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Mia Nordlander: Very welcome to Sinch Q3 2025 Report Presentation. My name is Mia Nordlander, and I'm Head of Investor Relations & Sustainability. With me here today, I have our CEO, Laurinda Pang; and our CFO, Johnas Dahlberg. We will hear them presenting the quarter and thereafter, there will be time for questions. [Operator Instructions] So once again, very welcome to this presentation. I hand over to you, Laurinda. Laurinda Pang: Thank you, Mia, and thanks, everyone, for joining us today. One year ago, at our first CMD, we shared a strategy for value creation and today marks a clear milestone of our disciplined execution and value delivery on that strategy. Let's turn to Slide 2 to look at the highlights from the quarter. As we begin, I will remind you of the continued large FX headwinds in the quarter, mainly due to a weak U.S. dollar. As we always do, we will point you to organic changes, which normalize these swings and are a consistent representation of the underlying business. I am pleased to report a quarter of continued organic gross profit growth, improved profitability and the initiation of our share buyback program. We delivered solid performance that demonstrates focused execution against our strategic priorities, even though currency effects obscure some of the underlying momentum. Gross profit of SEK 2.3 billion grew 5% organically year-over-year and roughly in line with last quarter. We expanded gross margin to 35%. Both the gross profit and gross margin development are a testament to the strength of our offerings and our focus on higher-value interactions and more profitable product lines. Our ability to expand profitability in a dynamic market highlights the resilience and efficiency of our business model. However, turning to the top line. Net sales were flat year-over-year at SEK 6.7 billion, and I want to be direct about this. While our profitable growth is very positive, this level of revenue is not what I expect nor is it the shape of the growth we are aiming over the long term. I'll address this further on the next slide when we break out the regional segments. Adjusted EBITDA of SEK 915 million increased organically by a strong 8%. This was an adjusted EBITDA margin of 14%, which was the highest on record since 2019 and was driven by gross profit growth and operational efficiency. As a reflection of our confidence in our strategy and financial strength, Sinch initiated its first ever share buyback program during the quarter with 1.8% of shares now held in treasury. Beyond the financials, we are proud that Sinch was named a leader in Gartner's Magic Quadrant for CPaaS for the third consecutive year, a powerful validation of our market position and strategy. We also ranked #1 in their critical capabilities for CPaaS report for multinational organizational use cases. This highlights the strength of our platform's ability to meet the complex needs of global enterprises. We also strengthened our position in AI during the quarter with leading innovators across all regions adopting our API products to power customer engagement, underscoring the scale and robustness of our platforms. And in an important milestone of conversational messaging, we launched RCS for business with all 3 major mobile operators in the U.S., cementing our leadership in this transformative channel. Let's look at Slide 3 next, please. To begin, let me provide some color on the flatness in net sales. This primarily reflects 2 factors: First, we've encountered competitive pressure in the traditional messaging space concentrated within a few large accounts in the Americas customer base and in the India market more broadly. Second, we have continued to steer away from fixed price contracts that have negatively impacted EMEA and, to a lesser extent, Asia Pac as these opportunities do not fit an acceptable risk profile. However, we're not standing still. We are proactively reshaping our revenue profile for more sustainable long-term success. This strategy is twofold: first, diversifying our customer base; and second, accelerating our leadership in conversational messaging. We are making excellent progress on customer diversification, having recently secured several notable new enterprise clients who are in the early stages of ramping up their volumes. While their full contribution is not yet reflected in our top line, they represent a significant driver of future growth. And the key reason we are winning in our leadership is our leadership in conversational messaging. We grow here by winning new customers directly on to modern channels like RCS and WhatsApp and migrating our existing base to these higher-value interactions. In India, for example, this combined success in over-the-top channels and strong growth in e-mail has neutralized the pressure on traditional messaging. In the Americas, while net sales were flat, the region delivered strong organic gross profit growth of 8%, with margins expanding by 2 percentage points. This was driven by a strong turnaround in our U.S. network voice business and solid performance in other product categories. In EMEA, organic net sales and gross profit declined by 2% and 3%, respectively. This was primarily due to the strategic decision I just mentioned regarding steering away from fixed-price contracts. Notwithstanding this, the underlying API business remains healthy and is growing. And in Asia Pac, organic net sales grew by -- I'm sorry, 7%. Organic gross profit increased by 1%. The strong net sales performance was driven by new large messaging wins, but was offset by competitive pressure in applications in Australia and the India SMS pressure I mentioned earlier. We've been experiencing this downward pressure for some time, but Sinch India has now stabilized sequentially. Before we leave this slide, let me reiterate the actions I mentioned diversifying our base, leading in next-gen messaging and e-mail and improving our commercial terms. These are fundamental to building a more resilient and sustainable business. They strengthen our foundation and position us to capture higher quality growth going forward. Next slide, please. Our strategy for value creation is very clear. We are executing with discipline. It is built on 3 core pillars: reaccelerating growth, expanding our EBITDA margins and disciplined capital allocation, all fueled by continued cross strong cash generation. The third quarter marks another period of significant progress across each of these pillars and is another firm step on our path to delivering our midterm financial targets of 7% to 9% organic growth and 12% to 14% adjusted EBITDA margin by the end of 2027. Next, on Slide 5, let's look at the progress for growth reacceleration. The 4 growth drivers we outlined are deeply interconnected. In enterprise expansion, we are winning with the world's most demanding businesses. Our large enterprise customer base has increased by 5% year-to-date, including the addition of companies like Nespresso, Visa, Dollar Shave Club and Nordstrom. Our self-serve products continue to be a powerful growth engine, delivering high-margin, double-digit growth year-to-date. As another proof point, our self-serve capabilities are resonating in the market. We have increased our customer count to more than 190,000. As it relates to RCS, our traffic has tripled year-to-date. And as mentioned in the third quarter highlights, we have now fully achieved coverage with all U.S. Tier 1 operators. Touching quickly on our continued strength in e-mail, volumes have increased nearly 40% since last year. And finally, partners and ecosystems, which is all about scale. We embed Sinch directly into the workflows of the world's leading enterprise software companies. The partner-enabled business has grown gross profit by 5% on a year-to-date basis. These growth drivers are powered by 2 major opportunities. The growth in conversational messaging and the rise of generative AI. Let's move to Slide 6 to take a look at our progress in conversational. We are a leader in this transformation and the momentum in conversational messaging is a clear testament to the market's demand for richer engagement to enhance the customer experience. Our RCS message volume growth is being led by India, LatAm and early adopter markets in EMEA, like France. And in the U.S., we have some great early use cases with brands like Enfamil and Omaha Steaks. We have launched WhatsApp upscale as a complement to RCS upscale. This is more than just switching channels. It's about delivering real business impact through better security and higher trust, improved conversion rates and more innovative customer communications. To illustrate the last point, our customers, Picard, Courir and Clarins were nominated for innovation awards for their high-impact RCS campaigns. Clarins took home the win. By transforming customer communications with rich interactive messaging, their campaigns deliver much higher engagement and stronger business outcomes. Next page. Generative AI is set to dramatically amplify the effectiveness of conversational messaging. While these 2 phenomena evolved independently, they are now creating a powerful synergy, where each makes the other more valuable. Put simply, consumers now expect conversations that are intelligent and context aware. AI provides the intelligence to meet this demand, while rich channels like RCS and WhatsApp provide the perfect vehicle to deliver those enhanced experiences. This powerful combination is creating an exciting new era for digital customer communications. In this era, machines themselves are becoming new buyers of communications. As autonomous AI agents begin to orchestrate interactions, they will drive a significant increase in overall communication volumes. On the next slide, I'll talk about what this inflection point means to Sinch. First, we see strong market validation that we are a platform of choice. The world's leading AI innovators are building their future on our infrastructure, choosing Sinch's APIs to power their communication needs across all regions. This reinforces our unique position as the trusted execution engine. These companies need to know that when AI triggers a message to be sent, it gets delivered securely and reliably every single time. That is our core strength. Our leadership in this new AI era is built on a foundation we have been laying for years. We have strategically embedded AI across our product suite to make our solutions smarter, more intuitive and more valuable. Let me give you a few tangible examples of how we are delivering value to customers today. In e-mail, Mailgun Inspect uses AI for quality assurance and our open source MCP server allows developers to query at e-mail analytics using natural language. In multichannel campaigns, our Sinch Engage platform uses AI to orchestrate campaigns, personalize experience and create content. In voice, our programmable voice API allows businesses to automatically capture and transcribe conversations for compliance analytics and deeper customer insights. And in our core messaging offering, AI is deeply embedded to enable our customers to recognize intent, perform sentiment analysis and protect their users from detecting -- by detecting profanity and spam. We are continuing to enhance our platform's capabilities and enabling campaigns and conversation orchestration. We have already seen a 41% year-to-date volume increase in conversations facilitated through our chat layer platform and are now developing AI agents directly within our Sinch Engage platform. We expect to launch a closed beta with our first customers before the end of the year. In summary, this trend directly fuels our platform's capabilities and growth. More AI adoption means more traffic generating more revenue in our existing core business. We are the essential communications layer for the AI economy, and we are well positioned to grow as it does. With that, I'll hand the word over to Johnas to take you through the financials in more detail. Johnas Dahlberg: Thank you, Laurinda. So let's get into the financials and we start at the top of the [indiscernible] with net sales. So first, a couple of words on our financials. When looking at Sinch's financials, it's important to understand a couple of things. The first thing is that we have a strong seasonal pattern, where there's typically the year-end, that's the strongest driven by the retail season. Secondly, we have significant FX effects. And our reporting currency is Swedish krona, but it's a very limited share of our business. In fact, the U.S. dollar is the dominant currency of trade with about 60% of the business. So there's a lot of FX effect, and that's why we always communicate organic numbers for comparability and communicated year-on-year. So in the quarter, net sales came in at SEK 6.7 billion, and that's down 7% due to currency translation effects. However, when adjusting for this effect, we have a marginal positive organic growth. Now under the surface, there's actually more excitement as we exhibit continued solid net sales growth in our high-margin products such as our e-mail product and several of our applications. Moreover, we continue to diversify our customer base and reduce customer concentration in all this provides a positive mix effect and stronger financial profile, both here and now and for the future. Next chart, moving on to gross profit. Looking at organic numbers, we continued with a stable 5% growth in the quarter with the strongest growth coming from our most important market, which is the Americas. The improvement in Americas is driven by all product categories, including our API and application business, but with a particularly strong quarter for our network business, which is now really back after the turnaround. What's positive in the quarter across the company is that all product categories contributed to organic GP growth as well as 2 out of our 3 regions. However, on a reported basis, we have this currency translation effects and the impact is 8 percentage points as a currency translation headwind. Moving to our margins. Combined, we have a very positive development of our margins with a strong 34.8% gross margin in the quarter, and this is an increase of 1.2 percentage points year-on-year. And this improvement is driven by a combination of both increased profitability at product level as well as a positive product mix shift. As I mentioned earlier, our most profitable products continues to grow faster than the average mix and this is mainly our e-mail