion ratio should lead to an additional cash inflow. So I'm not concerned at all about our firepower. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one question from me, please. Can you elaborate a bit on your comments around the cost base and particularly FTEs? Obviously, there seems to be a nod to the volatility of the environment at the moment. But you've also linked, I think, to ongoing digital initiatives, which might suggest it's a bit of a longer-term project. I'm not sure if you can share any more details here or whether this is something you're looking at across regions, what's in scope? Yes, any sort of color would be helpful. Marcus Jordan: Great. Thank you, Nicole. Yes, as I mentioned, it's not something new, but it's fair to say that we are intensifying our efforts to really drive that cost effectiveness. But also making sure that we're delivering premium customer service. And as we've spoken about before, the expectations of customers that they are evolving this omnichannel way of working. And for us, that means very critically, making sure that we've got very highly skilled technical development resource on the road, visiting those customers face to face, but also having very highly qualified inside salespeople so that regardless of the way that the customer wants to interact, they've got immediate contact, and we're able to react in a very timely and effective and efficient way. So what we're doing is really looking at making sure that we've got the right people in the right positions to really, again, be the leader from that sales excellence perspective to drive the long-term growth but also using the digital tools that we're very proud of, basically to optimize other areas of the business. And I think if you look at just one example, but through the use of AI and different topics, things like the marketing side, the way that we're able to handle that and to drive that in a more efficient way, I think that's a good example. So again, it's not something new to us, but it's fair to say that we are intensifying the focus there, also because of the pretty challenging market conditions that we face. But again, I think what is important is looking for the long-term growth. Operator: The next question comes from [ David Simmons ] from BNP Paribas. Unknown Analyst: So just coming back on the gross profit. So you mentioned some impact perhaps from M&A and maybe some impact from mix. I'm just curious, given that you're trying to bring down inventory and you've done a better job on free cash flow conversion in the third quarter, is there any inventory effect on gross profit margins at all? And then maybe a little bit of a sort of outlook question, again on gross profit margins. Do you expect the sort of -- I mean we didn't really see any pressure on gross profit margins in the first half or flat year-on-year, but they're down 90 bps in Q3. Would you expect that to reverse in the quarters ahead? Or is that sort of new level based on different mix and the different -- and new M&A you've done for the next few quarters? Hans Kooijmans: David, I answer, I understand your question. And if you look historically at IMCD's numbers, there is always quite some volatility in the margin percentage between the quarters, and there is no exception in this year. And it's often driven by slightly changes in the product mix, M&A having, in this case, a bit of a negative impact on the overall margin percentage, for sure here and there on the more commoditized products. There was a bit of pricing pressure. That played a bit of a role, but that also already happened in the previous quarter. At the end of the day, it is not so much about permanently increasing your margin percentage. It's more about growing the absolute amount. So the focus of our salespeople is always linked to having an absolute amount of margin target and not the percentage target. And if this is the new normal, I don't think so, but let's see what the future will bring. Operator: The next question comes from Eric Wilmer from Kempen. Eric Wilmer: I got 1 question. Does the ongoing demand pressure and competitive pressure as European manufacturers have any implications for the level of outsourcing that they work with? Some manufacturers, I think, including today have announced new incremental cost savings measures? So could this actually be perhaps another source of outsourcing. And does the growing Chinese presence gives you leverage towards your existing suppliers potentially for a larger share of wallet? Marcus Jordan: Thank you, Eric. I mean, this very much depends on a supplier-by-supplier basis. But as I think we've spoken before, the general trend is to outsource a greater percentage. And I think that as our suppliers go through these tough market conditions, I mean, we do hear about quite some redundancies and headcount reductions that they're making. And they really then, I think, value us even more as their outsource sales and marketing partner. So yes, I think it's fair to say that in general, there are greater opportunities when there is more market uncertainty, but it differs supplier by supplier. But we're in continual discussion with not only our existing suppliers, but also potential new ones to look at how can we further expand the relationships, both geographically and across more product lines. Operator: [Operator Instructions] The next question comes from Carl Raynsford from Berenberg. Carl Raynsford: Just 2 from me, please. I just wanted to ask about your comments around food and nutrition being the most stable end market segment this year. Previously, pharma was seen as a -- I'll paraphrase this, by far the best performing segment, judging by comments from yourselves and peers in the first half. But it feels that there's been a significant slowdown in Q3 based on your comments sort of more around food and nutrition now. Is that a fair assumption? And then the second question, I just wanted to focus on the comment around decreasing FTEs over time again. Presumably, you mean decreasing the absolute number even as revenue increases. This business has always been about relationships and sales and high service levels and the AI opportunity in theory was useful for cross-selling. So could you discuss why you think you can maintain the same levels of sales and relationships alongside an increase in cross-selling and at the same time decrease the number of FTEs and able to be on the road, use omnichannel ways of working and the same service levels really? Or just considering your answer to Nicole's question earlier, is it more on the marketing side, you're considering that. Marcus Jordan: Firstly, on the first question related to food and nutrition and pharma. As I mentioned before, we did see in Q3 a bit of a softening in the pharma market, but predominantly in the India space because of the tariff conversations. So because of that and also the feedback that we had at CPHI last week, that was the reason for my comments of not including pharma in that. But I mean, overall, pharma, when you look at it across the year, it's still performing well versus last year. But as I said, a bit of a softening in the third quarter, but we expect that to come back relatively short term. In terms of the service levels, I think it's really important, again, to reiterate that, if anything, we're further investing in the commercial organization and infrastructure. So when you look at the FTE reduction, that's definitely not reducing the people out on the road. It's not the people that are interacting with customers or suppliers. It's really looking at how can we bring better efficiency through the digital tools and more of those, let's say, support functions. Hopefully, that helps. Carl Raynsford: That does, indeed. Very reassuring. Operator: The last question comes from Stefano Toffano from ABN AMBRO ODDO. Stefano Toffano: Yes. And Hans, 2 questions remaining for me. And apologies if the first one is already answered, but I missed it. Regarding the Americas, can you maybe provide a little bit of just some highlights, some light on what you are seeing there in terms of end markets and also the consumer, how the consumer is behaving. And the second question is more of a general question. I mean you obviously throughout the years have seen quite some cycles. Is there anything different in this cycle compared to the past cycles where you say, well, this might be here to stay. This will continue to have an impact or is it just one of those cycles where you say, give it or take or whatever 1, 2 years, we will definitely go back to a normal environment? Marcus Jordan: Thank you, Stefano. I think with regards to the Americas question, I think the standout there, if you look at, let's say, more soft performance, I think the 2 countries maybe that we mentioned, and it's for different reasons. I think the U.S., in general, from the demand side, consumer confidence, we see that as being soft at present. And then Brazil is one of the countries when we speak about Chinese competition and maybe greater competition in that semi specialty space in APAC and LatAm. I would say, within the LatAm region, Brazil definitely is one of the countries which has been the most affected there. And then coming on to the cycle difference, I do think that this is very different to what we've experienced in the past because we're not going through a normal kind of market cycle. I think that there are these kind of shock waves that come in through things like the tariff discussions, where we're kind of getting back to a more normal kind of market cycle as we were coming through the end of last year and the beginning of Q1 and you saw the performance, I would say, more normalizing. But then the shock wave of tariffs and then the uncertainty around it, also with the continually changing messages about what is the tariff percentage, but also what are the products included in the categories within the tariffs. So I think that we just need some kind of clarity and stability on those kind of topics. And then hopefully, we'll get back to a more normal type of market cycle. Operator: With that, due to time constraints, I will give the word back over to Mr. Marcus for any closing remarks. Marcus Jordan: Great. Thank you. And on behalf of Hans and I, a big thank you all for joining the call this morning and for your questions, and we wish you all a very good day. Thank you very much.
Operator: Greetings, and welcome to the Gulfport Energy Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jessica Antle, Vice President of Investor Relations. Please go ahead. Jessica Wills: Thank you, and good morning. Welcome to Gulfport Energy's Third Quarter 2025 Earnings Conference Call. I am Jessica Antle, Vice President of Investor Relations. Speakers on today's call include John Reinhart, President and Chief Executive Officer; Michael Hodges, Executive Vice President and Chief Financial Officer. In addition, Matthew Rucker, Executive Vice President and Chief Operating Officer, will be available for the Q&A portion of today's call. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and business. We caution you that these actual results could differ materially from those that are indicated in the forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may reference non-GAAP measures. Reconciliations to the comparable GAAP measures will be posted on our website. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. At this time, I would like to turn the call over to John Reinhart, President and CEO. John Reinhart: Thank you, Jessica, and thank you for joining our call today. Last night, we announced meaningful progress on key inventory additions that strengthen the company's core asset value and support sustainable long-term value creation for shareholders. Since 2023, we have consistently communicated our commitment to adding high-quality, low breakeven locations. And during the third quarter, we made meaningful strides in expanding our drillable inventory. First, driven by Gulfport's development and recent peer activity, resource viability of the Ohio Marcellus has expanded to the north, demonstrating the significant incremental value in Gulfport's inventory portfolio overlying our existing Ohio Utica development in Northern Belmont and Southern Jefferson County. These high-quality locations are being added to the existing portfolio at no incremental land cost, effectively doubling our net drillable Marcellus inventory in Ohio. Second, the successful appraisal drilling of our first 2 U-development wells in the Utica validates the feasibility of U-development across our acreage position, adding economic low breakeven inventory on otherwise underutilized acreage, which previously only accommodated subeconomic short lateral development. Third, we have continued our disciplined discretionary acreage acquisitions into the third quarter and since mid-2023 have invested over $100 million towards high-quality, low breakeven locations that enhance optionality across our portfolio. Collectively, these initiatives have increased our gross undeveloped inventory by more than 40% since year-end 2022, and we now estimate Gulfport holds approximately 700 gross locations across our asset base. These inventory additions facilitate substantial fundamental value enhancements for the company by increasing our net economic inventory by approximately 3 years and brings our total net inventory to roughly 15 years, with peer-leading breakevens below $2.50 per MMBtu. Finally, we also achieved a significant milestone on the financial front during the quarter by completing the redemption of our preferred equity. This transaction simplified our capital structure and complements our ongoing equity repurchase program. Inclusive of the preferred redemption as of September 30th, Gulfport has returned $785 million to shareholders since March 2022, and we intend to continue to opportunistically repurchase our undervalued common stock, announcing plans to allocate an incremental $125 million towards repurchases during the fourth quarter of 2025, all while maintaining an attractive leverage ratio forecasted to be at or below 1x at year-end 2025. Moving to our third quarter results. Our average daily production totaled 1.12 billion cubic feet equivalent per day, an increase of 11% over the second quarter of 2025 and keeping us on track to deliver full year production of approximately 1.04 billion cubic feet equivalent per day, which includes unplanned third-party midstream occurrences that were previously disclosed alongside our second quarter results in August. On the capital front, we remain committed to allocating capital to the highest value opportunities across our asset base. We announced 2 targeted initiatives where we plan to invest incremental discretionary capital expenditures during 2025. First, as part of our technical team's ongoing focus to optimize development and unlock additional value within our existing portfolio, we have elected to invest approximately $30 million towards discretionary appraisal development during 2025. This program predominantly targets the drilling and completion of our first 2 U-development wells in the Utica, which, as mentioned, were recently successfully drilled and are scheduled for completion late in the fourth quarter. These wells validate the technical feasibility of U-development across our acreage and enable us to optimally develop areas of our acreage footprint that were either not prioritized for future development due to acreage configuration or only contemplated for shorter lateral development that did not clear our current economic hurdles. This discretionary investment allowed us to unlock roughly 20 gross locations, nearly 1 year of high-quality dry gas inventory and enhances our long-term development optionality. In addition, our team identified and executed several other appraisal opportunities during the second and third quarters of 2025, including DUC completions of laterals that were drilled several years ago, infilling 2,000-foot spaced laterals as well as refrac opportunities from under stimulated wells in the Utica. These activities were designed to supplement base production with limited incremental capital, and we will assess performance from these initiatives and apply the learnings to pursue additional value-enhancing opportunities that may exist elsewhere in the company's portfolio. Second, in response to known forecasted production impacts from simultaneous operations of an offsetting operator as well as planned third-party midstream maintenance production downtime in the first quarter of 2026, we are planning to invest approximately $35 million towards discretionary development activity during 2025. This proactive spend is expected to mitigate the forecasted upcoming production impact and position the company to deliver offsetting volumes into a favorably -- into a favorable economic commodity price environment. While we continue to optimize our 2026 development program amongst our attractive development areas and plan to announce our formal capital and production guidance in February, the discretionary capital investments made in 2025 will benefit the 2026 program. Along with these incremental capital investments, the company reiterates our commitment to return capital to shareholders through our ongoing common share repurchases. And this incremental capital spending will not reduce the amount we previously planned to allocate towards share buybacks during 2025. In total, we expect to allocate approximately $325 million to common stock repurchases during the year, while maintaining financial leverage at or below an attractive 1x. On the land front, through September 30, 2025, we have invested roughly $23.4 million on maintenance, leasehold and land investment, focused on bolstering our near-term drilling programs with increases of working interest and lateral footage in units we plan to drill near term. In addition, we continue to pursue discretionary acreage acquisitions, primarily in the dry gas and wet gas windows of the Utica, and we have invested approximately $15.7 million during the first 9 months of 2025. We reiterate our plans and remain on track to allocate $75 million to $100 million in total before the end of the first quarter of 2026 and currently forecast approximately $60 million of cumulative spend by year-end 2025. Upon successful completion of our planned expenditures, this is planned to add over 2 years of core drilling inventory, further bolstering our undeveloped well counts and development optionality beyond the additions we announced earlier today. Specific to our Marcellus activity, we continue to be very encouraged by our Hendershot pad results in our first multi-well development, the 4-well Yankee pad brought online late in the second quarter and located in the Marcellus core development area. The Yankee pad is exhibiting attractive performance compared to its direct offset, the Hendershot 5-well, and when normalized to 15,000-foot laterals, tracking in line on a 2-stream equivalent comparison. Notably, the Yankee pad represents our first Marcellus pad to be gathered and processed under our new midstream agreement, which enhances development economics by enabling the extraction and sales of valuable NGLs, especially considering the favorable ethane treatment that the contract provides. In addition to our Marcellus core inventory, as I noted, recent peer development activity has expanded our Ohio resource liability into Northern Belmont and Southern Jefferson Counties, where we hold a meaningful amount of acreage, as depicted on Slide 8 of our investor presentation. We estimate approximately 120 to 130 gross locations across the defined Marcellus North development area, expanding Gulfport's gross Marcellus inventory by approximately 200%. We plan to drill our first Marcellus North development in early 2026 and look forward to discussing the development results once the wells come online and we gain production history. In summary, we remain focused on expanding and responsibly developing Gulfport's high-quality, low breakeven inventory while prioritizing shareholder returns and maintaining our strong financial position. The expansion of our Ohio Marcellus inventory, validation of new development and targeted discretionary acreage acquisitions have increased our total net inventory to roughly 15 years with breakevens below $2.50 per MMBtu, and we remain committed to returning capital to shareholders through common share repurchases, including the planned incremental repurchases in the fourth quarter of 2025, again, all while preserving a strong balance sheet. Now I will turn the call over to Michael to discuss our financial results. Michael Hodges: Thank you, John, and good morning, everyone. From a financial perspective, Gulfport delivered a strong quarter with robust quarterly production growth and solid cash operating costs, which resulted in attractive adjusted EBITDA and free cash flow generation. Net cash provided by operating activities before changes in working capital totaled approximately $198 million during the third quarter, more than funding our capital expenditures and common share repurchases, while maintaining our balance sheet strength at just over [ 8/10 ] of a turn of financial leverage. We reported adjusted EBITDA of approximately $213 million during the quarter and generated adjusted free cash flow of approximately $103 million, which includes the impact of approximately $12.4 million of discretionary capital expenditures. Our all-in realized price for the third quarter was $3.37 per Mcfe, including the impact of cash settled derivatives, resulting in a premium of $0.30 above the NYMEX Henry Hub index price. This outperformance reflects Gulfport's differentiated hedge position, the pricing uplift from our liquids portfolio and the impact of our diverse marketing portfolio for our natural gas. As many of our peers have discussed, we are entering an exciting time for the natural gas market, fueled by LNG expansion and the increase in demand for natural gas power generation that is accelerating from the build-out of new data centers. This evolving landscape presents exciting opportunities and while on a smaller scale than some industry peers, Gulfport has been able to benefit from our firm transportation portfolio to secure targeted arrangements with larger gas marketers that deliver incremental value to the company. We continue to evaluate additional opportunities to supply gas to meet this growing demand and Ohio appears to be fertile ground for future development in this area. This market trend also pairs well with our direct exposure to the growing LNG corridor near the Gulf Coast through our firm transportation agreements that access the TGP 500 and Transco 85 sales points, markets which averaged more than $0.50 above the NYMEX Henry Hub index price during the third quarter. Together, these marketing and takeaway arrangements improve our realized prices, increase our all-in netbacks and ultimately lead to enhanced durability in our free cash flows. Turning to the balance sheet. Our financial position remains strong with 12-month net leverage exiting the quarter at approximately 0.81x, down from the prior quarter and benefiting from the increasing EBITDA our business has delivered over the past year. As of September 30, 2025, our liquidity totaled $903 million, comprised of $3.4 million of cash plus $900.3 million of borrowing base availability. And we recently completed our fall borrowing base redetermination with our lenders, unanimously reaffirming our borrowing base at $1.1 billion, with elected lender commitments remaining at $1 billion. Our strong liquidity and financial position today is more than sufficient to fund any development needs we might have for the foreseeable future and provides tremendous flexibility from a financial perspective as we are positioned to be opportunistic should situations arise that allow us to capture value for our stakeholders. As demonstrated through our discretionary acreage acquisitions, proactive capital initiatives and planned share repurchases announced alongside our earnings. As John mentioned previously, we completed the opportunistic redemption of all outstanding shares of Gulfport's preferred stock during the third quarter. The company redeemed a total of 2,449 shares of preferred stock at an aggregate redemption value of approximately $31.3 million. This is a milestone financial accomplishment for Gulfport as the completion of this transaction simplifies our capital structure and underscores our belief in the attractive value proposition that Gulfport's equity represents. Inclusive of the preferred redemption, during the third quarter, we repurchased 438,000 shares of common stock for approximately $76.3 million. And since the inception of the program, we have repurchased approximately 6.7 million shares of common stock at an average price of $117.45 per share, approximately 40% below the current share price. Our consistent approach to share repurchases over the last 2 years has delivered tremendous value to our shareholders. That said, we also remain opportunistic, utilizing our financial flexibility to allocate capital when we believe the current valuation does not reflect the strength of our underlying fundamentals. And as such, repurchasing shares at today's level represents a highly attractive use of capital. As John mentioned, we expect the incremental discretionary capital expenditures announced today to be funded without impacting our planned share buyback program and alongside earnings announced plans to allocate approximately $125 million to common stock repurchases in the fourth quarter of 2025 to be funded from adjusted free cash flow and available revolver capacity, all while maintaining leverage at or below 1x. In closing, we remain committed to allocating capital strategically, recognizing the highest value opportunities across our assets while maintaining our return of capital framework, all anchored by a strong financial position that provides substantial flexibility. Our recent inventory expansion delivers meaningful asset accretion and long-term shareholder value, and our low breakeven inventory positions the company to benefit from improving natural gas fundamentals and deliver meaningful free cash flow growth going forward. With that, I will turn the call back over to the operator to open up the call for questions. Operator: [Operator Instructions] And the first question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Great update. John, my question is, you've talked a lot on the release and this morning about just seems like well results when I look at versus type curve. They continue to improve. And I'm just wondering, I guess, 2 questions around that. Is it just you're targeting the rock better? Or maybe just talk about what you think is really driving that certainly notable upside? And then is it fair to say, I mean, if there was even pressure and takeaway wasn't an issue that could we even see materially bigger wells than we're already seeing? John Reinhart: Thanks for the question. I think one of the things that we're pretty proud of here is the team's constant focus on operational execution and their ability to test and optimize the completions and drilling, quite frankly, and drill out phases of our development. The teams -- what I'll point you to, the teams have progressed, especially in the different windows of the Utica with cluster spacing, with sand. So for instance, there's been a pretty material change in the way we allocate sand, whether it's 40/70 or 100 mesh, the cluster spacing, the stage sizes. So the teams are constantly evolving, assessing and testing as we move through our development program in both the Marcellus and the Utica and the condensate, and the well results showed that. So pretty pleased with how the teams are focused on that, that optimization and certainly look for more to come. I think on the upside question you asked about, there's certainly no doubt with some of the occurrences that we experienced that the throughput could have been well over what our actual production results went up in '25, and we communicated that earlier in the year. I think on a per well basis, we do follow restricted choke management. And while there may be some upside there, generally speaking, although we've had some modifications to some of these restricted rates being a little bit lower because of some of the occurrences, I'll tell you that the teams and the execution of the production results out there are following in trend and what we expect. So limited upside on the pressure managed results. What I'll tell you is any restrictions we'll see near term will just kind of pan out and prolong the plateau period and shallow the decline later on. But I mean, overall, great well results. It's a great asset base and the teams are constantly looking to optimize value. Neal Dingmann: Great. Great. And then just a follow-up, maybe on capital allocation, I don't know either for you or Michael. I mean is it simply -- I mean, again, we know you focused on the, I think, very smartly on the stock buyback. But again, when you're looking at M&A -- and you have little debt, so I understand that. But when you guys are looking at sort of M&A prospects, does it just -- is it -- I don't know, maybe I'm making it too simple, simply, are we better to buy -- continue buying back a ton of our shares? Or what is the value when we see some assets out in the market? I mean, does that factor in, and maybe just discuss that around the capital allocation? Michael Hodges: Yes. Neal, this is Michael, and John can certainly jump in. But I think you're hitting the nail on the head. I think when we look at kind of the opportunities that are already in front of us, kind of I'll call them these organic opportunities with the acreage acquisitions we've been able to execute on over the last few years and then with the equity, I think those are extremely attractive. I mean, again, I won't get into specific rates of return and then there's always intangible factors we consider as well. But I would just tell you the rates of return on some of those investments are quite high. And so you think about other opportunities outside of the portfolio and the need for those to compete. There certainly are those opportunities out there. And we do know that the market has seemed to value some scale. But I think for us, the way that we've been able to consistently add at those high rates of return has made a lot of sense. And I think the equity value has reflected that so far. We think there's still some underappreciated aspect to it there. But I think, again, we're constantly measuring those opportunities against what we already have and at least in our view, trying to be very disciplined about the way we think about those things. Operator: The next question comes from the line of Brian Velie with Capital One Securities. Brian Velie: Just a couple here real quick. I wondered if you could walk me through kind of your line of thinking for adding those appraisal U-development wells this year rather than waiting until '26? Was it just the gas pricing getting better recently? It certainly looks like it was the right time to do it. But I just wondered what that does for you or what this does for you in setting up '26? Maybe just kind of put you a little bit leaning forward into next year? Were there other time line considerations or things that encouraged you or convinced you to pull this into this year? John Reinhart: Yes. Brian, I appreciate the question. I think as we looked at the company's portfolio, I mean, it should be no surprise to anybody that we've been very focused on expanding the high-quality inventory over the past 3 years. We probably sound like a broken record whenever we say it, but that is a key focus for us. And as we looked at the fourth quarter, there's robust cash flow. The company has a healthy balance sheet. And almost every investor meeting that we have wants to see us kind of grow that inventory. And I think we agree, having sustainable long-term low breakeven inventory is very important for the company. It just provides durability, that's very important. So as we looked at all that, it was the right time to take a look at this appraisal bucket, which was primarily allocated towards these U-development. And this is a real opportunity for the company to take what was -- what I would call shorter lateral type development that were subeconomic to the right side of the skyline and really pull forward some really good, high-quality return 20 gross wells, that also adds, by the way, some dry gas into '26. So, I think the company was positioned very well overall financially. The commodity environment really looks constructive, and it was just the right time to continue to expand on our inventory through the Marcellus delineation efforts and all the technical work there as well as the U-development. Michael Hodges: Yes. And I just think maybe I'd add to that, Brian. I think the timing certainly helps, right? I mean I think the gas environment is strong. And I think we're certainly conscious of that as we make these decisions. But John hit on the point. I think it's really about unlocking the inventory. And we'll see what the results look like. We'll get these things completed near the end of the year, get the production online. Some of this appraisal capital, I think John mentioned in his remarks, was also related to some legacy DUCs and some refracs. And so, we'll kind of see what the productivity of these projects are. And so I think as far as thinking about next year at this point, probably a little early to guide you on kind of how much incremental there is there, but we'll certainly be following up. And I think John mentioned this in his prepared remarks, looking for other opportunities within the portfolio where we can apply some of these learnings that we've had. Brian Velie: Great. That's very helpful. And then maybe one quick follow-up. I just want to make sure that I'm thinking about this correctly and see if any shifts in the way that you guys are thinking about it. But we're working on 2 back-to-back years, returning more than 90% of free cash flow to shareholders. This year is probably going to be in the low 90%, the way I model it with fourth quarter free cash flow and your $325 million of buybacks, plus the discretionary capital number, you're going to be right there again. This year it's a little bit more of the total on acquisitions of land versus buybacks than maybe it has been in the past few years. Should we think about that the same way for 2026? At least as it stands now where the mix or the balance between the 2 choices that you have is going to depend on kind of acquisition availability or deal flow and then the other piece, you have share price performance. Is that the right way to continue thinking about it? Michael Hodges: Yes, Brian, I think that's a great way to think about it. I think the framework that we've laid out hasn't changed, right? I mean I think we feel like we're going to generate a lot of free cash flow next year, and we are going to continue to look for these highly accretive locations that we've been able to add. This year, we had line of sight to a little bit bigger number than the last 2 years, but this is 3 years in a row that we've been able to add those locations. So as we think about next year and what the opportunity set might be, certainly not ready to size that just yet. But whatever that size comes in at, I think our strategy would remain with buying back the equity, assuming that the value continues to be a proposition that we think makes a lot of sense. And so as I sit here today, that's the way we think about it and certainly able to adjust that as we move forward. But we think that, that's the highest and best use of our free cash flow right now. Operator: The next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: I know you all don't have 2026 guidance out yet, but we're trying to understand sort of the puts and takes of your recent comments. You're accelerating some activity in 4Q, and you mentioned some constraints that you've seen in 1Q from midstream and offset fracs. We saw a pretty dramatic kind of [ SKU ] to the production in 2025 with first quarter down a lot. How should we think about sort of the shape of production? I know you don't have guidance. But just trying to understand kind of the impact of your 4Q acceleration and how that's going to shape the next couple of quarters? Can you give any context on that? Michael Hodges: Yes. Tim, this is Michael. I'll take the first shot and John can certainly jump in. I think if you look back at Gulfport over the past at least few years when our management team has been involved, we've had a fairly front-loaded capital program, and that was true in '25 as well. So if you think about the timing of the turn-in lines for some of that activity, you're going to see that a lot of that coming online, call it, second, third, early fourth quarter, which leads you to flush production kind of late in the year and a little bit lower production as you get into the first part of the year. Now to your point, we've got some projects here later in the year that will help the first quarter production, but we also have some midstream issues. So all that to say, I think the general shape will be similar to years in the past. I think that some of these projects might help a little bit. So maybe on a year-to-year comparison, there might be a little bit of a benefit there. But I think overall, that cadence is going to be very similar. And you'll see strong production from Gulfport kind of Q3, Q4 with a little bit lighter as you go into first quarter, second quarter. Timothy Rezvan: Okay. That's helpful. I appreciate that. And then I want to talk on ops real quick. Slide 8 showed sort of this outperformance of the Yankee wells versus the Hendershot pad, and you talked about that a little bit. Is there something specifically you can kind of point to, that drove that outperformance? I know that no rock is identical. But is there something you feel that like has kind of emboldened you for this resource acquisition from that pad when you think about sort of optimizing production? Just curious any insights on that? Matthew Rucker: Yes. This is Matt. Happy to take that one. Certainly, from that Hendershot pad, first 2 wells that we performed here in Ohio, lots of lessons learned, core data taken, things like that. So when we came back in for the full development opportunity here at the Yankee, certainly applied those lessons. I can't necessarily attribute it to one specific thing, but we did change our completion design techniques based on what we saw in the first 2 wells, as well as some different targeting within the formation there based on our core data and our production results. So all of those things combined and understanding the reservoir fluid system a little better after the first 2 allowed us to really hone in on what those are based on just learnings in other plays and basins. And so, I think that's the result we're seeing here and certainly applicable to the rest of our position, which has kind of given us the support here to continue to add to our inventory. Operator: The next question comes from the line of David Deckelbaum with TD Cowen. David Deckelbaum: Just -- curious just on the Marcellus delineation. First activity, I guess, up in Belmont. One, I guess, when are you thinking about doing some of your own work in Jefferson? And I guess, as you look at delineated activity in Belmont, what percentage do you think that, that would incrementally derisk of Marcellus prospectivity in Belmont? And I suppose as well, like would the intention be to design wells that would be similar to what you would see in development mode? Or is there going to be a little bit more science on these? John Reinhart: Yes. I think to your first question on activity and just our general inventory add there. There are several well points to the east of us. And I think even Michael, Matt and I in our prior lives down in Monroe County, there's been several Marcellus. And then here, we were, of course, up in that Belmont area. I think there's a lot of data points. What really kind of triggered the timing for us here is that northern data point that kind of shored up the structural features and structural mapping as you go from south to north, which really kind of put a pin in it for us and that offset operator who drilled that well. It's got substantial production that's public now. And I'd reference you to Enverus as well on some of their inventory data. It really facilitated us recognizing what we believe is a materially derisked footprint here. I will tell you that we're pretty conservative, and we took a conservative approach on this inventory adds in the Marcellus. If you reference Slide 8 in the investor deck, it kind of shows ongoing assessment. And I think that's maybe what you're referring to. We wanted to make sure that we stayed structurally and honored to structural and honored the data that we saw for these 50 or 60 net inventory wells, but there is meaningful upside. I think to your point, as we think about development, we're going to drill this first pad in Northern Belmont, which kind of ties along to the same structure and features is that Southern Jefferson. So for us, it's -- we're agnostic to it. What we're looking for is what well mix that's going to provide. So by the end of this year -- or sorry, the end of next year, we'll have a pretty good understanding of the production mix. And so, to your question about development opportunities, we'll then take that information and start looking at midstream contracts, processing agreements. So we're probably 2 to 3 years out from actually full developing that northern core, but we are going to drill our first well up there to get a good idea of production mix. On the South ongoing assessments, what I'll tell you is we're not an exploration company. We like to really derisk what we do operationally. So as we work from the east to the west, that will naturally start to delineate that ongoing assessment area where we feel like there's some real upside there potentially for the company because the actual play moves to the west as you go farther south, just that's the way the structure works. So there's a little bit -- we feel positive about the opportunities to potentially add some locations in the future, but we won't have any kind of real well set data or anything to compare to at least over the next 1.5 years. So that -- there's more to come there in the future. David Deckelbaum: I appreciate all the details there. I wanted to just ask on the buyback in the context of flexibility going forward. You guys highlighted the $35 million of spend that would accelerate the pad into 4Q '25 to really, I guess, offset impacts that would have happened in the first quarter. And you guys announced you're going to buyback about $125 million of shares in the fourth quarter. It was 3.5% of your cap, [ that was ] pretty notable. Do you see an intention, I guess, to start building excess activity so that you have flexibility around issues in sort of peak periods as you get sort of beyond '26? Michael Hodges: Yes, I'll take the first part, and then John or Matt can talk about kind of excess operational activity. I think on the buyback side, I think we've remained pretty consistently committed to it, David. So I think the announcement around earnings with the extra $125 million, I think it was maybe a little bit of an extension of what we've been doing anyway. I do think as we thought about the additional capital investment that we talked about earlier, the appraisal capital and then the proactive development capital, I think we wanted to show that the buyback is not kind of the offset to that, right? So I think that was the intention there. And I think there was a question earlier in the call about the intention going forward, and I think we'll remain pretty consistent there. But I don't think that on the buyback side, kind of the inventory of operational opportunities is changing our approach. In fact, I think what we did here in the fourth quarter kind of indicates that the buyback will remain consistent despite any kind of additional activity we consider going forward. So I don't know if, John or Matt, do you have anything you want to add to that? John Reinhart: Yes. I'll touch on the preparedness and kind of contingencies. We've really been focused, as we talked about on adding additional inventory. And these inventories kind of scour different landscape areas. So we've been focused on dry gas, wet gas. We've developed -- and certainly some Marcellus. We've developed some condensate wells. So as you think about kind of preparations for future occurrences and incidents, these all are in different footprints in different areas. So, by default of just adding this low breakeven, high-quality blocky acreage we can develop, it does set us up for contingent options as we move forward for any kind of unforeseen or unplanned incidents that we might have in the future. So, by default, we're actually focused on doing that by these inventory adds, and we feel like that's a very prudent action for us to take just considering what's happened over the last year. Operator: The next question comes from the line of Jacob Roberts with Tudor, Pickering, Holt & Company. Jacob Roberts: I wanted to ask on the 20 U-development locations. Is that largely a function of just the previous wells drilled? Or is that a function of that footnoted price? I'm just wondering over a multiple year period, how many of these do you think you could actually identify as feasible? John Reinhart: Yes, it's a great question. I'll tell you that the general first review over our portfolio and acreage footprint, these are more geared towards looking at land configurations that would limit lateral lengths. Otherwise, there would be longer lateral development. So, for instance, when the teams went through and scoured in these highly productive, high-quality acreage positions, we had 20 gross locations that we could actually form through basically combining, let's just call it, double that amount of shorter laterals. And what that did was it took a very subeconomic short lateral even at 350, 375 gas, let's just call it 20% IRRs. These are still attractive returns, but they just -- they don't compete for capital with our current portfolio. And they raised those up to somewhere along the lines of 60% plus returns. So what we're effectively doing is combining some of these subeconomic shorter laterals and moving them to the left in the skyline chart. So, it's really a function of the acreage position and maximizing our utilization of our current footprint. That's how I would characterize it. Jacob Roberts: Great. As a follow-up, I'll echo the sentiment that it's great to see the inventory additions to the portfolio. I'm wondering if that longer-dated inventory and as you guys continue to add to that, does that open up the conversation more to potential power agreements, data centers and all those types of conversations? I understand there's an absolute volumes component to those conversations as well. But just wondering if that's making those conversations more feasible? Michael Hodges: Yes. Jacob, this is Michael. I think not necessarily. Like so, if you think about our position in the area, we're having kind of ongoing discussions. We are a bit on the smaller side. And so I think in general, you're going to see most of those announcements go with folks that are investment grade or just bigger producers of gas. I think having the inventory certainly matters when you have those discussions. I mean there's certainly kind of a desire to be able to demonstrate the durability. I would tell you that our motivation has really been more on our business and certainly shoring up our own views of kind of duration of inventory, which, again, we felt very strongly about over the past few years, and we're continuing to execute on that. So just kind of demonstrating that out. But I don't think that in the past, those have been issues that have limited those discussions. We're in discussions on some of those projects. But certainly doesn't hurt to have kind of that additional runway to be able to demonstrate. Operator: The next question comes from the line of Peyton Dorne with UBS. Peyton Dorne: Just one question on my end. NGL stepped up nicely in the period. I believe it was from the new Marcellus pad and maybe also from the [ Cadiz ] pad. I just wonder if you could touch on how the NGL recoveries have gone so far with that development mode that you entered into and how you see NGL marketing shaping up as you've obviously added a bit more to that Marcellus opportunity set? Michael Hodges: Yes. Peyton, this is Michael. It's a great question, actually. You're right. We did see a nice uplift in our NGL volumes this quarter. A combination of things there, right? So you had mentioned our Marcellus pad, our Yankee pad and the 4-well pad in the Marcellus. We had some strong recoveries there. I think the liquids yield on those wells, that look very attractive to us. And our new midstream agreement that we actually signed earlier this year, this is the first 4-well pad where we've been able to process the liquids over there. So good recoveries. There's some strong economics over there as well. John mentioned in his prepared remarks, we don't talk a lot about it, but actually have some really good pricing around some components of the barrel of that NGL barrel over there. So that was a positive. The other area that you didn't mention is we have our wet gas development that's come on this year. And I would tell you that the yields there have actually been very strong as well. So that's in our kind of -- we called it our wet gas Utica. It's part of our discretionary acreage budget that we spent over the last couple of years. We put those wells on earlier this year. And we saw, I would tell you, kind of outperformance on the NGL side. So again, we've got favorable contracts up there. Not a lot has changed in our legacy Ohio Utica contracts, but that Marcellus contract on the marketing side is very strong from an economic perspective. And so, we feel really good that our netbacks have been strong even when I would tell you that some others in the basin have seen some weakness in NGLs. Operator: The next question comes from the line of Noah Hungness with Bank of America. Noah Hungness: First question here. Last week, Governor DeWine announced the energy opportunity initiative, $100 million fund for power developments in Ohio. And I guess I was just wondering, how do you think that changes the playing field for data center development and ultimately, just regional natural gas demand? Michael Hodges: Yes. Noah, this is Michael. Great question. I think we've seen increasing levels of interest. I was just going to -- I mentioned that maybe a little bit earlier in my prepared remarks that there's a lot of activity going on in Ohio right now. I think -- Ohio, I think I called it fertile ground, but it certainly seems like there's a favorable regulatory environment. There's favorable political environment, and there's just a lot of interest in projects in that area. So again, from our perspective, we're a bit smaller than some of the other guys out there. So, more likely for us to participate in kind of some aggregation strategy of marketing firms that put together volumes of gas come to us looking for volumes. We can get some uplift in our value when we do that. I think you're aware that we like to keep things fairly flexible in our business. So we're always kind of balancing the long-term commitment element of that with the pricing opportunity that we have. So, to your point, I think it's very favorable, I call it positive momentum in the area right now. And ultimately, we've got gas, a lot of gas that's still uncommitted to any of those projects. And so to the extent there's further opportunities, we can certainly consider those. Noah Hungness: That's really helpful. And then for my second question here, going over to Slide 8, I see that you guys gave an average lateral length for your core Marcellus and North Marcellus positions. And it is long laterals 3, 3.5 miles. But given the undeveloped nature of the bench, why do you think the lateral lengths aren't longer, something like 4 miles or 4.5 miles? Matthew Rucker: Yes. Noah, this is Matt. I mean this is really just a representation of our current development plan on our footprint. We'll always be looking for opportunities to find more efficient longer laterals. I think there's some land constraints in certain parts, but these are pretty long and pretty attractive economics. So for us, this is kind of in that wheelhouse of where we like to be, with minimal risk on the operations side. And so, that may change over time as we continue to develop out the footprint, but this is a pretty comfortable position for us to be in right now. Operator: The next question comes from the line of Carlos Escalante with Wolfe Research. Carlos Andres E. Escalante: Look, I think the inventory disclosure is very helpful for the market. So I can appreciate your efforts to -- across multiple horizons to deepen your portfolio bench and the value add that it has. But I wonder what kind of conversations are taking place aiming at larger opportunities, in particular around what your role is in broader consolidation? And this goes for both of your operated basins. I mean we've seen a lot of activity on a relative scale in the Anadarko in general. So just wondering where your head is at with that? Michael Hodges: Yes, I'll start, and then John can jump in. Carlos, thanks for the question. I think Neal asked a little bit earlier a similar question where I think our view on those opportunities is that we have pretty compelling opportunities within our existing portfolio, and we're measuring anything outside our portfolio against those opportunities. So I think there -- likely, you're aware that there's been some activity up in Appalachia. I think for the company, we've been disciplined over the last few years and feel like the strategy has really been effective for us. So I think that will continue. And I think to your point on the Anadarko Basin, I think there was another operator last night that announced a potential transaction. There is growing activity in that area. We've seen a number of transactions. Our position is very, very strong in that area. I would tell you that it's desirable, but we really like it. We allocate capital there every year. I think if you look at it on a rate of return basis, the well results are very competitive with our Appalachian position. So, from our perspective, the growing interest down there is positive. But I think, again, we like what we have, and we think we create value through the drill bit. And so, for us to develop that asset still makes a lot of sense. Operator: The next question comes from the line of Nicholas Pope with ROTH MKM. Nicholas Pope: I was hoping we could talk a little bit more about the U-development kind of reached total depth on these wells. Curious what risks you're looking at remaining as you kind of move to completion and bringing these wells online, I guess, compared to the wells that you have existing of similar lateral length, but I guess, obviously, a different geometry on these wells? Matthew Rucker: Yes, Nick, this is Matt. Thanks for the question. We did get both wells, TD and Kage starting to move into the completion phase here in the fourth quarter. I would just tell you the risk like in most horizontal well developments really on your pump down of tools and getting all the way to TD to start your perforating and your frac and then ultimately, your drill out. So when you talk about U-shaped development wells, it's really important on the front end to get your well design planning accurately. And so, the teams have done a really good job of running our torque and drag modeling and appropriately using the proper build rates to ensure that we're able to get those things down. So I see that as a minimal risk based on the well design planning that the teams have done over the last several months preparing for this development. Nicholas Pope: Got it. That makes sense. And as you look at like the kind of mile markers that we should look for, as you kind of move into production and kind of getting a sense of how these things produce, should we expect similar production rates from these wells to comparable kind of straight lateral length wells in the same region? Is that kind of how we should be comparing things as these wells start to be developed? Matthew Rucker: Yes. I think that's a good way of thinking about it, Nick. I think when you think about the perforated lateral footage on both of those essentially doubling for the footprint there, it will be very similar to the dry gas development on a straight lateral where we kind of target a capped rate per foot on our IP rates from a choke management perspective and very similar EUR per foot over the life of the well. So I would expect that to look very similar. So in our type curves on a 15,000-foot lateral, we're in that 30 million a day range. So adjusting around that for us in the choke management situation, that's what that would look like. Operator: This concludes the question-and-answer session. I'd like to turn the call back to John Reinhart for closing remarks. John Reinhart: Thank you for taking the time to join our call today. Should you have any questions, please don't hesitate to reach out to our Investor Relations team. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Matias Jarnefelt: Hello, everyone, and welcome to Harvia's Third Quarter '25 Earnings Webcast. My name is Matias Jarnefelt. I am the CEO of the company. And with me, I have Ari Vesterinen, our Chief Financial Officer. Ari Vesterinen: Hello. Matias Jarnefelt: I will first start by taking you through the highlights of quarter 3 in terms of business and financial performance, and I will also talk a bit about our strategy implementation. After that, Ari will continue and will shed more detail on our financial performance and numbers, after which we are very happy to get your questions. So let's start and summarize quarter 3. This time, it actually is very easy. We can summarize even with just one number, 19. So 19% top line growth at 19% adjusted EBIT margin. So essentially, when we talk about the top line, we delivered EUR 46 million, and that's, I said, 19% growth versus the comparison period. In terms of comparable exchange rates, that's 22% growth from last year. Organic growth was solid double-digit at 16%. We're very pleased that the growth was broad-based. Essentially, we had double-digit growth across all of our 4 geographical sales regions. And this despite the fact that, of course, this year has been rather volatile in terms of the macro environment. We had modest quarter 2 in North America. Now returning to a solid double-digit growth. That's, of course, something we are very pleased with. APAC and MEA continued very strong double-digit growth. And we're also very happy that Europe that has been a bit on the slower momentum for now the past couple of years, returned to double-digit growth as well. Our adjusted operating profit was EUR 8.8 million, and that represents 19% of our revenue. And that's an improvement from quarter 2 when we had 17% margin, while it's still slightly below our long-term target. The operating profit margin was impacted by the gross margin and in particular, higher cost of goods sold due to tariffs and currency exchange rates. This specifically refers to our heating equipment business, where we make the products mainly in Europe. And then when we sell them in the United States, they are sold in USDs. And of course, the increased tariffs also apply. Also, we've been increasing our operating expenses as we continue to build the foundation for long-term success in areas such as product development, brand building, channel expansion and operational efficiency. If you think about the year-to-date performance, it could be summarized at 17/20. So 17% top line growth at 20% operating profit margin. And looking ahead, we remain focused on executing our strategy and building the foundation for long-term success. And at the same time, we are focused on also delivering strong results in the short-term. In the near-term, our key focus areas include commercial excellence that includes topics like driving growth and driving pricing in this volatile environment, also sourcing and operational excellence to manage the materials cost and also prudent OpEx management. But it is very clear. This is extremely attractive market that's supported by strong long-term growth drivers, and Harvia is extremely well positioned to continue to lead this market and deliver significant growth. Here are the key figures for quarter 3. So revenue at EUR 46 million, and that's 19% growth, organic 16% and at comparable exchange rates, that's 22%. Adjusted operating profit margin at EUR 8.8 million, and that's 19% of our revenue. Operating free cash flow in this quarter was minus EUR 600,000. And there's 2 reasons to this. One is that historically, quarter 3 is our lowest cash-generating quarter. And the reason for that is that during the quarter 3, we are building products to sell during the high winter selling season. Also, we do believe in the long-term growth and success of Harvia. And that's why we're also investing in the platform to grow. So we've been making quite significant investments compared to our investment history in improving our operational efficiency and also building capacity to grow. So last year, we grew -- last year, we bought land around our West Virginia factory in the United States, and we have started to develop the site. And that's just one example of what is going on in our business. In terms of the first 9 months of the year, revenue at EUR 145 million, and that's 16% growth versus last year and organic growth at solid double-digit 11%. Growth at comparable exchange rate at 18%. Adjusted operating profit very close to that 20% mark at 19.7% and operating free cash flow for the first 9 months, positive EUR 13 million. As I opened, I mentioned that we are really pleased that we delivered strong broad-based growth during this quarter. So all of the regions grew double-digit. The highest growth rates continue to be outside Europe and also in terms of absolute contribution, North America and APAC contributed the most. But as I said, we are very pleased that now we also saw Europe playing strong and delivering double-digit growth in both of the European sales regions. When we look at Northern Europe, the region grew by 15%, and that's a significant momentum change after tough 3 years. And during quarter 3, North Europe represented 24% of our total revenue. Where did this momentum come from? We had strong performance in Sweden, in particular. And there, that momentum has been built through channel expansion and development. And also, I personally believe that, here there is some impact from the excitement that KAJ and Eurovision created around sauna in Scandinavia during first half of the year, and now we see that realizing in our numbers. Also Baltic countries delivered strong growth. I'm also very pleased that Finland that has been also struggling already it's quite some time, actually turned back to growth. And here, our focus is to continue on a positive path and really build foundations for sustainable, steady growth for the years to come. Continental Europe grew by 10%, and that's on top of 8% growth a year ago in the comparison period. And I think that tells a story about continued solid progress in the market. So essentially not just a temporary swing, but there is now already a longer trend where we see Continental Europe strengthening. If we look at Continental European markets, submarkets, we have many very strong performance countries there. For example, United Kingdom, Spain, countries in Eastern Europe like Poland. North America returned to double-digit growth after the modest quarter 2. And essentially, our revenue grew by 24% and the region represents now 36% of our total revenue. If you look at the comparison period and exchange rates, the dollar is now around 6% weaker than a year ago. So give and take at constant currencies, North America would have grown around 30%. In terms of organic growth and organic growth in North America, I'd like to note that ThermaSol, a company we acquired in the summer of '24, has been fully consolidated in our numbers since August '24. So essentially, it contributes to inorganic growth for Harvia Group only for the month of July. So August and September this year are already part of our organic growth. And majority of our revenue growth in North America clearly came from organic development. I'd also like to highlight a piece of news that came after quarter 3 was closed, and that is that we have appointed new President of Harvia North America and Region Head, Nathan Hagemeyer. We had a thorough process to find the best possible person to take the lead of this crucially important region for us. And Nathan brings a wealth of experience in selling technical products to residential and commercial facilities in a multichannel sales environment that resembles largely the sales setup that we have in Harvia in U.S. And also, I think there's a strong culture fit, something that we also value a lot. And I'm extremely pleased that Nathan accepted our offer and has already started actually since Monday this week in his new role. APAC and Middle East and Africa is continuing on its strong growth path. And you can see here the comparison figures from '22 through '25. This region is really picking up momentum. And also in terms of just absolute size, representing now 12% of our total revenue, it is a significant part of our business. And what we're also very pleased with is that APAC, when it was smaller, it was more volatile and prone to, for example, individual product deliveries. But when we look at the numbers now, the growth is broad-based, and we feel that the growth is on a strong platform in APAC and Middle East. Now looking at the portfolio view, we continue strong performance in our core of technical equipment for sauna and spa. And you can see that the heating equipment represented 56% of our top line during the quarter 3. We also are having strong momentum in other areas, but heating equipment just grew so fast that the relative shares of some of the other parts of our portfolio didn't develop. Now if we look at the growth bridge for quarter 3 by product category, you can see that the biggest absolute contribution, nearly EUR 5 million came from heating equipment, and that's 23% growth, but also solid double-digit growth in many other parts of our portfolio, and this is also something we are very pleased about. Now then let's talk a little bit about our strategy. Harvia is playing in a very interesting market. We are world leader in a market that has strong growth drivers that we believe have sustainability over a long time. And we want to be a proactive leader and leader that shapes the market and excites the market. And our strategy is based on 4 focus pillars that respond to questions what, where to whom and how. So what delivering the full sauna experience about product leadership and portfolio leadership. Where it's about winning the right markets that matter the most, to whom it's having the leading channels and brands in this business and how it relates to our operational excellence and competencies and people. And I'd like to mention a few things how we've been executing our strategy during quarter 3. In terms of delivering the full sauna experience of product and portfolio leadership, I'm very pleased that we have a strong core, and strong core helps us to build also the future. So when you look at the heating equipment performance, you could see that it is really going from strength to strength. At the same time, we are clearly upping the game in terms of innovation and differentiation. And in the following slides, I will share some of the examples of new products that we brought to the market or launched. In terms of winning in the markets that matter the most, North America, of course, we are very pleased that it's back on strong growth trajectory. And looking at the first 9 months, North America is really performing very strong. Also, APAC is performing extremely strong, and we are continuing systematic activities to drive growth across key markets and making sure that we are not too dependent on any single market in that region. I'm also very pleased that in terms of Europe, the tenacious and systematic work that we've been putting in place over the last couple of years is really starting to bear fruit. So having both regions now in double-digit growth is something that does help us in our strategic and growth journey a lot. In terms of leading the key channels, we, at the same time, want to deepen and grow our partnerships with the existing and traditional customers, that's mass volume merchants and also dealer channel. We want to be the best partner. At the same time, we want to build an even stronger direct-to-consumer channel, and I would encourage you to go and visit our almostheaven.com site and thermasol.com site. So you'll see the level of excellence that we've been able to build during the past 12 months on our direct-to-consumer channels. In terms of best-in-class operations and great people, we are continuing to invest in the heart of our competitive advantage, which is operational excellence. So we've been investing, for example, in energy-efficient and new coating system for Dierdorf that provides cost benefits and also efficiencies. We are investing in our Lewisburg site in West Virginia, in particular in anticipation of driving a significant and ambitious growth strategy in that region. We are also investing in our group IT, so streamlining, bringing common platforms and bringing more simplified and modern platforms for us. And that's also a very important enabler for us to keep scaling this business up. And now a few highlights from our innovation pipeline. So we have now started the sales of Harvia Fenix, which is a new full touch control unit for volume segment. I think it's really the leading product in this category. Exiting 4.3-inch full touch screen product. It's very easy to use with, for example, ready-made presets like mild, cozy and hot. It's smart. So actually it learns about your sauna. So it knows how fast the sauna heats up. So instead of programming it your heater to start heating, for example, 30 minutes before you want to go to sauna. Actually, sauna knows how long it takes to heat up your sauna. So you can just easily put that I want to go to sauna at 3 p.m. and the sauna will be ready, making it very easy for you and also saving energy. What's really cool about it, it's Wi-Fi enabled, and it's over-the-air updatable, so we can keep updating the software and providing even more functionality over the life cycle of the product. And in addition to being able to sell it with new heaters, we can actually sell it to significant installed base of saunas already out there since it's backwards compatible with huge seller Harvia Xenio control panel. So a really exciting product that we are very happy about. Another example is our new MyHarvia smartphone app and definitely the most advanced sauna app there. It very nicely aligns the user experience with Harvia Fenix. It's modern, consistent. Again, a lot of features, functionality to help you get most out of your sauna, including over-the-air updates, and for commercial users, ability to control multiple saunas from the same app and interface. We've also been working on the Harvia cloud platform in the background. So really making us ready for the future. Now in the United States, we've been playing mostly when we talk about ready-made saunas in the more like entry level through Almost Heaven Saunas in price points from $5,000 to $10,000. And with ThermaSol brand, we are now attacking the high end much more aggressively in the past. So we've introduced a range of really exciting 3 new models for the premium sauna category in price points from $30,000 to $35,000. And the response to this introduction has been very, very strong. So very much looking forward to what we can do in terms of delivering results in the coming quarters and years with this strength and play in the high end. And one highlight is that we actually got a prestigious recognition as Time Magazine selected Harvia Group solar powered sauna as one of the best inventions in 2025. And this is quite unique product. So it's basically electric heater powered product but designed so that it actually can be very efficiently and conveniently run with solar power. So really providing full freedom from electrical grids and very sustainable solution. Again, a highlight of what Harvia can do. And then the final slide before handing over to Ari. This is just an example of how we also continue to build other group brands like EOS, our high-end brand for technical equipment. Aufguss World Championships were held end of the summer in Italy. And in the center of the picture, you can see an example of what kind of products we can deliver. So that's an EOS event heater. And that was really exciting to see us as the centerpiece of such an event. Maybe another event to mention, Osaka World Expo was running 6 months during this year with over 20 million visitors. And essentially, Harvia was part of sauna experience site there, which run for 6 months, and it was fully booked 7 days a week, full day for 6 months, really shows the power of sauna and what we can do to excite the market. So with that, I would hand over to Ari. Ari Vesterinen: Okay. Thank you. So when we now compare the quarters, actually, the quarter 3 was great. We had a very clear growth path and the profitability level in absolute money stayed basically on the same level as a year ago, but the percentage is lower. And one thing what is here important to note, almost all financial metrics in the profit and loss statement improved in Q3, except the use of materials and external services. And this measure is not always the same from quarter-to-quarter. It depends on the promotions and product mix and so forth. And frankly speaking, we had a very good year last year. We had that percentage only about 30%. And now we had 37% of the annual -- the quarterly revenues, but this 37% is actually very close to our average, which has been in the past about 35% of the total sales. So I'm personally not worried about this percentage at all. It just requires certain price management with which we have been working. And as said, the quarters are not always alike. Here, we see the most important financials, the key figures for the review period. Okay, we have already seen the profitability and growth rates, but probably some highlights to note. The earnings per share increased about 12% now. The operating free cash flow, okay, it is now lower than a year ago, and it's because of the growth investments we have also in net working capital and in CapEx. And that's visible on the line investments in tangible and intangible assets. This year is an exceptionally high investment year. We are investing for the growth. Net debt stayed more or less on the same level as a year ago and leverage also net working capital has been growing. Also, our number of employees has grown, but only about 8% when we have grown 19% in the sales. So the effectiveness of the staff and the organization has improved. Here, we see the operating free cash flow and cash conversion over the quarters. And what is very typical for Harvia is the seasonality. We have the lowest cash flow usually in Q3 and then the highest usually in Q4. So that has been at least the pattern in the past. And the reason is simply that we have been making products to our stock during Q3 and the biggest sales seasons in North America, in Central Europe and many other areas. The biggest sales seasons are actually in Q4 and Q1. So we are well prepared for the Q4 sales season, and that's demanding some investments in advance. The leverage has been staying on a rather low level, 1.4 at the end of Q2. And in our long-term financial targets, we would like to stay under the level of 2.5. But in the case of acquisition also, we could temporarily also exceed it. But as you see, we have a very healthy balance sheet situation in terms of debt. The net financial items, no big changes now there. We had quite steady environment now during Q3 with U.S. dollar and also the interest and interest rate swaps, they helped also to keep the interest rates quite steady. So actually, the effective interest rates of interest costs -- financial costs to be paid out followed very much the accrued balance sheet-related costs. Here, we see how the investment levels have increased during Q3. And I'm personally not expecting as high level for Q4 anymore, but this year at '25 is somewhat over the historical average level of investments. And the investments, they are really, really required, and they have a quite short payback time, and they improve our operational efficiency also in the near-term. Okay. The Harvia's long-term financial targets, just to repeat, they haven't changed anywhere. They have been quite a while on the same level since last Capital Markets Day 2 years ago, 1.5 years. The average annual growth rate over 10% profitability, adjusted operating profit margin over 20% and leverage, as mentioned already earlier, under 2.5%. Harvia pays twice a year dividend, and now the second dividend installment was paid out October 28 this fall. So now there is time for questions, please. Ari Vesterinen: I have actually got a few questions here in the tablet and most of them are business related, also some finance questions. So I start to make -- ask 2 questions from Matias first. Is there an effect of prebuying ahead of announced price increases in your strong U.S. sales growth in Q3? Matias Jarnefelt: Maybe I would take you back to 3 months ago when we talked about our quarter 2. And I understand the quarter 2 results were a bit of a disappointment to the market, in particular, what comes to the modest performance of North America during that quarter. But at that time, what I told you, I said that look at quarter 1 and quarter 2 in combination because there were clear kind of shifts between quarter 1 and quarter 2, in particular in the comparison period from '24. And when we look at the performance in North America now quarter 3, it's actually a logical continuation of the first half. Another thing that I did mentioned during that earnings call was that we saw quarter 2 in North America modest in the earlier part of the quarter, but we saw signs of improvement as the quarter progressed. So essentially, I would say that this is a logical continuation of the performance already from a longer period of time. Maybe, however, I'd like to make a one brief comment, which is related to quarter 4 last year. And that's, of course, relevant for the baseline now in the quarter that we are now living in quarter 4 this year. And that, of course, is that we had a very strong top line growth last year, overall 28% growth in quarter 4 last year and 63% growth coming from North America, which had a significant portion of rather low-margin campaign sales. So maybe that's something to take into account as you assess Harvia's near-term outlook. But all in all, we see strong performance, continued performance in North America despite all the noise in the market. And despite that the consumer confidence generally on a macro level, we've seen, of course, taking a hit. But what comes to interest in our category, we seem to be in a good place. Ari Vesterinen: There is actually quite closer question to that. What is your strategy ahead of campaign heavy Q4 in terms of inventory levels and pricing? Matias Jarnefelt: Well, first of all, the plan is to participate in campaigns. Campaigns are a significant part of many of our partners' business model. So when we think about, in particular, large volume retailers, typically, they want to have something exciting to offer to their customers during the high selling season, for example, Black Friday, Cyber Monday. And we have a choice, either we participate, or we don't participate. And for us, it is clear we want to keep developing these partnerships. We want them to be a win-win for both. We feel that there's great opportunities for us. But of course, we've also reflected the outcome of quarter 4 last year and always try to learn from the past experiences. In terms of building the inventory, that's also visible in the cash flow. It is very clear that we have been building inventory to be able to deliver and sell during quarter 4 and quarter 1. And I think it's also a sign of confidence that we in the management have for the business. Ari Vesterinen: Then one question actually, you shortly mentioned it, but I ask this anyhow. Can you please tell more what is the heater behind the premium range launched under ThermaSol brand? Matias Jarnefelt: The ThermaSol saunas that we launched will be equipped with EOS heaters. So if you think about our premium brands, we practically have 2 of them. We have the German-based EOS that we have had in our portfolio since 2020 and ThermaSol, high-end brand for the steam and kind of home spas in North America that we acquired last year. In U.S., ThermaSol is clearly more well-known brand versus EOS. So while ThermaSol has great channel access to high-end spas and high-end commercial facilities, we feel it's a great opportunity for us to piggyback with EOS on that. So essentially, the idea is that what comes to steam products and then the kind of full sauna solutions in North America, they are branded ThermaSol. But what comes to the heating equipment, it's powered by EOS. So ThermaSol powered by EOS. Ari Vesterinen: Can you specify the investments in the efficiency you made in Q3? What segments and regions? Matias Jarnefelt: Well, the investments are rather broad-based. So one of the example we pointed out was the EOS factory that's located in Driedorf close to Frankfurt. We made quite significant investments there. Another example I did mention as part of my presentation, we bought land around our West Virginia factory in anticipation of building options to grow. And now we are taking action. So there is already works, the groundworks ongoing on the site, and we are expanding the facility as we continue to see significant growth opportunities for us for years to come in that region. Ari Vesterinen: Then more finance-related question. What was the ForEx impact on sales level in North America? I am after the euro-USD exchange rate you used in Q3 '25. The exchange rates we used for our P&L, they are the average rates from Bank of Finland. And for this quarter, we used exact average. It was $1.168 per euro. And a year ago, it was about $1.10. So actually, dollar was about 6% weaker than a year ago during this quarter. And as we saw from the pictures already in the presentation, we were way over 20% of the growth in Northern America. And in terms of U.S. dollar, it was about 30%. Is EMEA growth more one-off or new projects already coming after current project deliveries? Matias Jarnefelt: EMEA, so is that Europe? Ari Vesterinen: Yes. It is the -- well, let's consider the whole area, APAC, EMEA. Matias Jarnefelt: Okay. APAC and Middle East and Africa. Okay, sure. It used to be much more volatile. And of course, when the scale of the APAC, Middle East and Africa business was smaller, it was quite easily swung either direction by single large orders, for example, significant project deliveries. But over the past few years, our key goal has been to develop the region in a sense that it really provides not only growth opportunities, but also on a stable ground, so diversify the kind of outreach that we have in the region. And when we look at the quarter 3 in terms of the markets and countries that delivered to that regional performance, it is wide spread, and that's very good thing for Harvia. So we saw significant growth in countries like Japan, China, Oceania, Australia and also strong performance in EMEA. So it's not like something really stood out and kind of made the whole thing happen. It really is broad-based growth. And there wasn't -- there's always some project deliveries in Middle East, in particular. That is more a project-based business. But I would consider almost something that is very part of the business we do in that part of the world. And there wasn't any particular outliers in terms of, for example, project business impacting our quarter 3. So all in all, I would assess it as a solid broad-based performance. Ari Vesterinen: Yes. There is really a great interest for sauna, a growing interest in wealthier Arabic countries and certainly some business to come also in future. So it was really not a one-off even in those areas. The new Fenix control and app, is that an opportunity for installed base? Does it give modernization demand? Matias Jarnefelt: This is exactly the thinking we have. So I think in the sweet spot of innovation, we have something that excites the market and we can sell with the new products, but at the same time, provides us an opportunity to tap into the existing Harvia installed base. And if you think about the kind of strategic rationale of how we see Harvia in the long term, it is very important for us now to be a winner as the market goes through a significant growth phase. So have more Harvia products and saunas out there in the world. And the way we think about it is, that we want to make it easy for customers to get into the Harvia world. And once they are in the Harvia world, they want to stay. And one of the example is that if you have already Harvia sauna where you have that Xenio kind of mid-range control panel, it works perfectly with the new Fenix. There's no need to renew, for example, the wirings. That's an exciting opportunity for us to reach out to Xenio owners and basically send a message that there's an exciting innovation. Do you want to upgrade your sauna experience and modernize it with now this full touch smart console that Harvia Fenix is. So the idea is that as we basically sell products and new products, we also want to build the foundation for recurring revenue and loyalty for the long run. Ari Vesterinen: Okay. Now there is a series of 3 U.S. related -- more or less U.S.-related questions. So let's start. What is your best estimate on your performance relative to competition in the U.S.? Is part of the gross margin pressure attributable to increased price competition or merely by the impact of tariffs? Matias Jarnefelt: So around 30% growth after 9 months in the U.S. I think it's a solid performance. The market continues to grow. I believe that we have taken share. So that's one perspective to it. On the kind of pricing competition side, I think it's more related to inertia in having price increases effective that then truly reflect the changes in the cost of doing business due to tariffs and for example, exchange rate changes that happened actually pretty rapidly. If you think about the dollar depreciation, it really started to happen actually towards the end of quarter 1, then quarter 2 was significant rapid deterioration and then more stabilizing during the quarter 3. And then, of course, the tariff increases. We used to have tariffs of around 4% for our heaters that we make in Europe and sell in North America. And essentially, with that 15% general tariffs plus extra tariff on the steel part of the product, we talk about a little bit above 20%. So it's also quite significant impact in terms of that hardware business from Europe. We have implemented already pricing change, but it's also a little bit of a balancing act that what's the right strategy and right pace because at the same time, we want to keep growing, we want to keep our customer relationships strong. But of course, we also need the appropriate compensation for the great products that we make. So ultimately, the sort of margin dynamics, I think it's more related to just the macro factors, the exchange rate and tariffs rather than there would have been significant intensification of competitive landscape. Ari Vesterinen: Do you expect that the price increases implemented to counteract tariffs will be fully visible in Q4, thus supporting margins? Matias Jarnefelt: Well, long story short is that, I think, of course, price increase are always supportive. There's maybe kind of one area of uncertainty, which is basically kind of financing rules. So basically, to a degree, we've still been selling some products that were imported to the market before the tariffs took effect. And basically, it's first in, first out principle. So of course, we have been modeling also the kind of what's the full impact of the tariffs as we will transition in a situation where practically 100% of the products will be having a tariff attached to them. But all in all, I'm confident in the work that we have been doing. Significant effort has been put in pricing analytics and assessing the situation and agreeing and implementing the right course of action. Ari Vesterinen: How do you aim to improve your margin performance in Q4 in the U.S. versus last year when aggressive campaigns heavily diluted your margins? Matias Jarnefelt: Less aggressive campaigns. Now that's maybe a little bit of a kind of a cheek -- tongue in the cheek, but there is some truth to it. That's, of course, for sure. There is many things. So generally -- general price increases that we have been implementing and they have been also coming in force step by step. So we basically built a more like a transition path. It's not yet in full effect, but it's already partially in effect. It's about also being smart in terms of what kind of campaigns and campaign pricing, not only with kind of key accounts we have, but also what do we have available in our direct-to-consumer, which is the fastest channel where our pricing decisions can basically be affecting the price the next minute. And most likely, you would see a little bit less aggressive campaigns, but still good campaigns because at the same time, we want to continue to drive top line growth, and we want to continue to take share in this growing market to place us very strongly in terms of how do we have products out there, building the installed base and building the brand leadership for years to come. Ari Vesterinen: If there is a retrofit demand, perhaps you talk about ASP for such an upgrade, average sales price. Matias Jarnefelt: Yes, I think that's a great comment and something that we are increasingly focused on. So while we are driving growth and volume growth and as I said, building the installed base, it is very clear that in our minds, there's also the long-term future where hopefully, there will be essentially millions of products and saunas where we can sell more continuously. In terms of kind of metrics that we would be reporting like ASPs and ASPs by product category, that's something that we haven't done so far, but the idea, of course, behind that question is a very good one. Ari Vesterinen: Yes. Just to remind, in the more traditional sauna areas, 70% to 80% of our total revenues is actually replacement revenue. People are buying new saunas to their old or -- old place or replacing the heaters. And actually, our sweet spot of heater sales is the second heater for the same sauna. When the construction company has selected the cheapest heater, Harvia heater usually for the new sauna. And after a couple of years or probably 5, 6 years, the user of the sauna wants to have a better one. And that's the most interesting heater for us with more equipment and features and also with higher margins. Matias Jarnefelt: And maybe I could also continue on your very good answer. And just examples of the sort of building recurring business on the installed base. One example is, of course, now Fenix, where we can actually, through OTA, over-the-air updates, actually sell new features during the life cycle of the product. And then, of course, we are looking at -- basically these control panels are becoming fully connected interfaces in the wellness oasis that sauna is, what kind of, for example, digital services in the coming years we can offer that could also provide direct service revenue that would be high margin and scalable. Ari Vesterinen: You discussed already earlier about that we make probably not so strong campaigns, but we make campaigns during Q4. Now the follow-up question to that, shall we expect negative organic growth for North America for Q4? Matias Jarnefelt: I will leave that to your Excel exercise. We, of course, always want to see positive figures, and we have, I would say, high ambition level. And then as you know, we don't give short-term guidance. So that's something that you will need to assess. Ari Vesterinen: Okay. Your CapEx has been now somewhat elevated both in '24 and '25. Is this higher CapEx expected to continue in '26? Or should it decline? Our estimate is currently that it will decline a little compared to this '25, but we don't give more exact figures for that. Okay. When are you able to offset the tariff impact with price increases? That was more or less already discussed a little. By the way, the tariff impact for completely sauna cabin set in U.S. for us is actually not so heavy. So -- because the saunas are produced there in Northern America and from local wood with local work power. So only the hero, which is coming from Finland, it has max up to 20% impact tariff for the landed cost, but it makes -- from the total price of the package only about 10%, 10% to 15%. So the impact of the tariffs for the complete sauna cabin, which we are mostly selling there is only about 2% and with our pricing power, we should really be able to increase that 2% or somehow otherwise compensate. So the biggest impact of the tariffs are for importers who are importing only the heaters for their saunas and for the distribution. And we have that kind of customers also in U.S. who are actually paying the import tariffs by themselves. Matias Jarnefelt: And maybe to also build on what Ari said, we, of course, are in close discussions with our key customers. And some of them have also big companies, public listed companies making statements also in terms of the development on kind of the pricing of the merchandise that they buy from suppliers from the Far East. And I think it is clear that there is kind of this dynamics that the inventory that many companies have in the U.S. to a degree has been imported before the tariffs took in place. And now more and more companies are really the kind of, I would say, the back against the wall implementing the price increases. So essentially, I would say, as my personal assessment that we have not fully yet seen the pricing increase impact of the tariffs that are currently in force and finding that new equilibrium in the market will take probably another 6 months. Ari Vesterinen: From some of my personal channel checks in Europe, it seems that the winter selling season has started earlier than normal. Several distributors told me that Harvia sales have been accelerated notably throughout the summer and since October. Would you like to comment that? Matias Jarnefelt: Well, I can comment. Actually, I'll take you again back to 3 months ago when we were talking about quarter 2. And actually, usually, I don't talk about weather as an excuse. But actually, 3 months ago, I did mention that. And I did mentioned it in particular in relation to our Northern European performance. So in Northern Europe, we had basically vacation house sauna season, so-called cottage season is very important for us. But in North Europe, we had a very poor beginning of the, I would say, spring and beginning of the summer. And the weather was significantly better in July. And that's what I also mentioned. So I would say the quarter 3 that you now see, it's actually a little bit the dynamics from the season. Actually, the spring season started a bit later just due to the weather. Ari Vesterinen: The same is true for U.S. when looking at recent momentum on Costco and Wafer. Most importantly, customers are increasingly mentioning that Harvia has been the best value for money. Thank you. Not working for us, this [ ask. ] Somehow, this feels like COVID-19 2.0 light as consumers are staying more at home. Meanwhile, we are coming out of a period of subdued home improvement, which has started to pick up again, also benefiting Harvia in mature regions. Does this match to your view? Matias Jarnefelt: Well, I think there's a little bit different dynamics between how much are we in wellness business and how much are we in home improvement business depending on the region. So for example, in Finland, it's very clear that sauna has close connection to the property market and new build construction just for the simple reason that saunas in such a big majority of houses, apartments and summer cartridges. So there is such a correlation. Whereas in regions where the sauna density is much lower, clearly, the dynamics is much more about buying a wellness product. And sauna is like, I would say, miracle wellness oasis. Sauna has significant health and wellness benefits. And it's unique since you can get those health and wellness benefits in such a pleasant way. And this combination, it does great for you and it feels great, story resonates extremely well, almost no matter what the economic times are. And personally, I'm a strong believer of this sauna as a perfect wellness oasis and the strength of the story for years to come. Ari Vesterinen: During the conference call in September, Costco's CEO said they would radically reshuffle their holidays offering. For the first time, they will also bring in saunas in store for which they didn't have enough space previously. Does this impact Harvia given that Costco members are now limited to shopping almost 7 saunas product online? Does it imply that Costco will carry saunas in its own inventory and thus impact Q4 and future performance? Matias Jarnefelt: Well, I wouldn't comment too much on the CEO of another company. But of course, we have taken a note, and we have a long-standing relationship with Costco. And the growth ambition of Harvia is to grow each of our accounts, so we want to keep developing Costco, and we see significant growth opportunities. We also want to have more of the big box retailers as part of our partnership network. We want to grow in the dealer channel where we can sell more premium products like ThermaSol saunas, which require, for example, installation support for the end user. And we see significant opportunity also in our D2C with a portfolio that's tailored for D2C so that all channels can grow without cannibalizing each other. And of course, as I said, we know about the comment made. And it's an example of actually in a sense, in the sort of big macro picture, the tariffs most likely are bit of a negative thing, but they do also change the supply chains and competitive landscapes. And one example is that, of course, Harvia makes majority of our products inside the United States. So we are not fully insulated from tariffs as discussed, but we are better insulated than most of our direct competitors. But there's also this competition between categories in big channels. And essentially, we know that many companies like the one mentioned and others have seen significant price increases, in particular products that have been imported from the Far East and making reassessment of their commercial potential in their channels and also, for example, for the kind of sales season campaigns. And this is something we have now seen that actually a category like sauna that seems to be resisting very well kind of the macro environment because the story of the category is so strong and partner like Harvia that can produce good value and much of it -- much of that value created in the United States are in great position. Ari Vesterinen: Looking at the strong growth in heating equipment. Harvia has got more than 20% market share. No matter how you look at it, it can't be coming solely from new build or replacement at your existing customers. You must be converting non-Harvia customers into Harvia customers, coupled with upselling, the price difference between a digital control versus a basic heater. Can you comment on the drivers behind the strong growth in heating equipment? Matias Jarnefelt: Well, on one hand, the whole -- like sauna category is growing. And many saunas in the world are powered by Harvia. And if we think about just putting things in scale with Harvia, we talk about Harvia making -- we make clearly more than 200,000 heaters per year and give and take maybe 20,000 sauna cabins. And practically, that means that we have 10x more volumes in the heaters. And that, of course, tells the story that many saunas, which have been provided may be custom-made on site or maybe provided by some other sauna cabin providers actually use Harvia. And the reason is very clear. We have excellent products, and we provide great value for money, but we also are very good at designing the products so that the market wants them, and we have efficiencies in production. So that, of course, leaves good margins for us. But ultimately, this is the dynamics. We want to keep growing in the equipment business. We see significant opportunities. And in terms of volume, in order of magnitude, it's significantly larger than the cabin business at the moment. But at the same time, we want to sell these full solutions because it does help us tap into much bigger spend potential in the key markets. So these sauna and heating equipment do complement each other, and I think we are well placed in both of them. Ari Vesterinen: Looking at your LinkedIn pages, recruitment has ticked up quite a bit at ThermaSol and Almost Heaven Saunas over the past 2, 4 weeks. This matches the early indicators that sauna demand is already a lot higher versus previous year. Notably, it comes at the time of the shutdown. Here is the [ current ] shutdown meant. Are you impacted by the current shutdown? Matias Jarnefelt: I would say mostly no. That would be the answer. Maybe on the sort of recruitment, of course, if you think about a region that's growing 30% year-to-date and has a history of growth of 40% over a period of 6 years on average, of course, that puts us in a situation where we have opportunity and need to strengthen the organization. And I would take it also as a sign of confidence from the management side to the future of Harvia. Ari Vesterinen: In the Q2 results information for Sweden, it was mentioned that consumer trade is expected to improve towards the end of the year as a new partner is being sought or started to replace Kesko. What is the situation with this? And if the partnership has already started, has it had an impact on the Q3 results yet? Matias Jarnefelt: Yes, I did touch upon it when I talked about North Europe as part of the presentation. The answer is yes. So for Harvia, when Kesko made the strategy alignment or like realignment kind of choosing to leave D2C technical trade in Sweden that left a big gap in our channel landscape in Sweden. And we have been able to bridge that gap, and we have started to work with the new partner, and that's going very well. Ari Vesterinen: And Kesko is still selling our products also in Sweden with a slightly different concept. In APAC/MEA, given that the multiple markets seem now to demonstrate sustainable growth, but you are partly dependent on relatively long logical routes from Europe. Are there opportunities for M&A? Or have you considered adding capacity into the region? The same note, are you delivering whole sauna kit solutions increasingly to the region? Can you give a little bit color on your outlook in that -- in this regard? Matias Jarnefelt: Yes. We do have actually a factory in Asia. So -- since 2005, so this is actually 20th anniversary of our factory in Guangzhou. We have, I would say, mini version of Muurame. So Muurame is an equipment factory that is also a volume factory. We have another volume factory, which is the China factory. On top of that, for the heaters, we have the value factory close to Frankfurt in the EOS home space. So we actually do have supply source in that region. And the majority of the products we sell in APAC are the technical equipment. So if you look at the sort of the cabin full solutions business, it is very clear that the star of the region is North America. We do have ambition to also increase the full solutions business in Asia. We are already doing it mostly through partnerships. Some of the products, cabins are also shipped from Europe. And at the same time, we are assessing what potentially could be the right time for us to have sauna cabin factory in that region when the volumes would justify it. Ari Vesterinen: Okay. Ladies and gentlemen, we have now spent exactly 1 hour with Harvia. I don't have any more questions on the list. Thank you very much for following, and let's sauna. Matias Jarnefelt: Thank you very much. Let's sauna.