products and application hence, contributes positively to the higher margin through a positive product mix shift. Disaggregating these 2 effects, about half of the margin increase comes from a positive development of product margins, while the other half comes from a positive product mix shift. Moving over to EBITDA margins. We delivered close to a record high 14% adjusted EBITDA margin. In fact, in modern Sinch time, I would say, it's highest post-2019 and acquisitions we did in '21, which truly transformed the company. And we also see a very strong margin on non-adjusted EBITDA and we're already now at the upper range of our 12% to 14% EBITDA margin target for the end of 2027 that we established 1 year ago at our Capital Markets Day. So in terms of the targets that we set out 1 year back, one is down and that's the EBITDA margin target and now it's one to go, which is really to get the gross profit growth also going. Moving to the next page to take a closer look at cost and EBITDA. Starting with operating expenses. We continue on our path of cost discipline and continued synergy extraction in the combined Sinch. So OpEx is down 5% compared to the same quarter last year, which represents a marginal 3% organic OpEx increase. Measures we're taking on the cost side are about leveraging truly the combined strength of Sinch, consolidating platforms and products, consolidating support functions to lower cost locations and recently leveraging AI to gain efficiency throughout our operations. I want to stress that this is not a one-off effort, but rather an ongoing effort over several years to increase our cost efficiency, and this effort will continue and there is more potential. It will both support the potential of increased profitability in line with our target as well as allowing for investments in future growth, predominantly through investments in sales, marketing and product development. So with an organic 5% GP growth with only 3% OpEx growth, we get a favorable drop down to adjusted EBITDA with an 8% organic improvement in the quarter. And since we have lower adjustment items, primarily through SEK 41 million lower restructuring and integration charges, we achieved 16% organic EBITDA improvement compared to the same quarter last year. Moving over to cash conversion and cash flow. Operating cash flow amounted to SEK 1.4 billion over the last 12 months, which corresponds to a 30% cash conversion rate and this is very close to our guidance of 40% to 50% cash conversion over a 12-month period. It's important to emphasize that we have some working capital swings between quarters, but this is quite normal for us. So I would like to say that the cash conversion rate going forward and what we report now is very much in line with what you can expect. So just to prove this point, I would like to move over to net working capital. Sequentially, we're essentially at the same level of receivables as the last quarter and the negative impact on working capital mainly comes from lower payables in the quarter. And in fact, it's the lowest level of payables in several years. But in all, we continue to operate the business with a negative working capital, although a slight increase from the previous quarter. So while we have and will likely to have variations in cash flow impacting quarterly, sorry, in net working capital influencing quarterly cash flows, we don't see any structural changes impacting our working capital and stay confident with our cash conversion guidance. Lastly, before handing back to Laurinda, looking at the balance sheet. We continue to have a strong balance sheet with net debt to adjusted EBITDA, slightly increasing to 1.4x. And as you know, in the last quarter, the BOD result activates the repurchase program mandated by the AGM, allowing for a repurchase of up to 10% of outstanding shares. And during the quarter, we repurchased 1.8% of outstanding shares for some SEK 519 million. And in addition, we spent SEK 241 million for an equity swap arrangement to hedge Sinch long-term incentive program. And in this program, a partner bank acquired further Sinch's stock for SEK 241 million. So in total, this corresponds to 2.7% of outstanding shares. And in combination, these are the drivers for a slightly increased leverage ratio in the quarter. What's worthwhile to mention also is that during the quarter, we also refinanced existing bank facilities at largely unchanged and very favorable terms, which means that currently have an additional SEK 4.2 billion in unused credit facilities. And with that, I'm handing back to Laurinda. Laurinda Pang: Thanks very much, Johnas. Okay. So before we go to questions, I just wanted to reiterate our value creation agenda here. It's around 3 pillars: reaccelerating growth, expanding EBITDA margins and a disciplined capital allocation strategy. We've in the third quarter, delivered on all 3 of those, an important step towards our midterm guidance, which we also reaffirm here today. So with that, I'll open it up for questions. Mia Nordlander: [Operator Instructions]. First, online we have Erik Lindholm-Rojestal. Erik Lindholm-Rojestal: Yes. So 2 questions. please, if I may. I'll start with one and then come back with the second one, perhaps. So just on API platform. You had quite solid development in this area in Q2 that seemed to slow quite clearly in Q3. I'm just wondering sort of what gives you confidence that you can reaccelerate in this area? And is it mainly sort of driven by these new enterprise wins and the conversational piece that you mentioned? Or -- and is it fair to say that the growth here maybe will be a bit lower during the period of shutting out these fixed price contracts in EMEA? Laurinda Pang: Yes. Thanks, Erik, for the question. To your point, the 2 pieces or the 2 headwinds that I called out do both affect the API platform. And to your point, the fixed price contracts will -- they will cycle out over the next several quarters. So that will continue to put pressure from a year-over-year standpoint. However, the increases in the new customer wins, those are within the API platform. And as those volumes come online, we've seen some of them, but they're not at full levels. But as those volumes come online, they will have a positive impact as well conversational messaging. It will show up in the API platform as well. So we've called out the headwinds, but we also have a good line on what the incremental growth will look like. And I'm sorry, one last point I would make is the AI contracts that I talked about that we have come to agreement within the third quarter. Those will also positively impact API over the long term. Erik Lindholm-Rojestal: Great. And just as a follow-up to that, perhaps, I mean how meaningful are those AI contracts today? And when do you think we will start sort of moving the needle meaningfully on the group level? Laurinda Pang: Yes, they're not meaningful today because they just got -- the agreement just came to term. So they've yet to ramp. The way that I see this -- this new way of doing business in this new AI world with these innovators is they're going to come to us with regards to specific use cases, and they will grow from there. So I do think that, as I mentioned in my prepared remarks, this combination between AI and conversational messaging will absolutely generate larger volumes for communications, ultimately, and again, these newer contracts are the first step to being able to capture those volumes. Erik Lindholm-Rojestal: All right. Perfect. And then just a question on customer connectivity. It's really a stellar quarter and it looks like more than 20% organic GP growth in Americas in this segment. I mean how sustainable do you think this gross profit level is? And yes, what are your sort of more long-term hopes for this business? Laurinda Pang: Sure. On the network connectivity side, if you remember a bit over a year ago, this part of the business was on a fairly rapid decline, and that resulted from some significant price increases from carriers in the U.S. And we have completely reversed that. So the performance in network connectivity today is as a result of turning around that business that comes after really 3 aspects. The first was price negotiations. The second was price increases to customers that leverage these services. But then the third was also the transition from the legacy network infrastructure into a go-forward infrastructure. And I think we've spoken about that quite a bit in the past. So the price increases to customers you can only go so far. I would say that we're getting closer to the end of that. The cost savings from price negotiations are fairly flat, I would say. But the larger opportunity for us is to get completely off of this legacy infrastructure that will have a very meaningful impact to us on the cost side. The other thing I would call out in Q3, and I apologize, is there was an actual release -- an accrual release that positively impacted us in Q3. So you should not look at Q3 performance for network connectivity and think of it as the new baseline. It's unusually high. Erik Lindholm-Rojestal: All right. Great. Are you able to quantify that one, the accrual? Johnas Dahlberg: I think what you should look at is more the sequential development and then from previous quarters, which is a step-up from previous performance. And then it's difficult to say with precision, of course, and we don't give exact guidance, but it gives you a hint. Mia Nordlander: Next online, we have Ramil Koria from Danske Bank. Ramil Koria: Just trying to parse out sort of the moving parts here. Trying to sort of understand what's new here in Q3, which you didn't know going into the quarter, so to say. So the pressure in Australia, competitive pressures on large U.S. customers, fixed price contracts in EMEA being phased out. Like what's new of this? And why did you decide to take the actions you took now in Q3? Laurinda Pang: Ramil, excuse me, it wasn't my voice. So if you remember, in Q2, what we said from a GP perspective was that you should expect the average of the first half of the year to look quite similar in the second half of the year. So I think we started in Q1 with 2% gross profit growth, and we went to 6%. Now we're roughly at 5%. So we actually did call for a fairly, call it, quarter-over-quarter stable quarter. And so the fixed price contracts is a continuation. I raised that in the first quarter. I wanted to remind everybody of that because it did dramatically affect the EMEA business this quarter. And then as far as the price compression or the price competitiveness, that's been going on, I would say, for roughly the last call it 6 months or so. And so we've had to make a few concessions there. But conversely, we've had some good wins. So these are pieces that we've known. And we're just telling you what the headwinds are that affected us this quarter. Ramil Koria: That's very clear, Laurinda. And then, I mean, I'm clear, clearly, there is some mix shift happening in the business as well. Year-to-date, the gross margin is up more than 80 basis points year-over-year. How dependent are you on volume growth into 2026 to deliver on the notion of Sinch being a growth company? Johnas Dahlberg: So first of all, the most important metric for us is GP growth. Having that said, over time, we obviously need net sales growth as well. I think it's -- the audience has to define what's a growth company. But we are progressing towards our target of 7% to 9% gross profit growth at the end of 2027. You remember that we set out 2 targets 1 year back. One was on profitability. We said we would deliver 12% to 14% EBITDA margin on an adjusted basis, we're now actually at 14% and nonadjusted 13%, so we're already at the upper range. So one down, one to go. But we also said it won't be a straight linear extrapolation when it comes to growth. So we are confident that we're on the right track towards our targets and we're progressing basically. Ramil Koria: Okay. And then a question I've asked before, perhaps I'm sounding like a broken record here, but trying to understand like where the competitive pressures are coming from because all your listed competitors operating in the U.S. have higher gross margins and they seem quite reluctant to dilute the gross margins? And you guys coming from sort of a lower base, so to say, in having the scale benefits, when you bargain with carriers. Could you shed some light on -- are these U.S., European or Rest of World players competing for these volumes? And where are the volumes originated that you're giving concessions on right now. Johnas Dahlberg: So first of all, the absolute level or the gross margin level with competitors depends on the mix. That doesn't mean that they have parts of the business where they can compete with us and be quite aggressive. And where we see competition is -- competitive pressures is mainly on a very limited number of very significant accounts, who basically set up multi-vendor relationships and there, it's highly competitive. Now this is a continuous competition. And we -- sounds like we're losing any customers. We may have lost a bit of volume, but we can fight back also. Laurinda Pang: And Ramil, the competitive pressure we're talking about is predominantly on the messaging side, the traditional messaging side, right? So yes, we've had a disciplined approach, but we also have the ability to change the product mix and deliver on higher-valued products, which do bring higher gross margin. So when you look at the overall mix of the business, to your point in shifting and it is maintaining our gross margin level. And so I would just make sure that that's not lost on the audience here. Ramil Koria: Okay. And then just geographically speaking, where are you seeing the competitive pressures in terms of termination of the volumes? Laurinda Pang: So it's -- as I mentioned, a few accounts in the Americas, we're seeing large pressure in the India market very specifically, but that is intra India. It is based off of the telcos getting into the SMS business for large local companies. Those are the 2 callouts that we would make. Mia Nordlander: Next one is Predrag Savinovic from DNB Carnegie. Predrag Savinovic: The first one, based on what you said, our network connectivity and on accruals, so if we think then of organic GP growth for Q4 and sort of start of 2026, will these growth rates be declining from the level we see now in the third quarter? Johnas Dahlberg: Sorry, I didn't exactly get your question here please. The accruals? Predrag Savinovic: And based on what you said in terms of network connectivity that the growth rate there could be on an alleviated level right now in the third quarter. So if we look down to Q4 into 2026, the start of '26, could we see that the growth rates will be declining from the levels we see now in the third quarter? Johnas Dahlberg: I think as Laurinda said, you can't use the third quarter as our new baseline for the sequential development of network voice. But -- so look more at the sequential numbers you've had earlier in the year, and then we continue to improve the business. But again, we can't give any precise guidance. What we can say is this business is turnaround, and we continue to work on the cost side. Shifting out legacy TDM technology with much more cost-efficient IP technology, and that will continue to drive margins, but that will mainly come in the next year. Predrag Savinovic: Sure. And I was unclear. I was thinking more of based on the potential extra tailwind in that segment and then refer more to the organic growth rates on group level, if 5% makes sense or 4% makes sense, average of Q1 to Q3 makes sense towards the next coming 1, 2, 3 quarters? Johnas Dahlberg: Yes. So what we've said and what we continue to say is the same thing that the second half of the year on average will be in line with the first year -- first half of the year. Predrag Savinovic: Okay. Super. Then in terms of the customer account growth of 5% that you call out in Q3, if you can relate this to the first and the second quarters, please? Laurinda Pang: We've been on this study -- this is 5% on a year-to-date basis per drag and so this has been steady since Q1. I think we actually called it out in Q1 as well at 5% and what -- the definition of enterprise customers is customers who are spending north of USD 150,000 per year with us. Johnas Dahlberg: U.S. Laurinda Pang: U.S. dollars, sorry yes, U.S. dollars. Predrag Savinovic: Yes. Super. So basically, you're continuing on a healthy net adds trend on the customer side is the message here. Laurinda Pang: Yes, absolutely. Predrag Savinovic: And then on a follow-up question on what you've discussed on AI so far and the benefit you see and what drives this. So I think from the outside, it looks to me that Sinch is mostly beneficiary from playing on the infrastructure level rather than the application level compared to, for example, Twilio based on the examples you gave, but I may be wrong here, I would love to hear it takes here and more on what Sinch could be powering on an application level as well if that would be the case. Laurinda Pang: Yes. So we actually do both. We have, on the application side, I actually called out a couple of examples of what we're doing there relative to our e-mail product as well as our Sinch Engage platform. So we are embedding AI capabilities into both of those platforms to enable customers to be able to develop their own campaigns, to personalize content, to create content, et cetera. And that -- the application side of the house is the side of the house, it's the highest margin and our self-serve business is growing at a healthy double-digit rate. So that's positive. The other piece to your point is the infrastructure side. Our infrastructure -- the fabric of the network and the capabilities that we have is the perfect vehicle for AI-powered communications. And so that, I think, comes through a couple of different ways. One is through the large innovators themselves and their needs to power their customers and then also with agents more directly. And those can come from the large innovators as well as enterprises as they become more -- they lean more and more into Agentic AI. Mia Nordlander: And next online, we have Laura Metayer from Morgan Stanley. Laura Metayer: 3 questions, please. The first one is on the -- on your midterm growth targets. What do you need to do to bridge your gross profit growth to your midterm targets? And what are the key priorities? Second one is, you talked about early success in terms of benefiting from increased communications from autonomous AI agents. Can you give us a sense of the kind of contract terms that you have on those first contracts that you've been signing? Are they aligned with your usual types of contracts? And then lastly, so AI is expected to reduce the cost of coding and software development, could you please get your view on whether you think Sinch is insulated from the risk of AI disruption in the form of in-housing? And if so, why do you think that's the case? Laurinda Pang: Okay. Laura, so midterm growth. To your point, we have organic growth of 7% to 9% that we've called out and what we need to do in order to bridge that is deliver on the growth drivers that we've called out. So that's expanding enterprise that's to continue this double-digit rate in self-serve -- it's to win in the conversational in the e-mail space. And then it's also the need to win in the partners and ecosystem space. So those are the 4 key growth drivers that we've called out. When we did call those out, we didn't have AI in the mix. And so I would say that AI will be in addition to that. In terms of the contracts with these AI innovators themselves, we're not going to talk about terms per se, but I wouldn't say that they're unusual at this point. I think that right now or I know right now, these sorts of contracts are coming in at a use case level. So they're pretty limited in terms of volumes. But I would imagine as we grow with them, that there'll be terms that will become a bit more aggressive or competitive. And then finally, the in-housing or the cost of coding. Did you -- was your question, do you think we're immune from that or? Laura Metayer: Correct. Yes. Johnas Dahlberg: If there is a risk that we will be disrupted. So if I start, really, the core of our business is a communications -- infrastructure that powers communications and that will not be disrupted. If anything, it will be enabled by AI, making the communication easier and also drive more communication. So the answer is no. Laura Metayer: One follow-up, please, when you talked about the growth drivers for your midterm targets, you said that you can have AI in the mix when you call those out initially. Does that mean that with AI now representing an opportunity for you, you think you could potentially grow faster than what you said are your midterm targets? Laurinda Pang: Yes. We haven't changed our midterm targets yet, but I'm being, again, full disclosure. We had those core drivers outlined 1 year ago, and AI was not a part of it. Johnas Dahlberg: The thing I'd like to add on the midterm growth is you're asking what do we need to achieve to get there? I'd like to remind you that there is a bit of drag currently from the fixed price contracts in India that influence how we deliver on, I guess, comparable numbers. So once we're out of that drag and obviously, assuming there is no new drag coming into the business, that's also positive. Mia Nordlander: Next one is Daniel Thorsson from ABG. Daniel Thorsson: Yes. 2 questions. The first one on the phasing of the fixed price contracts in EMEA and also related to your reasoning on the financial targets being in the upper end of the margin already and now looking to reinvest into growth. Does that mean that those fixed price contracts are actually loss-making because otherwise, they would likely help you to reach a higher GP growth as you are already within the margin range. So just to understand why you do this and also if you have more to come ahead as well? Johnas Dahlberg: Yes. Thank you, Daniel. Excellent question. So the problem with the fixed-price contracts are not really the margins per se. It's more the cash flow profile and the risk profile and if you go back a couple of years, you will actually see the discussion around this contract. So it's part of more risk management and also the sustainability of those contracts is more a transaction over a limited period of time, and it becomes pretty volatile. So -- this is more the logic why we're not super excited about those contracts. We haven't taken a decision to completely exit, but it's more taking a more cautious stance. To provide some numbers here at the peak, this represented maybe 3% of GP and now 2/3 of that is gone and that has happened over a 12- to 18-month period. And now what we need is another 12 months to get it out of the comps. So that gives you a little bit of guidance of that impact. And it's predominantly consolidated in the EMEAs. That's why you see the drag on EMEA. Daniel Thorsson: Okay. Excellent. That's very clear. And then the second one on the increased competition in certain markets you mentioned here. Does that increase your appetite for a return to M&A by consolidating some markets and become a larger player? Or do you view your options differently here? Laurinda Pang: Well, first, I would say that M&A continues to be a part of our strategy, although we've been quiet for the past couple of years as we've been integrating these companies. So very much, we have an appetite for that. Certainly, we've been spending the last 2 years cleaning up inside of Sinch and while we're not complete, we've certainly made progress. So -- we certainly are in a position at this point in time. The balance sheet is strong. So again, we are in a good position. Consolidation needs to happen. We're believers in it. This continues to be a fairly disjointed or disaggregated industry. So there are plenty of opportunities there to potentially consider. Daniel Thorsson: Okay. So can I just end with the final short one here. Is the emergence of RCS and WhatsApp volumes here growing 3x year-over-year? Is that hampering net sales growth, but enhancing gross profit growth due to potentially lower prices but higher profitability for you? Laurinda Pang: No. Mia Nordlander: Next one is Fredrik Lithell from Handelsbanken. Fredrik Lithell: I thought, Laurinda, maybe if we saw Twilio report a bit earlier here last week or something like that. And they had an organic growth of north of 10% and you're about flattish. I know -- I mean, your peers, but you're not apples to apples. So if you would pick some of your pieces apart and compare, where do you see you spend in comparison to Twilio's similar units would be interesting to hear your elaboration on it without sort of picking on Twilio necessarily? Laurinda Pang: Thanks, Fredrik. Yes, it's -- to your point, it's hard to do a direct comparison because certainly, I think the normalization of the business, I know how we do it, I don't know how they do it. So that's hard. The other piece is just the business mix is different, even though we sell similar products, just the segments as well as the geos that we sell in or at least have the majority of our business in is different. If I try to peel it apart and look at a more comparable Americas business, versus Twilio and the growth that we see in the underlying API business-specific to messaging. The comparison is that the gap is not nearly as large as one might look at, at the very highest of levels. So I think for me as the leader of this business, it's important for [ Sinchers ] to play our game and to win in the markets that we have invested in. And within the Americas right now, again, the teams are doing a very good job winning new business so that we can shorten or rather lower the customer concentration in that market. We're doing it with a disciplined approach. We're doing it with multi-products so that it provides a higher value to the customers. And we're also within this diversification also being able to address a market that's a bit lower and less price sensitive than what we experienced at the very highest ends of the market. Fredrik Lithell: But is it so that you feel that you are losing market share to Twilio when you meet Twilio? Laurinda Pang: No, I don't, actually. In fact, I mentioned a lot of the wins -- the good positive wins that we're seeing in Americas and then Asia Pac as good examples, where we, of course, are winning against our competitors. So -- and they happen to be one of them. Mia Nordlander: Next one is Thomas Nilsson from Nordea. Thomas Nilsson: Since you're spending quite a bit of money investing in your network and your infrastructure, how many of your competitors are investing into the network at such an ambitious level? And how do you view this will differentiate the various players in the CPaaS market in the coming years? Laurinda Pang: The network infrastructure, maybe that I'm not sure what you're looking at. Johnas Dahlberg: Can you repeat the question? Thomas Nilsson: I mean your level of investment in your -- in CapEx is quite high. And how many of your competitors do you see investing at such a high level as you and Twilio? And how do you think this will play out in the market in competitive terms in the coming years? How many of your competitors are really investing in the networks where you are? Johnas Dahlberg: Well, I think, first of all, I'm not sure I subscribe to the idea that we have a very high CapEx level, it's around SEK 1.5 billion a year in line with historical depreciation, give and take some change. It is a level we've been at. It's a level we think we will continue to do that. And it's -- don't expect any big changes, at least not material changes in the grand scheme of things. When it comes to our competitors, I can't really comment that and their investment plans. Laurinda Pang: The other thing I would call out is just on the network connectivity piece, we are -- and this might be what you're talking about, Thomas, is -- we have been investing in the migration from a legacy network to a digital or an IP network. That cost will go away roughly at about mid next year. Mia Nordlander: Thank you very much. I think that was it for today. Thank you very much to everyone who called in today. We will be back here with Q4 report on the 17th of February. And if you have any questions, feel free to reach out to the IR Department. We are very happy to answer your questions. Once again, thank you very much, and goodbye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2025 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 5, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking information and forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for the quarter and Sprott's other filings with the Canadian and U.S. securities regulators. I will now turn the conference over to Mr. Whitney George. Please go ahead, Mr. George. W. George: Thank you, operator, and good morning, everyone. I'll start on Slide 3. Thanks