Operator: Greetings, and welcome to the Installed Building Products' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Darren Hicks, Vice President of Investor Relations. Thank you. You may begin. Darren Hicks: Good morning, and welcome to Installed Building Products' Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the third quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the Investor Relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; Michael Miller, our Chief Financial Officer; and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. Jeff, I will now turn the call over to you. Jeffrey Edwards: Thanks, Darren, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. With another quarter of record sales and profitability, 2025 has been another very encouraging year for IBP. Our national network of branches continue to execute at a high level, delivering reliable installation services to large, medium and small homebuilders and commercial developers. While local market dynamics can vary greatly across the country, our results highlight the benefit of IBP's scale, product and end market diversity and the trust we place in our branches to make the right operating decisions for their respective markets. Although the 10-year U.S. treasury rate has come down since our second quarter call in August, homeownership remains incredibly expensive for most people, which we believe will remain the biggest challenge for our customers selling new homes in the near term. Still, we are confident in the long-term fundamentals of the U.S. housing construction industry, and we remain focused on growing earnings and cash flow while diligently deploying capital to shareholders. Through the 9 months ended September 30, 2025, we paid nearly $78 million in cash dividends and repurchased approximately $135 million of our common stock, returning nearly $213 million of capital back to our shareholders. In October, we published our 2025 ESG report, highlighting IBP's continued efforts to support environmental sustainability, employee well-being and community engagement in pursuit of a more sustainable and equitable future. Since our inaugural ESG report was published in 2021, we have made steady progress reducing our carbon footprint. We believe our efforts today are laying the foundation for a stronger, more sustainable future for our employees and people representing all communities. Looking at our third quarter sales performance, consolidated sales increased 2% and same-branch sales were roughly flat. In our largest end market, same-branch new single-family installation sales were down 2%, while adjusting to the pace of residential housing and commercial building construction in local markets, our branches did a tremendous job growing complementary product sales by a double-digit percentage relative to the same period last year. Third quarter installation sales in our multifamily end market were down 7% on a same branch basis. But looking ahead, several markets are stabilizing and showing improvement. As of the end of September, contract backlogs at key branches have grown year-over-year, and we have secured jobs in geographic markets in which we previously had little or no presence. Third quarter commercial sales in our installation segment increased 12% on a same branch basis from the prior year period. Our heavy commercial end market continued to be the dominant driver of sales growth in this end market, which more than offset weakness in our light commercial end market. Based on the growth in our heavy commercial contract backlogs, we believe heavy commercial sales and profitability are poised to remain healthy beyond 2025. During the 9 months ended September 30, 2025, cash flow from operating activities increased 16% to $307 million, which primarily reflected improvements in working capital management. Year-to-date, we have acquired nearly $60 million in annual sales. We remain disciplined in our approach to find well-run businesses that would make strategic sense, support attractive returns on invested capital and fit well culturally. Our core residential installation end market remains highly fragmented with considerable opportunity for consolidation. During the 2025 third quarter, we acquired a North Carolina manufacturer of cellulose-based insulation for homes, hydromulch for erosion control and composite materials used in industrial applications with an annual revenue of $20 million. In addition, in October and November, we acquired a business with a value-added wholesale glass design and fabrication division and a retail sales and installation operation, primarily serving residential customers throughout the Southeastern United States and annual sales of approximately $12 million, an installer of drywall and metal stud framing across a balanced mix of commercial and residential end markets throughout Wisconsin with annual sales of approximately $4 million and an installer of insulation in the single-family, multifamily and commercial structures across South Dakota, North Dakota, Wyoming and Nebraska with annual sales of approximately $3 million. Single-family starts year-to-date through August 2025 have decreased by 5% from the prior year, while multifamily starts are up 15% for the same period. Looking into 2026, as is typically the case, the new residential construction outlook will be influenced by consumer confidence and buyer activity during the spring home selling season. However, with persistent challenges from housing affordability, we are expecting residential housing starts will be flat compared to 2025, a level that is above the 5-year average from 2017 to 2021. For individuals and families with housing affordability concerns or shifting lifestyle preferences, newly constructed multifamily housing helps meet the needs of growing markets. Over the long term, we continue to believe that the volume growth in our business is supported by a fundamental undersupply of residential housing and the gradual adoption of advanced building codes for the purpose of improved energy efficiency across the U.S. We believe IBP continues to operate from a position of strength as we remain flexible in navigating any potential near-term challenges. Our national scale, strong customer relationships, experienced leadership team and sales across product categories and end markets create a solid platform for IBP to serve our customers and meet their operational efficiency goals. Although broader macroeconomic uncertainty influences prevailing market conditions in our industry and in many others, we remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders. I am proud of our team's continued success and commitment to doing an excellent job for our customers. To everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning and I'm optimistic about the prospects ahead for IBP and the broader insulation and complementary building product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our third quarter financial results. Michael Miller: Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the third quarter increased 2% to a record of $778 million compared to $761 million for the same period last year. Same-branch sales for the Installation segment were flat for the third quarter as a 12% increase in commercial same-branch sales more than offset a 3% decline in residential same-branch sales. Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we reported a 1.5% increase in price/mix during the third quarter. This result was offset by a 4.8% decrease in job volumes relative to the third quarter last year. It is important to note that our heavy commercial end market and the other segment results are not included in the price/mix volume disclosures. Our heavy commercial same-branch sales growth exceeded 30% during the 2025 third quarter, including the heavy commercial installation sales. Price/mix increased 4.4%, while job volume decreased 4.5% during the 2025 third quarter. With respect to profit margins in the third quarter, our business achieved adjusted gross margin of 34%, an increase from 33.8% in the prior year period. The year-over-year increase in margin during the quarter was in part related to a shift in customer, product and geographic mix. Adjusted selling and administrative expenses were stable relative to the 2024 third quarter. As a percent of third quarter sales, adjusted selling and administrative expenses decreased to 18.2% compared to 18.5% in the prior year period. Adjusted EBITDA for the 2025 third quarter increased to a record $140 million, reflecting an adjusted EBITDA margin of 18% and adjusted net income increased to $86 million or $3.18 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect fourth quarter 2025 amortization expense of approximately $10 million. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2025. Now let's look at our liquidity position, balance sheet and capital expenditures in more detail. For the 9 months ended September 30, 2025, we generated $307 million in cash flow from operations. The 16% year-over-year increase in operating cash flow was primarily associated with improvements in working capital management. Our third quarter net interest expense was $7 million compared to $8 million for the 2024 third quarter as lower interest income from investments was offset by lower cash interest expense on outstanding debt. At September 30, 2025, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.09x compared to 1x at September 30, 2024. This remains well below our stated target of 2x. At September 30, 2025, we had $330 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the 3 months ended September 30, 2025, were approximately $20 million combined, which was approximately 3% of revenue. This is higher than usual as we accelerated vehicle purchases in advance of expected price increases. With our strong liquidity position and modest financial leverage, we continue to prioritize allocating capital to achieve the best returns while distributing excess cash to shareholders. During the 2025 third quarter, IBP repurchased 200,000 shares of its common stock at a total cost of $51 million and 700,000 shares at a total cost of $135 million during the 9 months ended September 30, 2025. At September 30, 2025, the company had approximately $365 million available under its stock repurchase program. As previously announced, IBP's Board of Directors approved the fourth quarter dividend of $0.37 per share, which is payable on December 31, 2025, to shareholders of record on December 15, 2025. The fourth quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks. Jeffrey Edwards: Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work and commitment to our company. Our success over the years is made possible because of all of you. Operator, let's open up the call for questions. Operator: First question comes from Stephen Kim with Evercore ISI. Aatish Shah: This is Aatish Shah on for Steve. I just want to touch on how you see backlogs for multifamily and commercial. And do you still see a multifamily rebound in 1Q? And then on the commercial side, are you seeing any delays there? Any color there would be helpful. Michael Miller: So this is Michael. On the multifamily side, as we talked about really in the first quarter and the second quarter, we expected through the rest of this year, continued headwinds, which I think we saw in the third quarter, although our team has done a phenomenal job of outperforming relative to the market. We believe they will continue to do that. As Jeff mentioned in his prepared remarks, we're seeing in certain markets, building of backlogs in those markets as well as gaining share in new markets for ourselves. So for us, the multifamily story continues to be intact in terms of us strategically gaining market share, not just in insulation, but in the complementary products as well. And as we -- pretty much everyone on this call would know that multifamily starts have performed pretty well this year because of the lag time from start to install on the multifamily side, we don't expect to see any benefit of that starts growth or the share gains that we're experiencing in multifamily until '26, it's probably going to be more weighted towards the back half of '26 than the front half of '26. So really, a lot depends on the trades that come before us to get their aspects of the trades done. But we are seeing -- continuing to see good bidding activity and are surprised, actually some markets like Florida, which is, I think everybody knows is probably the weakest residential market right now, is seeing some actually decent multifamily development. So we feel good about that in those markets. On the commercial side, as we talked both last quarter and the first quarter, really the story there is the heavy commercial business, which has performed exceedingly well and has offset the continued weakness in the light commercial business, although the light commercial business is starting to be less negative in part because it is -- the comps are getting easier because it's been down for such an extended period of time. As you know, we don't have nearly as much visibility into the light commercial business as we do the heavy commercial business. We feel very good that the heavy commercial business is going to continue to deliver strong top line and bottom line results, but it's not clear yet when the light commercial business is going to inflect positively. And it will really be dependent upon the inflection in the single-family market. Stephen Kim: Mike, it's Steve Kim. Just a follow-up. I think last quarter you had suggested that we might see the multifamily business rebound as early as 1Q. I think you had said at that time that maybe you were seeing the comps sort of accelerate or something. And so just wondering, did anything change to sort of push that back? You're now sort of saying maybe back half of the year. So just not to nitpick too much, but just want to make sure we don't miss something that you're trying to communicate about what you're seeing with respect to your backlog timing. Michael Miller: No, it's just being cautious. And also, as you know, we are influenced significantly in terms of our ability to do install work based upon the trades that come before us. So it's really the ability of the trades that come before us to get their work done so we can get there. And while we're not seeing across the board project delays, there have been in certain select markets some project delays. One of the issues potentially could become for the trades that come before us is we're all expecting because of the starts numbers and what's happened from a completions perspective and the significant decline in multifamily completions is that if there is a significant inflection, which the starts numbers would indicate, you can start to have elongated cycle times on the multifamily side. So we're just trying to factor some of that potential into our thought process as it relates to 2026. Stephen Kim: Got it. Do you guys anticipate that if there were to be any elongation in cycle times like you just described that, that would be more on the labor side? Or would be more on the product availability side? I assume labor. Michael Miller: Yes, it is definitely labor. And I'm not -- just to be clear, I'm not talking about our ability to source the labor or our ability to source material. But I definitely think that some of those -- the earlier trades like the framers and foundation guys might experience a bit of an issue from a labor perspective. Stephen Kim: Got you. Last one for me is you talked about margins benefiting from mix. I think you said product geographic and customer. Can you talk a little bit about the geographic? Was there a noticeable relative strength or weakness across any geographies worth calling out? Michael Miller: Yes. I mean we definitely benefited from our historical overweight, if you will, to the top half of the country, which has done fairly well relative to the bottom half of the country. I mean, clearly, the weakness that we're seeing in the single-family market or lack of inflection, I should say, in the single-family market is really driven by the entry level, right? We're seeing good solid performance at the semi-custom, custom, regional and local builder level, which, as everybody knows, tend to be centered more from a percentage of overall revenue in the top half of the country. So just to give you some kind of regional flavor for us, and I'm using this based upon the census regions, not the way that we manage the business, but based on the census regions. So the Midwest and the Northeast represent roughly 30% of our new residential installation sales. So that's both single-family and multifamily. In the quarter, those region sales for single-family, multifamily were up low single digits. The South, which is our largest region, is about 45% of residential sales, and it was essentially flat in the quarter. The West region, which is roughly 20% of our residential sales was basically down very low single digits. So clearly there's different performance across the different regions, and we are definitely benefiting from the fact that we have such strong market share in the Midwest and the Northeast. That being said, and I don't want to go into too much detail necessarily on this question, but -- or the answer to this question, but our teams even in the South and the West have performed extremely well given the headwinds that they're facing and the market conditions that are there. So we're really -- we can't shout out enough how proud we are of the field team and the local management and their ability to continue to manage through what is a pretty challenging market environment. Operator: Next question, Michael Rehaut with JPMorgan. Michael Rehaut: First, I just wanted to get a sense, you highlighted in terms of your end market demand kind of benefiting perhaps from price point and geographic exposure. I don't know if it's possible to try and triangulate. You had a competitor yesterday talk about their end markets down low double digit. Given your different mix based on customer, based on geography, I'm just trying to get a sense of whether or not you feel like that's down double digits is kind of the right framework for your set of exposures. And if you're able to kind of triangulate what your end markets, what your markets did or have been doing this year or during the third quarter even if you feel like you've outperformed that mark? Michael Miller: Well, as we said in the answer to the previous question, clearly we benefited from the regions and our exposure to certain regions that have performed well relative to the overall market. I would say that we have been very successful with our customers, particularly the regional and local semi-custom custom homebuilders in our markets to work with them to provide for us a very solid base from a revenue perspective. And we feel very good about our ability to continue to do that. I mean, no doubt, there are headwinds and pressures, particularly as it relates to the entry-level market. But our team is doing an excellent job of focusing on the right customers in the right markets and working to make sure that we offset the challenges that the current market environment is providing. Michael Rehaut: Okay. So in other words, better markets, but any type of sense of what your markets or how they did during the quarter relative to what you were able to do? Michael Miller: Yes. I would say that, not in every single market, but if we -- and I think the results clearly reflect this, the team performed much better than the market opportunity that was in front of it. They did that last quarter. They did that this quarter. And so far going into the fourth quarter, we feel very good about their ability to continue to do that. I mean, that being said, I mean, obviously, we will continue to see pressure, particularly in the single-family entry-level market, which is heavily weighted towards the bottom half of the country or the Smile as people refer to it. But while we don't see the inflection yet in the single-family entry-level market, we're hopeful and encouraged that the spring selling season will be certainly more constructive next year than it was this year. Jason Niswonger: And this is Jason. I would add to that, we've also seen very strong performance in our other complementary products. So the sales growth is not just housing demand focused, it's the strength that we've had in growing those sales organically. Dominic Bardos: Which is a really important point, right? And we continue to improve the margin on those products. Now they're still less -- they're lower than insulation, considerably lower than insulation. And as we've talked in previous quarters, when the sales rate of the complementary products is higher than the sales rate in insulation, it is a negative to gross margin, but we're making tremendous progress from both the sales perspective, as Jason pointed out, and a margin perspective. Michael Rehaut: Yes. No, no, I appreciate that point. It actually kind of leads me into my second question around pricing, price mix and gross margin. So you're able to do another modestly positive price/mix in the quarter. I think that's kind of a positive surprise relative to perhaps some concerns around pricing, maybe reflects your own more stable demand backdrop. But I'd love to get a sense of what insulation pricing did during the quarter? How much of the price/mix was price versus mix? And how does it kind of impact your outlook for -- now you have a couple of quarters and several quarters actually in the last year, 1.5 years where you're more or less at that 34% range at the high end of that 32% to 34% and your ability to sustain that type of margin level? Michael Miller: Yes. So there's 2 parts to that question. On the price/mix growth, a lot of it was mix and the mix was really that our rate of sales growth with the regional local custom builder was better than it was with the production builders, I mean, which is obvious based on their Q3 results. I mean the reality is that given our solid share with the production builders, which tend to be very heavily weighted towards entry level, our sales with them trend with their sales basically fairly closely. So as a consequence, the benefit that we saw from a price/mix perspective in the residential side was really driven by the outperformance, if you will, on a relative basis with the regional local and custom builder, which, as everyone knows, has a much higher ASP than the entry level. And because of our regional difference relative to our regional performance in the top half of the country, building codes and energy codes are much higher in that part of the country. It also tends to be a basement market, which that means that we're insulating the basement, we're insulating to a higher code. It also tends to be on average, a larger home. So you have a much higher average job price in those markets than you do in the bottom half of the country. So as a consequence, all of the things that we talked about from the regional benefit came in to benefit price/mix growth as well. And then on the gross margin part of your question, the -- there's a couple of things that are really helping gross margin and then also some things that were headwinds to gross margin. So -- and we've talked about this in previous quarters, but the -- even though the complementary products saw margin improvement of about 100 basis points in the market, as I mentioned earlier, they still are at a lower gross margin than insulation. The higher rate of growth there then creates a headwind to gross margin. Also, our other segment, which includes the distribution and manufacturing business, naturally has lower gross margins, and it also saw decent growth in the quarter, thus weighing on overall gross margins. Combined, that had about a 60 basis point headwind to gross margin, but that was more than offset with a 100 basis point gross margin benefit from the outsized performance from the heavy commercial business. So those 2 things were more than offset and helped us stay at that high range of the 34% adjusted gross margin. I will say that the benefit that we received from the heavy commercial business in gross margin at 100 basis points this quarter, we don't expect to see in the fourth quarter of this year, not because they won't continue to perform well, but because they had already raised their gross margin up by the fourth quarter of last year to sort of where it is today. So we don't expect any incremental benefit coming from the heavy commercial business in the fourth quarter. But we still feel very confident that we will operate in that 32% to 34% adjusted gross margin range on a full year basis. Operator: Next question, Susan Maklari with Goldman Sachs. Susan Maklari: My first question is following up on the gross margin comment, Michael. It seems like part of this is that you're doing a good job at being able to preserve the core margin that you're realizing on your installation of insulation even with the pressures that are coming through across the different regions and types of builders. Can you talk about how those conversations are going and how you're able to leverage the value add and perhaps the growth in the ancillary products that Jason mentioned in there to preserve that core margin? Dominic Bardos: Yes, Sue, just to be clear, it's the field team that's doing it, and they're doing an incredible job. I don't think anybody in this room feels that they can take responsibility for what a great job they're doing. But I think those conversations are definitely challenging right now given the softness, particularly at the entry level. But the reality is, is that we provide an installed solution. So we're not providing just labor. We're not providing just material. We're providing an installed solution and we're solving problems for builders. And they absolutely appreciate the value that we're providing. And this has been a continuous story for us, quite frankly, in terms of the team's ability to continue to do that. We, as we've talked, I think, on multiple occasions about the benefits of a softer environment on the uptake of the complementary products. We're absolutely seeing that. The team is doing what we would have expected them to do. We think that -- we don't think, we know, that our incentive compensation systems are designed, quite frankly, to drive outperformance in a challenging market because so much of our branch managers' compensation is tied to the profitability of their location. In fact, I mean, really, when you think about it, almost every employee within IBP has some portion of their compensation tied to profitability. And we think that drives outperformance in a challenging environment. Susan Maklari: Yes. Okay. And then turning to SG&A. It seems like you're also doing a nice job at controlling those costs in this kind of an environment. Can you talk about the progress that you're making on the reductions that you had mentioned earlier this year and anything else that's flowing through there that we should be aware of? Michael Miller: Yes. Thanks for that question, Sue. Definitely we're making very good progress. We still have progress to make. I mean, to a large extent, the efforts that the whole team is making to control the G&A that we can control is, to a large extent, being offset, unfortunately, by some of the things that aren't immediately under our control like insurance, and that's insurance at all levels. But the team is really working very hard to lower G&A expenses. And our objective is that we will offset the natural inflation in some aspects of G&A and some of the headwinds that we're experiencing on the insurance side of G&A with the savings that we're continuing to experience on the G&A side. But it's really, at this point, an opportunity for us to maintain the growth or to use our belt tightening, if you will, to offset some of the costs that we don't directly or immediately control. Operator: Next question, Phil Ng with Jefferies. Philip Ng: Congrats on a really impressive quarter. I guess, Michael, that was really helpful color when you shared with us just now on your trends in the Southeast and the West, which was actually very stable, clearly outpacing the market handily. Was there a big pivot this year in terms of your go-to-market strategy to kind of lean harder in some of these custom and regional builders? Or you've always been generally a little higher there just because it does feel like the team's really outperformed here. Michael Miller: Yes. I think that's a fair assessment, Phil, in the sense that our team looking forward, obviously, working with their production builder entry-level builders saw the weakness that the market was going to present. And really saw that as an opportunity to work more closely with some of the other customers in that -- in those markets to offset what they saw as the headwinds coming. And the team has done a great job of performing relative to that. Now the reality is that there continues to be some states that are very weak. We talked about Florida last quarter and Florida continues to be quite weak. Although as I mentioned earlier, we're seeing some encouraging signs on the multifamily side in Florida, but it continues to be very weak. Texas is a state that people call out, which Texas is our second largest state. It definitely has pockets of weakness, but we believe our team is doing a good job there of trying to offset some of that weakness by changing a little bit of the customer mix and also cross-selling the other products. And quite frankly, Texas is really one of the markets that's been very successful for us on the multifamily side. The CQ team, which is our centralized multifamily operation that covers around 40% to 45% of our multifamily revenue has really outperformed in Texas and allowed us to gain solid market share in that market, but in a profitable way. Philip Ng: Okay. Super. And Michael, I think what you just said earlier, October trends, November sound pretty good, and you're still outperforming pretty handily. One, did I hear you correctly? And I know you don't give guidance. Part of this question is just most of your peers have seen and expect demand to really soften in the back half and perhaps these declines moderate going into next year. Your trends have been very different from everyone else. So I'm just really curious, is that decline to come? Or this is potentially the trough, especially as we go into next year, perhaps rates coming in, the consumer getting a little better kind of back on the men. Just want to better appreciate some of the nuances as it relates to your portfolio. Michael Miller: Yes. And thanks, Phil, for reiterating that we don't provide guidance. And in my answer to your question, I don't mean this to be guidance. It's just publicly available information that I'll use to sort of triangulate a little bit on our expectations for the fourth quarter. So I think as a lot of people on the call know that roughly 55% to 60% of our total revenue is new single-family construction. Of that 55% to 60%, roughly 27% to 30% of that revenue comes from the public builders. If you look at the guidance that those builders provided for the fourth quarter, and as I said in the answer to an earlier question, our sales to them kind of track their sales basically. Their numbers, right, their publicly available numbers would suggest that their sales are going to be down on a combined basis, roughly high single digits. And that high single-digit decline would be roughly 400 to 500 basis points higher than the typical seasonal decline from the Q3 to Q4 because Q4 is seasonally a lower -- typically lower revenue month across the board within building products. And we expect that, that extra 400 to 500 basis points of revenue headwind that they're forecasting, we will feel as well in that portion of our business. So to more succinctly answer your question, we do think that the fourth quarter is going to create pressures. Multifamily completions, we don't expect to inflect positively in the fourth quarter. So there's definitely going to be headwinds. But we have confidence based upon what the trends that we're seeing and what we've experienced over the past 2 quarters that our team is going to perform better than the overall market opportunity, but there are definitely going to be headwinds coming into the fourth quarter and the first quarter on the new residential construction side. We feel very good, though, and I'll reiterate this probably 10 times on the call today. We feel very good about what the heavy commercial business is doing and is really helping to offset some of those residential construction headwinds. Operator: Next question, Mike Dahl with RBC Capital Markets. Michael Dahl: Just want to follow up on that last point and just to make sure we're understanding. When you talk about the high single-digit decline, are you talking about their delivery guides or something else? Because I think the starts commentary has been pointing to more significant declines in starts, understanding that you guys have some differences in lag timing, right? I just want to make sure we're understanding what you're saying. And then could you give us any insight into then on the private side, are those customers of yours seeing a significantly different trend than what you just articulated for the public? Or are they kind of starting to follow suit into your… Michael Miller: Yes. So my comment around the Publix was more closings versus starts, right? And they are 2 different things, as we all know. As it relates to the kind of custom, semi-custom and regional and local builders, I would say that the commentary is generally flat, where they're not seeing -- and obviously, it's market by market. But if I had to put it in a kind of broader context, it would be that the market is flat, it's not getting worse, but it's also not getting better. Michael Dahl: Okay. Got it. That's helpful. And then shifting gears back to the gross margin dynamic. I appreciate the color on the heavy side and that you're now comping against the step-up there. So when we think about the year-on-year impacts for fourth quarter, I think you articulated kind of some of the moving pieces around mix. But when we think about that fourth quarter, can you just dial that in a little better in terms of, all right, we don't have the 100 basis point tailwind. We do have some of the headwinds and some other -- how do those headwinds in your mind stack up compared to what you just articulated for the 3Q dynamics? Dominic Bardos: Yes. I mean we would expect that we would -- I mean it's interesting that we call out gross margin headwinds because the businesses are performing, those businesses perform very well, right? And they're improving margin, but just that they're at a lower gross margin to start with, just creates that sort of headwind. We would expect that trend to continue through the fourth quarter, where the other products, the other segment, which is the distribution manufacturing business, we continue to grow at a higher rate than in the insulation business. So as a consequence, we believe that headwind will be there. And then as I said and you pointed out, we don't expect to see that much incremental gross margin benefit from the heavy commercial business in the fourth quarter. And just as a reference point, in the fourth quarter of last year, the adjusted gross margin was 33.6%. So again, well within our 32% to 34% full year range that we've talked about. Operator: Next question, Jeffrey Stevenson with Loop Capital Markets. Jeffrey Stevenson: Congrats on the strong results. So I wanted to dive deeper into the double-digit growth in complementary products, which is great to see. Would you call out any products that are outperforming? And is most of the strength in better single-family markets such as the Midwest? Michael Miller: That's part of it. But also keep in mind that within the complementary bucket, if you will, is primarily -- the heavy commercial business is primarily in the complementary product bucket. So they're definitely helping from a growth perspective in those products. But we're definitely seeing it on the residential construction side of the business as well, particularly on a margin improvement basis. So we feel good about what the team has been able to do there, so. And to answer your question specifically, I mean, there's not -- I would say that -- I wouldn't highlight any one particular of the complementary products as being any better than the others. It's really a uniform story in terms of their growth with the one exception that growth that Jason talked about is definitely being helped by the heavy commercial business. Jeffrey Stevenson: Okay. Understood, Michael. Obviously a lot of discussion over the outperformance with the regional and local builders over the national public builders. And as you look at your backlog moving forward, could you -- would you expect those mix tailwinds to continue, especially given the softness at the entry-level price point right now? Michael Miller: Yes. We would expect that to be the case until the entry-level inflects. And we're hoping that, that happens in the spring selling season. Operator: Next question, Keith Hughes with Truist Securities. Keith Hughes: Just to level set on the commercial, about $135 million in revenues in the quarter. What is the split right now between heavy and light? Michael Miller: So on the install side, which is just slightly different than from the total IBP perspective, on the install side heavy commercial is around 11% of revenue and the light commercial is like 7.5% of revenue. Keith Hughes: Okay. And what is the dividing line between light and commercial? Is that -- is there a job size? Or is it a product? Or how do you define that? Michael Miller: I mean the simplest way is that light commercial is framed construction and heavy commercial is steel and concrete. Keith Hughes: Okay. And from a growth rate -- when if we look longer term, I think you want to do more in this market. What do you think has the bigger TAM that you could reach? Michael Miller: Heavy commercial without a doubt. I mean our market share in heavy commercial is, in the markets that we're in, it's great. But [indiscernible] because we have so much geography that's open to us. And now that we have so much confidence in the team, and the team is working so well that we see a lot of opportunity there on an acquisition opportunity and then also potentially on a de novo basis, but that's going to be very selective. Keith Hughes: And what's stopping really accelerating the acquisition activity there? It seems like a great business for you. Just seems like we would see more deals or maybe that's to come. What's kind of your view of the pacing, I guess, is my question. Jeffrey Edwards: This is Jeff, Keith. So I would say, honestly, unlike what we would say about our residential business, I think the potential for organic growth by us following customers and developers and general contractors that we have relationships that actually, in this case, outweigh maybe even some of the commercial acquisition activity. It's not to say that it isn't there, but I wouldn't be surprised if we don't end up moving more on the organic side than we do on the acquisition side in that part of the business. Not to downplay that there aren't opportunities. It's just I think that may happen [indiscernible] organically. Keith Hughes: Final thing. It lends itself to organic growth, what dynamic of it lends itself to organic growth more than, say, your residential insulation is? Michael Miller: I don't want to call the customers necessarily stickier than they are on the residential side because we also make a point of calling our residential customers because of the jobs that we do for them, the work that we do for them, the quality, et cetera, we provide is being sticky. But I do think maybe the universe of contractors that can perform the services that we perform on the commercial side, especially the bundling of that [Audio Gap] But I think in addition to that, it's just -- we'll be able to follow developers and builders to other large metro areas that we're currently not in with heavy commercial. Operator: Collin Verron with Deutsche Bank. Collin Verron: I just want to start on price cost a little bit. I appreciate all the color around the moving pieces of mix on gross margin. But any color as to how price cost is tracking and more specifically within the residential insulation business and the commercial insulation business? Michael Miller: Well, I mean, I think on the commercial side, there's definitely a difference between the light commercial and the heavy commercial. As we've talked about, the light commercial business has been weak for multiple quarters at this point. So obviously that can lead to some pricing pressure. I would say on the single-family side, really where there's pricing pressure, and we would expect it to continue until the market inflects positively is it's more regional in nature and more at the entry level that we've been talking about. I would say at the custom, semi-custom our top half of the country, while obviously it's a competitive environment, the competitive challenges are not as significant as they are in the parts of the market that are softer. I mean it's a logical supply and demand sort of response. But at the same time, our team is doing an excellent job of working hard to maintain price and provide for the builder a high level of service that they will value and pay a fair price for. We are constantly working to be more efficient for our builder customers and to provide them as much value as possible. But there is a fair balance between what we get paid for and the installed solution that we provide. Collin Verron: That's helpful color. And I just want to touch on the distribution and manufacturing side. I know it's a small piece of your business, but the growth is really strong in the quarter and contributed to growth at an outsized pace relative to its size. I guess just any color as to sort of what's going on there and sort of the trajectory of that business as you look out a little bit further? Michael Miller: Yes. And keep in mind, some of the growth that -- or a portion of the growth that is in that other segment is coming from our internal distribution efforts, which we've talked a lot about. And that's really coming to fruition. And you can see the growth rate in that in our segment disclosures that just shows the significant growth of intercompany sales. And we estimate that year-to-date and in the quarter that the internal distribution efforts provided an almost 50 basis points benefit to gross margin. Jeffrey Edwards: We're just executing on the plan that we've talked about for multiple… Michael Miller: Years. Jeffrey Edwards: Yes, years. I was going to say multiple quarters, let's say, multiple years. Michael Miller: Yes. So the benefits there are coming to fruition. We still have a lot of work to do, but the team is working really well together, and we finally have gotten, I think, a wide acceptance among the branches to support the effort of internal distribution. Operator: Ken Zener with Seaport Research. Kenneth Zener: It feels like we were looking at a force and then the light was turned on and you're more like a Zebra relative to the regional customer mix. So first question. For customer mix… Michael Miller: Is that good or bad? Kenneth Zener: It is what it is. So for customer mix, generally speaking, I think you talked about even the public is about 30%. Can you talk to the dollar generally, Michael, I know you've disclosed a lot today, so I don't want to press you. But what is generally like kind of the dollar spread between like that public, which I think people understandably characterized you guys as, as opposed to the 70% that's actually going to that private, more custom bucket since it's the majority? And then can you describe the demand dynamics of those builders buyers? So if it's custom, it's not going to be as tied to affordability entry, it's going to be more non-spec, et cetera? Michael Miller: Yes, that last part of your comment or question there, Ken, is definitely accurate. I would say that the average job price for the regional and local builder because of the type of product that they're building, and I'm not talking on a per square foot installed basis, I'm just talking about the average job price, right? So because of the type of product that they're building because they're generally speaking, going to have a basement, which adds another level of work for us to insulate, those average job prices are multiples of what the average job price is for an entry-level home. Kenneth Zener: Okay. And the -- just trying to think more of my question here. Given that multiple difference, is that something -- well, I guess I'm going to tie this into my second question. The census data, besides the fact it's not going to be published right now, is highly inaccurate for the markets that the public builders are in, the Smile because most of the builders don't respond to the census. Do you feel that the census data is more accurate in those non-Smile states relative to kind of the starts and the activity that you've seen? Michael Miller: Boy, I think we would have to go back and look at the information over an extended period of time to see if the adjustments that they make to the information is greater in the Smile than it is in the top half of the country. Yes, I have no idea, and we've never really looked at that. I mean… Kenneth Zener: Yes. It's never been… Michael Miller: Yes. We sort of take it at face value for what it is. Obviously we don't run our business based upon what the Census Bureau is reporting, so. Kenneth Zener: And then relative to that, given your -- and we very much appreciate your commentary relative to the census boundary definition. Given that so much of your business is to the nonpublic and that mix is geared more towards a higher total take, it seems to me that's the biggest factor as we enter '25 for expectations for your business in addition to your cost controls. Is there a reason that the base of your business is going to be detrimental next year? Because it seems if you have more of your mix in these more attractive markets where there's better job growth, et cetera, that we could continue to see kind of a disconnect relative to census data next year, simply tied to your product mix and your regional mix. Is that a fair assessment that the spread we've seen this year would persist into next year? Michael Miller: I mean, obviously, well, one, we don't provide guidance. Two, obviously, it depends upon what ends up happening in the market. What I would say though is that while the entry-level market right now, as we all know, is challenged and it's a challenging operating environment for there. And yes, our customer mix and regional mix is hitting or helping our outperformance. It's not the only reason we're outperforming. The team is doing the outperformance, but it is definitely helping in that situation. I would say, though, and it's one of the reasons why we're so excited about the business and continue to be is that when the inflection comes in the entry-level market, we are completely set up to benefit from that inflection upward. And we think that, that will come at the same time when the regional and locals are going to continue to perform as well. Now does that mean it will put pressure on our price/mix disclosure? Absolutely, because we'll be seeing an acceleration in that entry-level market. But at the same time, as we've talked about before, even though it's at a lower job price, considerably lower gross margin, the cost to serve is considerably lower as well and the EBITDA contribution margins on that business is solid. So I don't think -- or I know we're not ready to call when that inflection happens. We're hoping that it's the spring selling season. But whenever it happens, we're ready to work with our customers to make sure that we can all capitalize on the opportunity that, that will present. Operator: Next question, Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just on the multifamily business, I know when things started to slow and you have a pretty unique business within that, you guys talked about sort of the white space geographically you had and some organic opportunities to expand there in a weak market. I guess any update there on how that's going, if you're starting to see some benefits from maybe a renewed effort to kind of go out of your core markets? Michael Miller: That is a great question, and I appreciate you asking it because, yes, we are making very good progress on that front. It's not translated into revenue yet, but it's translated into backlog. And the team is doing a really good job of, as Jeff said in his prepared remarks, going into new markets and opening up those new markets for multifamily. And we really believe we have a differentiated model/opportunity for the GCs on the multifamily side, and we'll continue to strategically and methodically pursue continued market share gains in multifamily. I mean, honestly, for us, the multifamily story, as we've talked before, it's a lot about us catching up from a market share perspective to where we should be because we really lagged behind in a lot of markets, particularly markets in the smile, we lagged behind from a multifamily perspective because we were so focused on the strong single-family opportunity. Operator: Next question, Reuben Garner with The Benchmark Company. Reuben Garner: Congrats on another strong quarter. My question, and apologies if this has already been discussed, I had to hop on late, but just curious on the current M&A environment. I know you picked up a couple of kind of specialty product categories of late. But curious on what the environment is like for some of your smaller insulation peers and then also the likelihood that we could see something larger or maybe even in a different vertical in the near or medium future. Jeffrey Edwards: Great. This is Jeff, and I'm glad you asked that question. So I think the environment from an acquisition perspective on both the small guys, the ones that are kind of regular way as we would usually call them is not dissimilar that it's been really over the last, I don't know, 20-plus years. Like we've said all along, the deals are kind of lumpy. We did make an effort to kind of do some add-on kind of bolt-on deals, which you've seen some of those flow through. But we're actually pretty excited about some of our kind of regular way, both in size and in terms of quantity kind of deals that we have in the pipeline currently. In addition, we continue to look at kind of what we would call adjacent areas to the business, still interested pretty seriously in potentially commercial roofing and other areas where we would be installing products that have similar characteristics to the things we already install. But I guess also going back to Keith's question, I may have at least interpreted the question more narrowly than the way he asked it, which is also kind of a lead into what you asked also. And that is when I said that there wasn't -- maybe the avenue for acquisitions on the heavy commercial was kind of more organic or was going to be constrained on the acquisition side. I was interpreting at least the question being asked specifically to the products that Alpha installs currently. And I think we feel pretty good about our ability to kind of chase the things that we do well as Alpha organically. Now there are definitely other product lines that Alpha is not in, but I would categorize those more as adjacencies that we could get into on the heavy commercial side in that particular area, we're very excited about what our prospects have in front of us. Operator: I would like to turn the floor back over to Jeff for closing remarks. Jeffrey Edwards: Thank you all for your questions. I look forward to our next quarterly call. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 Hamilton Insurance Group Limited Conference Call. [Operator Instructions] I will now hand the conference over to Darian Niforatos, Vice President, Investor Relations and Finance. Darian, please go ahead. Darian Niforatos: Thanks, operator. Hi, everyone, and welcome to the Hamilton Insurance Group third quarter 2025 earnings conference call. The Hamilton executives leading today's call are Pina Albo, Group Chief Executive Officer; and Craig Howie, Group Chief Financial Officer. We are also joined by other members of the Hamilton management team. Before we begin, note that Hamilton financial disclosures, including our earnings release, contain important information regarding forward-looking statements. Management comments regarding potential future developments are subject to the risks and uncertainties as detailed. Management may also refer to certain non-GAAP financial measures. These items are reconciled in our earnings release and financial supplement. With that, I'll hand it over to Pina. Giuseppina Albo: Thank you, Darian, and welcome to everyone joining us today. I'm pleased to report that Hamilton had another very strong quarter with $136 million of net income, representing an annualized return on average equity of 21%. This impressive result started with strong performance from our core activity, namely underwriting, where we reported a combined ratio of 87.8% and underwriting income of $64 million in the quarter. These results are a direct consequence of the balanced and diversified portfolio that we have curated over the years as well as our disciplined underwriting approach. Investment income of $98 million was also significant this quarter with contributions from both our Two Sigma Hamilton Fund and our fixed income portfolios. So in short, both our underwriting and investment played a part in our excellent results this quarter. Before providing more commentary on our performance and reflections on the market in general, I want to speak to some of our recent management appointments. Hamilton continues to shine as a true magnet for top-tier talent. In addition to developing and promoting from within our ranks, we continue to attract exceptional leaders from outside the organization. On the latter note, we were thrilled to welcome Mike Mulray as Chief Underwriting Officer at Hamilton Select. Mike brings over 25 years of underwriting expertise and strong market relationships, which will prove opportune as we continue to grow our U.S. E&S platform. With respect to drawing from our bench strength, we are also delighted to announce the well-deserved promotion of Susan Steinhoff to Chief Underwriting Officer of Hamilton Re effective January 1, 2026. Susan has more than 20 years of industry experience and is one of the longest-serving underwriters at Hamilton, having joined the company in 2014. Turning now to some of our highlights for the third quarter. Hamilton continues to deliver strong top line growth with gross premiums written increasing by 26% in the quarter. While the market is experiencing some pressure in pockets, it is still an attractive place to do business for disciplined and discerning underwriters who know how to navigate it and pick the most attractive spots. Our diversified portfolio has allowed us to flex across insurance and reinsurance and multiple lines of business in response to market realities. This means we were able to grow where rates, terms and conditions were still attractive and backed away from business where this was not the case. Let me walk you through this dynamic in each of our 3 underwriting platforms to illustrate the point. Starting with Bermuda. Our Bermuda segment grew 40% this quarter, driven by casualty and, to a lesser extent, specialty reinsurance classes. The increase in casualty reinsurance this quarter was a combination of access to new market opportunities, a larger renewal moving from Q2 to Q3 as well as the benefit of expanded participations on select renewals written earlier in the year. The majority of our growth was attributed to general liability and multiline classes, which we write predominantly on a proportional basis and which have been getting the benefit of strong underlying rate improvements. Regarding specialty reinsurance, we continue to see momentum in our new credit, bond and political risk lines where risk-adjusted returns are attractive. Turning now to the property insurance book we write in Bermuda on the other hand, we did see increased competition on larger property accounts after several years of compounding increases. Consistent with our disciplined underwriting culture, we were very selective and consequently wrote less of this business. That said, we do still see risks in this space that provide attractive underwriting margins, so we continue to support those accounts. Moving to our International segment, which houses Hamilton Global Specialty and Hamilton Select, gross premiums written grew 17% in the quarter. Starting with Hamilton Global Specialty, which includes our Lloyd's operation, gross premiums written were up 16% with a select part of our property insurance book leading the charge. More specifically, consistent with the approach taken in Bermuda, we have been more selective on larger property accounts, but we're able to grow on the back of new distribution channels that focus on smaller property risks, which are subject to less competition and where risk-adjusted returns remain attractive. We also grew in select specialty and casualty classes such as mergers and acquisitions, marine cargo, political risks and fine art and species, where our specialized teams were able to achieve attractive margins. On the flip side and consistent with our disciplined underwriting culture, we reduced our writing in lines experiencing increased pricing pressure such as political violence and some areas of professional lines. Turning next to our U.S. E&S platform, Hamilton Select. It grew 26% this quarter, led by 50% growth in our casualty lines. We continue to see healthy submission flows at Hamilton Select and a favorable momentum in our casualty segments, especially excess casualty, general casualty and small business classes where rates and terms remain attractive. On the other hand, and consistent with our adherence to cycle management, we reduced our writings in some areas of professional lines where rates were less attractive. Looking out to the foreseeable future, I'd like to share a few high-level thoughts on the market environment in general, starting with U.S. E&S insurance, which accounts for a significant portion of our insurance portfolio. As you have heard from others, the growth and attractiveness of the U.S. E&S market has given rise to increased interest and competition, which we also expect going forward. Starting with property E&S insurance, we expect small to mid-market accounts to see increased competition but hold up better than large accounts. Large accounts are expected to continue to experience pricing pressure. But as we demonstrated, we are not afraid to be responsible and back away in order to safeguard the profitability of our book. Casualty E&S business is expected to continue to show momentum with attractive rate increases persisting, albeit at a slower clip. The majority of our E&S book consists of casualty and specialty classes, which is good news for us. Also worthy of note is the fact that our domestic E&S carrier, Hamilton Select, is focused predominantly on small to midsized hard-to-place niche business where we differentiate ourselves with our expertise, tailored solutions and responsiveness. In summary, while the U.S. E&S market is expected to experience more competition, it is a nuanced market. Given our established and recognized expertise, our strong underwriting culture and market relationships, it remains a market where we see opportunity for attractive growth, albeit at a more moderate pace than in previous quarters. I'll now turn briefly to the reinsurance market, particularly the upcoming January 1 renewals. We expect the upcoming January 1 reinsurance renewals to be more of the same. Regarding property cat reinsurance, we expect supply to outpace demand and some cedents to retain more business. Consequently, we're expecting rate pressure similar to what we have seen in the course of 2025, especially on upper layers of property cat programs. However, given the significant rate increases, which started with the 2023 market reset, we believe that absolute pricing levels will remain attractive and terms, conditions and attachment points to remain intact. Consequently, we expect to continue supporting and in some cases, even increasing our participations for our key clients. As for casualty reinsurance, our expectations are more differentiated. In general, we expect casualty books with poorer performance to see commission decreases, while commissions on better performing books are expected to remain flat. Having increased our portfolio in recent years with targeted clients, predominantly on the back of our AM Best upgrade, we expect our growth in casualty going forward to be more moderate. We have now had the benefit of the upgrade for over a year and our assumptions in both pricing and reserving provide prudent guardrails for this class. The specialty reinsurance market involves a mixed bag of products, but since historical performance has been good overall, we expect many peers and some new entrants to target growth in their specialty portfolios. We have an established offering with clients we have been supporting for years and expect to continue to support them going forward, given that we have relationships with many of them that span multiple classes. In addition to having a well-balanced portfolio with a broad product offering, Hamilton is viewed as a reliable and creative partner by our clients and brokers. Our ability to provide solutions, especially when others retrench, has helped us grow at the right time and in the right lines and remains a key differentiator to our success. Our upgraded rating puts us on par with many of our larger peers and our responsiveness and underwriting culture allows us to compete responsibly and write the business we want. In closing, I'm proud of our team's performance, their ability to navigate this transitioning market and the resilience we have demonstrated as a group. We have a talented team of professionals with years of experience and are building a business for the long run. In times like these, our underwriters know when to lean in and when to back away so that we can continue delivering market-leading bottom line results and a consistently healthy growth in book value per share. I am extraordinarily proud to be part of Hamilton, an organization that is nimble, acts responsibly and knows how to capitalize on opportunities throughout market cycles. With that, I'll turn the call over to Craig for a detailed review of our financial results. Craig Howie: Thank you, Pina, and hello, everyone. Hamilton had another strong quarter of financial results with net income of $136 million, equal to $1.32 per diluted share, producing an annualized return on average equity of 21%. We had operating income of $123 million, equal to $1.20 per diluted share. producing an annualized operating return on average equity of 19%. We also increased book value per share by 6% in the quarter and 18% year-to-date to a record $27.06. These results compare favorably to net income of $78 million or $0.74 per diluted share, an annualized return on average equity of 14% and operating income of $17 million or $0.16 per diluted share and an annualized operating return on average equity of 3% in the third quarter of 2024. For our underwriting results, Hamilton continues to grow its top line at an impressive double-digit rate. Our 2025 year-to-date gross premiums written increased to $2.3 billion compared to $1.9 billion this time last year, an increase of 20%. All 3 of our operating platforms, Hamilton Global Specialty, Hamilton Select and Hamilton Re were able to strategically grow in the lines of business that were most attractive while shrinking those lines that did not meet our underwriting targets. In terms of our underwriting performance, our year-to-date combined ratio was 95.2%. Now for some more detail on our quarterly underwriting figures. Hamilton had underwriting income of $64 million for the third quarter compared to underwriting income of $29 million in the third quarter last year. The group combined ratio was 87.8% compared to 93.6% in the third quarter of 2024. In the third quarter, the loss ratio decreased 7.7 points to 53.3% compared to 61.0% in the prior period. The decrease was primarily driven by no catastrophe losses in the quarter compared to 8.5 points of catastrophe losses during the same period last year. This was partially offset by an increase in the current year attritional loss ratio, which was 55.4% compared to 53.2% in the prior period. The increase was driven by a change in business mix toward casualty reinsurance and a specific large loss in our Bermuda segment, which I'll cover shortly in my segment comments. We had favorable prior year attritional development of 2.1 points in the quarter, driven by the property and specialty classes. This compares to 0.7 points of favorable development in the third quarter last year. The expense ratio increased 1.9 points to 34.5% compared to 32.6% in the third quarter last year. The increase was mainly driven by higher acquisition expenses related to business mix changes and higher other underwriting expenses, primarily related to an accrual for variable performance-based compensation costs. As always, I'd encourage you to use the full year 2024 attritional loss and expense ratios as an indication for where we expect the current book to perform. Next, I'll go through our third quarter results by reporting segment. Let's start with the International segment, which includes our specialty insurance businesses, Hamilton Global Specialty and Hamilton Select. Year-to-date gross premiums written in 2025 grew to $1.1 billion, up from $1.0 billion, an increase of 14%. This was primarily driven by growth in all classes, meaning our property, specialty and casualty classes. Moving to some quarterly figures. In the third quarter, International had underwriting income of $12 million and a combined ratio of 95.4% compared to underwriting income of $5 million and a combined ratio of 97.6% in the third quarter last year. The improvement in the combined ratio was primarily related to the loss ratio decreasing by 4.7 points due to no catastrophe losses in the quarter, partially offset by the expense ratio. The prior year attritional loss ratio was favorable by 2.2 points. This was driven by favorable development in the property class. The expense ratio increased 2.5 points to 42.3% compared to 39.8% in the third quarter last year. The increase was primarily driven by the other underwriting expense ratio due to an accrual for variable performance-based compensation costs, foreign exchange and a decrease in third-party management fee income. As a reminder, effective July 1, 2025, we ceased managing third-party syndicates for fee income. I'll now turn to the Bermuda segment, which houses Hamilton Re and Hamilton Re U.S., the entities that predominantly write our reinsurance business. Year-to-date gross premiums written in 2025 grew to $1.2 billion, up from $0.9 billion, an increase of 26%. The increase was primarily driven by new and existing business in casualty and property reinsurance classes, including nonrecurring reinstatement premiums related to the California wildfires. In the third quarter of 2025, Bermuda had underwriting income of $52 million and a combined ratio of 80.7% compared to underwriting income of $24 million and a combined ratio of 89.4% in the third quarter last year. The improvement in the combined ratio was primarily related to no catastrophe losses in the quarter, partially offset by an increase in the current year attritional loss ratio and the acquisition expense ratio. The Bermuda current year attritional loss ratio increased 4.6 points to 55.6% in the third quarter compared to 51.0% in the third quarter last year due to a change in business mix, including more casualty reinsurance business and due to one large loss related to the Martinez refinery fire. In the third quarter, the industry loss estimate for this event nearly doubled from the original March estimate, adding 2.8 points to the attritional loss ratio in the third quarter. The Bermuda prior year attritional loss ratio was favorable by 2.1 points. This was primarily driven by favorable development in the specialty and property reinsurance classes. The Bermuda expense ratio increased by 2.0 points to 27.2% compared to 25.2% in the third quarter of 2024. This was driven by an increase in the acquisition cost ratio due to a change in business mix, partially offset by a decrease in the other underwriting expense ratio. Similar to my comment about group ratios, I'd encourage you to use the full year 2024 attritional loss and expense ratios for the segments as a guide for how we expect the current segment books to perform. Now turning to investment income. Total net investment income for the third quarter was $98 million compared to investment income of $83 million in the third quarter of 2024. The fixed income portfolio, short-term investments and cash produced a gain of $43 million for the quarter compared to a gain of $94 million in the third quarter of 2024. As a reminder, this includes the realized and unrealized gains and losses that Hamilton reports through net income as part of our trading investment portfolio. The fixed income portfolio had a return of 1.4% in the quarter or $39 million and a new money yield of 4.2% on investments purchased this quarter. The duration of the portfolio was 3.3 years. The average yield to maturity on this portfolio was 4.1%. The average credit quality of the portfolio remains strong at Aa3. The Two Sigma Hamilton Fund produced a $54 million gain or 2.6% for the third quarter of 2025. The fund had a net return of 13.0% through the first 9 months of 2025. The latest estimate we have for the Two Sigma Hamilton Fund year-to-date performance was 14% through October 31, 2025, or an increase of 1% in October. At this stage, the fund is ahead of achieving our planned target of 10% for the full year. The Two Sigma Hamilton Fund made up about 37% of our total investments, including cash investments at September 30 compared to 39% at December 31, 2024. Now turning to capital management. In 2024, we announced a $150 million share repurchase authorization by the Hamilton Board of Directors. During the third quarter of 2025, we were able to repurchase $40 million of shares. All shares purchased were accretive to shareholders, book value per share, earnings per share and return on equity. The Board has recently authorized an additional $150 million in share repurchases so that in total, we now have $186 million remaining. With that, we're able to continue repurchasing shares and growing the business, all while maintaining our strong capital position even during times of uncertainty. Next, I have some comments on our strong balance sheet. Total assets were $9.2 billion at September 30, 2025, up 18% from $7.8 billion at year-end 2024. Total investments in cash were $5.7 billion at September 30, an increase of 19% from $4.8 billion at year-end 2024. Shareholders' equity for the group was $2.7 billion at the end of the third quarter, which was a 14% increase from year-end 2024. Our book value per share was $27.06 at September 30, 2025, up 18% from year-end 2024. Thank you. And with that, we'll open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Hristian Getsov with Wells Fargo. Hristian Getsov: Okay. My first question is on the Bermuda underlying loss ratio. So if I exclude the refinery fire, so it ticked up about 1.8 points year-over-year. And I understand in part that's a little bit driven by mix towards casualty. But I guess as we go into '26 in casualty, just given what they're seeing in terms of rate versus kind of the rest of the book, particularly property, like how should we think about that underlying margin trending as we kind of see that mix shift continue? Craig Howie: This is Craig. We certainly see that the same exact thing that you're seeing is that is a mix of business. That's what's driving that loss pick. So again, because of mix of business, you're going to see that change in the loss ratio. You'll also see the change in the acquisition expense ratio. What I would say to you is it really depends on the continuous change in the mix of business, but we still continue to write a diversified book of business, and we continue to grow property as well as specialty in the same book. So what I would say is continue to look at it in the same realm that you're looking at it on a year-to-date basis for this year, not necessarily on a quarterly basis. Hristian Getsov: Got it. And then in terms of -- can you guys maybe provide a little bit color on changes you're seeing in loss trends, particularly within your casualty insurance and reinsurance portfolio versus prior quarters? And maybe if you could provide some further color on how you're managing those exposures. I mean we understand that line is getting good rate, but it's obviously for a good reason just given what you're seeing with social inflation. But like what's kind of your process in managing those exposures away from just generally keeping limits a little bit lower? Giuseppina Albo: Yes. Why don't I take that? We have seen some growth both in our reinsurance portfolio and also to a lesser extent in our insurance portfolio on the casualty classes. From the reinsurance portfolio, let's remember, we started from a very, very low base of casualty. And although we've had growth, that growth has been in recent years when the rates have improved. We have a very strong feedback loop across pricing -- underwriting, pricing and reserving. And those are the guardrails that we operate in when we are looking to onboard this kind of business. We still feel comfortable that the rate increases that we are seeing in casualty are keeping place with a trend. So -- and that actually same view transcends to our casualty insurance book. If you look just at Hamilton Select, we have a significant growth in casualty insurance in our Select operations. Remember, however, that is a very specific book of hard-to-place niche business. And there, we get to tailor the coverages and set pricing terms. And there, we also see attractive increases in casualty pricing, and that's what makes us comfortable to write this business. Just one note, just to back up from just a moment to remember, we're an underwriting shop. So we have this ability to lean in when the leaning is good and back away when it's less the case. So if I look just across property, when property increased back in the reset, our -- we leaned into property and grew our book on a group basis by 60%. On the casualty side, again, starting from a low base, when casualty pricing started getting better, we leaned into casualty and grew our casualty business from about 2022 onwards by around 80%. However, that was always done in the context of a well-balanced portfolio. So if you look at our total casualty writing today versus 2022, it's more or less the same as a percentage of our portfolio. That's how we manage this business. Operator: Your next question comes from the line of Daniel Cohen with BMO. Daniel Cohen: I think I'll start in the Bermuda casualty growth, just unpacking this number. Can you maybe quantify the larger renewal moving from 2Q to 3Q, so we can get a normalized sense of that impact? And also if there was a meaningful AM Best contribution that you'd like to call out as we think of growth getting more moderate in this line? Giuseppina Albo: Sure. Why don't I start with that one? Maybe just by way of background again, the AM Best upgrade was a gamechanger for this organization, and it came at a very opportune time and increased opportunities for us across several lines of business, including casualty. It was also a very important validation of how far Hamilton has evolved as a company. So that's by way of background on AM Best. I'm going to let Craig to dive in more detail on the numbers here. So Craig, over to you. Craig Howie: Thanks, Pina. We continue to see new and renewal business since the upgrade, and we continue to see top line premium based on our written patterns coming through our financials, some of which is attributable to the rating upgrade from AM Best. As you're aware, a large portion of this business is pro rata casualty reinsurance business. So when you look at that, the way it's booked on a GAAP basis, GAAP accounting basis throughout the year, you can take an example, if we wrote $40 million of business at January 1, you would expect to see $10 million come through each quarter on a pro rata basis. Having said that, we saw about $50 million recorded in the third quarter. We expect to see a similar amount come through again in the fourth quarter. And after that, it would be difficult probably to attribute either any renewal business strictly to the rating upgrade compared to our ongoing client relationships. And then, the other thing that you asked about was specifically the renewal that changed from period to period. We had a renewal that changed from the second quarter renewal to a third quarter renewal, and that was about $20 million of the growth in Bermuda this quarter, again, in the casualty line. Daniel Cohen: And then switching gears to Hamilton Select. I think you said 26% growth there and still healthy submission flows, but that is quite the decel from the first half of '25. Is that just you pulling back from professional lines? Or are rates impacting that step down as well? Giuseppina Albo: Sorry, I'll take that one. That growth of 26% this quarter for Select it involved a 50% growth in casualty, where we're seeing the most opportunity. It involves writing less of some business that we thought was not attractively priced. But that growth, that 26% growth is completely in line with our plans. Daniel Cohen: Okay. And if I could sneak one more in on just the fee income, so we get a better sense of that after the Lloyd's MGA moving out. Is this quarter the right run rate for that number? Or should we be thinking about that going to 0 over time, just in international? Giuseppina Albo: Okay. I'll kick off here, Dan. Maybe just by way of background, and then I'm going to have Craig talk about the modeling part. We derive fee income from our -- the consortia business that we write out of London. Now this is business -- these are business arrangements, where others have recognized our expertise in certain classes and allow us to write on their behalf. In other words, they're leveraging our core competency, which is underwriting, and we're driving fee income from that. The same is the case for our third-party capital operation where we also derive fee income. The third-party syndicate management was part of our 2019 acquisition and the decision to cease managing that third-party syndicates was made because unlike underwriting, it's not a core -- not seen as core to our operations, and that is why we ceased that. But Craig, why don't I pass to you for general how to model fee income? Craig Howie: I think as Pina said, on the international side, Dan, that was your specific question. I think what you should expect going forward is about $2 million per quarter. On the Bermuda side, as you may recall, for our iOS platform, A, [indiscernible] we booked or plan for about $0.5 million per quarter. So for the full group, about $2.5 million per quarter. That's a baseline. That's before any performance-based fees, which are a little bit harder to plan for. So about $2.5 million per quarter for the group. Operator: Your next question comes from the line of Bob Hung with Morgan Stanley. Unknown Analyst: This is Sid on for Bob. Going back to Hamilton Select, you guys mentioned the new Chief Underwriting Officer you guys hired. Can you just give some color on like what are the objectives for the business going forward and how we should think about growth and underwriting profitability there? Giuseppina Albo: Sure, Bob. I'll take that one. We're actually thrilled to have onboarded Mike to our Hamilton Select operations. Many of us have interacted with Mike in, for years, in different capacities, and Craig worked directly with him when he was at Everest. So he's a known quantity to this group. And just as a reminder, Hamilton Select, the operation he's joining, the book there is purely U.S. E&S. We do not write admitted business. And Select's objectives in that class are no different than the objectives of our other underwriting platforms, and they start with producing sustainable underwriting profitability. So in the context of our underwriting strategy, our disciplined underwriting culture and our reserve philosophy, we're confident that Hamilton Select is going to continue to thrive and are, again, thrilled to have Mike on board. Unknown Analyst: And then kind of just looking a little bit more broadly, I was wondering what you guys are seeing in the like MGA market space and any competition there? Any color you can give would be helpful. Giuseppina Albo: Yes. Certainly, as you've seen or heard from others in the market, some of those MGAs are providing increased competition in the U.S. insurance market. Just as a reminder, we only have a limited amount of MGA relationships, and they're predominantly out of our London operations. And these are relationships that we've had for several years, so tried and tested. We do not give away the pen. For example, at Hamilton Select, that is all our own underwriting, but we do see some irresponsible behavior in the market with those players out there. We don't let them hold our pen. Operator: Your next question comes from the line of [ Patrick Marshall ] with Citi. Unknown Analyst: Just a quick question on your disclosure around the decreased duration in your portfolio and how it relates to your increase in casualty? And how should we think about kind of where the property -- where your portfolio will move if your casualty mix goes forward -- increases going forward? Giuseppina Albo: Go ahead, Craig. Craig Howie: Patrick, this is Craig. So first of all, the duration of the overall fixed income portfolio only just -- it basically just ticked down from 3.4 years to 3.3 years. It's really more of a rounding. But I agree with you, as we go longer in the portfolio or business mix change more towards casualty. But what you just heard Pina say is our mix really hasn't changed overall. Our book is still fully diversified and the amount of casualty business we're writing now compared to just 3 years ago is about the same mix in our book. So I really don't see a major change in the overall duration of the entire fixed income portfolio. Unknown Analyst: And then one follow-on. Can you offer any color on the nature of the large losses noted in the press release? Craig Howie: Sure, Patrick. The large loss that we had mentioned in the press release was part of my prepared comments in the call as well. It was related to the Martinez refinery fire. That was a first quarter event. The initial loss estimates of that event were in the $300 million to $800 million range for an industry loss. What we saw in September is that industry loss nearly doubled. And as a result, we revised our estimate in the third quarter for that event. We didn't see any really other -- any significant large losses in the quarter and any other exposure that we had was manageable and included within our attritional loss picks. That was the largest loss. And again, it was about 2.8 points in the Bermuda segment and about 2.2 points on the group. Operator: [Operator Instructions] Your next question comes from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: With the rate softening and really heightened competition in property lines and in light of the strong opportunity set that it sounds like you still see in casualty and specialty, would you be surprised if property written premium declined in 2026? Giuseppina Albo: Hi, Tommy, Pina here. I'll take that. So let's start with property cat. We do expect to see, as I mentioned in the call, some more competition on property cat in the upper layers. But let's not forget where we started from, right? Rates went up dramatically since the 2023 reset. Terms, conditions and attachment points also improved. And while we're seeing some downward pressure on the cat rates in recent renewals, certainly, they're nowhere near the increases we achieved since 2023. So the way we look at it is, is that business still producing an attractive risk-adjusted return? And if it is, we will continue to write it. And if we have some opportunity, we might even increase our writing of property cat on select clients. In the insurance space, I think what you're going to see is what I said earlier on the larger accounts, those larger shared and layer accounts on the insurance side, we're expecting to see increased competition because they also enjoy back-to-back increases. So that drew attention. You can probably see us reducing there. But on the property insurance side, we have a couple, as I mentioned, of new initiatives in the U.S. E&S space where we're targeting the smaller to midsized property risks, which are still getting attractively priced, and you can see some growth continuing there. Does that answer your question? Thomas Mcjoynt-Griffith: Yes, that does. And then switching over, looking at the expense ratio and perhaps more specifically the acquisition cost ratio, you attributed the increase year-over-year to the business mix shift as casualty reinsurance has seen outsized growth. Because there is the lag between written and earned, how much more and how many more quarters should we expect the acquisition cost ratio to continue increasing year-over-year? Or is there a terminal acquisition cost ratio that you should get to with the current business mix? Craig Howie: Tommy, this is Craig. What I would say to you is, again, if you look at where we are on a year-to-date basis compared to where we were for a full year last year, you're seeing a slight uptick, again, because of more casualty business, because of more pro rata business that we've been writing this year. But it's not a huge change. So instead of looking at quarter-to-quarter where you might see some lumpiness. Again, if you look at year-to-date numbers compared to the full year last year, you're just going to see a slight uptick on those acquisition expenses, again, because of the mix of business. So it will continue to come in as we write more business. But as Tina just said about property on that previous question, if we continue to write property, that will keep that ratio down as well. Operator: Your next question is a follow-up from Daniel Cohen with BMO. Daniel Cohen: Just one quick one on. Do you have an early estimate of your exposure to the cats quarter-to-date just on Jamaica and maybe yesterday's Louisville plane tragedy? Craig Howie: Daniel, this is Craig. A little too early to talk about the plane tragedy from yesterday. I know it's -- it was a plane crash that crushed into a couple of commercial buildings, but a little too early to know about that loss. As far as Hurricane Melissa goes through the Caribbean, we don't have much exposure on that type of a loss that would go through that environment, although it was a very devastating loss and a lot of loss of lives, the industry loss estimate for property and other things for insurance losses is not that great, and we don't expect to have much exposure there at all. Operator: There are no further questions at this time. I will now turn the call back to Pina Albo for closing remarks. Giuseppina Albo: Well, I just want to thank everybody who took the time to join us today to discuss our excellent results for the quarter, and we look forward to speaking to you again with our year-end results in due course. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I'd like to welcome you to the Payoneer Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Michelle Wang. Please go ahead. _ Michelle Wang: Thank you, operator. With me on today's call are Payoneer's Chief Executive Officer, John Caplan; and Payoneer's Chief Financial Officer, Bea Ordonez. Before we begin, I'd like to remind you that today's call may contain forward-looking statements, which are subject to risks and uncertainties. For more information, please refer to our filings with the SEC, which are available in the Investor Relations section of payoneer.com. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings materials, which are available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. All comparisons made on today's call are on a year-over-year basis, unless otherwise noted. With that, I'd like to turn the call over to John to begin. _ John Caplan: Good morning, and welcome to Payoneer's Q3 2025 earnings call. Payoneer is a global payments and financial operating platform, built on durable infrastructure. Together, our technology, strategic relationships, and regulatory framework form the moat we've built over 20 years. Our mission is straightforward. We remove the friction between an entrepreneur's ambition and their achievement by delivering a secure, easy-to-use and trusted financial platform built for global commerce. Our strong Q3 and year-to-date results reflect consistent execution against our strategic priorities in a massive, fragmented cross-border payments market. Our results give us confidence in our long-term opportunity even as we navigate short-term volatility. We are evolving our business to be on offense, as global trade evolves, supply chains adapt, and as innovations in money movement continue to gain momentum. I'll share our progress, where we're investing and how we're positioning Payoneer to win. Bea will then walk you through our financials and increase guidance for 2025. In the first quarter of 2023, when I became sole CEO, and Bea joined as CFO, Payoneer generated mid-single digit revenue growth ex-interest. Adjusted EBITDA ex-interest was negative. Our priority at the time as a new management team was on reigniting growth and resetting the business for durable profitability. 2.5 years later, we have delivered record Q3 results and are raising our 2025 guidance. Q3 revenue ex-interest was up 15%, and we have delivered 7 consecutive quarters of mid-teens or greater growth, in line with or exceeding our stated targets. We've delivered 6 consecutive quarters of positive adjusted EBITDA ex-interest, including $12 million in Q3. Our total adjusted EBITDA margin was north of 25% in 2024, as well as in the first 3 quarters of 2025. The strength and consistency of our results in an evolving macro backdrop underscores our successful execution, as we deliver for customers. So a few highlights. First, improved unit economics and higher quality customer portfolio. We are moving from casting a wide net to prioritizing quality. We define quality as larger, more complex customers with scale, ambition, and global reach. And we are focusing on industries and countries where we have the strongest product market fit. We are exiting customers that don't meet our risk tolerance or desired economics. We are driving meaningful ARPU growth, as we move upmarket, and as we deliver segment-specific pricing and product bundles. ARPU has increased 65% since Q1 of 2023 from $286 to over $470. In our long-tail segment, we've raised prices and tightened product access and the cohort is now profitable. We are focusing our acquisition efforts, service model, and product roadmap to capture and serve larger customers, especially multi-entity customers. ICPs receiving over $250,000 a month in volume, represented nearly 30% of our Q3 revenue ex-interest, and are growing significantly faster than the rest of the customer portfolio. The higher quality of our customer portfolio is evident in our financial results. You'll note that total ICP counts have been roughly flat year-over-year, while we have delivered consistent mid-teens revenue growth ex-interest. Our focus on larger ICPs has driven higher average volume per ICP. We have improved our transaction costs and profitability dynamics even as our business expands to serve more complex use cases. Our diversified business mix and B2B expansion continue to drive growth. B2B revenue grew 27% in Q3, and now represents roughly 30% of revenue ex-interest, up from 20% in Q1 2023. Our platform solves for the complex AR and AP needs of global businesses. Our AP capabilities are built on infrastructure, licenses and compliance, trusted by large global enterprise partners, and we are making these capabilities available to global SMBs. In B2B, we are also focusing our acquisition efforts on larger customers. More than 50% of B2B revenue came from ICPs doing more than $250,000 per month in volume, and the average invoice size in our B2B franchise increased mid-teens percentage year-over-year. Third, our customers have shown that the ability to hold balances across currencies in their Payoneer account is a core Payoneer value proposition. And as such, the interest we earn on those balances represent a core component of our economics. Ending Q3, customers held over $7 billion on our platform, up 17% year-over-year for the second straight quarter. This demonstrates both the trust our customers have in our platform, and the accounts payable utilities that we provide. And together, this drives our revenue. We monetize customer funds through interest income and transaction fees as funds leave the Payoneer account, either when a customer withdraws to their local bank account or spends via Payoneer's AP products. Customer funds have grown in excess of volume year-to-date and represent substantial future revenue as customers deploy their funds. We have protected a substantial portion of our interest income over the next 3 years through hedging programs, which Bea will discuss in more detail. Our customers turn to Payoneer as they grow their businesses globally, and we are investing in our platform to deliver more value for them. We continue to drive multiproduct adoption as we increase the utility of the Payoneer account and move away from being "a toll booth on the money highway." Over 50% of Payoneer account spend is now coming from customers who use 3 or more AP products, up 200 basis points year-over-year. Customers are increasingly using Payoneer as their central account to manage their business network payments and shifting to our card to pay for cross-border expenses. We are expanding the Payoneer account ecosystem and the services we provide to customers through strategic partnerships. Here's one example. We are partnering with a third-party lender to expand access to capital for our customers in a capital-efficient and tech-enabled way. On stablecoins and blockchain, the rails are evolving, and we are evolving our platform to capture the opportunity. Just as when Payoneer started, global businesses need multicurrency wallets and interoperability between different currencies and stores of value. Our strategy is to orchestrate across payment schemes and rails, so cross-border businesses can focus on growth, without compromising on safety or convenience. We are making steady progress on these efforts. We are now using Citi's on-chain money movement capabilities to move hundreds of millions of dollars quarterly, allowing us to manage liquidity even more efficiently. For customers, we are working on offering stablecoin wallet functionality in 2026. In summary, what you can expect from us going forward? One, relentless focus on profitable growth, guided by a refined portfolio segmentation across region, vertical, use case, product and unit economics. We do what's best for the long-term health of the business every single day; Two, expansion of core operating margin as we focus on unlocking the meaningful leverage we see in our business over the long term; Three, prudent capital allocation as we fund innovation, pursue selective M&A and return capital to shareholders via repurchases. We have nearly $500 million of cash and generated roughly $50 million of operating cash flow in Q3. In July, our Board approved a $300 million buyback, and we are executing with intent. We repurchased $45 million of shares in Q3. I'm proud of the progress the global Payoneer team has made this quarter and year-to-date to deliver for our customers. We remain confident in the secular drivers supporting our long-term opportunity, and believe our platform and competitive moat position us well to generate long-term, durable, profitable growth. I'll now hand it over to Bea to walk through the numbers and our increased guidance for 2025. Bea Ordonez: Thank you, John, and thank you to everyone for joining us. Payoneer delivered another strong quarter with record quarterly revenue, 15% revenue growth, excluding interest income, and adjusted EBITDA ahead of our medium-term targets. In a dynamic global macroenvironment, we grew volumes, expanded ARPU, increased our SMB take rate and improved our core business profitability. We are increasing our full year 2025 guidance and are well positioned to capture the significant long-term opportunity ahead of us. Now turning to our third quarter results. We delivered revenue of $271 million, up 9% year-over-year and our highest ever quarterly revenue. Revenue excluding interest income reached $211 million, also a quarterly record and up 15% year-over-year. Our strong growth was driven by our B2B franchise, increasing adoption of our high-value products and services such as Checkout and Card and the ongoing implementation of our strategic pricing and fee initiatives. ARPU increased 15% in the quarter, and excluding interest income, was up 22%. Since Q1 2023, we had increased total ARPU by 65%. This is a direct result of our multifaceted growth strategy to move upmarket, drive cross-sell of our higher-yielding AP products, prioritize growth in our higher take rate geographies, increase the value of our SMB grade services by expanding our financial stack, and refine our pricing and monetization strategies to capture the value we provide to our customers. Total volume was up 9% year-over-year. SMB volume grew 6% year-over-year with volume from SMBs that sell on marketplaces up 4%. Volume from B2B SMBs up 11% and Checkout volume up 46%, all consistent with the outlook we provided during our second quarter call in August. Enterprise payouts volume increased 19% year-over-year, above our expectations, primarily due to a strong demand in key travel routes we serve and the onboarding of a new enterprise customer. Our Q3 take rate of 121 basis points was roughly flat on a year-over-year basis, despite a $6 million headwind from lower interest income. We continue to drive significant expansion in our SMB customer take rate, which increased 12 basis points over the prior year period, and 1 basis point sequentially. Customer funds held by Payoneer increased 17% year-over-year to $7.1 billion, partially offsetting the impact of lower rates on our interest income revenue. We generated interest income of $60 million in the quarter. Customer balances reflect the trust our customers place in our platform and the value they place on the utility we provide. They also represent future revenues that will be realized as customers utilize our AP products. The Payoneer account gives customers the ability to manage balances in multiple currencies and to choose how, when, and in which currencies to use those balances. These are important aspects of the value we provide to customers and our interest income revenue is a direct outcome of this. As of September 30, we had reduced our sensitivity to fluctuations in short-term interest rates in relation to approximately $3.7 billion or roughly 52% of customer funds. This consists of approximately $1.8 billion of assets underlying customer funds that are invested in a portfolio of U.S. Treasury Securities and term-based deposits as well as interest rate derivatives on approximately $1.9 billion of funds underlying customer balances, providing a floor against interest rate declines below 3%. Through these programs, we had secured approximately $120 million of 2026 interest income regardless of moves in short-term interest rates, approximately $80 million to $85 million in 2027 and 2028 and approximately $60 million in 2029. Additional amounts will be locked in based on ongoing reinvestment as the portfolio runs off, and these divisions provide a durable and sustainable revenue stream. We continue to expect that customer balances should broadly grow in line with volumes overtime and that our unhedged balances will predominantly be subject to prevailing short-term interest rates, mainly in the U.S. We will continue to actively manage our hedging programs, while always prioritizing liquidity and security. Total operating expenses of $235 million increased 10%, primarily driven by increases in labor-related expenses, higher transaction costs, incentives and other spend designed to drive card adoption and usage and the effect of our Easylink acquisition in China and our workforce management acquisition. Transaction costs of $42 million increased 12%, the lower growth in revenue, excluding interest income. Transaction costs represented 15.7% of revenue, an increase of approximately 40 basis points from the prior year period, primarily due to lower interest income. Excluding interest income, transaction costs represented 20.1% of revenue, a decrease of around 70 basis points versus that prior year period, despite mix shift towards higher take rate, higher transaction cost products, driven by improved operational efficiency. We see transaction costs as a key aspect of our opportunity to continue to unlock operating leverage. When excluding interest income, transaction costs have been roughly stable over the past few years at approximately 20% of revenue, even as we shift towards higher-yielding products. We are optimizing our transaction cost economics by using our scale to negotiate with our partners by deepening our strategic relationships and partnerships, including those with Stripe and with Mastercard announced in August, by improving the efficiency of our money movement and Treasury operations. And over time, we expect through our ongoing blockchain-related initiatives. As we continue to grow and scale our business, we are confident that the durable, highly profitable nature of our transaction-based revenues should enable us to continue expanding our core business profitability. Sales and marketing expense increased $7 million or 14%, primarily due to higher labor-related costs and increased incentives related to our Card offering. G&A expense increased $6 million or 22%, primarily due to higher labor-related costs, including from our workforce management and Easylink acquisition, higher facilities costs related to our offices in Israel and higher legal and consulting fees, including relating to our license application in India. R&D expense increased $5 million or 15%, primarily due to higher labor-related costs, while other operating expense decreased by $5 million or 10%, primarily due to lower IT and communication costs. Adjusted EBITDA was $71 million, representing a 26% adjusted EBITDA margin in the quarter. We generated $12 million of adjusted EBITDA, excluding interest income. And year-to-date, we have generated approximately $27 million of adjusted EBITDA, excluding interest income, nearly double the amount we generated on a full year basis for 2024. We are unlocking leverage through growth, managing our transaction costs and being disciplined with OpEx. We believe we have a significant opportunity to continue to increase the profitability of our business. Net income was $14 million compared to $42 million in the third quarter of last year. While income before income taxes grew 38% year-over-year, net income in the prior year period included a $19 million income tax benefit, largely derived from a federal tax deduction for 2024 and for the prior year for income earned from foreign customers, and lower foreign tax expense related to stock-based compensation. Basic and diluted earnings per share were both $0.04, down from basic earnings of $0.12 and diluted earnings of $0.11 per share in the prior year period, largely due to the impact in the prior year period of the discrete income tax benefit just noted. We ended the quarter with cash and cash equivalents of $479 million. Our operating cash flows continue to significantly exceed net income, allowing us to continue to invest for profitable growth and to return capital to shareholders. During the quarter, we repurchased approximately 45 million of shares at a weighted average price of $6.73 and as of September 30, had approximately $273 million remaining on our current share repurchase authorization. Turning now to our increased 2025 guidance. We expect total revenue between $1,050 million and $1,070 million, an increase of $10 million at the midpoint relative to the guidance we issued in August. This includes interest income of $235 million and $815 million to $835 million of revenue, excluding interest income. We are increasing our expectations for interest income by $10 million to reflect robust growth in customer funds. In 2025, customer funds have grown significantly in excess of volume and above our expectations at 11% year-over-year in Q1 and 17% for both Q2 and Q3, reflecting the trust and value our customers place in our platform and partially offsetting the impact of lower interest rates. We are reiterating our expectations for revenue, excluding interest income of $815 million to $835 million. This reflects the current macro and trade environment and our view of the range of outcomes that this environment could imply, especially as we enter the holiday spending season. For the fourth quarter, we expect marketplace volumes to be flat to up mid-single digits and B2B volumes to grow mid-teens. For the full year, we expect transaction costs as a percentage of revenue to be approximately 16%, a 50 basis point reduction compared to our prior guide, and a 200 basis point reduction versus the guidance we provided at the beginning of the year. We expect 2025 adjusted OpEx, which represents our guidance for revenue less adjusted EBITDA and transaction cost of approximately $618 million at the midpoint of our adjusted EBITDA guidance range. We are raising our expectations for adjusted EBITDA to be between $270 million and $275 million, representing a 26% margin at the midpoint. While we see a broad range of potential outcomes on the top line, we are focused on what we can control. We expect to continue to deliver growing profitability through optimizing our transaction cost economics and managing OpEx. Excluding interest income, we expect adjusted EBITDA of $38 million at the midpoint, almost 3x the amount generated in 2024. We are making meaningful progress in evolving our business to capture the significant long-term growth opportunity. Behind our strong headline results is a healthier, higher quality and more durable customer portfolio. We are capturing and growing our business with larger customers, improving our risk profile, unlocking robust operating leverage, making strategic investments, generating substantial cash flow and positioning the company to create long-term shareholder value. We are now happy to answer any questions you may have. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from Mayank Tandon from Needham & Company. Mayank Tandon: Congrats on the quarter. I know you're not going to probably give guidance for '26. But just as you think about the business momentum, John and Bea, I was curious if you could share any sort of insight into what your expectations might be for the sustainability of some of the key metrics around volume, take rate? And also if you could remind us of any sort of seasonal impact that we should factor in as we lay out our quarters for 2026? Bea Ordonez: Sure, Mayank. So thanks for the question. Look, I think what we were looking to convey in the prepared remarks is really exactly to your point, the sustainability and the durability of the growth we're creating. The business performed very well in the third quarter, very much in line with the commentary that we provided in August. Our full year guidance, which we're raising, as we said, we're raising both revenue and adjusted EBITDA guidance is in line with the medium-term targets we communicated back in 2023, even with what I think everyone would acknowledge is a pretty dynamic macro. So overall, business is performing really well, and performing really well in a sustainable way, right? ARPU has been consistently growing above 20%, for I think, now 5 quarters. We're continuing to deliver SMB take rate expansion from that multifaceted strategy that we outlined. We're really building, in our view, healthier, more durable and sustainable customer portfolio, and it's showing up in the metrics. So overall, look, to your point, we're not giving guidance out to next year, but we see the business really performing well. We see a resilient business, a healthier business with a lot of momentum and opportunity in front of us. John Caplan: Yes. I would just add to Bea's remarks that the strength in the portfolio as we move upmarket is evident. Those $250,000 a month customers that are growing exceptionally well, 30% of our Q3 revenue overall, 50% of the B2B revenue and the strength of that portfolio and the opportunity there is really bold. And we're going after it, we're focused on it, we believe we have the product for those customers. And as the shape of the portfolio moves upmarket, the profitability dynamics are unlocked in our business. So we feel really good about where we are. Mayank Tandon: Got it. That's very helpful. And maybe if I could just follow up with a question, John, around sort of your investments in sales capacity. And I ask that in terms of as you diversify the business overtime from China into other markets, as you grow ICPs, as you look to cross-sell, upsell into your base, how is your go-to-market strategy changing, if at all, if you could share any insights into your investments in sales and your overall approach to attacking the market? John Caplan: Yes. That's a great question and an exciting part of the evolution of Payoneer. The majority of our customers are acquired organically, as you know, right? They come through the application or through our website. And if we get millions of applications annually, so we sift through those to find lookalikes of our best customers. And then alongside of that, are partnerships we're putting in place with resellers, affiliates and others around the globe in the key hubs of activity for the multi-entity entrepreneurs of the globe. So this is, I think, a very exciting engine of our growth looking forward, because it helps us bring in bigger, higher-quality customers. And when you look deep into our portfolio, the volume retention, net revenue retention data of our largest customers is the best in the portfolio. And so moving to focus on acquiring those customers in the hubs around the world where they exist, gives us, I think, a leg up in the market. And we have obviously select paid acquisition and lead generation underway, but we are a loved and well-known brand that's trusted by partners. The brand scores we get are exceptionally good. And when we host events, hundreds or thousands of people come to learn about what Payoneer has to offer and why we're helping people bridge their ambition to their achievement. So we feel good about the go-to-market effort. We're focused on not total number of customers, but the quality of customers. And we're moving the portfolio deliberately upmarket. You saw in our results the 10,000-plus customers, revenue was up 18%. Volume was up 7% despite the count coming down a bit. And that is deliberate effort on our part as we monetize intra-network volumes. We're $4 million a quarter of monetization there, which is the beginning of something we think very exciting and exit customers that don't fit our profitability and growth targets. Operator: Your next question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani: John, Bea you guys talked about a dynamic macro. Maybe you could just drill down a little bit on what you're seeing with the SMBs on your platform? And how they're reacting to all these day-to-day fluctuations in policy? Bea Ordonez: Yes. Thanks, Sanjay, for the question. Look, I think in terms of the Q3 performance of the business, which as we said, has been robust, it's very much in line not only with the medium-term targets, but with the commentary we shared back in August. Volume consistent with that commentary, revenue performance consistent with that commentary. It's obviously difficult to quantify sort of what the tariff impact is and all of those moving parts from the volatile nature of the tariffs to how timing around shipping and stocking can impact. But we're likely seeing an impact on marketplace volumes from tariffs. Certainly, our discussions with our customers in China suggests that there's an impact. Obviously, those customers are resilient, as we pointed out in the past, and they're deploying all manner of strategies to really sort of continue to grow their business, whether that's logistic strategies, globalization strategies, pricing and so on. So there are always many factors. Look, in October, we saw what I would call a modest softening in volumes versus our expectations. Obviously, October is not at all a good proxy for the e-com heavy, China heavy e-com season that's coming in November and December. Golden Week is in October. Obviously, that e-com holiday spending season is both China heavy and goods heavy. So we're seeing those tariff impacts get absorbed through the portfolio. It's in line, as I say, with sort of what we expected in Q3. And the guidance we've laid out for Q4 really sort of incorporates that broad range of outcomes from those potential sort of shifts and dislocations that we're seeing sort of, frankly, across trade routes and supply routes and so on. Sanjay Sakhrani: Okay. Helpful. And then, John, you talked about stablecoins and its availability on your platform in 2026. I'm just curious, like are your customers asking you for this technology? And maybe you could just talk a little bit about the evolution of your revenue model to the extent there is any if you provide this technology? John Caplan: Sure. I'll add some dimension and then Bea, please jump in. We see stablecoins as a really interesting long-term opportunity for Payoneer, and we're exploring it with intent. And similar to how we built the financial stack on our network of bank and payment providers over the last 20 years to facilitate the movement of money around the world, we really believe that tokenized assets and the distributed ledger technology could be another component of what we've already put in place and in the market. It's really the core essence of the value prop we provide to those entrepreneurs, is being able to operate in whatever currency they want to use to run their business. But we all know that you can't buy a hammer in Ho Chi Minh City with an Argentinian peso today. So we need the world -- for the stablecoin technology and those rails to be turned into mainstream B2B use cases, companies like Payoneer are purpose-built to turn tradable assets into commercial assets. And we feel very excited about what our role in that can be. So we expect adoption corridors, use corridors, specific use cases to develop as our customers explore the impact in their own businesses and how it can both remove payment friction and create opportunity for them. If we look at over 5 years, I'm excited about what that traction can mean and where Payoneer sits. I think people misunderstand how valuable the Payoneer platform is to turning the promise of stablecoins into a reality, and we are in a very disciplined, organized way pursuing it. But Bea, if you'd like to add, go ahead. Bea Ordonez: Yes. I mean I think yes to all of that, I'd add a couple of sort of additional points. In terms of adoption, use case demand, I think there's sort of multiple lenses. One of them is certainly sort of a regional lens, as we think of regions that have potentially high inflation and stability locally. And who today use Payoneer and other such platforms to basically dollarize, right, to hold dollars as a hedge against local instability. The ability to hold dollars in a different or tokenized asset or in a different store of value is, by definition, valuable to them as well. So I think the stablecoin opportunity dovetails really nicely with the core utility or one of the core utilities that we already provide. And against the broader payment scheme sort of landscape as we see really more of a fragmented payment scheme, regional players, regional payment schemes coming up, increasingly mobile-first local schemes. Really, the name of the game in the cross-border space is to neatly, cleanly and efficiently orchestrate across all of those payment schemes, and stores of value like stablecoin are one such scheme, right? So we view it as very sort of tightly coupled to our money movement evolution and strategy overall. And we're seeing sort of use cases develop as customers, to John's point, really are able to explore the real-time benefits and programmability potentially around their own use cases and business in the corridors where it begins to become available. Operator: Your next question comes from the line of Trevor Williams with Jefferies. Unknown Analyst: This is [ Ryan ] on for Trevor. Just wanted to ask on take rate. It looks like that's been pretty healthy here. Just wanted to see what you guys think about the sustainability of that take rate expansion, kind of break down what the core drivers have been in that strength. Bea Ordonez: Yes. Thanks for the question, Ryan. Look, we appreciate the call out, right. I think of the many metrics where we're seeing really sustainable performance, it's in the take rate dynamics, right. We've demonstrated the ability to continue to drive that take rate expansion in our SMB business. And excluding interest income, we've grown it by 12 basis points in the quarter, right. And there are numerous levers within that and numerous inputs. One is certainly the growth of our B2B business, which is outpacing the growth of the business as a whole. As John pointed out in his prepared remarks, that B2B revenue is about 1/3 now of our core revenue, and it grew 27%, right. So that's driving some of that uplift. Beyond that, product adoption, right, as we continue to drive adoption of our Card product, of Checkout, of our invoicing service within B2B of our workforce management product, that's also providing uplift. And then ultimately, also pricing, right, as we continue to refine and optimize our pricing strategy. So we're seeing take rate expansion across our business lines from our marketplace business to our B2B business. In B2B, look, we'll see some moderating of that increase going into Q4 as we lap workforce management, but still comfortably ahead of that volume across the book and really demonstrating that expanding value that we're providing to our customers and the take rate expansion that goes along with that. Unknown Analyst: Understood. That all makes sense. And then just as a follow-up on B2B volume. I think the prior expectation had been to get to high teens B2B volume growth by 4Q. Just wanted to see if that was still the expectation. I mean, if so, I guess, what is the level of visibility? And what are the main drivers into that acceleration into 4Q? Bea Ordonez: Thanks for the question. That is still the expectation. So the B2B business, as I said, performed in line in Q3. We grew volume 11%. We grew revenue 27%. Coming into the back half of the year, we expect that volume to increase mid-teens, and we expect the revenue to increase somewhere between 20% and 25%. So for the full year, the B2B business is going to generate approximately 25% year-over-year revenue growth. That's really robust growth in a sustainable and growing part of our business. We have good visibility into that business. We obviously are, as John has noted, really moving upmarket and bringing in, acquiring and serving larger customers with more predictable business models. So we feel good about how that business is performing. We're making investments in that business, both in the go-to-market motions that serve it, as John has noted, with partners and affiliates, in the product roadmap that really sort of delivers that SMB-grade experience. And in the service model to make sure that we are driving the improving retention that we're seeing. So we feel really good about that business, it's moving upmarket, it's healthier, it's more profitable, and it's growing really nicely. Operator: Your next question comes from Nate Svensson with Deutsche Bank. Christopher Svensson: Really nice to see the continued progress here. I guess, first, I wanted to ask on the growth in customer funds. Obviously, been really impressive, 2 quarters of 17% growth. And I think you've been pretty clear that this is a core part of the Payoneer value proposition. It sounded like going forward, you think balances will grow in line with overall volumes, but they've clearly been growing above that recently. So I'm maybe just wondering how much more room we have to run in this environment where maybe balances can continue to grow faster than volumes? And then qualitatively, I know you talked about things like trust in the platform, but maybe you can talk more specifically about what you're doing to drive or incentivize clients to keep more funds on the platform? Bea Ordonez: Yes. I appreciate the question, Nate. So look, historically, we've certainly called out that our expectation over sort of a long enough time horizon is that we're able to grow balances in line with volume into the platform. We've seen outperformance this year. There's likely many factors from some of that macro volatility, especially around the China corridors as well as relative weakness and volatility in the dollar that can impact kind of near-term usage behavior. So I think we're seeing sort of some of that in the kind of cyclicality that you see. Obviously, we love seeing that number grow, right, not only because it demonstrates to your point, the trust, but because it is future revenues in effect when the customers utilize those balances using one of our AP products, that's revenue that comes to us in future periods, future quarters. So we like to see this growth and obviously, we monetize it in the short term. What are we doing? Look, really, it's very much aligned to some of the themes we've shared. One, as we move upmarket and provide more utility, customers are increasingly using us as their sort of broad-based bank replacement for want of a better word, to hold multiple currencies across the sort of multiple entities to manage that. And they're keeping their funds as we see greater adoption of those sorts of products. They're keeping their funds on the platform for longer, and we will tend to see larger balances, not only corresponding to those larger customers, but as we see greater adoption of those products. So overall, the inputs to that growing balance in addition to volume are moving upmarket towards those larger customers and adding more utility such that those customers really keep balances in order to utilize the cross-border AP capabilities that we're providing. John Caplan: Yes, I think Bea absolutely nailed it, but I would just add one point, which is that the perception of Payoneer has been it's an AR company. We're an AR company. And I think that's wrong. We are as much an AP company as we are an AR company today. We've made that transition really effectively. The Card spend growing so nicely, the AP usage of -- the product attach of multiple AP products with our largest customers. And that pulls through, we see the net revenue retention of those customers really is exceptional. And we are seeing customers take funds out of their local banks to put them into their Payoneer account, so that they can use our AP products. And that -- as that continues, the correlation between AR volume and total balances become -- spreads even wider. And so we would anticipate overtime that as we continue to drive excellent AP products and great cross-sell of those products, even more balanced activity. Christopher Svensson: Super detail. I really appreciate that. For the follow-up, I did want to ask about trends in the Checkout business and maybe some future outlook there. Obviously, still growing really nicely in the high 40s, I think was in line with what you told us last quarter. Obviously, you couldn't sustain the levels of growth you had been seeing indefinitely, but would love to hear about maybe some of the tailwinds or headwinds in that business over the last 90 days. And then I think moving forward, I think historically, that business had maybe been more focused on sellers in particular geographies like Hong Kong. So I was just hoping you could talk about the growth or strategic initiatives you have lined up to expand that business in the future, whether that's internal investments, right partnership, anything else? John Caplan: Yes. So let's -- first of all, thank you for asking. I think the Checkout team has done an awesome job at Payoneer, and so really proud of their efforts. We think that as Checkout transitions, we announced the Stripe partnership as we transition from our owned and operated solution to the partnership we have with Stripe, it will drive much better cost and yield dynamics in this business. But at the same time, top line growth will moderate in Q4 and into 2026 as we migrate there. What's most important about the Checkout business is that we provide a comprehensive solution for our customers for all of their GMV that they're doing globally, either with selling on a marketplace, selling B2B or selling direct-to-consumer, they're able to aggregate that AR into their Payoneer account and then obviously use the AP products that we were just sharing and so excited about. We have some good traction with APAC sellers. particularly in India and South Korea following the migration to Stripe, which really validates the core thesis we have, which was to switch to a great partner with solid technology that lets us globalize this franchise. And as you note, the growth rates year-over-year may be more modest, but the actual dollars in revenue will be more significant as we look out. Operator: Your next question comes from Darrin Peller with Wolfe Research. Daniel Krebs: This is Daniel Krebs on for Darrin Peller. I wanted to ask about the focus on larger ICPs, and we're seeing ARPU that is rising very nicely. But I'm still struggling a bit to reconcile that goal with the large ICP customer growth numbers in 2025. And maybe a more direct way to ask this is, what percentage of those 47,000 large ICPs are not high quality and a focus for you? John Caplan: Yes. Great question, and thanks for asking. I think that if you look at the 10,000 plus cohort, let's actually go back. We introduced the ICP framework a couple of years ago, largely to dimensionalize the size of the portfolio at the long tail that was unprofitable. And we are pleased that the long tail of Payoneer is solidly profitable now. And it was a definition that was, let's call it a broad pain push way of looking at customers, very small, sort of small and bigger. But it is less relevant a way to look at Payoneer overall and certainly how we're operating the business going forward. We are very focused on retaining, serving, adding high-value customers that are multi-entity that have the profitability and usage dynamics that mirrors our best customers, and that's where we're shifting our focus pretty intently. And we've discussed this a number of times as we've talked about the shape of the portfolio, how valuable it is for us to have product market fit at the top end. Those $250,000 a month customers are 30% of Q3 revenue, 50% of B2B revenue, more volume, more AP usage, and the best net revenue retention we have. Specifically, I would anticipate that 10,000-plus ICP count continues to decline as we scrub the portfolio, manage the -- who we add and who we retain and monetize the intra-network payments. The $4 million a quarter for those intra-network payments is new disclosure, and I think an exciting statement about how we are really fitting our pricing and our monetization to the needs of our customers and the profitability dynamics that we have. So we will continue to drive our focus upmarket, because that's the best way to deliver the profitable growth we're committed to. Operator: Your next question comes from Pete Christiansen with Citi. Peter Christiansen: Great to see rising solutions engagement, take rate expansion, and mix shift drive strong incremental margin gains quarter-over-quarter. Nice results there. I had 2 questions. First, I was wondering if you can give us an update on the Skuad acquisition you did last year and how that -- how you see that scaling over the platform and potentially driving new areas -- new vectors of growth? And then my second question back on the stablecoin topic, we couldn't agree with you more multicurrency wallet providers are certainly key enablers of stablecoins. Just curious from what you're seeing on the infrastructure side, whether it be perhaps things like the G7 stablecoin that's been proposed, SWIFT potentially working on so I think circles, Arc blockchain development. Just wondering if you're seeing any of these infrastructure developments as key events that could help improve or drive demand for Payoneer's users to increasingly adopt stablecoins? John Caplan: Sounds good. I'll take the workforce management. Bea will grab the stablecoin. So in workforce management, it's really nice to see that secular tailwind that are driving the employer of record solution growth, right. The more and more companies around the world are recognizing the 7.5 billion people on the planet, let's employ the best at the best price, and use companies like Payoneer to manage the complexity of the compliance heavy HR landscape to handle both managing those people and getting them paid. So our growth is really solid there. We're pleased with the progress. And obviously, we've seen the news around H-1B visas. And I think that bodes really well as it relates to the -- our EOR solution and what U.S. businesses want to do as they globalize their workforces. And then when you think about our workforce management business, it really expands our ecosystem of AP capabilities and broadens the core B2B value prop. So it's a small franchise for us, but it's growing really nicely. The contribution is solid. The team is great and full of entrepreneurs that are hell bent on grabbing market share there. So we feel really good about the traction as we continue to step into that space in a deliberate focused way that's delivering take rate expansion in our B2B business, solid retention for us and an additional value prop for us to offer our customers. It's the early days, but these are good days for that business. Bea Ordonez: Yes. And look, on the stablecoin, look, it's super exciting, right? We see all of the items you mentioned, lots of innovation in the space. I think the regulatory clarity that the GENIUS Act brought was really helpful, obviously, in that sense, has provided real tailwinds to some of this innovation. And I think we can expect to see a broad range of players in the space, both innovating around the infrastructure and beginning to integrate elements of that infrastructure into legacy financial systems, into other payment schemes, into payment orchestration platforms in ways small and big, right. We've done some of that already today. We've integrated some of Citibank's blockchain-based tokenized deposit technology to really enable some of those treasury management used cases that can benefit a business like ours, right. So we're going to continue to innovate in that space, as John said in his prepared remarks, really evolving our money movement capabilities to provide that used case or to provide those capabilities to our customers. And ultimately, we see the value that a platform like ours brings to this is really in seamlessly connecting those digital currencies, those stores of value with the legacy payment rails, the legacy fiat rails and allowing customers whatever their used case is to be able to seamlessly move between those stores of value and those local rails to enable what they need in order to grow their business to transact and so on. And we're very well positioned given our best-in-class last mile infrastructure to be a part of solving for that challenge. So look, in short, we think it's super exciting. We follow the space carefully. We talk to a lot of players in the space, and we see it as an opportunity for continued innovation in our business and in general. Operator: And your last question comes from Mike Grondahl with Northland Securities. Michael Grondahl: Two questions. One, you guys have done a lot on OpEx and margins. Anything that you're still targeting there for improvement? And then secondly, John, what are your 2 priorities going into year-end in 2026? Bea Ordonez: Sure. So let me take. And hey Mike how are you doing? Thanks for the question. So yes, look, we're really proud of the progress we have made in unlocking core profitability, right, meaning profitability, excluding interest income. At the midpoint, it will be up 3x versus last year, and we've showed continued progress in unlocking that profitability, obviously, from growing the business organically and otherwise, but also from driving improvements. And we see -- and we called some of that out in the prepared remarks. We see continued runway both from improving transaction revenue economics in general. We talked at the last call around the pricing power we have, the strategic relationships we have with payment players in the space like Mastercard, like Stripe to continue to evolve the economics and evolve the profit dynamics of that business. And then on the OpEx line, lots of opportunity in that space to continue to align our service model towards those larger customers that we're serving to drive increased automation, to use AI within our back office, within our operations teams, within our risk management infrastructure to really continue to unlock profitability in that business going forward. So we see a lot of runway in short. John Caplan: Yes. And Mike, I would just say we are intensely determined to deliver the shareholder value that we are committed to creating. And we think we do that by moving our business upmarket, focusing on those multi-entity customers that are underserved by anybody else on the planet that we have the ability to deliver a high amount of value for. We have a brand that's trusted, the licenses that we need, the innovation happening in our money movement organization and a broad set of AP products that we're cross-selling effectively to those customers. So the shape of our customer portfolio gets stronger and stronger, which drives the shape of our P&L to be more and more profitable. And doing those 2 things are really what motivates us every day to fight and continue to build what is an exceptional platform, a kickass team and a big opportunity. So we're really -- we're fired up about doing that through the end of the year. But I don't think that changes at year-end. It just motivates us to continue to execute at a really high level. Operator: That concludes our question-and-answer session. I'd like to turn the conference back over to John Caplan, CEO, for closing remarks. John Caplan: Thanks everybody for your questions and participation today. We delivered record results in the third quarter, and we are executing with the kind of intense focus and discipline that great teams and great management teams come together to do. I want to thank our team all over the world for their energy, their drive, their commitment to collaboration and delivering for our customers. We're excited about the opportunities ahead, and really look forward to speaking to everyone again in February as we talk about the future. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and welcome to the Sezzle Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlie Youakim, Executive Chairman and CEO. Please go ahead. Charles Youakim: Thank you. Good afternoon, everyone, and welcome to Sezzle's Third Quarter Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our Chief Financial Officer, Karen Hartje; and our Head of Corporate Development and IR, Lee Brading. In conjunction with this call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of our website. Please be advised of the cautionary note and forward-looking statements and reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call. If you're a long-term investor of Sezzle, you're already well aware of how good this team is at navigating and adapting our business model and our product solutions. I continue to be impressed by our team and our ability to adjust and adapt. We're always looking for ways to create win-wins with our stakeholders and also balance profitability, growth and customer satisfaction. 2025 has been more of the same on that front. We've been testing our launches of on-demand and our shopping solutions and making incremental improvements and adjustments along the way with a strong weighting towards making our customers' lives better while also continuing to grow with strong profitability metrics. We still believe that BNPL is in its early days and that we are likely to have years upon years of industry growth ahead of us. And we also believe that we're bringing to market a product that is fundamentally a better and more user-friendly credit product than a credit card. Our company and our BNPL industry in general, is 100% aligned with responsible repayment of short duration loans that really lean into the concept of budgeting versus outspending your income, like a credit card product can tend to do. Our company and our products are winning and our industry is winning, too. If you take a look at Slide 3, you'll understand a bit of the excitement. We just posted revenue growth of 67% year-on-year in Q3. Our net income margin for the quarter was over 22%. Our return on equity for the last 12 months exceeded 100%, and our consumer metric measured by MODS rose almost 50% year-on-year. Further, we are raising our EPS and EBITDA guidance for 2025 and have received awards from some of the most respected media outlets, Time, U.S. News, Newsweek and CNBC. What's our secret sauce? I believe it's our constant drive. We are never satisfied and are always pushing forward. Do we have a chip on our shoulder? Yes, maybe a little bit. Slide 4 provides some insight into our restless energy. The consumer is always wanting more, and we aim to fulfill their needs. We have launched several features in our app, most recently the Earn tab, which allows consumers to earn Sezzle spend. Consumers can find and activate offers for things like gas, groceries and dining. We have a variety of ways for them to engage and win such as Sezzle Arcade and our educational tool, MoneyIQ. Last quarter, our Earn tab had over 13 million visits, and we just launched it at the end of Q2. I'm crazy proud of our team and how they continue to find new and innovative ways to provide value to the consumer. We continue to evaluate and push forward on additional products. Many of these are being run in parallel, and you've heard me discuss them before. Launch dates are still TBD, but they are all being worked on in various degrees. In June, we brought back one of our former heads of technology, Killian Bracky, to centralize our AI efforts. It's exciting to see the progress they are making across Sezzle. We called out a couple of example projects that the team is working on, a support chatbot and an AI shopping assistant. Both are great examples of how we're able to pull AI into our Sezzle ecosystem. The chatbot is already making a difference for our customer support team, saving them a significant amount of time, enabling our team to become more efficient. Let me take a step back and tell you a bit about our approach to AI. We aren't looking for ways to use AI to cut our team. Why would we? We have incredible growth and cutting people is not something we need to do other than for performance. We view AI as a tool to enhance our team's productivity, allowing us to further leverage our infrastructure and scale the company faster with more efficient product launches and expansions. So in the case of customer service, it's likely that we'll scale incredibly well here over the next couple of years as the AI tooling continues to evolve and expand its ability to serve end customers. But the way we operate, you'll likely to see that the support team size doesn't grow and may even shrink over the next few years as our efficiency with technology replaces the need to backfill members of the team. Our existing members will take on more complex cases and help train the AI systems in place to do more and more. Our marketing efforts are focused on the consumer with the primary goal of acquiring new users, but also reducing churn. The combination of new feature launches and our marketing efforts are reflected in our strong engagement metrics. On Slide 5, you can see the step-up in our quarterly marketing and advertising spend. While we love all consumers that use Sezzle, the ones with the greatest lifetime values are those that engage Sezzle as either an on-demand user or as a subscriber. As most of you are aware, we created the definition of Monthly On-demand & Subscribers also called MODS in the fourth quarter of 2024 when we launched Sezzle On-Demand. We anticipated on-demand would allow us to reach more consumers that might be averse to joining a monthly subscription product. However, we also expected it to cannibalize our subscription product. We just didn't know to what extent. Initially, we put most of our marketing dollars towards on-demand because there's less friction to join relative to subscription. And you can see from the results that we quickly grew that product to 264,000 monthly users at the end of the second quarter. However, you can also see that our subscriber count shrank from 529,000 users at the end of the third quarter 2024 to 484,000 users at the end of the second quarter 2025. By the end of the second quarter, we had enough information to evaluate the effectiveness of on-demand. The engagement on the front end was good, but the follow-through on conversion was not as good as we would like. What do I mean by follow-through on conversion? When we launched on-demand, there were 3 key tenets: number one, drive enterprise opportunities; number two, increase conversion activity at the point of sale; and number three, convert a customer over to subscription eventually. On-demand has clearly positioned us to be more aggressive with enterprise merchants, and I'm happy to note a few wins on Slide 5 as a result. However, it didn't deliver like we hoped on conversions at the point of sale or over to subscription. Further, the profit profile for on-demand is less than our premium and anywhere subscription products. We still believe on-demand is a great tool, and it's a great tool to have in our tool belt, but we have adjusted how we go to market with it. We're going to continue to lean into it for winning over merchants. But on the consumer side, we're going to lean back into subscription with on-demand only being used as an alternative tool when its parent subscription can't do the job or is meeting some resistance with an individual consumer. As you can see from the results, we pivoted our marketing and advertising spend towards subscription products in Q3 with subscribers rising to 568,000 at the end of the third quarter. We remain disciplined in our costs with a payback on marketing for consumer acquisition at 6 months or less. Across the board, our engagement metrics on Slide 6 reflect the strong momentum we have in our business. Terrific year-on-year and quarter-on-quarter performance. My 2 favorite metrics on this slide are MODS and purchase frequency. MODS is a good indicator of consumer activity within Sezzle over the last 30 days and seeing such strong growth in our highest LTV products is fantastic. While the rise in purchase frequency suggests we are moving to the top of the consumers' wallets. You can see the same sequential dynamics on Slide 7. Before turning the call over to Karen, I would like to give more details on our corporate strategic project costs that were called out in our earnings release and later in the presentation. During the quarter, these items added up to about $1.3 million in costs. While these costs are relatively minor, they potentially have some pretty big outcomes. We decided to break these out because they aren't part of our core activities. While they aren't material, we wanted to make investors aware of them. First, our antitrust suit. For obvious reasons, we can't discuss the case. But if you'd like to learn more, you can go to our investor site where we have posted the suit there. We will find out in December if the case will continue forward as the defendant has petitioned the court to dismiss the case. Second is our capital markets exploration. We have talked in the past about our desire to refinance the credit facility given the size of only $150 million and price of SOFR plus 675 bps. We have decided to exercise the $75 million accordion with our current lenders as we head into the holidays, and this will give us more time to evaluate our options. You will see in our 10-Q that will be filed tomorrow morning, the amendment to our current facility, which increases the size of the facility from $150 million to $225 million. Lastly, our banking charter discovery process. We have hired consultants and attorneys to assist us. Yes, we have an ILC bank partner in WebBank and they are fantastic. We believe that holding an ILC, which is an acronym for industrial loan company is the right long-term path for us as it doesn't subject us to becoming a bank holding company, which has all sorts of implications about capital, capital allocations, et cetera. We believe it will be accretive and add greater efficiency to our business. This is a long process and not a guarantee process. If we apply, we anticipate submitting an application in the first half of 2026. If we don't get it, it doesn't change what we're doing, and it would not affect the outlook we have. With that, I'd like to turn the call over to Karen to review in further detail our Q3 results. But before I turn it over to Karen, I wanted to let investors know that Karen is retiring and that we're going to miss her dearly. Karen and Amin Sabzivand, our Chief Operating Officer, both joined the company on the same day, and I always say that day was one of the best days Sezzle has ever had. We're going to miss her infectious positivity and her total perfection in completing every task given to her and her team. But I also wanted to tell her how much I've appreciated her support and help along the way. We're definitely going to miss you, Karen. The plan is for Karen to stick around with us for the next 12 months as we transition. And we really feel great about that plan, and I'm also really happy Karen gets to step away in such a great way. Karen, take it away. Karen Hartje: Thank you, Charlie, and good evening to all those joining us. The enhancement of our product experience and deeper consumer engagement drove remarkable results for the quarter, as seen on Slide 8. Total revenue continues to grow at an exceptional pace, increasing 67% year-over-year to $116.8 million. Our profitability followed a similar growth trend with GAAP net income and adjusted net income growing over 50% to $26.7 million and $25.4 million, respectively. Our margins held steady year-over-year with an adjusted EBITDA margin of 33.9% and total revenue less transaction-related costs of 54.2%. Most importantly, alongside our growth is our ability to scale efficiently, evidenced by our non-transaction-related operating expenses decreasing 2.9 percentage points year-over-year to 27.1%. Now turning to Slide 9, which highlights our top line growth. GMV increased 58.7% year-over-year, making our first $1 billion quarter. As Charlie discussed earlier on Slides 6 and 7, growth in active consumers and higher transaction frequency drove this milestone. Our take rate, defined as total revenue as a percentage of GMV rose 60 basis points, both sequentially and year-over-year to 11.2%. The focus on high LTV products that Charlie outlined on Slide 5 is a key driver of take rate strength, and we believe that focus positions us well to sustain this rate going forward. On Slide 10, we note our transaction-related costs with detailed components outlined on Slide 11. Overall, transaction-related costs as a percentage of total revenue and GMV increased year-over-year due to our strategic decision to expand our underwriting aperture and drive top line growth. Specifically, third quarter provision for credit losses as a percentage of GMV increased 70 basis points year-over-year to 3.1% and is trending toward the lower half of our stated 2025 provision target likely between 2.5% and 2.75%. Despite the slightly higher transaction-related costs, total revenue less transaction-related costs, as seen on Slide 12, continues to grow robustly, increasing 64.5% year-over-year to $63.3 million and representing 54.2% of total revenue. I know we touched on this during our prior 2 earnings calls of 2025, but we think it's important to continue emphasizing that the expansion of our underwriting isn't without carefully balancing the profitability of the growth we're experiencing. Recent headlines on a few lending companies have also called into question the sustainability of certain sectors of the consumer credit market, but we haven't seen any deterioration as consumer activity continues to perform in line with our expectations, but that is not the nature of our product or our business model as we outlined on Slide 13. Not only do our strong gross margins provide us with great flexibility and room to maneuver, but the short duration of our lending product allows us to pivot quickly and adjust our strategy upon seeing any early sign of deterioration in our portfolio performance. On Slide 14, you'll see that despite the incremental costs we've incurred in long-term corporate strategic projects that Charlie previously covered, we continue to maintain cost discipline and leverage our fixed cost structure. Non-transaction-related costs increased 50.9% year-over-year to $31.6 million, but decreased 290 basis points as a percentage of total revenue. In the third quarter, we incurred $1.3 million in costs related to these projects with the largest being the exploration of potential financing avenues, an effort that will continue in a more streamlined manner in fourth quarter. The remaining expenses that make up the core of this bucket, personnel, third-party technology, marketing and G&A increased sequentially, largely driven by the timing of equity and incentive compensation and our personnel costs. Bringing the full picture together on Slides 15 and 16, GAAP net income grew 72.7% year-over-year to $26.7 million and adjusted net income increased 52.6% year-over-year to $25.4 million. GAAP profit margin expanded 70 basis points year-over-year to 22.8%, while our adjusted profit margin decreased 2 percentage points to 21.8%. Despite this decrease, our margin still remains above our internal goal of operating the business to an adjusted profit margin of at least 20%. Lastly, adjusted EBITDA grew nearly 74.6% year-over-year to $39.6 million, representing a 33.9% adjusted EBITDA margin. Turning to our balance sheet on Slide 17. Total cash grew $14.7 million in the quarter to $134.7 million, even with paying down our line of credit by $13.3 million. Cash flow from operations for the quarter was $33.1 million, bringing year-to-date cash flow from operations to $55.6 million. These results demonstrate the strength of our balance sheet and our ability to self-fund growth while maintaining flexibility in our capital structure. Finally, turning to our outlook on Slide 18. We're reaffirming our guidance for top line growth and adjusted net income with modest adjustments to our GAAP net income to reflect the impact of our year-to-date discrete tax benefit to our EPS to reflect adjustments related to our estimated diluted share count and to adjusted EBITDA. The discrete tax benefit raises our GAAP net income guidance to $125 million, while the updated diluted share count increases our GAAP EPS to $3.52 and adjusted EPS to $3.38. As for our adjusted EBITDA, we're raising our range from $170 million to $175 million to $175 million to $180 million. Lastly, we are also providing adjusted EPS guidance for 2026 of $4.35, reflecting 29% growth over our 2025 adjusted EPS. While this guidance does not reflect any of the future potential products outlined at the beginning of our presentation, we wanted to give investors a view into the strong fundamentals of our business and our confidence in sustained growth moving forward. Thank you. I will now turn it over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Mike Grondahl with Northland. Mike Grondahl: Maybe the first one for Charlie. Charlie, can you talk a little bit about when you deemphasized on-demand in Q3? And how you think that's going to affect sort of growth going forward, if at all? Charles Youakim: Yes, it was probably right around the middle of the quarter. At that point, we felt like we had enough data based on what we had been seeing on conversion at point of sale, conversion into subscription. And the bridge just wasn't as strong as we were originally envisioning, I guess, is the main point. Conversions, I think, were slightly better into on-demand at point of sale than they are into subscription, but just not enough to make the payout worthwhile. And so when we started to analyze the lifetime values of the customers, the conversion rates, we really started to realize that on-demand is probably just a better tool around the fringes and at least in the direct-to-consumer portion of our business. It's still part of the mix, but it's really the tool that we're going to lean into more on the merchant side to win over more enterprise merchants that are sensitive to margin pressures, et cetera. And then on the consumer side, we really just want to lean back into subscription and maybe use on-demand as a fallback if some consumers are resistant to subscription or whatever it might be. And then in terms of your second part of your question, Mike? Mike Grondahl: Yes. Just how do you see that maybe affecting growth? And as a follow-up to that, is your customer who maybe was going to pick an on-demand product, can you direct them into subscriptions? How does that work? How will you be successful there? Charles Youakim: Yes. We basically pick and choose what we want to present to each individual consumer. And then in terms of growth, I think GMV growth is lower if you go to the subscription route. But if you think about pushing more into stronger lifetime values, maybe not upcoming -- it's hard to say about the next quarter, but the next quarters, we should see better growth on revenue and income. That's the main point of that decision is because the lifetime value differences multiplied by the conversion differences tell us the better story is to go into subscription. Mike Grondahl: Got it. Then maybe just one more. Can you talk a little bit about take rate trends? And then the 3.1% credit losses was maybe a little bit higher by deemphasizing on demand, will that naturally drop a little bit more? Charles Youakim: Well, the take rate trends, I think we really shoot for like the 60% gross margin that we talked about in the past. And so when we think about the take rate, it's take rate minus our COGS getting us to 60%. And that's also how we sort of do the planning around our PLR plans for the year. And so the 3.1% PLR for the third quarter, basically right in line with what we're expecting. If some of the people on the call remember, people have followed us for a while, back in May, we talked about rest of the year, think about a 2.5% to 3% PLR for the entire year. And we already posted some lower PLRs lower than that range, which means, of course, we expect some of the third quarter, fourth quarter to be