for joining us today. On the call with me is our CFO, Kevin Hibbert; and John Ciampaglia, CEO of Sprott Asset Management. Our 2025 third quarter results were released this morning and are available on our website where you can also find the financial statements and MD&A. On Slide 4, I'd like to review our third quarter and year-to-date highlights. Our assets under management increased by $9 billion during the quarter, driven by surging gold and silver prices. In October, subsequent to the quarter end, our AUM surpassed $50 billion for the first time. We reported strong sales during the third quarter, driven by interest in both precious metals and critical materials. Our managed equities business has delivered outstanding performance, both during the quarter and on a year-to-date basis with some strategies up more than 100% as of October 31. The active ETFs we launched earlier this year to leverage our strength -- the strength of our investment team have been among our most successful ETF launches to date. Since we acquired the Sprott Uranium Miners ETF in 2022, our ETF business has grown from under $400 million in assets to more than $4.4 billion today. Given the strength of our financial results and our confidence in Sprott's future, yesterday, our Board declared a third quarter dividend of $0.40 per share, an increase of 33%. And finally, today, we announced that we have strengthened our executive team with the appointments of Ryan McIntyre as President, and Kevin Hibbert and Arthur Einav as co-COOs of Sprott, while retaining their current positions as Chief Counsel and CFO, respectively. On behalf of our Board and the entire Sprott team, I'd like to congratulate Ryan, Kevin and Arthur on these appointments. And with that, I'll pass it over to Kevin for a look at our financial results. Kevin? Kevin Hibbert: Thank you, Whitney, and good morning, everyone. I'll start on Slide 5, which provides a summary of our historical AUM. AUM finished the quarter at $49.1 billion, up 23% from $40 billion at June 30 and up 56% from $31.5 billion as at December 31, 2024. On a 3 and 9 months ended basis, we benefited from strong market value appreciation across our fund products and positive net inflows to our physical trusts. As Whitney noted, subsequent to quarter end, on October 31, our AUM was $51 billion, up 4% from our September 30 AUM level. Our performance subsequent to the quarter end was the result of $1.2 billion of market value appreciation and $793 million in net inflows to our physical trusts. Slide 6 provides a brief look at our 3- and 9-month earnings. Net income this quarter was $13.2 million, up 4% from $12.7 million over the same 3-month period last year. And on a year-to-date basis, net income was $38.6 million, up 3% from $37.6 million this time last year. Our net income performance was primarily due to a change in accounting requirements brought on by our new cash-settled stock plan that took effect this year, largely offsetting much of the net income we otherwise generated on market value appreciation and inflows into our precious metals physical trusts and carried interest and performance fee crystallizations in our managed equities segment. As we discussed last quarter, cash-settled stock plans like the one we implemented this year require the use of mark-to-market and graded vest accounting under IFRS 2, which created transitional accounting noise for us in the form of accelerated vesting that occurs in the early years of the program, i.e., we have to expense 60% of the total cash settled RSUs under our 3-year program in 2025 alone and then 30% in 2026 and the final 10% in 2027. This compares to only 1/3 increments annually under our former equity settled program. And the second way in which this transition accounting noise impacts our net income is by adding market volatility to each accelerated vested amount and at a time when our stock has appreciated 97% on a year-to-date basis. So suffice it to say that our actual after-tax settlement obligation will be a fraction of these IFRS 2 derived amounts. Adjusted EBITDA, on the other hand, which excludes quarterly volatility from items like stock-based compensation and carried interest and performance fee crystallizations was $31.9 million in the quarter, up 54% from $20 million over the same 3-month period last year and was $79.3 million on a year-to-date basis, up 26% from $62.8 million this time last year. Adjusted EBITDA in the quarter and on a year-to-date basis from higher average AUM on market value appreciation and [indiscernible] inflows to our Precious Metals physical Trust. Finally, Slide 7 provides a few treasury and balance sheet management highlights. And as you can see, our cash and liquidity profile remains quite strong. And to Whitney's point, given the strength of our earnings, our free cash flow and overall outlook, our Board has declared a third quarter dividend of $0.40 per share, which is a 33% increase from the second quarter level. For more information on our revenues, expenses, net income, adjusted EBITDA and balance sheet metrics, you can refer to the supplemental information section of this presentation as well as our quarterly MD&A and financial statements filed earlier this morning. So with that said, I'll pass things over to John. John Ciampaglia: Thanks, Kevin, and good morning, everybody. Just turning to Slide 8. Our physical trusts finished October at $39.4 billion and now represent 76% of our overall AUM. Year-to-date, the growth has been tremendous at plus $15.4 billion or 64% with strong gains across the metals complex. As I've mentioned on previous calls, scale and liquidity are critical to attract institutional investors into our funds, and we believe we are still in the early phase of institutional investors allocating to metals. We are also seeing some new use cases for our trusts. For example, our Silver Trust, PSLV has experienced very high trading volumes of late as silver and ETF market participants are now using PSLV as a short-term trading and hedging instrument. In early September, the uranium Gold and Silver Trust became the first closed-end funds in Canada to have listed options on them. This is most significant for Sprott as it's now the only listed uranium investment vehicle in the world with options and open interest continues to grow. The scale and liquidity effect not only makes the funds more investable to ever larger institutions, but it also provides very valuable operating leverage, and we're starting to see the benefits with our margins being enhanced. Turning to Slide 9. We've often spoken about the ideal environment for our business, which is to have multiple metals working at the same time. While we've previously experienced periods where 1 or 2 metals are working together, we are currently experiencing an environment where just about all metals are benefiting from 2 powerful macro trends. The first trend is related to the geopolitical fractures being created as the global trading system is being reordered, precious metals as well as critical metals are the primary beneficiaries. The second trend is related to the AI infrastructure build-out, which will require significantly more energy, namely electricity. The generation, transmission and storage of electricity will be very mineral intensive, benefiting a wide range of metals and mining companies. These macro drivers are unlikely to be transitory as they represent pivotal shifts in energy and industrial policies. They also highlight the strategic importance of critical material supply chains, energy security, national security and the shift to dedollarized foreign exchange reserves by central banks. So far in 2025, we have already achieved higher net flows than our previous full year record, which was achieved in 2021. I'd like to highlight our net flows in the month of September, where we recorded our highest ever monthly sales number. What's more impressive is that we achieved this with 18 different funds contributing with positive sales. Our previous record in February 2021 was achieved largely from one fund, the Silver Trust. Our sales results reflect broad and growing interest in our funds and confirms the benefits of making the strategic decision in 2021 to extend our suite of funds to a broader range of metals and listing ETFs across multiple jurisdictions. Turning to Slide 10, our ETF product suite, very sharp AUM growth this year at plus 83%. Most of our ETFs now exceed breakeven AUM levels, which is very important for profitability. And we're also experiencing the same scale and liquidity effect as the funds grow in size, they are gaining access to ever more distribution platforms. Most of our ETFs have unitary or fixed fees, so scale helps to improve our profitability as many of our operating expenses scale down with size. And then finally, turning to Slide 11. Q3 represented the 16th consecutive quarter of positive flows. One ETF I'd like to highlight is the Sprott Silver Miners and Physical Silver ETF. The ticker is SLVR on the NASDAQ. We launched SLVR in January, and the ETF is already having very good success in taking market share from long-standing incumbents. AUM is currently $350 million and represents one of our fastest-growing new ETF launches. We continue to experience some redemptions from our uranium mining ETFs as investors have been chasing some high-flying stocks in the downstream segment of the nuclear fuel supply chain. We believe that uranium mining stocks are well positioned to benefit from the ever-growing supply deficit, which doesn't seem to be solvable in anytime soon. And with that, I'll turn it over to Whitney. W. George: Thanks, John. We'll move now to Slide 12 for a look at our managed equity segment. As I mentioned in my opening remarks, our managed equity strategies have performed well this year. Our flagship gold equity fund was up 44% during the quarter and has gained 105% year-to-date. We are pleased with the early response to our 2 active ETF launches. In recent years, investors have demonstrated a clear preference for ETFs over traditional mutual funds. Actively managed ETFs offer an excellent way for us to leverage the strength of our investment team in an ETF format. Investing in mining comes with a number of risks, and we think they're best mitigated through active management, and we'll continue to look for new ways to showcase that expertise. I'll now turn to private strategies on Slide 13. Private Strategies AUM was $2.1 billion, unchanged from June 30. The team continues to assess new investment opportunities for Lending Fund III and is actively monitoring our streaming and royalty portfolio investments. Slide 14, for some closing remarks. To recap, we are pleased with what we have accomplished so far this year. AUM has increased by nearly $20 billion, driven by rising precious metals prices and more than $3.5 billion in net sales. The rise in gold and silver prices has been dramatic and the recent technical correction was not unexpected. However, our view is while gold may be technically overbought, it is chronically under-owned. Despite recent inflows into physically backed gold, ETFs, most U.S. investors are still significantly underweight gold in their portfolios. Just a slight increase in this allocation could have a dramatic impact on the price. At the same time, price insensitive buying from central banks is likely to persist as it is driven by ongoing restructuring -- the ongoing restructuring of global trade and military alliances. The appeal of precious metals increases in uncertain times, and we expect the reshaping of the current world order to continue for some time with the ultimate outcome unknown. The outlook for critical materials is equally compelling. The U.S. government has ramped up its intervention in critical materials markets throughout 2025, implementing a multipronged strategy to secure supply and reduce reliance on foreign sources, particularly China. The Trump administration is moving aggressively on this track, even taking equity positions in critical material miners. Not to be outdone, the big banks are also getting in on the act. JPMorgan recently launched a $1.5 trillion security and resiliency initiative aimed at bolstering U.S. national security through strategic investments in critical industries. In closing, we are pleased to be delivering steadily improving results and investment performance. With our core positioning in precious metals and critical materials, we believe we are well positioned to benefit from the powerful global trends outlined above. That concludes our remarks for today's call, and I'll now turn it over to the operator for some Q&A. Operator? Operator: Your first question comes from the line of Matt Lee at CGF. Matthew Lee: Just one from me. Over the quarter, it seems like the spot price of uranium has ticked up and you've been pretty active in terms of picking up volumes. I just have a logistical question. Can you just talk about how challenging it's been to source material, particularly when the market is tight like it is today? John Ciampaglia: Matt, it's John. Yes, I mean, it's been pretty amazing because, obviously, the trust wasn't trading well for the first few months of the year, falling out -- fall out from the liberation day and uncertainty. Since late June, I think we've purchased about 7 million pounds of uranium in the spot market. So we've been very active. We're very focused on filling our allocation before the year-end, which is 9 million pounds under the current prospectus. There's always material in the spot market. It's lumpy. It's hard to find at times, but there's material. And I think what has influenced the availability of material so far this year is we don't see producers coming in the spot market in a meaningful way to buy. We don't see utilities coming into the spot market with the exception of 1 or 2 in a meaningful way. So we've been able to kind of soak up the pounds, which is fine with us because at current levels, we find it incredibly attractive to be buying uranium at $80. The term price is now at a multiyear high. It's ticked up to $86. I think that's a very good sign. And we're seeing a lot of utilities come back to market after largely standing on the sidelines as they're waiting for some clarity from the Trump administration on just about everything. So we're very constructive. We've raised about $700 million in the uranium trust since May. And I think that is a very strong vote of confidence in the market as well as the vehicle. Operator: Your next question comes from the line of Etienne Ricard from BMO Capital Markets. Etienne Ricard: So it's great to see the growth to your ETF franchise. Historically, physical trust accounted for the vast majority of your AUM. Now to the extent ETF's become more meaningful as a percentage of the mix, how do you expect this to impact the volatility of net flows through the cycle? W. George: Can you take that one? John Ciampaglia: I can take that one. Yes. Etienne, it's John here again. Yes, look, I mean, obviously, we've got 2 different dynamics. The physical trusts are obviously physical metals, and they obviously are not as volatile day-to-day and year-to-year as the underlying mining stocks, which represent the vast majority of the ETF exposure. What we obviously are seeing is kind of a staged approach where institutions put their toe in the water typically with an allocation to the physical because they've got a constructive view on the commodity itself. And then what we see them doing typically is to transition into some allocation into the equities. They're starting to do that. Obviously, there's a lot of capital flowing into the mining sector after a multiyear drought. And as Whitney mentioned, you've got governments now taking equity stakes in exchange for offtake agreements, loans and whatnot. So we haven't seen this dynamic in the mining sector, and we would expect the mining stocks to be bigger beneficiaries going forward here with -- on the back of renewed capital flows into the sector and obviously, governments are sending some very strong signals. Equity flows, they're more volatile for sure, but it comes with the territory. So it's nice to have a diversified suite between physical and mining across multiple, obviously, metals and jurisdictions. That's one way we can help to dampen the volatility. Etienne Ricard: Okay. I appreciate the details. And just to circle back on this morning's executive appointments, William. Why was this the right time to make this announcement? And how do you think about leadership planning as part of the regular risk management procedures? W. George: Well, I think the Board felt that the best time to think about the long-term future of the leadership is when things are going well as opposed to when you're in a more difficult environment. And certainly, this year, things have been going very well. So they hired an outside consultant to do an extensive review and profile of our existing leadership. And it came out very well, obviously, we're very pleased with -- I'm very pleased with my partners. And so again, I think what we wanted to signal to the market is the importance -- the important roles that Kevin and Arthur have contributed over time and the fact that they do more than just their initial titles of Chief Financial Officer and Head of Legal as for Arthur and because they really have been performing co-Chief Operating Officer roles for some time. And then Ryan is a fairly new addition to the team and has a lot of investment experience, has been President of a public company in his prior career and is a valuable member, and we'd like to highlight his contribution and presence to investors. Operator: Your next question comes from the line of Graham Ryding at TD Securities. Graham Ryding: Can you give us a feel for flows in the quarter and also October to date, just sort of the mix between retail and institutional? And can you maybe reiterate the case for -- it sounds like you think institutional demand is positioned to increase here? John Ciampaglia: Yes. Graham, John again. Yes, I mean, obviously, September was a record high for us. We've continued that momentum through most of October. Obviously, we hit a bit of an air pocket with a number of different categories on the back of escalating trade tensions with China and clearly some profit taking. We were quite extended technically. But I think it's important to note that the interest is growing. It's very broad. We're getting inbounds from everyone from family offices to institutions to registered investment advisers in the United States. We're seeing much more institutional allocation to the space. And to be candid, I mean, a lot of these institutions have had little to no exposure to the -- these categories for the last 10 years. So it's been a long time in the making, and we are working very, very actively to ensure we get our fair share of those flows. And we're very pleased with the result. The team has been incredibly busy talking to investors around the world. And we would expect institutions to continue to be the bulk of the allocations, but we're obviously seeing capital coming from advice channels and also individual investors, which you can't discount because there's a very large group of them out there that are more self-directed. Graham Ryding: So sorry, the flows in Q3 and Q4 to date have been largely institutional driven or you're saying it's a mix? John Ciampaglia: It's a mix for sure. I mean we don't have total transparency, obviously, with exchange-traded funds. So we have to self-identify, and we're obviously engaging with institutions and advice channel participants day-to-day. But it's a good mix. And I think it's been more skewed to institutional and advice channels thus far. Graham Ryding: Okay. That's helpful. Tokenization of sort of real assets seems to be a theme that's gathering momentum. Is that something you've looked at all like the idea of token backed by physical bullion, could that potentially open up a portion of the retail market that's maybe focused on digital assets, but not so much on precious metals or critical minerals? Have you looked at that? W. George: My predecessor made a variety of investments in digital gold. They were a little early. They didn't really work out. We've been watching it now very closely for -- since I've been here for 10 years. But in order -- in these new stable coins, in order to back the stable coins, you need the physical metal. And so we're paying very close attention. It could be a new factor, a new buying cohort of gold, in particular, on top of institutions and on top of the central banks that were underpinning it. But it will benefit our products one way or the other if people want gold back stable coins. We are watching it. We obviously have a strong brand in the space. We have a lot of technical expertise when it comes to purchasing and storage. But we lack some of the technology elements that you need to do to get into various cryptos. But there does seem to be a convergence now between the Bitcoins and physical gold in terms of people's investment. And even now with stable coins, they are more closely convergence where one can drive the other as opposed to be competing ways to get money out of the control of central banks. Graham Ryding: Okay. Interesting. And then private strategies, any update there on like expected fundraising? Or sort of should we expect you to just sort of maintain and sort of harvest the AUM at these levels? How should we think about that part of your business? W. George: Well, Fund II is very mature and probably in wind down. Fund III is still in the investment phase. And once we make some more progress on that, we can consider another product. So we're committed to that business. It's sort of lagged the rest of our business and maybe has an opportunity for a little focus in the next year to catch back up again. Graham Ryding: Great. And if I could get one more, just to be a little greedy. You've got $80 million of cash on your balance sheet. You've got some other liquidity that you flagged. What's your plan there? Are you happy to sort of sit with elevated liquidity or do you have a plan for allocating that? W. George: I'm committed to not building a money market fund. I think the dividend increase is a pretty strong indicator of how we view cash. Again, dividends that -- we are hopeful one day, there might be another acquisition or 2 out there. And we're hoping to grow the private business, which requires some co-investment, and we will continue to be buyers of our own shares opportunistically. Operator: Your next question comes from the line of Mike Kozak from Cantor Fitzgerald. Michael Kozak: GBP 9 million of purchases you can make in any given year. My question was, and this actually came in from an account the other day. Does that GBP 9 million, does that reset on Jan 1 every calendar year? Or is it like a rolling 12-month number? Because I think you're already at GBP 7.5 million for this calendar year or thereabouts. So you're bumping up against it. John Ciampaglia: Yes. Mike, it's John. Yes, that basically covers calendar years and the base shelf prospectus will expire at the end of January next year. So in the coming weeks, we will be starting the process to file a new prospectus. And our expectation is we will be able to roll that amount forward, but we haven't started that engagement yet. And we still have runway to continue to buy between now and the end of the prospectus. So it's business as usual. Michael Kozak: Okay. That's helpful. The second question I had was approximately how much of the uranium trust inventory is held at ConverDyn? And then as a smaller subset of that, what -- I suspect it's small, but what percentage would be of U.S. origin approximately? And the reason I ask is with U.S. government or various agencies increasingly getting involved in critical minerals, there's increasing chatter on my end anyway that there's a very real possibility that you're going to get some sort of bifurcated pricing on uranium, whereby U.S. origin or U.S. domiciled material get some sort of fixed premium pricing set by a government agency, similar to like what we saw with NDPR. So I just want to get a sense of where the inventories are at ConverDyn and what percent approximately would be of U.S. origin, if you can? John Ciampaglia: Yes. Okay. Interesting questions for sure. So out of our 72 million-odd pounds that we're holding, there's very little U.S. origin. And the reason is simple. There was obviously multiple years where there was no uranium mining in the United States. And as you know, even this year, it's going to be quite de minimis relative to annual requirements. Now let's take a step back. Obviously, in the Biden administration, the Department of Energy undertook the first step towards building a strategic uranium reserve. They had a grand total of $75 million to procure uranium. They went out, bought 1 million pounds. They ended up paying way over spot for U.S. origins that obviously was historically mined material sitting above ground. And I think more interestingly, in September at the IAEA, Chris Wright, the Department of Energy Secretary stated again the need for a strategic uranium reserve, which is obviously fanning a lot of speculation. Obviously, the U.S. is trying to reshore the entire supply chain. They're most focused on enrichment and conversion, obviously, made a huge announcement last week around the Westinghouse new build. And obviously, they're trying to resuscitate U.S. mining. We could see a 2-tiered pricing environment where if the U.S. government is willing to pay a premium for U.S. origin, that is entirely possible. We have seen in the past, bifurcated markets, mostly many decades ago kind of during the cold war. I think it's important to note that the U.S. is clearly focused on the reality that they are largely sourcing all of their uranium from outside the country. And obviously, with the recent announcement, their aspirations to build even more reactors is compounding. So it will be to be determined whether funds are procured to start building a strategic uranium reserve. In terms of where we're storing our material, we're only allowed to store in the 3 Western license conversion facilities. That's the Cameco facility, the Orano facility in France and the ConverDyn facility in the United States. If memory serves me, we have about 20-ish percent at ConverDyn. And the bulk of it is in Canada at this point. I think the main point I would leave you with is the U.S. is very focused on building its supply chain by building capacity locally. You're seeing them make investments, obviously, in enrichment facilities with Orano, with Urenco, with Westinghouse. They want to resuscitate mining. They're fast tracking, mining permitting. And I think what they're focused on is production and building capacity along the supply chain. Michael Kozak: Okay. That's helpful. And then one more, if I could, switching gears on silver. I'd love if you could give me some color on the tightness in the physical silver market from last month. There was all kinds of articles about, well, the potential squeeze on the physical metal, I think that the silver futures curve was in backwardation there for a few days. There's reports about traders chartering private planes taking physical silver from London to New York. And I think PSLV was issuing and buying in the market over that period. So any color you could give me on the physical silver market would be appreciated. John Ciampaglia: Yes. I think we're probably one of the largest buyers of physical silver in the world over the last 5 years. So we obviously have a lot of insights into what's going on there. And yes, a few weeks ago, there was clearly a dislocation, but the dislocation was really driven by a mismatch of inventories in different jurisdictions. So shortage of metal in London, which is the primary market and a surplus of metal in the COMEX markets, which is U.S. based. And there is a point in time where the pricing differential between those 2 markets incentivizes putting metal on ships, which is the primary way to move silver around, not airplanes like gold and move it across the pond and to capture that arbitrage. That is obviously happening. There's at least 30 million -- excuse me, 30 million ounces of silver that have left COMEX Vault in the last few weeks. And the situation is starting to abate in terms of that dislocation. But clearly, too much metal left London when there was concern about tariffs, which ultimately did not transpire. And now that metal is stuck and needs to go back. We've actually been big beneficiaries of that dislocation because as we've been raising money, we've been able to buy inventory that's stuck in the U.S. that people want to get rid of. So we've had no issues sourcing metal and a lot of the London metal is moving on to India where it seems as though it's relentless there in terms of how much silver people in India want to own right now. So it is abating, but I'd say it was actually a big help to us. Operator: Thank you. At this time, I will turn the call back to management for closing remarks. W. George: Thank you, everyone, for participating on this call. We appreciate your interest in Sprott. We remain contrarian, innovative and aligned and look forward to speaking to you again after our fourth quarter results. Operator: Thank you. This does conclude today's conference call. We thank you for attending. You may now disconnect your lines.