above that range because then you blend out to within the range. We did just update the guidance to tighten it a bit, so investors would know that we're looking -- it looks like it's being more in the bottom end of the range, the 2.5% to 2.75% for the overall year. So the 3.1%, I'd say, basically fits right into what we were expecting. And then on-demand, you do bring in more because the conversion is slightly better into on-demand, and I say slightly, but it does mean you bring in more new consumers into those products. And then more new consumers tends to lead to a higher PLR, less new consumers leads to generally a lower PLR because new consumers have higher PLRs in general. So I'd say that would be the only thing to call out there, Mike. Operator: Our next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Charlie, great detail. I just wanted to ask a big picture strategy on what you're seeing, what your thoughts are on BNPL broadly in the United States. I mean PayPal talked about it quite a bit and -- on the last call more than ever. And I was struck to see how actually small it is, how fast growing it is for all the different players in the space. And they called out as a replacement for -- they're seen as a major trend in the replacement of credit cards. It's more user-friendly. Could you tell us how big you think the market is for pure-play BNPL is right now in the United States? How fast do you think it's growing and why you think it has many, many years to go? Charles Youakim: Yes. I don't have an exact number for you, Hal, but I just go by -- I think the trend is going to be here for years upon years. If you look at credit cards, they were launched in the 1950s and how long does that trend last? People are writing the credit card trend for some time. I'm not going to say that we're going to have a 75-year BNPL trend. But I think that it's pretty obvious that a lot of consumers out there prefer to use BNPL over a credit card. And in some places, it also takes a little bit away from debit card. It doesn't really take away from debit card, I guess, in the end because people are paying us back with debit in the vast majority of cases, but it replaces like the full purchase of a debit card user as well. But what I think -- I think customers aren't stupid. They look at the total cost of ownership of a product. And I think they also look at BNPL as a safer product for them. I almost feel like some of these customers view us as like -- they really do view us as a budgeting tool, but almost like we're their nanny, like watching over them, not allowing them to overspend where credit cards allow people to overspend. No one in a credit card company would ever say it probably, but that's the win when someone overspend because now you've got a revolver. For us, when people overspend a lot, we're worried. We're worried that we allowed them to overextend and now they're not going to be able to catch up, we might lose the customer. So we're always trying to allocate spend to the customer in a way that is in total alignment with responsible spending. And then I think that overall lowers the cost of ownership of that credit product for the customer. It also dramatically reduces the risk of a bank personal bankruptcy, which is how do you even put a price on that. So I think a lot of the customers are probably shying away over time from migrating into a credit card because they just feel a lot safer and more comfortable with our credit product. Harold Goetsch: Can I ask one follow-up? Toward the end of your press release on initiatives update, you talked about some of the products you've been building for shoppers to increase engagement and monthly active users grew 38% year-over-year, revenue-generating users rose 120% year-over-year and monthly sessions climbed 78% year-over-year. I think it's the new KPIs. I mean, what you could comment on that? And what -- tell us what you built and why it's contributing to some of those growth figures that you demonstrated in the press release? Charles Youakim: Yes. So we talked about the shopping as being a big initiative for us for 2025 and 2026. It will be probably a 2-year initiative to keep on rolling out these shopping features and these initiatives. I said the earn tab is kind of in that mix, although maybe not directly a shopping feature. What we're trying to do is trying to keep -- drive and create value for our customers. I think middle of America, mid- to low income, younger consumers, maybe new families. We want to drive value through giving them couponing, giving them discounting, price comparison, the ability to earn almost like gig economy type earnings. Not massive type job numbers, but on the fringe helps. And what we're -- the reason -- what we're seeing from doing all of that, which you pointed out, Hal, is we're seeing increased activity in the apps. And our view is that's just a big win. So we're monitoring those KPIs closely because the viewpoint is if you get the customer coming back in the app and returning and returning and returning over and over again, you're also going to increase retention and also give yourself a chance to introduce that customer to a subscription product. At some point, maybe they're here in early November, they're not interested. They open the app back up later in November. Okay, let me sign up for anywhere and now they're in. And that's really done by creating value, adding value, presenting that value in the app and getting that customer to keep on coming back. Operator: The next question comes from Rayna Kumar with Oppenheimer. Rayna Kumar: It was really helpful to get the preliminary '26 EPS guidance. Could you just talk about some of the underlying drivers of that target, maybe revenue growth, GMV growth and your expectations for provisioning? Charles Youakim: Yes. We don't have the callouts for the underlying numbers on it. But I'll tell you the overall theme is we do believe that we're going to continue to see continued growth in our subscription and our MODS, but probably leaning more towards subscription into 2026. We're going to be cost conscious as always. And if people have followed us for some time, you know that we really think quite a bit about growing gross margin dollars at a much faster pace than growing our operational expenses. So that's a part of that. The guidance we gave for the entire year 2025, the 2.5% to 3%, we're basically kind of thinking in the same ballpark there. Like we like that ballpark because of our top line. The top line numbers that were our take rate kind of really sits along the lines of maintaining the PLR kind of thoughts that we've had from 2025. And then if there's any maybe conservatism in there at all, it's just the economy. We're not seeing anything with our consumer, but we're watching it closely. Obviously, we have the government shutdown. I don't think it's going to continue into 2026. But I think if there's a bit of conservatism, it's based on the economy and what might happen. Rayna Kumar: Understood. And then just as a follow-up, can you comment on just what you're seeing out there in terms of competition? Are you seeing any changes in pricing or strategy from your competitors? Charles Youakim: Not really. I haven't noticed anything major. I think we saw Klarna launch a subscription product as well, but it's like a much higher dollar subscription product. So that was like one of the companies kind of leaning our direction in terms of product offerings. But other than that, it seems like more of the same. Operator: The next question comes from Hoang Nguyen with TD Cowen. Hoang Nguyen: Maybe a quick one for Charlie. So since you are pivoting back to subscriptions now, maybe can you talk about maybe the difference this time in terms of marketing posture versus, I guess, the last time before you launched on-demand? How is this time different from the last? And I think last time, I think you were tracking a net adds on subscription, maybe you made 60,000 to 70,000 a quarter. I mean, should we expect you guys to get back to that level going forward? And maybe in terms of pricing, I noticed that you recently took pricing actions on new subscribers. So I mean, can you talk a little bit about that as a lever in terms of top line going forward? Charles Youakim: Yes. I'll probably avoid the guidance on how many adds to subscription quarter-by-quarter, but we did increase pricing on both the subscription products just by $1 or $2 per month, really viewed as just an inflationary type increase. If you launch the products 3 years ago or so and there's been some inflation in the United States. So that's the main reason for those changes. And then I guess the start of your question, can you repeat it again, just to make sure I got it nailed. Hoang Nguyen: In terms of marketing for the subscription. Charles Youakim: Marketing. Hoang Nguyen: Yes. Is it different this time versus last time, maybe a year ago before you launched on-demand? Charles Youakim: Yes. To give investors a view of like how we market the product. So when we are leaning into on-demand, it is a more seamless like first step into a purchase because basically, let's say, you want to check out at Lowe's or somewhere -- one of the apps or one of the merchants in our app or you're shopping out there. We would not bring up a subscription in most cases, like the option to sign up for a subscription right away to the consumer. We would basically just bring up a purchase request like in the lending lingo, TILA , Truth in Lending Approval or purchase request is what we call it internally. We bring up a purchase request, which it would show the on-demand fee. The customer would just accept it, they get the on-demand fee and then they make the purchase. Now basically the difference in the marketing. And then the landing page, a lot of the landing pages, a lot of things we're doing towards advertising. It's all about bringing that funnel. But once they get into the funnel into the app, that's what the customer would see is basically they go right into a purchase request. Now what the most customers are seeing is if you want to go and use our product at point of sale or if you want to shop at one of the many merchants in our app, what we're bringing up now is the option to join our subscription. And so that's basically the biggest difference. So marketing-wise, it's just the funnel is driving them into a different choice. And like I mentioned, there is a slighter decrease in conversion into subscription. But based on what we've seen from conversion at point of sale into subscription and then conversion from on-demand users into subscription, we viewed it as a much better decision from a lifetime value standpoint to just go straight to offering subscription to many of these customers. Hoang Nguyen: Got it. And I didn't see the chart on approval rates on the presentation this quarter. Maybe can you talk a little bit about that, whether you have -- there has been any change in terms of your underwriting this quarter? Charles Youakim: No. I mean, we've always been -- we are launching new models. So we did launch new models this quarter. And those -- the point of those models, what we like to do is we like to keep approval rates at the same level and reduce PLR. That's usually what our goals are with our new models. So I think approval rates are probably around the same levels as we've presented in the past. But with the new models in place, we believe we should have lower PLRs for those new customers coming in. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charlie Youakim for any closing remarks. Please go ahead. Charles Youakim: Thank you. And as people know, I like to usually give a Buffett or a Munger quote or story, but I've got one here from Buffett. It starts when he was just 10 years old. He scraped together $114.75, all the money he had and he bought 3 shares of Citi's Surface preferred at $38 a share. At first, the stock dropped to $27. And like a nervous young investor, he starts sweating. Then it crawls back up to $40, so he sells. He's relieved, he even makes a few bucks. But here's the kicker. A little later, that same stock shoots up past $200. Buffett said, if I just held on, I would have made a lot more money. That he says was his first real lesson in patience. Here's another data point from the Buffett -- from Buffett that also speaks to the power of patience. I think this crazy stat speaks for itself. Over 99% of Buffett's wealth came after his 50th birthday. That's the quiet miracle of compounding. It's not flashy, it's not fast, but it's relentless if you let it do the work. Buffett always says, my life has been a product of compound interest. And also, the stock market is a device for transferring money from the inpatient to the patient. So the real trick, start early, stay patient and let time, not emotion do the heavy lifting. Because in the end, wealth doesn't come from timing the market. It comes from time in the market. That's the $114 lesson. I'd like to thank everyone for joining the call today and also thank the Sezzle team for continuing to create wins for our consumers and for our investors. Thank you all. Have a good night. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to Lucid Group's Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Nick Twork, Vice President of Communications. Please go ahead. Nick Twork: Thank you, and welcome to Lucid Group's Third Quarter 2025 Earnings Call. Joining me today are Marc Winterhoff, our Interim CEO; and Taoufiq Boussaid, our CFO. Before handing the call over to Marc, let me remind you that some of the statements on this call include forward-looking statements under federal securities law. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, vehicles and products, studios and service networks, financial and operating outlook and guidance, macroeconomic policy and industry trends, tariffs and trade policy, company initiatives and other future events. These statements are based on various assumptions, whether or not identified in this communication and on the predictions and expectations of our management as of today. Actual events or results are difficult or impossible to predict and may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our annual report on Form 10-K for the year ended December 31, 2024, subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other SEC filings and the forward-looking statements on Page 2 of our quarterly earnings presentation available on the Investor Relations section of our website at ir.lucidmotors.com. We undertake no obligation to revise or update any forward-looking statement for any reason, except as required by law. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in the earnings presentation. With that, I'd like to turn the call over to Lucid's Interim CEO, Marc Winterhoff. Marc, please go ahead. Marc Winterhoff: Thank you, Nick, and thank you, everyone, for joining us. First, I want to acknowledge all our employees, customers and partners. We appreciate your commitment and support. Secondly, I'm pleased to point out that in Q3, despite all of the headwinds, we delivered our seventh consecutive quarter of record delivery numbers. With that in mind, I would like to reiterate the near-term priorities we are focused on, which we laid out earlier this year, disciplined execution and scaling production, building our brand and further driving consumer demand and advancing our technology leadership, and this has not changed. We remain focused on designing and delivering the best cars period. This is the core of our business, and in a moment, we'll review our progress against these near-term priorities. But before I talk about the near-term priorities, I'd like to share how our strategy has evolved from the beginning of the year and how we have been executing that strategy with intention. Beyond expanding our core business, we are pushing hard on what will be our next chapter, a push into new markets and high-value adjacencies. So before reviewing the quarter with you, I want to explain to you a bit about the next stage of our strategic evolution, where we have already been working hard building block by building block toward the future of robotaxis, Level 4 autonomy and new opportunities for revenue. Our vehicles are not only awesome driving machines, but built on industry-leading EV technology. But also a platform for delivery of new customer service and next-generation customer experience, and we're starting with autonomy. As you all know, we announced in September that we closed a $300 million strategic investment from Uber as part of our partnership to deploy 20,000 robotaxis or more. We already reached a first milestone with successfully delivering the first batch of robotaxi engineering vehicles to Nuro. Nuro is now finalizing their integration and will begin further testing activities. And we announced last week that the San Francisco Bay Area has been chosen as the first location for deployment planned in 2026. Uber is a global leader in ridesharing and their scale, brand and global reach help position Lucid at the forefront of the B2B Level 4 market. Their strategic investment in Lucid validates our highly advanced technology platform and aligns with our strategy. But we don't stop at robotaxis because we believe demand for high levels of autonomous driving will grow as consumers have the opportunity to experience this technology and that they will not only choose vehicles that have these capabilities over those that don't, but also are willing to pay for this capability. And that's why we are very excited about our collaboration with NVIDIA to deliver full Level 4 eyes, hands and mind of point-to-point autonomous driving capabilities to our consumers. We are playing to win. We plan to leverage our agility and focus to be the first to bring full Level 4 capabilities to the B2C market, and we couldn't ask for a better partner than NVIDIA. Lucid's vehicle platforms and safety architectures, combined with the world's AI computing leader will result in a vehicle with formidable performance and intelligence. We will jointly develop L4 capabilities, drawing on years and millions of miles of data and continuously update software as technology improves to remain at the forefront of the industry. To be clear, while we are pushing for L4, with this partnership, we plan to provide significant upgrades to our advanced driving assist functionality beyond what we're already doing in-house as early as end of next year. For decades, cars have been a symbol for freedom to go anywhere at any time. With autonomy, this freedom expands by being able to be productive during your commute or being driven home safely after dinner with friends. And of course, with Lucid's exceptional driving feel, you always have the option to experience the thrill of driving your Lucid yourself whenever you choose. So in a nutshell, we continue to develop the best driving vehicles, providing the most advanced EV technology, significantly advance our autonomous driving capabilities and user experience, expanding into new businesses and optimizing our operations to become leaner and more efficient. Now maybe there's a question about developing autonomous technology fully in-house versus working with partners. Well, Lucid's strategy here is clear and very intentional. We are doing both. Developing higher levels of autonomy, especially true for L4, requires enormous investments. And while some of our peers spend vast sums for in-house development to provide this functionality to their customers, our focus is to provide a high level of autonomy to our customers as soon as possible and with optimized CapEx spend. Our partnerships are enabling us to do exactly that. Having said that, we are continuing our in-house development, but with a smart and resource-efficient approach. In early Q3, we already rolled out hands-free highway driving for the Lucid Air via OTA, and we will bring the same to the gravity soon, fully developed in-house. The verdict is still out on whether owning autonomous driving technology in-house will be a sustainable differentiator or will become commoditized in the long run. Working with our partners allows us to monitor how the technology develops and make focused in-sourcing decisions once the future path becomes clear and avoid costly investments. I hope this gives you some insight into where Taoufiq and I and the leadership team plan to take Lucid. We are fully committed to technology leadership and innovation. But at the same time, we are committed to efficient and smart capital allocation. Now let's turn back to the progress on near-term priorities. First, let's talk about our operational execution. As mentioned in the beginning, we achieved a seventh consecutive record quarter for deliveries. I've said before that our delayed ramp-up of the gravity is mainly due to a small number of suppliers not able to ramp as expected. On top of that, we had to cope with a number of extraordinary external headwinds that threatened to shut our production down several times throughout the year. That's why we are not where we want to be. Let me elaborate a bit on this to give you a flavor of what our teams are working through each day. Over the last 6 months, we have contended with 3 consecutive industry-wide supply chain crisis, magnets, aluminum and chips. These are crisis that set even far bigger competitors on their heels. However, thanks to our vertical integration and our team's agility and resourcefulness, we have been able to problem solve our way through each one to limit impact. First, the magnet shortage in Q2. The magnets we were able to get were incompatible with our unique NACS boost charging drive units for gravity. Hence, we had to temporarily shift our production plan from the grand touring trim for North America to the touring trim for export to Saudi Arabia until magnet availability improved. Unfortunately, that impacted our Q3 production and delivery numbers simply because the additional transport time needed. After we successfully crossed that bridge, a fire at our aluminum suppliers plant shut other OEMs down, but we were once again able to minimize the impact. And right after this, ship supply threatened the whole industry. While once again, our team is on the job, and we are still working through it. I hope this gives you some insight in what our teams are able to navigate on a daily basis, and I'm very proud what they have been able to accomplish and continue to accomplish. Having said that, I want to assure you that we hold ourselves to a high standard and constantly evaluate how we can improve as an organization. So today, we are making some key organizational changes to streamline decision-making, enhance accountability and accelerate growth as the company scales globally. To support these objectives, we are making the following organizational changes. Emad Dlala has been appointed Senior Vice President, Engineering and Digital. In addition to leading the powertrain organization, he will now oversee all product development functions, including vehicle engineering, digital systems and software. In his expanded role, he will continue to drive Lucid's technology leadership, lead vehicle development, improve cost efficiency and manufacturability and advance Lucid's software-defined vehicle architectures. Emad has made remarkable contributions to Lucid's technology leadership over the last 10 years, and we expect this leadership will have a similar impact on the vehicle development as he will now have end-to-end responsibility. Erwin Raphael has been elevated to Senior Vice President, Revenue with expanded oversight of Lucid's global operations. Since Erwin has been at Lucid, he has driven consecutive record results every quarter. He will now lead global sales and services operations, driving accountability for revenue and customer experience as Lucid expands further into new consumer markets worldwide. We are also appointing a new seasoned quality leader to our executive team. Marnie Levergood is appointed Senior Vice President, Quality and will lead efforts to ensure Lucid delivers vehicles that meet the highest standard of quality and craftsmanship, working in close concert with engineering and manufacturing. She previously held quality and manufacturing roles at Scout Motors, Stellantis and Magna. Levergood succeeds Jeri Ford, who is retiring after more than 35 years in the automotive industry. We thank Jeri for her service to Lucid. These organizational changes are designed to capitalize on opportunities to strengthen our business, and we are confident that they will help drive the results we need moving forward. Before I hand over to Taoufiq, I'd like to share a few points on our efforts to boost awareness and strengthen our brand. In Q3, we accelerated our focus on building the Lucid brand and increasing awareness among luxury EV intenders, and we are already seeing results. In the United States, brand awareness jumped 8 points month-over-month among consumers who plan to purchase an EV. This improvement was driven by the launch of our new brand campaign titled Driven, staring our first global brand ambassador, Timothée Chalamet, and directed by Academy Award-nominated Director, James Mangold. Driven is now the most successful brand campaign in Lucid's history with more than 7.2 million views on YouTube and over 1 billion total impressions in the U.S. Lucid's cultural relevance continues to grow. In October, we launched the We Ride for New York campaign featuring NBA, All-Stars, Jalen Brunson and Josh Hart with billboards across New York City and global extension in Abu Dhabi during the Knicks preseason game. And we are just getting started. Stay tuned for more to come. We also received another award our whole Lucid team is especially proud of. The Lucid Air Sapphire was selected as this year's German Performance Car of the Year by 30 leading German motor journalists. Let this sink in for a moment. The German Performance Car of the Year is designed and built in America. To my dear fellow countryman, sorry to wrap that in, but you probably can imagine how proud the Lucid team feels about that. Last but certainly not least, on Midsize, SOP of the first variant of our all-important Midsize platform remains scheduled for the end of 2026, and I can share that we are very pleased with the progress of sourcing and cost structure the team is able to achieve. And on our Atlas drive unit family, it is on track with again, class-leading efficiency, much fewer parts, lower BOM costs, lower weight, and it will include also a rare-earth free variant. With that said, we are entering a new phase and looking forward to a very exciting year ahead, one where Lucid's award-winning vehicles, our leading technology, thoughtful partnerships, brand and focus on execution come together to define the next generation of mobility. Thank you for your continued support and confidence in Lucid. With that, I'll turn over the call to Taoufiq to discuss our financial results and outlook. Taoufiq Boussaid: Thanks, Marc. Good afternoon, everyone. Q3 for Lucid was really about progress, preparation and stabilization in what continues to be a complex and volatile environment. We pushed through those headwinds and kept the plan moving. Revenue was up 30% sequentially and 68% year-over-year, which is a strong result. Just as important, we strengthened our balance sheet. Today, I will cover the strategic actions we took and why they matter, how the quarter played out and how we're thinking about the months ahead. On strategy, Marc already touched on our partnership with Uber, Nuro and NVIDIA. These collaborations are important because they reshape our financial model in a very meaningful way. They give us a capital-efficient path to growth and open the door to new recurring revenue streams in advanced driver assistance, software and data services. At the same time, they help us optimize costs through smarter manufacturing and operational efficiencies. These partnerships are a key part of our midterm plan to strengthen our path to profitability and deliver long-term shareholder value. We expect them to improve margins, support scalable growth and drive returns aligned with disciplined capital deployment. Now we all know the industry and geopolitical headwinds are real, but what matters is execution, and our team is delivering. We hit record deliveries, improved our product mix and set new highs for average selling prices. Production rates picked up towards the end of the quarter, which is especially important in a context where the rest of the industry is reporting major headwinds. On top of that, we expanded internationally and built strong consumer awareness ahead of next year's midsized launch. All of this puts us on a solid trajectory for Q4. And here is the big milestone. For the first time, Lucid Gravity is expected to make up the majority of our production in Q4. And the momentum is already here. October deliveries are climbing, especially for Gravity, and that gives us confidence that this quarter is going to be a turning point for Lucid. We also announced today that we strengthened our liquidity subsequent to quarter end to an increase of our delayed draw term loan facility with our majority shareholder, the public investment fund, from $750 million to approximately $2 billion, all of which remains undrawn. This increase lengthens our runway into the first half of 2027 and provides Lucid with stable access to liquidity. This underscores PIF's ongoing support of Lucid and their strong commitment to our business and confidence in our long-term strategy. We are committed to maintaining a healthy liquidity position, and we'll continue to evaluate all financing and liquidity options, including in the public markets when the appropriate conditions materialize. Now moving to our business performance in the third quarter. Demand once again exceeded our production. We delivered 4,078 vehicles, our seventh straight quarterly record and a 47% increase year-over-year. ASP moved higher with Gravity mix and more high-value configurations. On the production side, we built 3,891 vehicles and produced over 1,000 additional vehicles for final assembly in Saudi Arabia. During the first 3 quarters, we produced 9,966 vehicles, just short of 10,000 units excluding additional vehicles in transit to Saudi Arabia for final assembly. Our second shift that came online in October is expected to further accelerate our production growth. Our exit rate improved late in the quarter, and we plan to carry that momentum into Q4. Now as Marc mentioned earlier, the supply chain remains challenging, not just for us, but across the industry. We're working through issues one by one, but we can't completely rule out further volatility. On the financials, revenue came in at $337 million, up 68% year-on-year and roughly 30% sequentially, driven by deliveries growth and gravity mix. Gross margin improved about 6 points sequentially as mix improved and productivity and cost reduction actions took hold. Margins are still below our long-term goals as we work through tariffs and input costs. Adjusted EBITDA was negative $718 million, reflecting our increased sales and marketing effort and ongoing investment in our midsized platform, the Atlas powertrain platform and our autonomy initiatives. Free cash flow improved to negative $955 million on tighter working capital and execution discipline. On liquidity, we ended the quarter with $4.2 billion, $3 billion of cash and investment and $1.2 billion of credit facilities. That includes the $300 million strategic investment from Uber. After the quarter closed and as disclosed earlier today, we agreed to increase our delayed draw term loan with the PIF from $750 million to about $2 billion. It's undrawn and extends our runway into the first half of 2027. This again underscores PIF's ongoing support and strong commitment to our business and confidence in our long-term strategy. We are committed to maintaining a healthy liquidity position, and we'll continue to evaluate all financing and liquidity options, including in the public markets when the appropriate conditions materialize. Now on the outlook. We're entering Q4 with stronger visibility and a solid foundation for growth. Over the past quarters, we made real progress, refining processes, tightening quality controls and ensuring supplier readiness. We exited Q3 with higher production run rate. And in October, we successfully launched the second ship that we trained during the third quarter. We also have units already in transit to Saudi Arabia for final assembly, along with the vehicles produced so far this month. Assuming no unexpected disruption from supply chain factors, we expect total production at year-end to be around 18,000 units. This is in the range of our guidance, and it's a strong outcome given the complexity of the macro environment. Looking ahead, while the industry expects a continuation of the effects on the demand related to the tapering of incentives and the expiration of certain U.S. tax credit, which pulled some demand forward in Q3, we do see this as a temporary dynamic, and we expect a significant delivery growth in Q4. We anticipate demand to normalize in early 2026, supported by expanded marketing campaigns and the broader availability of Lucid Gravity across multiple streams. In October, while U.S. EV sales in general have dropped, our deliveries and market share have increased, showing strong demand for Lucid vehicles. While other OEMs are slowing down EV investments, we believe we can turn the current challenges into an opportunity, continue to grow market share, capturing shares from other luxury makers. We are already seeing encouraging signals. European orders are up year-over-year and North American traffic and test drives in October were solid compared to historical levels. Gravity orders becoming a larger portion of total order intake will help to drive higher ASPs and revenue. These trends are confirming the strength of our brand and position us well to capture growth as the market stabilizes. We believe the steps we've taken this year, including operational improvements, disciplined incentive management and strategic product expansion are setting the stage for sustainable growth and margin improvement. As the Gravity touring launches and our marketing reach expands, we expect to unlock new demand opportunities globally, reinforcing our long-term trajectory. For 2025 CapEx, we are planning $1 billion to $1.2 billion. We will continue to focus on scaling production, midsized development, automation and cost reduction initiatives. We intend to lower capital intensity per unit as we move through the year. Directionally, the goal is clear, more towards breakeven as mix scale and cost actions compound. To close, Q3 showed that we can grow, derisk and strengthen liquidity at the same time. Orders and delivery reached record levels, mix improved, quality and exit rate moved the right way despite higher complexity, and we extended the runway with an undrawn facility that takes us into first half 2027. Our focus remains the same: compound liquidity, derisk the ramp and improve unit economics every quarter. I want to thank our teams for their execution and our customers, investors and partners for their continued support. With that, I will hand the call back over to Nick. Nick Twork: Thanks, Taoufiq. We'll now start the Q&A portion of the call. Before we take questions from those on the phone, I want to pose some of the questions that our retail investors sent in through the Say Technology platform. The first one comes from Patrick M. Please share Lucid's plan to increase the market cap and shareholder value within the next 12 months. Taoufiq Boussaid: We appreciate the question, Patrick. What will drive market cap and shareholder value is profitability and cash generation. Short term, it's about executing against our plan to reduce cash usage and improve profitability. This relies on ramping the gravity and next year, launching and ramping the Midsize with the right focus on capital allocation and spend. Midterm, we want to further accelerate our cash generation. Marc has laid out some of the foundations of how we can achieve that. Technology and software will be key as they will allow us to maximize return in a repeatable model and with a low capital intensity. There are many exciting developments in the pipeline. I strongly believe that if we continue to make progress against the strategy we laid out, the results of these efforts will be reflected in the share price and the shareholders' return. Nick Twork: Our next question comes from Min. Any updates on the robotaxi partnership with Uber? Marc Winterhoff: Yes. Thanks, Min. This is Marc. Yes, there's a lot of updates. There's a lot of progress being made between the teams at Lucid and at Nuro, and we successfully delivered the first batch of the vehicles -- of the engineering vehicles to Nuro during the quarter for testing. We also announced that San Francisco is the first city we are working towards launching in 2026, subject to regulatory approvals. And we closed the $300 million equity investment from Uber during the quarter, which speaks to their level of confidence as Lucid as a partner. Nick Twork: Okay. Our third question comes from [indiscernible]. When will the company become profitable? Taoufiq Boussaid: Well, we have an internal road map and stage gates against which we are executing. This plan is the North Star for the company and our teams in everything we do. We haven't yet publicly communicated the timing for breakeven. But as a management team, we are continuously working towards this goal through a disciplined focus on executing our short-term plans and midterm strategy. We have a pathway mapped out, and we continue to make significant progress on both short and midterm plans, as Marc has explained. We are confident that in the short term, the combination of Gravity and Midsize will allow us to achieve the scale needed to become profitable. Midterm, Marc has explained some of the strategies and plans we are executing against to further consolidate the cash generation capabilities of the company. One last information. We are planning to organize an Investor Day early next year, which will give us the opportunity to explain our short-term plans and strategy as well as our road map towards cash generation. Nick Twork: Okay. Our next question comes from Nicholas A. What is the time line of an affordable entry-level vehicle for Lucid? Marc Winterhoff: Thanks, Nicholas. The first variant of our Midsize platform remains scheduled for the end of 2026. Nothing has changed, and we're working towards that goal. Nick Twork: All right. Now we'd like to take questions from the phone lines. Operator? Operator: [Operator Instructions] And our first question will come from the line of Ben Kallo with Baird. Ben Kallo: Maybe can we start with just where you are with choosing suppliers for the Midsize vehicle? And then if you could talk about any kind of overlap that can be leveraged from the Air Gravity suppliers? And then I have a follow-up as well. Marc Winterhoff: Yes, Ben, yes, I can take this. So we are well underway with all of our sourcing for the Midsize. So fully on track with what we -- where we wanted to be at this point in time. And I also want to point out that we are very pleased with the BOM costs that we're currently seeing that it looks like that we can achieve. As a matter of fact, in many instances, we are coming in below our own should cost calculations, which is very, very good and speaks to our suppliers wanting to work with us. And your second question is also something that we see and it's very positive that many of the suppliers we are already working with for the Air and the Gravity are now also giving us relief on our pricing for the Air and the Gravity because of being awarded the programs for Midsize. So all in all, that is a very, very encouraging development right now, and we're very pleased with the results. Ben Kallo: Great. Could you just talk about -- maybe about how you guys are prioritizing capital between what the work you're doing in autonomy and then also pushing forward with your technology manufacturing, just how you prioritize or if you don't look at it that way, then I'd love to hear that, too. Marc Winterhoff: Yes, absolutely. I mean that goes very much in line with our partnerships that we have announced. I mean they're CapEx efficient. We don't have to spend a lot of CapEx. That's exactly why we're doing it. We want to be able to provide really leading edge capability and features to our customers without having a very big CapEx outlay right now. That's why we did the Uber-Nuro partnership for our B2B market, but also now the NVIDIA partnership when it comes to the autonomy for consumer vehicles. So yes, I mean, that's exactly what we are planning to do. And while we are doing that, we are monitoring also where it makes sense for us to, in the future, invest capital. But at this point right now, given the -- it costs a lot of money and very big numbers of investments in order to do this completely in-house, and that's why we chose that path. Operator: One moment for our next question. And that will come from the line of Itay Michaeli with TD Cowen. Itay Michaeli: Maybe just to start, a couple of questions on the L4 announcement with NVIDIA. Can you maybe roughly share how you're thinking about the time line for achieving Level 4 on consumer-owned vehicles? And then for the Midsize, do you expect that the L4 hardware will be standard on the vehicle? And if so, does that have any impact on the projected price of the vehicle? Marc Winterhoff: Yes. So on the L4 side, I don't think that we have right now the number -- or actually, we have internally, obviously, a plan, but I would like to communicate that once we are a little bit further down the road in the project and we have the first dots on the board. What I can tell you is that the first result that we want to roll out of that partnership is basically an L2+, L2++ version for Gravity and also for the launch of Midsize by the end of next year. So that's the first step. And from there, we will then roll out via OTAs additional updates. We will also already have all the hardware changes being made, but we will then roll out additional updates in order to get to L4 eventually. But I reserve the right, right now, not to say it's end of next year or next year, but rather come with a date when we are very confident that we can hit it. But at the same time, both NVIDIA and ourselves have very ambitious targets. That's why we did this together with our, let's say, accelerated engineering approach and their, let's say, firepower when it comes to running the large models and calculations, we are confident that we can do this sooner or later -- than later. Itay Michaeli: Terrific. That's very helpful. And then just as a follow-up, maybe just on the outlook. With the uptick in production in Q4, how should we think about just the deliveries with -- in relation to that production level as well as maybe the impact on kind of COGS per unit as you ramp production and, of course, ramp the Gravity as well? Marc Winterhoff: Yes, I can take it and maybe afterwards, you can also chime in to fish. But I mean, when it comes to deliveries, we're not guiding deliveries. But obviously, we are expecting a significant ramp-up of the deliveries in Q4 and the majority being the Gravity. And when it comes to COGS, I mean, obviously, the more volume we have in our installed factories with what we have there, the lower the COGS will become, but Taoufiq, maybe you can... Taoufiq Boussaid: Yes. I think you hinted at the key point. So it's really -- I mean, when you think about the COGS, I mean, directionally, obviously, we have a plan and the plan is that to continue progressing and reduce the COGS per unit compared to the performance from last year. So that was the plan. Directionally, we gave a direction when it comes to the gross margin, which is a good proxy to assess where the COGS will land. We didn't assume some of the headwinds that we had to deal with like the tariffs, which are obviously impacting the COGS this year. But directionally, the combination of the incremental volume resulting from the ramp of the Gravity and some of the volume projections that we are currently assessing for next year, plus the benefits that we're getting from the bill of material and our suppliers that Marc has touched on will help us crystallize some of these improvements that we're aiming at in terms of COGS per unit in the short term. Operator: And one moment for our next question. And that will come from the line of Andres Sheppard with Cantor. Andres Sheppard-Slinger: Congrats on the quarter. Marc, I was hoping to maybe get a sense of how the contract with the government of Saudi Arabia, the one up for 50,000 plus, another option for 50,000. If you can maybe give us an update on kind of where that stands. I think in the past, we've said most deliveries to that agreement will be the Gravity and then the upcoming Midsize. So I know you're not guiding anything for '26, but should we expect some deliveries to that region next year? Or will that likely come after the completion of the IM2 facility? Marc Winterhoff: Yes. Thanks for the question, Andres. Well, absolutely. I mean, as of now already, we are developing -- delivering vehicles to Saudi Arabia as part of that arrangement. And it was always planned to be on a certain level, lower level when we only have the Air, then we're adding to the deliveries when the Gravity becomes available. I would say that the big increase versus this agreement, the 50,000 that we have already, will come with the Midsize. So -- but you will -- we will have higher deliveries to the government in -- now in 2026 with the ramp-up of the Gravity, absolutely. Andres Sheppard-Slinger: Got it. Okay. That's helpful. And then maybe one for Taoufiq. So you've extended your capital runway looks like into first half of 2027 now. I'm curious if you can maybe refresh us on near-term capital needs. Does that -- extension now in the draw facility, does that account for the maturity in September of '26? Or how should we think about that? Taoufiq Boussaid: No, that's 2 separate things. So the maturity, I guess you're referring here to the convert. So the convert will need to be refinanced, and we have a plan for that. So it's not directly related to the DDTL. Operator: One moment for our next question. That will come from the line of James Picariello with BNP Paribas. Thomas Scholl: This is Jake on for James. So first, I just wanted to follow up on the NVIDIA partnership. Obviously, you guys set a pretty ambitious goal of being the first company to roll out consumer Level 4 capability. Virtually every major automaker has some form of kind of advanced ADAS program. And after billions of dollars invested, no one has really been able to move past Level 2+. So can you just provide some color on why you think you'll be able to succeed where everyone else has failed? Marc Winterhoff: Yes, James, maybe I can take that. Well, I guess, Obviously, a lot of things have changed in the -- I would say, in the recent year or so when it comes to approach to autonomy. I mean -- and that's actually a good point that you're saying because if we would have -- there was a question earlier about capital investments around this topic. If we would have done what others have done earlier, like 5 years ago, we would have probably invested billions and nothing to show for. But the technology with the end-to-end models and the compute power in the meantime has drastically changed. And the way those end-to-end models can be trained, this is now completely different than how it was 2 years ago. And so that makes us confident with everything that we are seeing right now and obviously, in our conversations and our testing with NVIDIA, we see a path now to get there. And why we think we can be among the first, I mean, obviously, we cannot guarantee this. We can only say that we are, together with NVIDIA, do everything to be the first. It has also a little bit to do with our vehicle cycle, where are we in the -- with the development versus others that are further out until they even can do something like that. So yes, but given the drastic change in AI technology and approach to autonomy, that's what makes us confident that it's achievable now. Thomas Scholl: And then can you just provide some color on the new vehicle order trends you've been seeing since the expiration of U.S. EV tax credits in October. Obviously, the Air and the Gravity weren't eligible for the 30D credit, but it looks like roughly 65% of your U.S. sales in the third quarter came from leases where people were able to take advantage of the 45W credit. Marc Winterhoff: Yes. Well, I mean, what I can definitely say is that actually our delivery numbers in October, meaning first month of the fourth quarter actually went up. And so that is a very encouraging trend compared to many of our, let's say, competitors that have EVs and ICE. There are several ones that reported, I think, a drop of about 50%. Our numbers went up and so did our market share. And we credit basically our vehicles, in particular, now the Gravity becoming more and more available with us ramping up the production with that. So we believe we're in a very good spot when it comes to sustaining the demand and then, therefore, the deliveries. And we also believe that this is a passing phase, meaning we think that by beginning of next year, the demand will normalize compared to what we are seeing right now or what others are seeing right now. Operator: [Operator Instructions] Our next question will come from the line of Tobias Beith with Rothschild. Tobias Beith: I've got 3 questions, if that's okay. First one is for Taoufiq. The gross margin rate when I adjusted for income from emission credit trading depreciation improved by 8 points quarter-over-quarter and was possibly flat on a pre-tariff impact basis. My question is, why wasn't leverage on volumes and the impact of product mix visible? Taoufiq Boussaid: So the thing is that if you look at the production of Q3, the impact from mix was not as big as what we wanted it to be because we're still in a ramp-up phase for the Gravity. The numbers are improving versus Q2, but they are still at a meaningful level where they can significantly impact the volume. But the real reason behind this flat or lack of improvement is mainly related to the increase of inventory and the impairment associated with that. So we have increased the inventories in preparation of the ramp-up in Q4. We are in a loss-making situation, and we needed to impair these inventories, and this is hitting the gross margin. Tobias Beith: Okay. I understand. Marc, what is Lucid's plan regarding the localization of production of the Midsize platform, if at all? I appreciate that the global automotive trade is in flux at the moment, but even an expansion of AMP-1's capabilities would probably have a lead time of at least a year if you started tomorrow. Marc Winterhoff: Well, I mean, we have already made preparations for that to build the Midsize in AMP-1. So I actually thought that we've talked about this some time ago, but maybe not. I mean AMP-1 in Arizona is planned to produce the Midsize as well. It's not only our plant in KSA. AMP-1 is also already being prepared. We will have still to make some investments, but it's actually not that much. Much of the investments that are needed in order to produce the vehicle are already there. So that's the plan. I mean we're more talking about, okay, when would we have to expand that. But for that, we want to be very prudent, and we want to see how everything goes before we pull the next phase. But yes, it is definitely planned to be also built here in AMP-1. Tobias Beith: Okay. And last question, the PowerPoint, it shows for the first time, I believe, a detailed render of the Atlas propulsion system. It's very impressive. It seems to show that there's a new inverter, redesigned thermal management system. And I know that the Atlas propulsion system was mentioned in your prepared remarks, Marc. But I wondered if I could ask for even more of an update on the Atlas, please, given its importance. Marc Winterhoff: Yes. Well, I mean, what I can say is definitely that it's totally on track. So that's why we are now starting to leak -- or not leak actually, a little bit of information. But I mean, it's coming out actually really great. I mean it's -- from a cost perspective, it's a material change, and we will also share soon probably at the Investors Day that we are planning the details how far below of our current generation the cost is, we have much fewer parts, highly integrated, as you just mentioned, the inverter in everything. So weight is lower, efficiency is even higher from what we have right now. So we are very, very pleased with that. And we also have different versions where we have also versions of the Atlas that doesn't have -- doesn't need any rare earth. So I mean, we're really very -- yes, very convinced that this is a big step forward for us. Tobias Beith: Can I ask why not do all of the Atlas without rare earth, given it has caused problems for Lucid and the broader industry in the last 6 months or so? Marc Winterhoff: That will be, let's say, the long-term plan, but certain applications, certain power requirements for certain trims require, at this time, still permanent magnets. But that is the goal that we obviously try to figure that out. And again, in the -- maybe in the Investor Day that we are planning, I mean, Emad will definitely be there, and he can probably tell you in a short explanation over about 2 hours what exactly we are doing there. But yes, I mean, happy to provide further insights on that. Operator: Thank you. As I'm showing no further questions in the queue at this time. This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good afternoon. Welcome to Chime's Third Quarter Fiscal 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. And a replay of this call will be available on our Investor Relations website for a reasonable period of time after the call. I'd like to turn the call over to David Pearce, Vice President of Investor Relations and Capital Markets. Thank you. You may begin. David Pearce: Good afternoon, everyone, and thank you for joining us for Chime's Third Quarter 2025 Earnings Conference Call. Joining me today are Chris Britt, our Co-Founder and CEO; and Matt Newcomb, our CFO; Mark Troughton, our COO, will participate in Q&A. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.chime.com. We will also make forward-looking statements on this call, including statements about our business, future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our Form 10-Q filed on August 11, 2025. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Chris. Christopher Britt: Thanks, David, and thank you all for joining us. Q3 was another strong quarter for us, and I'm so proud to lead this talented team that has made Chime an industry leader in banking mainstream America. Month after month, more everyday people are choosing to move their banking relationship to Chime than any other fintech or bank. In fact, just last month, J.D. Power reported that, in Q3, more people opened a checking account at Chime than any other U.S. company. And we're still just getting started. We're up to 9.1 million active members in a market of nearly 200 million people earning up to $100,000 per year. We're at a $2 billion revenue run rate in an over $400 billion market. There is a secular shift happening in mainstream America towards digital banking that's helpful, easy and free, and Chime is leading the way. Our strong Q3 financial and operating results demonstrate our progress. We delivered 29% year-over-year revenue growth despite lapping the initial launch of our blockbuster new product, MyPay. We also improved our adjusted EBITDA margin by 9 points year-over-year. Both revenue and adjusted EBITDA exceeded guidance for the quarter. Driving this growth was a 21% year-over-year increase in active members to 9.1 million, a sequential increase of approximately 400,000 from Q2. Given this momentum, we're raising our Q4 and full year guidance for revenue and adjusted EBITDA. Despite the headlines about macro risks and consumer health, we see continued resilience among our members. Our business is powered by long-lasting primary account relationships. We maintain low credit risk through our short-duration liquidity products underwritten by recurring direct deposits. Over the last decade, our business has proven to be resilient across macro cycles. In fact, Chime can shine most when times are tough. In softer macro environments, consumers often become more value conscious, and we believe that Chime offers the most compelling banking experience and the best value. Our members continue to show strong financial health with steady growth in spending among tenured cohorts, higher average deposit balances and consistent use of our liquidity products with lower loss rates. Importantly, we're not seeing any signs of unemployment pressure within our member base. Today, I'll share some highlights from Q3 and what continues to set Chime apart, including our category-leading products, trusted brand and cost to serve advantage. Starting with product. In September, we launched our new Chime Card, our latest innovation to make Chime the best checking account for mainstream America. This new card makes fee-free banking with Chime even more rewarding. With 1.5% cash back on everyday spend categories for direct depositors and a titanium card option, we're now delivering an even more premium banking experience for our members. Chime Card builds on the strength of Chime+, which offers our direct deposit members a 3.5% interest rate on savings, 8x the national average. It also offers fee-free overdrafts, access to your paycheck on-demand with MyPay, free credit building and priority member support. We don't believe any incumbent offers consumers anywhere near this level of utility and value, including higher earners. In fact, in Q3, members making $75,000 or more annually were our fastest-growing consumer segment. The new Chime Card is a secured credit card that helps our members earn rewards while improving their credit score. Because it's a credit card, we earn 175 basis points of interchange, which is over 50% higher than our average Q3 take rate. The results in the first 2 months are promising. New members who adopted Chime Card are already using it for 80% of their spend. Portfolio-wide spend on our credit card products represents only 16% of total purchase volume as of Q3, so we're very excited about the growth potential as volume shifts to credit spend. We've also enhanced our short-term liquidity products, including MyPay. In the year since we first rolled out this product, MyPay has proven to be another essential feature that's loved by our members for its convenience and low cost. MyPay is now an over $350 million annual run rate product, with a transaction margin of over 45%. We've more than quadrupled MyPay transaction margin in just the last 2 quarters. These results are a case study in product innovation, only possible due to Chime's primary direct deposit relationships. In terms of our brand leadership, Chime continues to gain momentum, setting us apart from both legacy players and potential new entrants. In Q3, our unaided awareness in the online banking category reached 41%, up 12 points since 2023, with the fastest growth among Americans earning $50,000 to $100,000 annually. Chime now only trails the 2 largest banks in unaided awareness for online banking and is ahead of Wells Fargo, Citi and every other national bank. And just last month, TIME released their latest national survey and ranking of the top U.S. brands by category. For the first time, Chime was ranked the #1 banking brand in the U.S. according to consumers for 2025, ahead of all major banks and fintechs, and we're not even a bank. The final advantage I want to recap is the significant progress we've made in our cost to serve. Chime's cost to serve is roughly 1/3 to 1/5 of an incumbent bank, and this advantage continues to improve. Over the last 2 years, we've reduced our cost to serve by 20% while growing ARPAM by 18%. Our continued operating leverage is clear in our Q3 financials, which Matt will discuss. With our scaled model and the growing benefits we're realizing from AI, we don't believe we need to grow OpEx nearly as fast as we have historically to fuel our growth. In fact, we expect to keep head count flat over the next year. This should translate to significantly slower OpEx growth in 2026 versus 2025. A major contributor to our cost to serve improvement has been our investment in ChimeCore, our proprietary transaction processing core and ledger. I'm excited to announce today that we've completed our migration ahead of schedule, and we're now 100% on our own technology stack. ChimeCore sets us apart from both traditional banks and fintechs that rely on costly and often inflexible third-party solutions. Not only does ChimeCore provide efficiency gains that Matt will share, but it will continue to accelerate shipping velocity, proprietary innovation and our AI advantage. ChimeCore allowed us to launch our new Chime Card, a key driver of growth for 2026 and beyond. And with ChimeCore fully live, it unleashes the next era of innovation for Chime, to extend our lead as the go-to banking platform for everyday Americans. Our near-term product road map includes a new, more premium membership tier that will launch to reward our most engaged and higher-earning members: joint accounts, custodial accounts and investment products. And that's just some of what we have on the docket for 2026. These new innovations will give our members even more reasons to rely on Chime for all aspects of their financial lives across spending, savings, borrowing, investing and more. I also want to share a few updates on other emerging growth areas, including our early engagement programs in Chime Enterprise. Our early engagement strategy is all about making it easier to use Chime right out of the gate and is helping us drive strong member acquisition at increasingly attractive unit economics. We've ungated our credit-building features, added more deposit options like inbound instant transfers and funding with Apple Pay. We continue to experiment with offering MyPay before members direct deposit and have made it easier to transfer money from Chime with outbound instant transfers or our OIT service. In Q3, the combination of these new initiatives helped reduce CAC while allowing us to monetize relationships earlier and in new ways. There's more work to do, but we're also encouraged by the early signs of success converting these new Chime members to direct depositors over time, especially those who want to try before they buy. Lastly, on Chime Enterprise, I'm incredibly bullish about the impact this new business unit will have on our growth. We're seeing early traction in the employer channel, bringing Chime solutions to employees of our enterprise partners. We recently announced partnerships with both Workday and UKG, 2 of the largest global human capital management platforms. These integrations allow their employer customers to seamlessly offer Chime Workplace to their employees. In Q3, we signed several new employer partners, including Maxwell Group, Ubiquity and Etech. While still early days for Chime Enterprise, employee adoption rates of direct deposit has far exceeded our expectations. Enterprise sales cycles can be long, but I'm excited by the momentum in our pipeline. Our business continues to fire on all cylinders and is poised to deliver an exceptional 2026. That said, we do not believe our current stock price reflects the strength of our business. So today, we're announcing a $200 million share repurchase authorization, which we expect to implement in the coming months. We continue to have a robust cash position and a strong outlook on free cash flow generation, putting us in a great position to buy back shares at attractive values while continuing to invest in the growth of our business. We are well on our way to deliver on our vision to transform the way mainstream Americans bank, helping millions achieve lasting financial progress. I'm deeply proud of this generational company we're building. We have a brand that's loved and already rivals the largest banks in the world with more consumers choosing us than any other institution. The future of banking belongs to Chime. With that, I'll turn it over to Matt. Matthew Newcomb: Thanks, Chris. Good afternoon, everyone. Thank you all for joining us today. I'm excited to discuss our strong third quarter results and outlook. In Q3, we delivered 29% year-over-year revenue growth, and our adjusted EBITDA margin rose to 5%, up 9 percentage points year-over-year. These results exceeded our previous guidance, and with this momentum, we're raising guidance for Q4 and full year 2025. The platform we're building at Chime gives us multiple ways to win in the large market we serve. I'd like to provide a few highlights about our strong performance across actives, purchase volume, ARPAM and transaction margin in Q3. First, we continue to see strong new active member growth at attractive and improving unit economics. In Q3, thanks in part to our early engagement initiatives, we grew active members by 21% year-over-year, approximately 400,000 sequentially while reducing CAC by over 10% year-over-year for the third consecutive quarter. This has resulted in faster paybacks. Recent cohorts are trending to a 5- to 6-quarter transaction profit payback, a reduction from the 7-quarter payback we've seen previously. Of course, the real magic in our business is the stickiness of our cohorts for years and years beyond CAC payback, which drives an LTV-to-CAC profile of 8x or higher, powered by the consistent recurring engagement of our primary account relationships. Industry data suggests the average life of a checking account is over 15 years. Our oldest cohorts are now nearly a decade old and showing no signs of slowing down. Second, purchase volume. We have a resilient payments-based revenue model driven by our members' top of wallet, recurring and largely nondiscretionary spend. Like Chris mentioned, despite the concerns of our macro, we're seeing very consistent spend trends among our tenured cohorts. I want to quickly highlight a product enhancement that is having a positive impact on the business: outbound instant transfers or OIT. While the majority of our members use Chime as their primary account, some also maintain secondary accounts for activities like investing or peer-to-peer payments, especially those who are new to Chime. Historically, funding those accounts meant visiting these other apps and pooling funds using their Chime cards. These transactions are included in our purchase volume or PV. With OIT, members can now push money instantly to external accounts directly from the Chime app, offering a faster, more convenient member experience. OIT volume is not included in PV. We're seeing members shift volumes to this new experience. Since launching in January, OIT volume has scaled rapidly to $640 million in Q3. This mix shift to OIT tempers our reported PV growth but actually serves as a tailwind for our overall business. We earn a 1.75% fee on these OIT transactions, far higher than our take rate on debit purchase volume transactions. In Q3, purchase volume totaled $32.3 billion, up 15% year-over-year; and $32.9 billion, up 18% year-over-year, when combined with OIT volume. This drove payments revenue growth of 16% year-over-year in Q3 and 20% when combined with OIT revenue, which is included in platform revenue, a very consistent pace of growth with the first half of the year. Third, average revenue per active member or ARPAM. Primary account relationships drive our already strong ARPAM, and it continues to power higher alongside increasing levels of product attach. In Q3, ARPAM grew 6% year-over-year to $245, and we continue to see growth across every cohort, with our seasoned cohorts now at over $350 ARPAM. This growth coincides with continued growth in attach rates across our expanding product ecosystem. In Q3, 13% of our active members use 6 or more products on a monthly basis, up from 5% 2 years ago. This segment of members has an ARPAM of $466, nearly double our average active member and up 15% over the last 2 years. Said another way, not only is the breadth of Chime's opportunity massive with 9.1 million actives among 200 million everyday Americans but so is the depth. We're serving our members across multiple areas of their financial lives, and there are so many more areas left to go. Finally, we continue to make progress on transaction margin. A few highlights to call out on this front. First, as Chris mentioned, we completed our migration to ChimeCore, a massive unlock for future product velocity and continued cost efficiency. We expect this final step of our migration to increase our gross margin to close to 90% in Q4. Second, MyPay loss rates fell below 120 basis points in Q3, a more than 20 basis points sequential improvement from Q2, representing continued faster-than-planned progress toward our 1% loss rate target. MyPay transaction margin is now over 45%. Moving to the rest of our P&L. We continue to drive strong operating leverage in our business. In Q3, non-GAAP OpEx grew just 7% year-over-year, down from 14% growth in H1 and the slowest rate in years, even as we continue to put substantial growth capital work at 8x LTV to CAC. As a percentage of revenue, non-GAAP OpEx fell by 14 percentage points year-over-year in Q3, with continued operating leverage across every OpEx category. Along with our progress on MyPay transaction margin, this translated to a significant acceleration of our adjusted EBITDA margin growth, improving 9 percentage points year-over-year in Q3, well ahead of what we delivered in H1. And we expect this trend to continue in Q4, where we now expect 11 percentage points improvement to our adjusted EBITDA margin year-over-year and an incremental margin in the mid-50s, even higher than the mid-40s we guided to last quarter. More specifically on our outlook, we're pleased to raise our fourth quarter and full year guidance, driven by continued broad-based strength in the business. In the fourth quarter, we expect revenue between $572 million and $582 million, resulting in year-over-year revenue growth between 20% and 23%. This exceeds our previous guidance, which forecasts 20% growth at the midpoint. We expect adjusted EBITDA between $43 million and $48 million and an adjusted EBITDA margin of 8%. This also exceeds our previous guidance of 6% margin at the midpoint. There are a few things to keep in mind about Q4. First, we expect to see steady progress on active member growth at attractive ROI with continued positive results from our early engagement strategies. We expect to continue to see strong growth in OIT and therefore, a continued mix shift of revenue from payments to platform in Q4. This, of course, is a positive for our financials given the higher take rates on OIT volume. As you'll recall, we are now lapping last year's launch of MyPay, which began ramping in Q3 '24. We'll fully lap the launch in Q4 '25, which is what is driving some further normalization of our top line growth rate in our Q4 guide. Finally, as part of our termination agreement with our third-party processor, Galileo, we will incur a onetime expense of approximately $33 million excluded from adjusted EBITDA. We originally expected to recognize this expense in Q1 '26, but with our ChimeCore migration concluding ahead of schedule, we now expect to recognize this in Q4. We will maintain a contractual relationship with Galileo through March 2026. For the full year, we expect revenue of $2.163 billion to $2.173 billion and adjusted EBITDA of $113 million to $118 million, above our prior guidance. So we're pleased with our strong Q3 results and outlook for Q4, but we're even more optimistic about 2026 and beyond. While we won't give formal guidance for 2026 until our next earnings call, we believe the strong progress we're seeing across the business is setting the stage for continued strong top line growth, additional transaction margin expansion and substantially slower OpEx growth, resulting in a step-up in our adjusted EBITDA margin that is above our previous expectations. Specifically, we expect our '26 incremental adjusted EBITDA margin to be above the mid-50s we're guiding to for Q4 this year. Finally, as a reminder, our full IPO lockup ends on Friday morning, the beginning of the second full trading day following today's earning announcement. With that, I will open it up to Q&A. Operator: [Operator Instructions] And we'll take our first question from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Really nice results, guys. Happy to see it. On the member growth, I want to ask about that and what you're seeing competitively there. Any change in competitiveness? It sounds like CAC was still an improvement there, but I'm curious what you're seeing on the ground and any learnings from widening the funnel, that kind of thing. Christopher Britt: Tien-Tsin, thanks for the question. Yes. Look, we continue to see really strong momentum, and we feel good about our competitive position. As you heard in the opening statement, we are the #1 destination for people that are switching their direct deposits, for people that make up to about $100,000 a year. And just in the past couple of weeks, J.D. Power reaffirmed our leadership in that area. So I think it's fair to say that we've broken out as a top brand in banking, and that fuels a lot of our growth in business, including our referral channel, our organic channel, which continue to power over 50% of our new active member growth. In the opening statement, we talked about 21% growth in our active members. But if you look at the last 12 months, we've added 1.6 million actives, and that's an acceleration from the 1.2 million actives that we delivered in the 12 months trailing Q3 '24. So good top-of-the-funnel growth, and we're continuing to see strong conversion rates on the direct deposit right out of the gate, which, of course, is what we're always optimizing for. But at the same time, we're seeing positive impact from our early engagement strategy, which makes it easier for people to start using Chime even if you're not ready to direct deposit on day 1, for example, things like making it easier to fund, to build your credit and even use a version of MyPay before you start doing direct deposits. So we're feeling good about the results from these initiatives. And maybe, Matt, I don't know if you want to share any color on the -- some of those results. Matthew Newcomb: Yes. I think -- thanks, Chris. The high level here is that the combination of these early engagement initiatives is really already having a positive impact on the business. We're seeing, among new checking account openings, a record number of people activating with us out of the gate. We're seeing lower CAC, as Chris mentioned, down 10% -- over 10% year-over-year for the third consecutive quarter. At the same time, we're monetizing at higher rates. So our recent cohorts continue to engage with us in new ways. They're attaching to more products earlier in their tenure. I think you see this in the overall growth of our ARPAM. But we're also seeing -- specifically for those members who haven't yet engaged with us in a direct deposit capacity, we're seeing, for that segment of members, their average transaction profit is up about 20% versus last year. So combined with what Chris mentioned, which is continued strong conversion to direct deposit among those people that are ready to do so right out of the gate, the result of all of this has actually been an improvement to our cohort performance. And more specifically there, our most recent quarterly cohorts are tracking to closer to a 5- to 6-quarter transaction profit CAC payback compared to closer to 7 quarters in previous cohorts. Operator: We'll take our next question from James Faucette with Morgan Stanley. James Faucette: Wanted to ask a couple of follow-up questions to that. It seems like payment volume per user is down a little bit, but we haven't really seen a big increase in the pace of quarterly user or quarterly adds. Some of that softness seems to be -- or some of that like kind of sequential change seems to be ungating perhaps, or at least that's what it was previously. Is that still the primary dynamic? Or any other nuance around consumer health within the base that we should be sensitive to? Matthew Newcomb: Yes. Let me touch on that. Thanks for the question, James. I think the other point to call out here is, first, number one, we're actually seeing very consistent overall transaction volumes year-to-date. The one thing that is a newer trend is the very fast adoption of outbound instant transfers or OIT. This is what we talked about in the prepared remarks a little bit earlier. This has grown even faster than our own internal expectations. So as we mentioned earlier, OIT enables members to instantly push money to secondary accounts directly from the Chime app. Historically, the only way to move funds instantly was for our members to go to their secondary accounts and pull money using their Chime cards. That's a transaction that's very similar to a purchase transaction, and it earns us interchange. The result of this is a mix shift from payments to platform revenue. And that's because the volume from the historical way to make instant transfers is included in purchase volume, whereas OIT is separate from purchase volume and captured in platform revenue. So the much better and far more like-for-like way to look at this is to take a look at combined purchase volume and OIT volume. And when you do that, what you see is that while payments revenue grew 16% year-over-year in Q3, payments in OIT platform revenue combined grew 20% year-over-year in Q3. And that's been a very consistent pace of growth compared to what we saw in Q1 and Q2. Maybe I'll pass to Chris to talk about a little bit what we see on the consumer. Christopher Britt: Yes. I mean the consistent growth that Matt mentioned, I think as it relates to broader consumer health, I think, despite what you hear in the headlines around macro risk and health of consumers, among our members, we're seeing -- and this is obviously a very mainstream consumer. We're seeing spending that's remaining robust, and we're not seeing signs of a pullback. As you all know, about 70% of our members' purchase volume goes to everyday essential purchases. And when we look at our most tenured members, the growth in their discretionary spending is actually outpacing the growth in their essential spending. So we think that suggests a healthy consumer, somebody who's confident to spend on those nonessential items, and we're seeing year-over-year increases in categories like restaurants and DoorDash and Uber Eats. Our members are willing to pay to order in, but they're also going out. They're using Lyfts, they're using Ubers. We're seeing double-digit growth in places like Amazon, Costco, triple-digit growth in newer entrants like TikTok Shop. And at the same time, we're seeing continued increases in our members' average balances, which are up nearly double-digit year after year. So I think despite all the noise, our data suggests that consumers are healthy, consumers are remaining employed, and in general, appear to be on pretty steady ground. James Faucette: Great. Appreciate that, Chris, Matt. And then just a quick question. The margin improvement was really impressive. And it looks like some of that is coming from the improved loss rates on MyPay. But can you give us some updated thinking on how we should be anticipating the path to margin expansion from here? You also highlighted kind of change in the move to ChimeCore, et cetera, also contributing but just trying to contextualize on what that means on a go-forward basis. Matthew Newcomb: Yes. Thanks, James. So as I mentioned earlier, I think one of the nearest-term highlights from a margin perspective is going to be the uplift that we expect to see in our gross margin as a result of the migration to ChimeCore. And again, more specifically there, what we expect is our gross margin to get to -- right close to 90% here in Q4. And of course, that flows through to transaction margin as well. On MyPay loss rates, we are thrilled with the progress that we're making there. As we mentioned earlier, the trajectory we've been on here is certainly faster than we planned. We went from close to 1.7% loss rate in Q1 to 1.4% loss rate in Q2, and in Q3, that fell below 1.2% loss rate. And so great progress, and we expect more progress from here. We talked about a 1% more steady-state loss rate for this product. We're well on our way to that and expect that -- to hit that here in the coming few quarters. Operator: We'll take our next question from Andrew Jeffrey with William Blair. Andrew Jeffrey: Great progress on MyPay. A couple of questions on that product as well as instant loans. I guess, Matt, where do you think transaction margin at 1% is in MyPay? And I guess as kind of a follow-up on that, if you get there quickly, and it seems like you're on that trajectory, then do you kind of say, hey, look, maybe we're not growing this business fast enough and review sort of the underwriting criteria? What is the dynamic, in your view, as you look out on the future of MyPay? And then I just wanted to get an update on the short-term loan product. Mark Troughton: Yes, sure. I'll pick up the first part of that. I think what happens when you launch a new lending product is typically your first cohort, as you're going through your underwriting criteria, tend to have high loss rates. So there's a couple of dynamics we're seeing with respect to MyPay. The first one is, obviously, as these cohorts season and we have more loss performance data on MyPay, we're seeing a natural reduction in loss rates. I think secondly, as you've indicated, this product has been out for just over a year, and we continue to iterate on those underwriting models to make better and better loss decisions. So I think those are 2 of the things that are driving improvement on the loss rates. I think we're not expecting to start to go and answer this more broadly in a way that would actually start to compromise those gross margins. I think that's a really, really important point here. In fact, we actually see opportunity for us to continue to expand those gross margins over time. Maybe I'll pass it over to Matt just with respect to that 1% -- the 1% target. Matthew Newcomb: Yes, obviously, that represents continued margin expansion -- transaction margin expansion on MyPay. We aren't giving a specific target there just yet. And of course, transaction margin also is dependent on the usage of the product and of course, the top line as well. So we're going to continue to look to make improvements to this really already loved product for us. And I think the message we're trying to deliver today is that we're really pleased with the unit economic performance and expect even more to come. Christopher Britt: Yes. It's a $350 million run rate product in just a year, great margins, and we've done this while being the lowest cost product in the market with lots of daylight between us and the pricing of other offerings, so really excited about this one. Andrew Jeffrey: Okay. And then the instant loan product, short-term loan product, is that -- should we expect to hear more about that next year? Mark Troughton: Yes. I think -- instant loans, I think, as we've indicated before, it's something we've been working on here for 12 to 18 months, and it's something we've rolled out on a conservative basis. We've been very excited about the progress with that product. It's actually our highest NPS product today. In fact, our NPS on instant loans is around 80% -- 80 points. So our members love it. I think that is something that we will continue to roll out and expand. It's not something that we're giving separate guidance on yet at this stage. Operator: We'll take our next question from Adam Frisch with Evercore ISI. Adam Frisch: Really nice job on the quarter here. Some encouraging nuggets in the press release about Enterprise showing direct deposit levels above expectations. It's obviously something that can drive a whole lot of goodness on the other side of that. I know it's still early days, but can you provide some color on the TAM from the 2 partnerships mentioned? Maybe some color on the sales pipeline? And any initial revenue and profit indications of members coming in from this channel? Christopher Britt: Yes, Mark oversees the Enterprise channel. So Mark, why don't you take that one? Mark Troughton: Thanks, Chris. Adam, I think, as Chris indicated in the prepared remarks, we've -- we continue to be really excited about the progress broadly within Enterprise. Just to -- just for some context, we launched the product at the end of April, beginning of May, so it's a relatively new product. I think the way we've -- this is a B2B motion. So the way we've rolled that product out is we've really started with some smaller employers just to prove the adoption model and make sure that -- make sure the go-to-market motion and the employee engagement and all those sort of things are working really, really well. And I think we've succeeded in that. And I think what we're seeing here really is across these 3 employers, we're seeing adoption rates that exceed what we would expect and what you're seeing other providers in the market have. And we think that the reason for that is because of the competitive advantages we have here. We're going to market with a broader value prop around financial wellness, not just around sort of [ GTE ] EWA product. And I think -- so in addition to those 3 partners, of course, we've just signed the strategic partnerships with Workday and UKG, and we think that these are important partnerships as we look to access employer and payroll data. And these are going to be important partners for us in terms of actually accessing new employer relationships. So we're excited about those 2. The pipeline looks good at this stage, and the value prop we have is -- appears to be resonating really well with the market. So I think that's what's continuing to give us excitement for the channel. We're not at the point here where we're ready to give separate guidance related to Enterprise. This is B2B. These sales cycles are long, in particular with the bigger enterprises who are the ones that would likely have the more material impact on our outcome. But we do think medium to long term, this will be a material driver of [ PV ] growth for us, and we expect to see that coming in at a significantly lower CAC than we have in our consumer channel. Adam Frisch: Okay. Awesome. And then if I could just throw in one addendum here. Congrats on getting ChimeCore out and in production ahead of schedule. That's really good stuff. Matt, if you could just provide some color on where you think the margin impact will be. I assume there's -- it's been a little bit in the previous quarters as you've rolled some things over, but how does it progress through the following quarters? And then really looking forward to future conversations like this where we can talk about ChimeCore, and you went faster or bigger or smarter because you have that proprietary platform. So again, congrats on that. Matthew Newcomb: Yes, thanks. We're thrilled to have this enormous milestone behind us with ChimeCore. And as I mentioned earlier, this is really setting the stage for kind of the next -- really the next generation of product development for us, which we're thrilled about and of course, also cost efficiency. On the cost efficiency side, what we expect now is for an uplift to our gross profit margin to close to 90% now starting in Q4 as a result of migrating to ChimeCore and lowering our transaction processing costs, which is a key part of our cost of revenue. Why don't I pass it to Chris to talk a little bit more about what ChimeCore unlocks for us on the new product development side as well? Christopher Britt: Thanks. Yes. I really believe that ChimeCore, when you look -- when we look back a few years down the line here, you're going to look at ChimeCore as being a key element of what has set us apart from a lot of the traditional incumbents as well as some of the other fintechs. It's having full control over our tech stack is something that's really differentiated and allows us to launch exciting new products. The first of which is this Chime Card product, which we rolled out to new members and are now in the process of rolling out across our existing member base. And the potential impact of that over the course of this year and going into '26, we think, is really exciting when you think about the opportunity to move more of our spend from debit onto the secured credit product that not only helps people build their credit but also gives them great rewards. So we really believe that ChimeCore is going to unlock even more rapid launch of new products and services and things like even more premium membership tiers so that we're providing even more value to consumers that can give us more of their paycheck and give us more of their spend. We're going to reward them with that, with the new premium tier. We're going to launch joint accounts, custodial accounts, investment services. These are all things that can be enabled from this core platform that we now own. And so we think the future is bright on the product side as a result of this investment we've made. Operator: We'll take our next question from Timothy Chiodo with UBS. Timothy Chiodo: This is actually a little bit related there to Adam's question in a way around, [ as we ] get to the Chime Cards, so the secured credit card offering. You mentioned the higher interchange. You mentioned allowing your members to improve their credit score, and there are some stats on the website around that. It's pretty impressive. So it seems like a great win-win product for both the members and for Chime. As we've talked about in the past, there's always this concept of the graduation. So someone comes on to Credit Builder. They're a great customer. They've improved their credit score, and now their score's higher. And they might want to move on to a traditional credit card offering. And not asking you to preannounce future products, but to the extent you could just talk about maybe ChimeCore can enable a traditional credit card or other concerns or reasons why you would or would not want to offer a traditional credit card to the members? Mark Troughton: Yes, sure. Timothy, I'll pick that one up. As Chris indicated, our first priority really is getting as many of our members as we can onto the Chime Card because we see that as a significant opportunity. But having said that, we know today that there is significant demand amongst our member base for a more traditional credit card, one that offers high levels of liquidity and rewards and -- number one. Number two, we believe that with the superior transaction data we have on our members, where we see all the inflows and all the outflows, we get a really unique underwriting opportunity and a lot of unique underwriting data. And because we sit at the top, we're receiving direct deposit into our accounts. We also sit top of the repayment stack. And we think these 2 factors actually give us a significant advantage to offer a really compelling credit card to our members. So this is something that, I think, Chime will do over time, but it is not something that we should be indexing on as a material contributor to 2026. I will also say that as we've indicated in the past, we intend to stay a payments business. So as we do this, we will do this in an asset-light way, in a way that doesn't create a lot of overhead on the balance sheet. Christopher Britt: Maybe I'll just -- one last point on that is you talked about graduation risk. One of the points that we wanted to highlight is that when you look at our newest active member cohorts, we're actually seeing the fastest growth among consumers in the $75,000 to $100,000 earning segment. So we think that the product today continues to get better and better, especially for those that have more transaction activity and more deposit activity that they can do with us. So we'll keep pushing on that and think about future, more longer-term products like Mark just highlighted. Operator: We'll take our next question from Will Nance with Goldman Sachs. William Nance: I also wanted to ask on Chime Card product rollout. I was wondering if you could talk a little bit about 2 things. You mentioned that -- you mentioned some of the early progress in rolling that out. I'm wondering if you could speak to just expectations for attach rates on new cohorts and just the prioritization of Chime Card for new customers. Is it -- it's our understanding that you're expecting that attach rate to be relatively high on new cohorts, that this is sort of the primary experience that you want to put in front of customers. I was just wondering if you could confirm that and talk about whether attach rates are there. And then you mentioned the 175 basis points on the card for interchange, was very helpful. I'm just wondering if you could share just the ballpark estimate of where you think the rewards cost could shake out for the direct deposit customers and just clarify the reward's going to be booked as part of transaction margin or would that be like a sales and marketing line? Christopher Britt: Thanks, Will. I'll start. Yes, we started by rolling this out just to new members, and we're really encouraged, for the folks that select the Chime -- the new Chime Card, we're seeing 80% of their purchase volume within the Chime ecosystem coming off as credit spend. That's obviously a really exciting development for us. And we have rewards and more premium versions of the actual physical card as well that I think are pretty compelling as well. It's still very early days in terms of rolling this out across our existing member base, but that's something that we're pushing hard right now. I don't know if you want to -- how much more detail you want to share in terms of expectations. Matthew Newcomb: Yes. Will, as it relates to your second question around the rewards expense, rewards are actually contra revenue. So the 175 interchange rate that we were referencing earlier is actually already net of our rewards expense. That's the sort of all-in take. William Nance: That's awesome. That's great. Okay. And then I guess as a follow-up, I really appreciate the disclosures around OIT. Just wondering if you could talk a little bit around, I guess, attach and adoption rate. I guess it seems like we should be thinking about this mix shift dynamic continuing and thinking about the payment volume per active inclusive of this number. So just wondering, is that -- are you seeing that substitution effect level out where effectively the -- what was previously pull is now fully migrated over to push? Or would you expect that to be something that grows pretty fast and faster than kind of sequential changes in payment volume for the next couple of quarters? Matthew Newcomb: Yes. The short story here is we do expect this to grow faster for the next few quarters. Said another way, we do expect a sort of mix shift from payments to platform to continue. This is a product that's used by the majority of our customers at all in any way, but it is by a smaller set of our members. And of course, it is -- it has grown fast. And so when you take a look at the impact on overall purchase volume rates, we felt it was very important to clarify this. We are seeing that some of our newer cohorts are adopting this at higher rates than our existing members. And so as that continues, that's why we expect this mix shift again to continue here for the next few quarters. Operator: We'll take our next question from Darrin Peller with Wolfe Research. Darrin Peller: All right. Nice job on the quarter. When I think about -- as a follow-up to attach rates and thinking about ARPAM for a moment, I mean, now that you're -- like you said, I mean, you're anniversarying the rollout, the initial rollout of MyPay. Just help us understand how to think about growth in ARPAM going forward in Europe from your perspective. Both from a financial modeling perspective would be helpful but also really thinking about it from a perspective of the different products that can help drive it and those that you're most excited about going forward in the next year or so. Matthew Newcomb: Yes. Well, maybe I'll touch just very briefly on sort of the near-term trajectory in ARPAM, and then I'll hand it over to Chris to talk about some of the opportunities to continue to grow ARPAM over time. So the first thing I'd say is, as we mentioned, we are lapping the initial rollout of our really blockbuster product, MyPay, this quarter. You should think about Q3 as sort of a partial lapping. We began rolling out MyPay in Q3 of last year, whereas Q4 is when we fully lapped the launch. And as a result of that, you should expect ARPAM growth just to moderate a bit in Q4 relative to Q3. I would say, though, overall, at the cohort level, we continue to see very strong ARPAM growth. Our members are continuing to attach to more products over time. That coincides with continued growth in ARPAM by cohorts, across every cohort, with our most tenured cohorts now at over $350. Let me pass to Chris to talk about some of the other product opportunities we're excited about. Christopher Britt: Yes. I think, naturally, as we show in the supplemental pack, you can see consistently that as our cohorts age, the ARPAM increases. And one of the things that we love about how that ARPAM increases is that it increases as a result of just more engagement, right, more spend, capturing more deposits over time, capturing more spend over time. And now with higher monetizing card transactions, we think there's an opportunity for that to continue to go even higher. Look, across the board, we -- one of the things we talked about on the road show is not only do we have the best suite of products, we believe, for the mainstream everyday consumer, but we also have the lowest-cost products. So there's lots of opportunity for us on that side as well because we think that there's still quite a bit of room between the way many competitors price their products and ours. So we're going to continue to add new products to drive more attach, and we think that's going to drive more engagement. And we'll launch new products with prices that will continue to be market leading. And really excited about the opportunity to drive more engagement and revenue over time. Darrin Peller: What's the latest on MyPay day 1? Just a quick update, if you don't mind, and then we'll turn it back to the queue. Christopher Britt: Sure. MyPay day 1 is really one piece of this early engagement strategy that we've highlighted around making it easier to use us right out of the gate. I wouldn't sort of over-rotate on that opportunity, but early results are promising, albeit on a fairly small scale at this point in time. We really think that there's -- this combination of being able to fund your account easily, being able to -- and have multiple ways to fund your account, to move money out of the account with OIT, to use our P2P service, to get -- the more we can get people access to trial of our product, we think the better chance we have over time to convert them to long-lasting primary accounts. So we're going to continue to trial that experience of MyPay day 1 for people who don't yet have a direct deposit relationship. And we'll also be adding other trial experiences as well. But no major update to provide on that. It's still relatively small scale. Operator: We'll take our next question from Sanjay Sakhrani with KBW. Vasundhara Govil: This is Vasu Govil for Sanjay. Maybe could you just comment on the competitive environment a little bit? I know there are a number of different providers that are sort of trying to target the paycheck-to-paycheck consumer with short-duration loans for customer acquisition. Can you tell when your customers are engaging with any of these third-party platforms? And anything you sense in terms of change in competitive intensity in the market? Mark Troughton: Yes, sure. I'm happy to pick that one up. I think maybe the first thing we should do to level set here is our real competition are big banks, number one. They have the vast majority of primary account relationships, and that is our primary -- that is by far our primary competition. The -- if you took all the rest of the fintechs, we are much larger than all the rest of the fintechs combined in terms of primary account relationships today. And so I think, number one, we should index on large banks. Secondly, we're 3% penetrated today in our TAM. So there's a lot of opportunity here ahead of us. We continue to obviously watch some of the smaller fintechs that are approaching our members. There's very few, if any of them, that are really making much progress on the primary account side, I think to your point. Some of them are competing and offering liquidity services that would compete along with, say, SpotMe or MyPay. I think our perspective on that is if you look at the price points that these members -- these competitors are offering, they are far in excess of the rates we have for MyPay and for SpotMe. Having said that, we do see some of our members who may be doubling up and using these additional services in addition to what they get from Chime to access higher levels of liquidity. We like our position there because we top the repayment stack and we get paid first. And we're going to continue to do this at very, very competitive rate. So we're not seeing -- as Chris indicated early on, even J.D. Power has just confirmed that more members are switching to Chime than anywhere else, and that trend continues. So we don't see these offerings impacting our acquisition of primary account relationships. Vasundhara Govil: And just for my follow-up, if I could ask on the model for 4Q as we're thinking about new account adds versus volume growth. Sort of anything to be mindful of from a seasonal perspective that you would tell us? Matthew Newcomb: Q4 -- when we see seasonality in our business, the sort of primary quarter to call out is Q1 and therefore, Q2 right after, just from a tax refund perspective. That's really when we see the most seasonality across our metrics, including purchase volume per active, including ARPAM, including new account adds, et cetera. Q4, I think, seasonally tends to see a little bit higher spend on a per active member basis just around the holidays but not nearly as much as sort of the seasonally higher spend Q1. Beyond that, I think Q4 is a pretty standard quarter for us. So we're excited to continue to grow across those metrics, actives and purchase volume. Operator: We've reached our allotted time for questions. I will now turn the call back to Chris Britt for additional or closing remarks. Christopher Britt: Thanks so much. I really want to appreciate everyone and thank you all for joining us today. We look forward to seeing you all out on the road hopefully sometime soon. Operator: Thank you. This does conclude today's meeting. Thank you for your time and participation. You may disconnect at any time, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Sportradar Group's Third Quarter Earnings Call. [Operator Instructions] I will now hand the conference over to Jim Bombassei, Senior Vice President, Investor Relations and Corporate Finance. Jim, please go ahead. James Bombassei: Thank you, operator. Hello, everyone, and thank you for joining us for Sportradar's earnings call for the third quarter of 2025. Please note that the slides we will reference during this presentation can be accessed via the webcast on our website at investors.sportradar.com and will be posted on our website at the conclusion of this call. A replay of today's call will also be available on our website. After our prepared remarks, we will open the call to questions from analysts and investors. In the interest of time, please limit yourself to one question and one follow-up. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report on Form 20-F and Form 6-K filed today with the SEC, along with the associated earnings release. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates. Also, during today's call, we will present IFRS and non-IFRS financial measures and operating metrics. Additional disclosures regarding these measures and metrics, including a reconciliation of IFRS to non-IFRS measures are included in the earnings release, supplemental slides and our filings with the SEC, each of which is posted to our Investor Relations website. We may also discuss certain forward-looking non-IFRS financial measures that cannot be reconciled to the most directly comparable IFRS financial measure without unreasonable efforts. Joining me for today's call are Carsten Koerl, our CEO; and Craig Felenstein, our CFO. And now I'll turn the call over to Carsten. Carsten Koerl: Good morning, everyone, and thank you for joining us today. I'm pleased to announce another quarter of strong execution and performance. Our results further underscore our scale and position as a mission-critical partner deeply embedded in the global sports ecosystem. We achieved record quarter 3 revenues of EUR 292 million and strong flow-through with 29% growth in adjusted EBITDA and a record adjusted EBITDA margin of 29%. So far, this year, we have generated EUR 149 million of free cash flow, representing very strong conversion of 72%. In addition, we are raising our full year '25 guidance with the closing of our IMG Arena acquisition and providing our initial thoughts for '26. underscoring our accelerating growth and value creation. Given the strong momentum we see going forward and the opportunity to create significant shareholder value, our Board of Directors authorized increasing our share repurchase program by EUR 100 million, raising the total program to a size of EUR 300 million. As we discussed at our Investor Day, we are uniquely positioned to capitalize on the rapid expansion of the global sports betting market, given our scale and the depth and breadth of our content, we are driving higher take rates by growing our products and content, penetrating across our loyal client base as we continue to accelerate innovation and bring next-generation products to the market. IMG Arena fits squarely into this growth strategy. First, we would like to welcome our new colleagues and partners from around the world. IMG Arena is a highly strategic acquisition, which aligns with our core business and will fuel our next leg of growth. It further strengthens the competitive position as the scaled leader at the intersection of sports, media and betting, bringing a wealth of premium content and complements and enhances our already robust global portfolio and capabilities. As a reminder, this transaction is unique in that we are not making any payments to Endeavor, but instead are benefiting from financial consideration totaling approximately EUR 225 million. This acquisition is expected to accelerate our growth while being accretive to our adjusted EBITDA margins and free cash flow from conversion, which Craig will provide more details on shortly. This deal makes a major milestones and create significant additional opportunities for our company, enhancing our content distribution and further fueling product development. We will seamlessly integrate and monetize these rights across our highly scalable technology platform and client network, encompassing strategic relationships with over 70 rights holders, approximately 70% of these rights are spread across the 3 most betting sports, soccer, tennis and basketball. This acquisition helps fueling our flywheel, adding more must-have content and data, which in turn powers more as generation, grows NPS trading liquidity and scales our video streams. Our teams have been hard at work and now that we have closed on the deal, they have hit the ground running to manage a smooth integration and maximize revenue synergies in both the short and the long-term. While some synergies will be realized quickly, others might take more time to fully realize. When it comes to global sports coverage, we are the clear leader, and this is further enhanced with IMG. With a portfolio of over 1 million matches annually, our major partnerships are locked in long-term, providing us with a great visibility on our right costs. We just completed the first season of our extended and expanded partnership with Major League Baseball, and we saw strong performance for the season with revenues exceeding original projections. We recently renewed and extended our deal with the Spanish Football Federation to sell the international media rights for the Spanish Super Cup until 2032. This agreement ensures we keep control of global broadcast sales for the tournament well into the next decade and gives us continuing as the Spanish Football Federation exclusive international media rights partner. As we fine-tune our leading rights portfolio, we continue to drive innovation across our business, creating more cross-selling and upselling opportunities with our clients and partners. In terms of product development, we are leading to shift towards more personalized and interactive experiences. We are delivering next-generation products that shape how fans view bet and connect with the player on the field. A great example of how we are doing this is through our deepening partnership with the NBA. 4Sight Streaming, first introduced last season, has been upgraded with new features, including live shot probability, enhanced motion graphics and real-time player highlights. These updates deliver deeper storytelling and more contextual data-rich visualizations that boost engagement. One of our most exciting recent AI breakthroughs is the development of a generative foundation model for basketball, a first of its kind in sport. The model is based on a large transformer architecture, which we trained using billions of 3D body post data points from thousands of NBA matches, allowing the model to understand player movement, decision-making and game flow-through at an unprecedented level of details. This foundation model now powers predictive insights in real time, such as the expected points in the current possession, probability of the ball handler scoring in the next few seconds or how each player actions affect the teams' points per possession. These insights enhance our 4Sight Streaming product, bringing richer, more interactive visualizations to live broadcasters. In addition, this technology opened new frontiers in coaching and performance analytics, quantifying the value of every past block and shot. We see this foundation model powering our next generation of products, including coaching and scouting analytics, realistic simulating betting products, advanced visualizations for media and broadcast and more advanced AI engines for sport video games. Now turning to our managed trading services. This product continues to be a differentiator for us and a key value proposition for our clients. Turnover for the quarter was up 25% year-over-year. And on a trailing 12-month basis, we managed approximately EUR 48 billion on behalf of our clients, making us a top bookmaker globally. Our proven AI-driven trading and risk management capabilities, combined with the diversity of sports on our MTS platform enabled us to achieve a margin of over 11% for our clients during the quarter. Given the scale of our trading volume and the number of betting tickets we are managing, this gives us a clear competitive advantage, enabling us to better manage risk than the major operators. In 2026, this client group will be a clear focus for upselling and cross-selling our MTS capabilities. We also continue to make significant progress in our marketing services business. In particular, our ads business delivered record volumes on our DSP this quarter, reflecting growth demanding for our data-driven advertising solutions. We saw robust performance across multiple channels, including our affiliate business, underscoring the strong ROI of our campaigns and the scalability of our marketing platform. As discussed last quarter, we are seeing a clear trend in today's fragmented media environment with clients increasingly turning to Sportradar to enhance fan engagement across mobile streaming and connected TV platforms. Betting is no longer viewed as a stand-alone experience, but instead as an integral part of how fans engage with sport. As fan behavior becomes more interactive and sports viewership continues through transition from linear to digital and mobile streaming, our media and technology clients are looking to leverage our capabilities to drive deeper engagement and greater value across multiple channels. We have recently signed deals with a number of media platforms, including leading U.S. regional sports networks and several top national broadcasters to integrate our data APIs, streaming products and advanced analytics, delivering deeper storytelling and more contextual data-rich visualizations that boost engagement. As an example of this in our new partnership with DAZN, the global sports entertainment platform offering live and on-demand coverage across a wide range of sports and leagues. This deal makes another milestone in scaling our media business globally as we now provide DAZN the data and broadcast services across soccer, basketball, tennis, golf, American football and baseball. Our technology will power on-screen graphics, deliver real-time stats and elevate storytelling across DAZN's platforms. We also have extended and expanded our partnerships with Google and Yahoo!, providing live game day sports analytics for Google and expanding our relationships as a primary provider for sports data for both Yahoo Sports and Yahoo Fantasy. And we are excited about the customized version of our 4Sight technology we developed together with NBC for Peacock called Performance View. Debiting last night for Peacock streamed NBA games, Performance View gives fans a new way to experience the action. Performance View adds on-screen layer of data that illustrates deep analytics such as where a player is likely to score from next, helping fans understand what might happen before it occurs on the call. Now switching to a topic that has been on investor minds recently, I will touch on prediction markets. We saw prediction markets emerge in sports betting nearly 25 years ago, but their share has been limited historically given the low liquidity and the challenge pricing more complex bets, including in-game wages. The emerging market situation in the U.S. is a bit different given the current uncertainty regarding state versus federal regulation. We have seen recent moves made by certain of our league partners and clients, and we are in active discussions with them. We will work closely with our partners and clients while ensuring that we comply with applicable laws and regulatory requirements. Should the market continue to develop in the way that aligns with those standards, we see the potential for prediction markets to complement our existing business and create incremental opportunity for Sportradar. In closing, we are excited about the continued momentum we are seeing in our business and the significant strides we are making leveraging our technology and capabilities to lead the industry. Our global scale, which will be further enhanced with IMG Arena, provides us with an opportunity to continue to innovate and drive value creation. We are confident in our growth strategy and the significant opportunities that lie ahead, and we remain laser-focused on driving long-term value for our clients, partners and shareholders. Thank you. And I will now turn over to Craig, who will discuss our financial results in greater detail. Craig Felenstein: Thanks, Carsten, and thank you, everyone, for joining us this morning. Sportradar's strong third quarter results once again demonstrate the value of the unique position we have built at the intersection of the sports, media and betting industries. The relationships we have developed and nurtured with clients and partners over more than 2 decades is driving durable and consistent revenue growth. And when combined with our stable and predictable cost base, we are generating record adjusted EBITDA margins and significant free cash flow. Sportradar is leveraging our best-in-class product suite across our leading global distribution network to deliver increasing value to our league, media and sportsbook partners. And as Carsten mentioned, the closing of the IMG Arena acquisition further strengthens our competitive position as the mission-critical partner to the sports industry. I will provide more color on the expected contribution from IMG later in my remarks as it accelerates our growth while being accretive to our margin and cash flow profile. Turning to the quarter. Sportradar delivered revenues of EUR 292 million, an increase of EUR 37 million or 14% as compared with the third quarter a year ago. This growth was driven by higher uptake from our existing partners, continued strong U.S. market growth and strong trading results from our managed trading services business. We continue to outperform market growth by deepening our client relationships through cross-selling and upselling our diverse portfolio of offerings as demonstrated by our customer net retention rate of 114%. As we have discussed previously, foreign currency movements, most notably due to the U.S. dollar relative to the EUR o, continue to be a headwind and revenue growth in the third quarter would have been 17% on a constant currency basis. Looking at the individual product groupings, we delivered broad-based growth across both our betting technology and solutions products as well as our sports content, technology and services. Betting technology and solutions revenue of EUR 233 million grew 11% versus the third quarter a year ago, primarily driven by 19% growth in managed betting services, led by the sustained momentum at managed trading services from increased turnover with higher volumes from our existing customer base and trading activity from new clients as well as increased overall trading margins. Betting and gaming content delivered 8% growth during the quarter despite foreign currency headwinds, including sustained momentum in our streaming and betting engagement products due to growth in audiovisual revenues from both existing and new customers. Odds and live data products also continued to perform well, led by additional client uptake and continued U.S. market expansion. Turning to our other product group. Sports content, technology and services delivered strong results this past quarter, with revenues of EUR 59 million, increasing 31% year-on-year. Growth was led by marketing and media services, which was up 33%, primarily from increased uptake from existing and new technology and media customers and from contributions related to our expanded affiliate marketing capabilities. Contributions from integrity services more than doubled due to the uptake of products and services from our lead partners, and we delivered 10% growth versus a year ago from sports performance due primarily to price increases. Geographically, our growth continues to be broad-based with U.S. revenue up 21% and Rest of World revenue up 13% in the third quarter. U.S. revenues were 23% of our revenue mix as we continue to capitalize on the continued rapid market growth and the growing demand for our breadth of content and innovative product solutions. Aside from the impact of foreign currency on U.S. revenue, please note that our U.S. revenue mix is typically lowest in the third quarter due to the NBA and NHL off seasons. The strong revenue growth across our product portfolio translated into significant adjusted EBITDA growth in the third quarter with adjusted EBITDA of EUR 85 million, increasing 29% year-on-year. Our continued focus on cost efficiencies, combined with our predictable and stable sports rights costs enabled us to deliver significant operating leverage with our adjusted EBITDA margin expanding over 300 basis points year-on-year to a record 29% as we continue to be diligent across our cost infrastructure. Looking at the individual cost buckets this past quarter; I will be speaking to adjusted expenses to provide a breakdown of the expenses that impact adjusted EBITDA. We have detailed in the earnings release and the financial section of the earnings presentation, the bridge from IFRS amounts. This past quarter, sports rights expense increased 15% year-on-year to EUR 73 million, due primarily to the continued success of our ATP content as well as our renewed Major League Baseball partnership. We will remain disciplined and strategic with regards to any additional rights we acquire. And with all of our major rights deals locked in the long-term, including the majority of the premium rights we have acquired from IMG, we have significant visibility on sports rights costs moving forward. This visibility gives us confidence in our ability to drive operating leverage across our sports portfolio as we capitalize on the value of our high-demand sports portfolio and the premium products we have developed for our global customer base. Turning to people. Adjusted personnel expenses were EUR 72 million in the quarter, up only 4% year-on-year, driven primarily by increased headcount to support growth opportunities. Importantly, our adjusted personnel expenses continued to decline as a percentage of revenue, down 260 basis points versus Q3 last year as we closely manage headcount to ensure we are focusing our talent and resources on the most profitable growth opportunities while unlocking additional operating leverage. Adjusted purchase services were EUR 42 million in the quarter, up 14% year-on-year, primarily driven by increased cloud costs to support growth initiatives as well as higher traffic and affiliate costs related to the expansion of our marketing services business. Adjusted other operating expenses of EUR 22 million in the quarter were up 4% year-on-year, declining as a percentage of revenue. While we have achieved considerable operating leverage already this year, we continue to see meaningful opportunity to deliver sustained margin expansion over the long-term given the inherent scale we have in our business and our long-term cost visibility. As we drive further revenue opportunities and integrate IMG Arena, we will continue to closely manage our cost structure and realize the benefits of sports rights being amortized on a straight-line basis over the life of these contracts, delivering more of every dollar of revenue to our bottom line. Looking at the full P&L, we generated a profit of EUR 22 million in the third quarter versus a profit of EUR 37 million reported in the third quarter a year ago as our strong operating results were more than offset by a EUR 22 million lower unrealized foreign currency gain given FX movements, primarily associated with our U.S. dollar-denominated sports rights. Turning to the balance sheet. We continue to be in a strong liquidity position, closing the quarter with EUR 360 million in cash and cash equivalents and no debt outstanding. During the first 9 months of the year, we generated EUR 149 million of free cash flow, a free cash flow conversion rate of 72% compared to free cash flow of EUR 122 million in the first 9 months of 2024. The increase in free cash flow was driven by strong operating cash flow, partially offset by higher sports rights payments. Cash and cash equivalents increased EUR 12 million since the end of 2024 as the strong free cash flow generation was partially offset by the repurchase of 3 million shares for EUR 65.5 million as part of the secondary offering during the second quarter. Looking forward, we continue to anticipate strong free cash flow growth for the full year and a conversion rate above last year's rate of 53%. Turning to capital allocation. Given the significant momentum in the business and the value we are creating, the Board has approved a EUR 100 million increase to our share repurchase program, bringing the total authorization to EUR 300 million. To date, we have repurchased approximately EUR 86 million of stock under the program at an average per share price of $17.96. It is important to note that while we continue to see value in our shares, given our strong and durable growth and expectations for significant operating margin and cash flow expansion going forward, our capital allocation priority remains investing in expanding the long-term growth potential of the company and we will weigh returning capital to shareholders versus additional organic and M&A investment opportunities in both the short and long-term. Moving to our full year expectations for 2025. Given the acquisition of IMG Arena as well as the sustained operating momentum we are seeing across our business, we are raising our full year guidance. We now anticipate revenues of at least EUR 1.290 billion, representing year-over-year growth of at least 17% and adjusted EBITDA of at least EUR 290 million, representing growth of at least 30% versus 2024. This strong EBITDA growth translates to nearly 240 basis points of adjusted EBITDA margin expansion in 2025. While our upgraded guidance does reflect initial contributions from IMG, please note that given the timing of the acquisition close, the majority of the meaningful revenue and cost synergies we anticipate as we integrate IMG's portfolio of rights will be recognized in 2026. Given that timing, we are providing our initial thoughts for 2026, where you can see the potential benefits of the acquisition. We currently anticipate 2026 revenue growth, including IMG, to accelerate to 23% to 25% range on a constant currency basis. Please note that foreign currency will be a headwind at current rates, and we will update you on this impact when we provide formal guidance for 2026 on our year-end earnings call. As we mentioned when the acquisition was announced, we expect the IMG acquisition to be accretive to our adjusted EBITDA margins and current expectations for the consolidated company is an additional 250 basis points of margin expansion in 2026. Our strong year-to-date performance, combined with the addition of the IMG Arena sports rights portfolio, positions us for substantial growth in 2025 and beyond. We are well placed to capture opportunities in an expanding global market, deliver greater value to our clients and partners and drive increasing shareholder returns as we drive sustained revenue growth, expand our operating leverage and generate robust free cash flow. Thank you for your time this morning. And now Carsten and I will be happy to answer any questions you may have. Operator: [Operator Instructions] Your first question comes from the line of Robin Farley with UBS. Robin Farley: I wanted to just clarify on your full year '25 EBITDA raise. The release says that you're including IMG Arena, but is it fair to say that the -- just given that it's only 2 months, I don't know if there's anything to break out how much of the increase was IMG Arena versus your organic business? Just wanted to clarify. Craig Felenstein: Sure. Thanks, Robin. We appreciate the question. So, when you think about the raise in guidance for 2025, from a revenue perspective, the majority of that increase relates to the inclusion of IMG into the 2025 full year forecast, offset by a little bit of foreign currency impact on the overall base business versus our original expectations. When you think about it from an EBITDA perspective, given the strong margin expansion that we delivered in the third quarter, we are continuing to raise our expectations for the full year, including IMG. When you think about IMG overall, what we indicated when we announced the deal earlier this year was that we expect it to be margin accretive to our overall margins. The majority of that will take place, obviously, over the course of the next 12 months, but we do expect upon close that it will definitely be margin accretive at least in the first 3 months following acquisition. So, there is some contribution from an EBITDA perspective with regards to IMG in Q4. Robin Farley: So, some contribution, but it sounds like IMG might be the majority of the revenue increase, but the majority of EBITDA increase is from the rest of your business. Is that the right way to interpret that? Craig Felenstein: That's correct. Operator: Your next question comes from the line of Jason Tilchen with Canaccord. Jason Tilchen: A little bit of a follow-up on IMG. I'm just wondering now that the deal is closed, if you could share a little bit more about how conversations with some of your existing clients have gone regarding potentially including some of the additional rights in the products that they're taking and when you expect that to sort of more meaningfully show up in terms of the financial results in fiscal '26? Carsten Koerl: Jason, Carsten here. So, as you know, the deal has closed on Monday. And before from an antitrust perspective, we couldn't interact with the right holders and also with IMG directly. So, it's very early days. But of course, it's interesting and both of the big leagues here in the U.S. have reached out. PGA have reached out, Major League Soccer have reached out, and we start now discussions. It's an interesting space from a product perspective. It's still very early days, but we are more than optimistic that we can build here some innovations, which will even materialize in '26. So, the spirit is very good. Integration is good for tennis. That is more business as usual. We have now 3 slams. And here, the work is more to look on the ones which are early renewal. So, the U.S. Open, they are in 5 years. So that is more business as usual for us. We focus here more on Wimbledon and Roland-Garros, but we have already a perfect product portfolio, and we can ingest this data. We focus really on the 3 top sports, soccer, basketball and tennis. And this integration is relatively simple for us because that data goes into a machine, which we already have built it. The difference to IMG is we learned now they have 90 to 100 clients. We have around about 800. So, this content is flowing in our global distribution engine. And some of the content is already getting into the ready products for some of the sports like Golf, for example, we see very interesting and exciting opportunities. Jason Tilchen: And maybe just a follow-up for Craig. In the context of Carsten's response there, talking about sort of the magnitude of 7 to 8x increase in the number of clients you can sell these products into. Is it fair to say that the guidance that you've given for fiscal '26 in terms of the acceleration of growth related to IMG is primarily with regards to their core existing client base and not related to sort of some of the upselling leveraging your global distribution network? Craig Felenstein: No, I would answer that a little bit differently from a financial perspective. I would say that's true for 2025. When you look at the increase that we're looking at for the current year related to IMG, that's predominantly related to their existing business. But when you look over the course of the next 12 months, including what I indicated for 2026, we would expect there to be some significant uptake from our existing clients. So, you'll see that throughout the year, and it should build throughout the year. So, when we talk about our expectations for 2026, we are expecting some significant revenue synergies across our existing business given the relationships that we have and the new content that we've just obtained. Operator: Your next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Ryan Sigdahl: I want to start with integrity services, up triple digits this quarter. Obviously, a lot of news headlines, MBA, allegations, et cetera. But curious kind of if you're seeing an increased uptake. And given you have a market-leading product there, is this helping kind of from a feature in your negotiations with leagues within the many value-added things you're providing to them. But curious if this is moving up that stream. Carsten Koerl: Ryan, Carsten here. We are very proud of our integrity service and what we can do for both regulators and law enforcement agencies and the leagues. So, integrity and protection of the game is the highest interest for all the stakeholders. From our perspective, that's something which is enabling us to do the business in the betting markets, which we are doing and to expand our footprint here. Integrity is not really a service which is driving strong profits for us. The commitment here is it is a very strong enabler for going on our betting services. But we are using more and more technology. It's more and more GenAI where we are getting more and more precise on seeing inconsistencies, which is helpful for our partners. You mentioned NBA with the current things, what happens there, but it happens also in baseball and many other sports. So, we are getting more and more accurate on this, which helps sport in a very general way. So that's the commitment from an integrity perspective. Ryan Sigdahl: And just as a follow-up, curious from a customer-friendly soccer results that we've heard from many of your customers in September. Did you guys see that impacting your MPS business? And if you did, if you're able to quantify it? Carsten Koerl: Yes, we see some impact when you have only favorites winning in soccer. And as a reminder, more than 70% of our revenues are outside of the U.S. and soccer is the main betting sport. So, in start of the season, when we see favorites winning, that is from a risk management perspective, more difficult to manage. We see a very limited impact on this in our NPS, and you see the strong growth numbers. But it's, of course, not really supportive from a bookmaker perspective. It's only the favorites are winning. As a small reminder, yesterday was a different day, and we saw a couple of surprises. So, this is leveling out very, very quickly. But the first quarter was a bit weaker because of this from a trading result. Operator: [Operator Instructions] Your next question comes from the line of David Katz with Jefferies. David Katz: In a different direction, Carsten, I've heard some conversation from you in meetings with investors, et cetera, around iGaming. If you could give us some updated thoughts on how you see the opportunity set for you globally for Sportradar in iGaming and how we can start to think about that maybe hitting the model over time? Carsten Koerl: Well, like stated in the last quarter, that's for us at the moment, test period. So, we are doing this in Brazil, and we see it holistic. So, we are starting with the client acquisition. We have the ad service for this. Sport is a perfect instrument here. Once the client acquisition is done, it falls into the sports betting universe. Here, we have all the products from pure data feeds up to risk management or the full platform. We can channel switch that client based on AI and get them into the iGaming space, provide them the right product, measure the stimulation and the churn and have retention tools in between with the visualization. So that's a 360 holistic approach, which we test successfully in Brazil. There is a clear focus that once we are feeling strong enough with this product, we are looking into very scalable markets. The U.S. is such a sample. It's a very scalable market, where we believe we have to work on the portfolio that we are competitive, and we do this as we speak. From an iGaming perspective, we think there is -- it's a natural element for us because our clients usually have both licenses if they can operate in territories which license iGaming and sports betting. We have the connection to the clients. We have the technology and the platform and the approach. So, we feel very strong about iGaming to integrate this in our portfolio. David Katz: And just as a follow-up, thinking about whether at some point that could be -- require some capital to ramp? Or is that sort of minimal or not something we should think about? Carsten Koerl: David, we are looking in both. So, we are looking into organic investments, and we do this into our teams to build the right games. And we are looking into the market. Is there something which is attractive for us to follow on this strategy. But it follows our general guidance in saying what we do in M&A must be accretive to our margin, which is a tough hurdle to go, but we are looking actively to expand this service, and both are an option, the organic and the M&A expansion. Operator: Your next question comes from the line of Shaun Kelley. Shaun Kelley: I wanted to go back to the topic of prediction markets, if we could. Carsten or Craig, can we just talk about -- there's obviously a big announcement between some of these prediction markets and the NHL, which is a major partner of yours. So, can you talk about, first of all, the participation of Sportradar in that deal, if there was any? And then, I mean, second, much bigger picture, just what's the primary use case for the customers as it would relate to sort of the prediction market side of this, whereas with traditional house back books, obviously, I think we know how you participate with those customers. But here, the interface seems a little different. And what would be the sort of primary value prop or selling proposition to a very different landscape as you kind of think about these markets? And maybe, Carsten, if you could just draw on your experience from Betfair and sort of how that landscape work, that might be useful. Carsten Koerl: Shaun, I was expecting that question from a prediction market perspective. So, give me a bit more time because it's an interesting topic, I think, for all of us. In principle, we see here 3 stakeholders, and we are in a unique position because we are connected to all of them. First stakeholder is, of course, sport leagues and the teams. I had in the last 48 hours meetings with 3 commissioners about this to get their view on the situation. And the view is differentiated from some of them, they are saying the most important for us is -- and that's unique -- that's uniting all of them is the responsible gaming and the integrity of the game. So, they want to guarantee this. That's the main interest from sport. And of course, you might guess it. There is also a financial interest from sport to say if we organize these measures, we want to have a participation. And now we are coming to what is the official data used. And is there an official data used to settle what happens on the prediction market. And here, we see different views from NHL, MLB and MBA. I don't want to go here too much into the details, but you mentioned that there was a press statement from NHL. So, you see yourself that there is a different interpretation of this. But what is uniting all of them is responsible gaming integrity is on top of mind. It needs a clear rule set, and this rule set currently is not there. Second, states and regulators, their interest is player protection, and their interests are clear rules on this and license operators have to follow and comply to these rules in the territory of those states. And there is a tax interest from the stakeholders. I think this is a pretty straight play and very, very clear. Online sportsbooks, and I had meetings in the last 24 hours with 2 CEOs here, see the situation that they want to have equal competition. So, if it comes to acting in states which are at the moment not issuing gaming and gambling and sports betting licenses and they can't compete in those states, that is an issue for them. There is the illegal sports betting argument saying, if you're not licensed and if you operate in states where we can't operate, we classify this as illegal sports betting. So that's the situation. I think it would be good for all of us to lean back and see can we unite this interest from the different stakeholder groups into something which creates a framework of operation, which is a fair balance, and which is satisfying the needs of the player protection and the responsible gaming and the integrity of the sports. I'm totally certain that we will see this. There is a lot of movement in this space, but there are a lot of arguments uniting all those parties. So that is the ecosystem. As you hear, we are actively connecting. We are actively involved in this debate. I think it needs top management to be in here. From our perspective, it's an opportunity. Of course, we want to help those markets if we see that those clarifications are done and if we see that all the stakeholders are satisfied, we are ready to participate in this market. That's where it stands. Our historical learning here is Betfair is more than 25 years in the market. It didn't gain a dominant share in this market in the 25 years. But there's a reason why Betfair is doing some good businesses here. We're talking single digit from the GGR view on a global basis, which Betfair or exchanges have. So, it's a relatively small amount. We think it will be the same in the United States. It's more limited to less games. NFL is a premium sample for this, where the liquidity is high and you get relatively quickly a matching for what you want to bet on. If we speak about financial market transaction, relatively quickly, a matching offer for this. So that is the mechanism. If you have a few matches, works perfectly. It doesn't work for live betting. We see a huge live betting trend worldwide, 70% of the matches or the bets, which are wagered are live. So, from this perspective, that's not the right instrument according to our view. But for something which is high volume, that makes a lot of sense, but it needs a clear regulation. It needs clarity who is acting on the exchange, what are the rules of control? And it, of course, needs the player protection. It needs the protection for money laundering, and it needs a protection that sport is involved into this if it comes to the integrity of the game. So that's what we see. I hope I answered your questions. Shaun Kelley: That's perfect. And just a very quick follow-up. Have you been approached? And is there a use case for market makers? And have you been approached by those as potential customers of Sportradar? Carsten Koerl: Yes, we have been approached, and we are discussing this. That's the reason why I said we are ready to go here once the framework is the right framework that we can start to act. But the market maker is playing a main role here. The market maker needs high-quality data, and the market maker needs more or less 0 latency. Very important for them. We have all these services, and we can provide it to them. Operator: Your next question comes from the line of Barry Jonas with Truist. Barry Jonas: Can you just give us an update on what percent of OSB handle came from in-play in the quarter and how you see that ramping going forward? Carsten Koerl: Yes. Barry, as you know, we are not reporting constantly on this handled, but the number is roughly the same like in the last quarter. Comparing it to what we see on our MTS global business, which is roughly 70% handled from online sportsbooks for live, we see here in the U.S. roughly 50%, but the trend is picking up that we get a higher conversion on live betting. Barry Jonas: And then just as a follow-up, I believe you have a big sports right contract with UEFA up in early '27. When should we expect renewal discussions to commence? And are there opportunities to expand that contract any further? Carsten Koerl: We are in active discussions like we are with all our league partners. UEFA is a special case. They are sitting in Switzerland. We are based in Switzerland. I'm in frequent contact with UEFA. Looking now to the opportunities you heard in the call before that we launched yesterday with NBC, the performance view, which was on air. That is something which we do now also for soccer. This is a thing which is very interesting for UEFA because what we can do is we predict the next pixel. And then going forward, we can simulate what might happen in the next 4, 5 in the NBA case, 7 seconds. And these are products where UEFA sees a big use case if it comes to their global distribution and broadcast partners. So, these are things which we're actively discussing, and it involves, of course, the tracking data and the deeper data. So, these are developments which UEFA is more than interested in. And of course, we are more than interested to get deeper embedded in the value creation of this league. Operator: Your next question comes from the line of Clark Lampen with BTIG. William Lampen: I've got 2 questions. The first is going to be on IMG. You provided a framework for 2026 inclusive of the business and contributions. But I wanted to see if you could give us maybe a little bit more detail qualitatively around sort of what's assumed next year from an integration standpoint and a revenue synergy capture standpoint. Does it take a while, I guess, to have the sort of client-by-client discussions and negotiations that result in those synergies unlocks, i.e., should we imagine that, that is a bigger opportunity for 2027 rather than 2026 because that's -- there's a time component there that you can't really compress. And then as we think about the overall SRAD customer base, right now, you guys have close to 2,000 customers around 200 strategic and enterprise. Are the majority of those customers, I guess, sort of even beyond the first 200 addressable, I guess, from an incremental revenue standpoint? Or how should we think about how far and wide, I guess, the distribution of this could go? Craig Felenstein: Sure. Thanks, Clark. So, when you think about the revenue synergies, they will take some time to ramp over the course of 2026. But as I mentioned, we are now out there starting to talk to those clients immediately. Once the deal closed, we were out there having those discussions already on Monday. And we understand that when you look at the kind of content that we're acquiring, specifically soccer, tennis and basketball. These are some of the most highly demanded sports from a gaming perspective. So, a lot of the clients that we have globally will be looking for these almost instantaneously. When you think about some of the other, what I would call, synergy opportunities, certainly, we've identified items on the cost side that we're looking at that will take some time to ultimately come to fruition over the course of 2026, but the vast majority of this will be on the revenue side. The one thing I will note is that the majority of their customers, the customers that IMG had are customers of ours. So, for those clients, those clients already have a lot of these products and services, where we have the ability to upsell and cross-sell is the other 700 to 800 or so clients that we have globally on the gaming side of the house. And we have already started those discussions, and you'll see that, like I said, ramp up throughout 2026. William Lampen: Maybe just as a very quick follow-up, the 8% betting and gaming content growth that we saw this quarter, you guys called out a 250 basis points FX drag. Was that -- if we were to think about ex-FX growth for betting and gaming content, should we think about a similar FX drag on that portion of your business? Or was it more elevated or sort of less elevated or less significant for any reason? Craig Felenstein: Yes. We obviously don't guide by individual line item or talk to too much specifics with regards to the makeup of individual line items. But what I will say is your thesis is correct. When you look at the FX impact, the impact on that line item is very consistent with what it would be across the entire company in totality from a percentage perspective. So, when you're looking at growth in that segment or that product grouping, it certainly would be into the double digits without foreign currency. And when you look at that versus how it was trending in Q1 and Q2, it's very consistent performance throughout the course of the year. So, we're seeing nice, sustained momentum in our, what I would say is core businesses. Operator: Your next question comes from the line of Michael Hickey with Benchmark. Michael Hickey: Carsten, Craig, Jim, congrats guys on a great quarter, great guide as well. Carsten, you kind of nailed the predictions market piece. We appreciate that. Your experience certainly shows through. You did say you're in active discussions with all the key stakeholders here. Just in terms of timing from those discussions, should we start to see some flow-through here in '25? Or do you think the divide and the debate is deep enough that '26 is more likely? And then data integrity, obviously, is focal here. But also, curious what you're doing on the advertising side. Obviously, the market is going to heat up. Some of your operator partners are coming in, Polymarket is coming in. And so, it seems like on the media side, you might have some incremental opportunities as well. Carsten Koerl: We do. And Michael, the media side is not problematic. And we have some business already with [ Kulti ] in this perspective, it comes to client acquisition and to advertising services. So, this is something which is a nice opportunity. There's relatively high spend from those participants because it's a new market entry, and that is a less problematic service. And we are in very active discussions here to develop then also the tailor-fit product for these client groups, but we have already some services there. Michael Hickey: And then, Carsten, I think what I heard you say is when you sort of examine and live through the Betfair situation in the U.K. and you reflect on that experience in the U.S., what I think I heard you say or translated was that in regulated markets, you wouldn't expect much share from the prediction markets versus the traditional operators. I just want to confirm that I heard you correctly on that. And then the second piece, I think the big unlock here besides the incremental business you can drive from the prediction side would be that the prediction markets continue to scale, and they motivate unregulated states like Texas, California, maybe altogether half the U.S. population to accelerate legalization of traditional sports betting. Obviously, that's where the majority of your core business is. I'm just sort of curious your confidence or not that, that could actually be a catalyst for legalization and the opportunity for you. Carsten Koerl: So, let's go first on the share and the prediction markets. The nature of the business here is that you have a market maker in between and you have various levels of prices, which you can buy, and which needs then a match. So usually see 5 levels, 6 levels of the market. And if you want to lay up, let's say, $10,000, you might need to wait until you have the matching with the different levels and you might need to make compromises. So, the way how this transaction is done is significantly more complicated than sports betting. The beauty of sports betting is you can price literally everything because the bookmaker on the other side is holding then the risk, which is enabling a beautiful business for us with the MTS services. But that's the beauty of sports betting. You can price everything. You can do this live. You can price parlays up to whatever, 20x. So that's something which is not possible from the model of exchanges and prediction markets. But prediction markets are super-efficient. If it comes to 1 or 2 or 5 matches, limited number of matches, where you have a lot of liquidity that this matching goes very quickly. For example, a Super Bowl or some NFL matches. If you talk about 3,000 matches from MLB or NBA or 4,000 from NHL, that is spread much thinner, and it gets much less interesting because you do not have that liquidity to match it. So, this is what we observed for 25 years with Betfair and what Betfair observed by themselves. So, there is a very good use case if you speak about a limited number of matches where there is a high interest and it's a very sharp pricing, usually attracting more high rollers, which want to have bigger stakes for a lower commission. So, we see exactly that use case also in the U.S., and we saw already in the last couple of weeks that this is working very good. Now in your second part of the statement, you said that I'm hinting into Texas and California, which I didn't do, but I'm happy to speak about this. Yes, of course, in the talks which I have with the stakeholders, some of them said it might be an accelerator for Texas and California because what we see is a huge proportion of what goes into the prediction market comes out of those 2 states, super states, which are roughly 30% of the GDPR of the U.S. economy, if I'm not mistaken. So that is interesting. And yes, from a regulatory perspective, we see that there is more interest now out of those 2 states to understand what might be happening in a regulation perspective when this comes to play. So, I think you are not mistaken to say that this is putting a bit more pressure on regulation, which we all expected to come a bit later. Maybe that is accelerating now. So at least that's what we are recognizing. James Bombassei: Operator, we have time for one more question. Operator: Your next question comes from the line of Jordan Bender with Citizens Bank. Jordan Bender: I want to address some of the noise around the business with your exposure to certain markets, whether they're gray or beyond that. Are you able to discuss your view on this exposure? And internally, how do you make sure your data isn't ending up in markets they shouldn't be ending up in? Carsten Koerl: Jordan, Carsten here. Can you please define what is gray market for you? Jordan Bender: I guess, unregulated, untaxed, I guess some of us or you guys maybe have seen some of the reports out there that -- Carsten Koerl: Thank you for the clarification. So, we have a 4-level process. So, we are only working with licensed operators. And we have contracts which are enabling those operators only to work in the territory where they are licensed in. That's the first one. Second, we have a global compliance team, which is making an intensive KYC with every operator, and we are insisting on this that we control it. Number 3, we have an internal audit, which is looking to IP infringements. We are trying to see it in our data feeds mistakes, which we can identify and then assemble where is our content popping up. And if there is a case, where our content is popping up in markets which are not licensed, which are not covered by the contracts. Of course, we are going on those operators. That happens for a handful of cases every year, and we are monitoring this very closely. Number 4, we have league partners, which are from us requesting a vetting process. NBA and NHL is such a samples. So, for every operator who gets this content, that is a separate vetting process with the league, which is coming on top of the levels 1 to 3, which we have there. Jordan Bender: And Craig, it's the second quarter in a row that you've talked about adding headcount. The company restructured 2 years ago. So, can you maybe specifically kind of opine on where you're adding some of this talent and where you see the need for more talent? Craig Felenstein: Yes. Thanks, Jordan. So, I would say it's less about us adding talent, and it's more about using existing talent more efficiently. When you look at the personnel cost growth that we had in the third quarter, it was somewhere in the low to mid-single digits. It's obviously a step down from what you've seen historically. And that's just an example of us using our existing headcount in more efficient ways. So, we'll continue to look for ways to do that. When we put people to work or we end up adding any new headcount, we always look at what are they working on and what's the return on what they're working on. And if they're working on things that, frankly, have not taken a lot of hold, then we'll move them to projects, which have higher return parameters around them. And you're seeing that across the business. You'll continue to see that diligence in Q4, and we expect that to continue into 2026 as well. So, the days of us adding somewhere in the mid- to high teens people every single year because we're a technology company are behind us, and we're going to put our heads to work in the places that matter most. James Bombassei: We want to thank everyone for joining us for our third quarter earnings call. Now I'll turn it back to the operator. Operator: Thank you. This is all the time we have today for questions. I will now turn the call back to Jim Bombassei for closing remarks. James Bombassei: Everyone will be around for your questions throughout the day. I appreciate you joining the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.