Operator: Welcome to Sleep Number's Q3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Wednesday, November 5, 2025. This conference call will be available on the company's website, ir.sleepnumber.com. Please refer to today's news release to access the replay. On today's call, we have Linda Findley, President and CEO; and Bob Ryder, Interim Financial -- Chief Financial Officer of Sleep Number. Before handing the call over to the company, we will review the safe harbor statement. The primary purpose of this call is to discuss the results of the fiscal period ending on September 27, 2025. Commentary and responses to questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in the company's earnings news release and discussed in some detail in the annual report on Form 10-K and other periodic filings with the SEC. The company's actual future results may vary materially. In addition, any forward-looking statements represent the company's views only as of today and should not be relied upon as representing its views as of any subsequent date. The company specifically disclaims any obligation to update these statements. Please also refer to the company's news release and SEC filings for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release or that may be discussed on this call. I will now turn the call over to Linda Findley, Sleep Number's CEO. Linda Findley: Thank you, Tiffany, and good morning. I have now been on the job for over 6 months. My learnings thus far make me incredibly optimistic about Sleep Number's future and the ability to create significant shareholder value in the coming years. But nobody should be confused. This is a full turnaround of an inherently great company. I came to Sleep Number because I saw huge potential for the company, and I remain excited about what's ahead. As in many situations like this, there were more challenges than I expected, which required us to move extremely fast to fix the business. The pace of our work, along with constraints imposed by our capital structure, has made the first 6 months choppy. We've accomplished a lot, and we're optimistic that the work that we've accomplished positions us to execute the turnaround in 2026. Importantly, after close collaboration with our banking partners, we have secured an amendment and extension of our bank agreement through 2027. This now provides financial flexibility to focus on sales-driving initiatives and execute our turnaround. Our new agreement, combined with meaningful fixed cost reductions achieved in 2025, will allow us to invest in growth in 2026, but more on these initiatives later. Q3 operating results were disappointing. I am not pleased, but we're on top of the reasons, and we're moving quickly to stabilize all elements of the company. As we articulated last quarter, we were hopeful that a more efficient marketing strategy could mitigate some of the top line headwinds associated with significantly cutting spend. Our results early in the quarter gave us confidence that this approach would be successful. However, competitive behaviors became even more aggressive than we had expected during the Labor Day period, and we did not have the financial flexibility to counter with our own messaging, which hurt our top line. We believe the new bank agreement and our fixed cost reductions will allow us to go on offense in the future. I want to take a few moments to explain why I'm confident that we can turn the top line in 2026. First, our new product initiatives will simplify our offering and should attract a broader set of new customers, while building on demand from our repeat buyers. This product evolution will capitalize on Sleep Number's strong differentiators in adjustable firmness and temperature. While other brands deliver elements of what we do, we deliver it all, and in my opinion, we do it better. Second, we are refreshing our creative to focus more on product value and benefits to drive greater interest and excitement about the brand. We are deploying our dollars into more efficient, higher-return channels to drive traffic to our stores and digital channels. When our customers arrive, we know they're going to like what they see. Across the organization, we are changing everything from creative to social to customer interaction. We're already seeing notable payback improvement with our new marketing initiatives. Third, we're taking a fresh look at our distribution strategy. While we continue to see big benefits in our vertically integrated model, we believe there are opportunities to expand distribution into new channels, both physical and digital. We are optimizing our store footprint and leaning into digital to meet customers where they are, while exploring selective partnerships and new routes to market. For example, next week, we will host a show on HSN with an exclusive bet as part of an ongoing testing of channel opportunities. Our vertical model is still our strategic advantage, but we feel strongly that we can build on that model, while retaining its strength. Finally, our substantial progress on fixed costs and our amendment agreement with our bank group means that the total marketing spend in 2026 will be slightly up compared to 2025, while still reducing our operating expenses. To put that in perspective, media investments in Q2 and Q3 of this year were down by 32%. Together, we are confident these initiatives put us on a path to stabilize our top line in 2026, while meaningfully growing our adjusted EBITDA and free cash flow. We are working with urgency and at breakneck speed. In my 6 months at Sleep Number, there is no part of the company that hasn't been touched. Before I turn the call to Bob, I wanted to take a moment to thank all Sleep Number team members. Their continued dedication is exemplary. They are urgently pacing, prioritizing and executing on the things we know [ we're ] going to bring the biggest value. I'm proud to stand shoulder to shoulder with them as we continue to forge ahead to bring Sleep Number back to growth. With that, I will now turn the call over to Bob. Robert Ryder: Thanks, Linda, and good morning, everyone. Third quarter results are certainly not where we want them to be. Profits and cash flow were well below expectations due to disappointing sales. I'll get into the details of the third quarter results in just a moment. As we shared 90 days ago, we're in the midst of a business turnaround that's comprehensive and will impact almost every aspect of the business. I want to highlight 3 important elements of our turnaround from a financial perspective. First, costs. We've made considerable progress on costs in 2025. Following 2 years of significant cost actions, we further reduced operating expenses, excluding restructuring and nonrecurring costs, by $115 million since the beginning of the year and now expect to exceed our $130 million cost-out target. These reductions have come from all dimensions of the business, headcount reductions, streamlining the organization, research and development costs, selling expenses and marketing. The goal was to reduce costs aggressively, while minimizing any negative business impact. The significant reductions in Q2 and Q3 media spend, however, did have a negative impact on the top line. And as aggressive as our fixed cost reductions were, they were not enough to offset the impact of reduced sales on our high-gross margin product. As such, we have reduced our full year net sales, adjusted EBITDA and free cash flow expectations. We're certainly not done reducing costs. There will be additional fixed cost reductions in Q4 and 2026 to further align our cost to our new lower sales base. Second, financing. We successfully executed an amendment and extension of our bank agreement, extending maturity to the end of 2027. The revised covenants and terms align with our planned turnaround trajectory and provide the flexibility to invest in specific parts of the business with strong returns. This agreement reflects lender alignment with our strategic reset and supports both near-term stability and long-term growth. Third, our commercial strategies. The greatest shareholder value will be created by implementing our commercial strategies. We have a strongly recognized brand and a highly differentiated product, but we do have room to improve. In 2026, we will be repositioning our product lineup to better resonate with a larger consumer base, execute a more efficient and effective marketing approach, and expand channels of distribution, including website improvements, to drive better conversion. We've been working on this commercial reset throughout 2025, and we will see the results of these initiatives in 2026. And importantly, our amended covenants provide us the flexibility to execute our plan. Now, let me walk through our Q3 results. Net sales of $343 million were down 19.6% year-over-year. This decline reflects the opportunity within our product portfolio and the impact of our significant marketing and media investment reductions. Marketing efficiency continues to improve as we saw cost per acquisition decline 6% versus the prior year. However, we need to drive more traffic into both our stores and our website. We expect our marketing efforts to begin to do that in the fourth quarter. Gross profit margin was 59.9%, down 93 basis points versus last year, but up 82 basis points from Q2. The year-over-year decline was driven primarily by unit volume deleverage, partially offset by favorable product mix and lower promotional activity. Operating expenses, excluding restructuring and other nonrecurring costs, were $204 million, an 18% decline from 2024. This reflects the continued cost-outs we've been implementing across the organization to align with our sales reduction. We recorded $41 million in restructuring and other nonrecurring costs in the quarter related to these ongoing transformation initiatives. These included severance and employee-related benefits, contract termination costs, and asset impairment charges. Approximately $30 million of these charges were noncash and are attributable to sunsetting technology assets and closing several underperforming retail locations. Adjusted EBITDA was $13.3 million, down $14.4 million from last year. The decline was driven by lower net sales and gross profit margin compression, partially offset by lower media, fixed operating expenses and variable selling expenses. In addition to reducing costs, we are also actively managing working capital with net year-to-date changes in inventory, accounts payable, receivables and prepayments being a $20 million source of cash. We have also reduced year-to-date capital expenditures by approximately $5 million compared to the prior year. We acknowledge current performance is not where we expected it or where we want it to be. However, we remain confident that actions we are taking will result in a turnaround of demand trends. As we are resetting the business and executing elements of our own plan, we are also realistic about the timing of the impact of our actions. We now expect net sales for the year to be approximately $1.4 billion and gross profit margin of approximately 60%. The incremental cost reductions, excluding restructuring and other nonrecurring items, are expected to result in a full year operating expenses of $825 million, or $135 million less than 2024. The resulting adjusted EBITDA is now expected to be approximately $70 million with negative free cash flow of approximately $50 million. With these anticipated outcomes, we expect to be in compliance with our new debt covenants. Looking ahead to 2026, we are approaching our plan process with 3 key objectives. First and most importantly, stabilize sales and return to growth after we revamp our product offering with more emphasis on serving the consumers' priorities of comfort, durability and total value. To support that endeavor, we will continue to modernize our marketing approach, improve our website and expand distribution into new channels. Second, continue to take fixed costs out of the business, including continued consolidation of our real estate footprint. And finally, as stated before, generate free cash flow to pay down debt. With that, I'll turn it back to the operator for questions. Operator: [Operator Instructions] Our first question will come from the line of Bobby Griffin with Raymond James. Robert Griffin: I guess, 2 questions here. One, just on more modeling, but can you tell us what is the cash part of the restructuring for all of '25 and the noncash part of the restructuring for all of '25? And then, what level of cash restructuring charges will carry over into '26? I'm just trying to get a cleaner view on just the cash flow generation capabilities as we stand here at today's revenue base. And then, my second question is, just the comments on the commercial strategies. I think you called out an expanded website, but any comments on wholesale? Just what is the expansion that you guys have been working on for the commercial strategies? Robert Ryder: Sure. I'll take the first half, right, and then I'll let Linda talk the second half. So the first half, look, of the cash restructuring charges, I'd say the cash charges are kind of the normal ones you see, contract termination costs and employee severance costs. And we're not giving guidance on what they will be in 2026, and there might be some more in Q4. But they are included in the $50 million negative free cash flow guidance that we provided -- I'm sorry, for 2025. And the noncash costs were primarily write-offs for stores that we've stopped operating. It was a big piece of it. You can see this in the free cash flow statement. And the second part was a write-off of some intellectual property assets that we had that we just don't think are worth as much as they -- we thought they had been historically. And the total noncash was about $30 million. Robert Griffin: Bob, that's for the year or for the quarter? I guess, I probably didn't ask it. Sorry. Robert Ryder: That's year-to-date. Robert Griffin: Okay. I was just trying to get a sense of the cash restructuring for all of '25, what it's expected to be. And then, what cash restructuring could carry over into '26, if you have any guidance? Just because when we look at free cash flow and cash flow from ops, we should kind of keep both of those in mind as we try to think about the level of what this business is doing today as hopefully, the cash restructuring won't be repeating at the same level in '26. Robert Ryder: Sure. And so, the -- for '25, the numbers I provided were year-to-date, right? You'll see them pop right off the GAAP cash flow statement. That's year-to-date '25, right? The negative $50 million, that would include all the cash -- well, it's just cash, all the cash charges that we expect for '25. And '26, we're not giving guidance on, but what you'll see when the debt agreement is filed on the 8-K and it might already be out there, there are some covenants around restructuring charges, right? So you can model a max at least. Linda Findley: Yes. But I will say, just jumping in on that to sort of finish up before I jump into the commercial side of it, we did take most of those this year. Like that's the focus. That's why we went so aggressively on some of these cost reductions this year. So, that is our intention is to really drive most of those into 2025. Robert Griffin: Okay. Perfect. And then, just the commercial strategies and larger consumer base you called out, things like that. Linda Findley: Yes, of course. So looking at the commercial strategies, a big part of this is what we talked about with sort of refining our product offering in order to drive to a much larger audience. We already have a significantly larger audience coming to look at our brand on our website, coming to check out the product. But we mainly convert a certain subset of that product today. And so, by expanding our website and actually expanding the product offering and simplifying the product offering, we are confident we're going to be able to appeal to that larger customer base that's already looking to us and already knows our brand and aspires to our brand [ but ] create more product value fit for them starting in 2026 to increase conversion for that group. So that's sort of the website and product part of it. That goes hand-in-hand with the distribution piece of it. So we just mentioned that we're doing our first test on HSN. There are several other wholesaler and other channel tests that we'll be announcing probably in the coming weeks and months. That will give you an idea of how we think we can expand while maintaining the strength of that vertical footprint, but actually supplementing it -- not cannibalizing it, but supplementing it with additional channels that reach some of those different expanded audience segments. So that's really how we're approaching this. We think that a lot of those aren't necessarily traditional wholesalers from a mattress industry perspective, but rather broader value-add channels that we can lean into that will add to the distribution and create additional brand awareness of the business. So again, look in the coming weeks and months for some more announcements on what some of those are, but that is a big part of our strategy going forward is how can we supplement with distribution. Operator: Our next question comes from the line of Daniel Silverstein with UBS. Daniel Silverstein: Maybe just to start, just to level set, what are the biggest strategic changes that Sleep Number can make to improve the sales trajectory in the near term? I guess, if the competitive environment remains aggressive like it was in the third quarter, how can Sleep Number drive that improved traffic that Bob mentioned with kind of the marketing budget it has today? Linda Findley: Sure. Well, I think that's actually an important part of it is, it isn't just about the marketing budget we have today. So first of all, I do think the competitive environment will remain intense and it should remain intense. That's actually part of what makes this industry what it is. So we are anticipating that, that intensity will continue, the difference being that we took about a 32% year-over-year cut in our marketing -- sorry, media spend specifically in Q2 and Q3 because we needed to move aggressively while we were negotiating with the banks. That reduction is very, very impactful on our ability to scale the business. Now, at the same time, that reduction also helped us reset our marketing stack to be more efficient in the future and to lean into more channels more effectively. So we are seeing those efficiency improvements already play out. But we were capping our spend not just in an overall year-over-year reduction, but it's important to note that we were looking at marketing spend that would only pay back in the quarter previously because we were managing to our bank debt. With the new covenants that we've put in place and with the negotiations with the bank, we've allowed ourselves the room not only to reinvest back into marketing, so we will be putting more dollars back and have already started putting more dollars back into marketing into Q4 based on efficient return on spend. So we're not -- we aren't going inefficient on any spend because we've been leaving money on the table in the past, while we are constraining spend. And that spend will not only benefit us in Q4 but again will benefit us in Q1 going forward because when you're rolling into marketing spend, you not only want to spend for where you are now, but you want to continue to build the pipeline for future quarters, and we couldn't afford to do that before. So with the way that we both created more efficiency in marketing and been able to get leeway on our covenants to be able to lean in not just to spend that benefit this quarter, but spend that builds the pipeline for future quarters. That's how you restart that flywheel, and that's the process that we're in right now. So it's all of those things together. But I want to be really, really clear that there are multiple aspects that we are looking at in the business here. It isn't just about that marketing efficiency. It is also about this product reset. And we do still see continued cost reduction opportunities in the fixed costs that were built and are not necessarily contributing to the longer-term profitability of the business. So, as Bob said in his section of the script, we are really focusing now on how can we take those fixed costs out of the business strategically and over time without actually incurring additional expenses to take those costs out of the business. And that's mostly going to be on the real estate front as we consolidate our sales into our highest-performing stores. Daniel Silverstein: Very helpful and a good segue into our next question. As you're thinking about the larger scale strategic initiatives you laid out for 2026, is it fair to assume that rationalizing the store fleet is kind of the most tangible piece of that today? Any update on kind of the rank order of those things you mentioned would be really helpful. Linda Findley: Sure. So just to give a little bit of context, as you know, we've gone very aggressively on cost savings. And as a little bit of just mental background and level setting, our headcount is currently now back at 2017 levels. So we went very aggressively on our headcount moves, and that is really, really impactful to the bottom line once we start to scale again. So we've been able to move quite a bit on creating, again, not only cost efficiency in some of our corporate costs, but also be able to create that scale and that speed of operations within the business. So yes, real estate and store footprint would be the next level of what we can look at. We have very, very high transfer rates when we're strategic about the stores that we actually shift and close down, and we've done several of those so far this year. But I think very specifically, it's important that we look at our strategic benefit of where we can actually have the most productive stores and make each one of those stores more efficient and drive more sales to the leaders in each of those stores so they can create that volume on top of a lighter fixed base from what we've had in the past. Operator: Our next question comes from the line of Brad Thomas, KeyBanc Capital Markets. Bradley Thomas: Linda, I was hoping to follow up just on your thoughts on product and product evolution. We've talked in the past about an opportunity to bring in lower price point items. Could you just give us an update on your thinking and perhaps the timing of refreshed assortment? Linda Findley: So I will give you as much detail as I can, given we are still under wraps, so to speak. But we are still looking at early 2026 in timing, just as we had mentioned before. And it's important to note that it's partially about price point and it's partially about value at that price point. So this is really a radical focus on the consumer and what the consumer is looking for. So you will see price point moderation, but it's not necessarily going low end. I want to be super clear about that. We are a premium product, and we have a very, very loyal and excited customer base that loves the products that we have. What we're looking to do with the new product assortment, which will include simplification of our product assortment, is how do we actually bring more value to a broader audience of people. So, that means driving value into price points that are more accessible to a broader amount of people still in the premium space. So, that's where we see the fact that we have strong differentiators in adjustability. We have strong differentiators in creating better sleep night after night. We have some of the best differentiators when it comes to temperature and adjustability. How can we bring that to a broader audience by creating that value alongside comfort and durability that we're known for into a broader audience? So I can't give you much more detail than that, but it isn't just about price point. It's about driving value deeper into our lower price points. Bradley Thomas: That's very helpful. And if I could follow up on sales. Could we just touch a little bit on what the trajectory was through the quarter, what you're seeing more recently? And then, what the sort of underlying assumptions are in terms of the new revenue guide and what you're expecting for 4Q here? Linda Findley: Sure. So I'll start on that, and then Bob, feel free to jump in and add anything you would like. But what we saw is, we actually saw a strong start to the quarter, and we saw pretty good performance in the beginning of the summer. And then, we saw it get very, very choppy. And what I mean by that is, we saw a lot of spikes and phases of demand as you got closer to the Labor Day cycle. And then, as I mentioned, for us, we were managing our cash very carefully. We were managing our cash probably more than I would normally want to manage on a marketing program. And we were not as able to lean into the highly competitive Labor Day cycle as maybe others would have been able to do so from a marketing spend. So, that impacted our demand towards the end of the quarter. So the quarter started off quite positively. And then, sort of our biggest challenges came around the Labor Day, highly competitive cycle just because of our constraints that we had put into place in order to negotiate our debt. Robert Ryder: Yes. I'll just follow up on that, Linda. So for Q4, we are expecting some improving trends, certainly not where we want it to be long term. But our Q4 media spend will be a little less than Q4 last year, but not the down 30% or so we saw in Q2, Q3. So we think that should help us some additional media focused on the things that we think have returns. Also last year's Q4 was a pretty down quarter. So I think the overlap helps us a little bit. But it will all get a little bit confusing because remember, the fourth quarter has that dreaded 53rd week, which just confuses everybody. But we do expect slightly better sales in Q4, but not where we expect them to be in '25. Linda Findley: Yes. And I think one other important... Robert Ryder: [indiscernible] '26. Linda Findley: One other point I want to make about that, and then happy to take another follow-up, Brad, if you need it. But the spend that we're leaning into in Q4, as I mentioned in my previous comments, not only will benefit us in Q4, but it will also benefit us in Q1. So we are now back in a cycle of doing what you would normally do in a business, which is invest not just for that quarter, but be able to invest and start to set up the next quarter as well. So that's a factor there. You also asked a little bit about some of the trends that we're seeing so far in Q4. The most I can give you on that is, we just completed this renegotiation with our banks, and we just gave guidance, and we are in line with both of those models that we have put in place to date as far as performance. Bradley Thomas: Great. If I could just ask 2 quick clarifying questions. So for the fourth quarter, is it fair to assume that you all are thinking about the underlying sales trends improving slightly? And then, on a reported basis, we also get the lift of the 53rd week. Is that the way to think about it? Linda Findley: Yes. That's the way to think about it. Bradley Thomas: Great. And then to be clear, when we think about the marketing underlying run rate, Linda, have we passed the kind of most conservative point you've been at and are now at a point where you can test and start to lean in a little bit more because you've got this new bank loan? Is that the way to think about the marketing opportunity ahead? Linda Findley: Correct. Yes. Correct. So the 32% down on media spend, and that's -- again, we called out 32% down on media spend. There is obviously some broader marketing spend on top of that. But the 32% down on media spend only applied to Q2 and Q3. Q4 will only be slightly down, as Bob said, on media spend year-over-year, and we do not anticipate any of that baseline for 2026. Now, I want to be also very clear that we are seeing efficiencies, and we don't ever expect to get to the spend levels that we were at before because we think that we are building a more efficient marketing program that, with the right level of investment, will continue to pay off. Operator: Our next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: Following up on one of Brad's questions regarding the new products. Could you give us a sense of timing when we might start to see some of the newness in 2026? Linda Findley: Again, all we've said publicly is early 2026, and so we're staying with that. But I will tell you this team is working at lightning speed on everything that we're doing. So I can't give you much more detail than that, unfortunately. Peter Keith: Okay. Fair enough. And then, I guess, going back 3 months, a lot of the theme from the Q2 call was the improved conversion rates that you were seeing in late Q2 and July. And I guess, what happened there? Was it -- did the conversion rates go down or did the competitive advertising kind of [ drain ] you out? Just help me understand what changed so much. Linda Findley: Sure. Well, again, the conversion rates did not go down. As a matter of fact, we continue to see improved efficiency. This is the reminder that a 32% decrease in media spend, even with conversion improvements, resulted in a 19-ish percent down on revenue. So we are actually continuing to see those conversion improvements. We mentioned a 6% lift in -- or improvement in overall cost of acquisition. So we're continuing to see that cycle pay back faster and faster. We are also shortening our payback times as part of that. So all of that is actually going really well. We just simply had to limit the number of actual dollars that we can put out that would apply in the quarter. And particularly in Q3, when you have the Labor Day [ MSC ], which is the most competitive of all the [ MSCs ], cost of media goes up because everyone is pushing into the same channels. And so, we were not able to lean into that spend based on restrictions from our current negotiations. So that's really what I mean by that. We're still seeing all of those efficiencies, and we're seeing even more so. And we continue to see improvement as we run into new channels. It's just that previously, we were restricted on the actual dollars we could put against that. Peter Keith: Okay. Fair enough. And then, I guess, I was kind of curious if you're doing anything different at the store level. Certainly, you have a lot of employees that are commission-based. And with the big cut in advertising, it's probably making them harder to get paid. So how do you resolve that issue? Are you seeing more turnover at the store level? Or can you, I guess, recompensate people next year? Linda Findley: So we continue to actually look at our compensation structures to think about the right way to generate the best environment for our employees. So we're currently about 50-50 on commission and fixed. And we continue to actually look at it and we continue to evolve those programs as we go forward. We have actually simplified the selling process as well. So we just went through a big process where we created new sort of simplified selling paths for our employees so they could actually drive more conversion. And we did see decent conversion lift in store same-day sales during not just Labor Day, but during the entire quarter. So we're confident that we're making the right moves to improve our actual in-store sales process. But yes, a big part of the initiatives that we're doing are focused on getting that funnel bigger into the stores so that we can drive more traffic into the stores and drive more traffic via the website into the stores in order to increase the volume that we can actually convert off of. Peter Keith: Okay. All right. Great. One last question then I had for Bob. Just on the new -- the debt structure. So the press release notes a 5.25 debt covenant limit. Is that -- does that scale up or down like the previous debt agreement? And then, what's the new interest rate? Robert Ryder: It does scale up and down. Q4, Q1 and Q2 are all a little bit different. And then, the covenants get tighter in Q3, Q4, right? I think you'll see that in the in the 8-K. And yes, all the fees and interest rates also changed, which you'll also see in that 8-K release. Operator: As we have no further questions, ladies and gentlemen, this will conclude today's question-and-answer session. I'd like to turn the conference call back over to Linda for any closing comments. Linda Findley: Thanks, everyone, for your time today. Our teams remain focused on the work ahead, and I look forward to updating you on progress in the coming months and quarters. Should you have any further questions, please contact us directly. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Avient Corporation's webcast to discuss the company's third quarter 2025 results. My name is Dede, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe Di Salvo, Vice President, Treasurer and Investor Relations. Please proceed. Giuseppe Di Salvo: Thank you, and good morning, everyone joining us on the call today. Before we begin, we'd like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will have current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. We encourage you to review our most recent reports, including our Form 10-Q or any applicable amendments for a complete discussion of these factors or other risks that may affect our future results. During the discussion today, the company reviews both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the Avient website, where the company describes the non-GAAP measures and provides a reconciliation to their most directly comparable GAAP financial measures. A replay of this call will be available on our website. Information to access the replay is provided in today's press release, which is also available at avient.com in the Investor Relations section. Joining me today is our Chairman and Chief Executive Officer, Dr. Ashish Khandpur; and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Ashish to begin. Ashish Khandpur: Thank you, Joe, and good morning, everyone. I am pleased to report third quarter adjusted EPS of $0.70, in line with our guidance despite slightly weaker-than-anticipated sales. The subdued market demand in several of our key markets, affected revenue growth compared against our strongest quarter in 2024, where we had realized 8.5% organic revenue growth in the third quarter last year. Our focus on increased productivity, cost containment and portfolio prioritization helped expand adjusted EBITDA margin 60 basis points to 16.5%. This offset the slightly lower sales compared to the prior year third quarter to still grow adjusted earnings year-over-year. Strong operational performance resulted in adjusted EPS growth of 7.7% as reported and 4.5%, excluding the impact of foreign currency translation. On a year-to-date basis, through the third quarter, our team's ability to execute in a tough and uncertain macro environment has resulted in 4.1% adjusted EPS growth on flat year-over-year sales. This earnings growth is attributable to favorable mix from consistent innovation-driven growth in health care and defense portfolios as well as our ongoing productivity initiatives which has year-to-date enable 40 basis points of adjusted EBITDA margin expansion compared to last year. In our last 2 earnings calls, we have referenced our operational playbook for the current low demand, high uncertainty environment, which is primarily to focus on our customers and what we can influence in particular, efficiency gains. As a result, we are on track to realize approximately $40 million of productivity benefits in 2025 versus last year. These benefits come from a combination of initiatives in sourcing, Lean Six Sigma, operations productivity, plant footprint optimization and tight SG&A and discretionary spending control. Our team's execution has more than offset inflation, primarily from wages as well as our investments in growth vectors that are critical for advancing our strategy. Additionally, we have been able to convert our profits into robust generation of cash, which is helping us to strengthen our balance sheet. General market conditions remain largely unchanged from August when we reported our second quarter results. This includes an uncertain global macro environment where customers in most markets and regions are waiting for clarity on trade policies, Geopolitics is fast reshaping global businesses and supply chains and the war in Europe continues. While the general market conditions are consistent with what we saw in the second quarter, there have been changes in certain end markets that affect customer demand. We want to provide some context around how things are playing out in our markets especially versus our previous expectations. Consumer and Packaging, which are our 2 largest markets remain subdued in the third quarter. Packaging demand was lower than anticipated, especially in EMEA, our largest packaging market. Consumer sales were down high single digits in the third quarter. Notably, the weakness in consumer demand was broad-based globally. Following a weak Q2, we had expected continued negative growth in Q3, but the customer demand was weaker than what we had anticipated in Asia where our consumer sales ended being down double digits for the quarter. Having said that, we did see some encouraging trends for our global consumer business in September. And while it is too early to call if it is inflecting to growth, we do expect year-over-year consumer sales performance to be better in the fourth quarter. Industrial and Building & Constructions have been in negative demand territory and we don't see signs of a significant recovery in the fourth quarter. Energy, while a small percentage of the total company sales was down much more than anticipated in Q3. The U.S. government's pause of Infrastructure Investment and Jobs Act funding to utilities in early 2025 has not fully resumed impacting both grid modernization and green energy projects. Moreover, additional and changing tariffs, higher interest rates as well as shortage of long lead time critical components for grid infrastructure is causing project delays and/or changes. Our customers remain hopeful that this is a temporary situation and believe that the inventory levels at both utilities and distributors are once again in a healthy state. However, as a matter of caution, we have now modeled continued weak Q4 demand for our energy markets. We experienced some growth in transportation, driven by incremental light vehicle production and an increase in demand for our Dyneema materials used in marine applications. In the fourth quarter, we expect flat to modest growth for this end market. As expected, defense, health care and telecommunications remained resilient in Q3 with high single-digit growth in all 3 markets. We expect these markets to continue to do well in Q4. Overall, for Q4, we expect growth in our Color, Additives and Inks business to be under pressure due to the subdued market demand for packaging and consumer applications while our Specialty Engineered Materials business is expected to grow, supported by customer demand and growth of some of our recently launched innovative products in health care and defense markets. Though we remain cautiously optimistic that end market demand will improve in the near future, there continue to be many unknowns and uncertainties surrounding our macro. Accordingly, we are proactively working on an action plan in the event that the slow or no growth period ensues for an extended period. This includes additional productivity actions and organizational complexity reduction so we can continue to grow our margins and earnings. I'll now hand the call to Jamie to cover our third quarter segment and regional performance as well as provide some color on our updated guidance. Jamie Beggs: Thank you, Ashish, and good morning, everyone. I'll begin with the performance of our Color, Additives and Inks segment. Continued strength in health care was not enough to offset demand conditions in consumer, packaging and building and construction which led to a 4% decline in organic sales for the segment in the third quarter. Despite lower top line results, the segment expanded EBITDA margins 20 basis points through favorable mix and cost improvement initiatives. This included ongoing plant footprint optimization and streamlining the segment's organizational structure, which has not only reduced costs, but is also allowing us to serve our customers more efficiently. Organic sales for the Specialty Engineered Materials segment were down 1%, excluding FX, as strong growth in defense and health care largely offset lower sales in consumer, energy and industrial end markets. Health care continues to deliver growing high single digits due to our innovative and specified materials for use in medical devices, equipment and supplies. Defense also grew high single digits, supported by strong demand in the U.S. and Europe, underpinned by increased law enforcement and military spending. We are also benefiting from new product innovations in our Dyneema line which provides next-level performance through our recently launched next-generation materials. Favorable mix and productivity initiatives also resulted in margin expansion in SEM, which was up 50 basis points compared to prior year. This margin expansion led to modest EBITDA growth despite slightly lower sales on a constant currency basis. Looking at regional performance. U.S., Canada and EMEA sales decreased 5% and 3%, respectively, versus the prior year quarter. Trade policy uncertainty, inflation and higher interest rates, particularly in the U.S. have weighed on Consumer, Packaging, Industrial, Energy and Building and Construction markets, which account for approximately 65% of sales in these regions. In Asia, sales were down 1%, primarily due to consumer. Nearly offsetting this was growth in packaging, healthcare and telecommunications. The enhanced focus on high-performance computing and semiconductor manufacturing in Asia is creating new opportunities for our materials and we continue to see robust growth in this area, supported by secular trends. And lastly, Latin America grew revenue 1%. Though a modest increase, this marks the seventh consecutive quarter of growth and lastly comparison where the region grew 27% in the third quarter last year. Credit for the region's consistent performance goes out to our local team who is winning new business and gaining share. Turning to our guidance for the remainder of the year. We are narrowing our range to account for the third quarter results, the end market dynamics that Ashish shared earlier and current customer order patterns. For the fourth quarter, we expect year-over-year sales performance to be slightly better than what we experienced in the third quarter. Strong growth in defense, health care and telecommunications expected to continue while sales in other key end markets will be flat to slightly down versus the prior year quarter. We are also acknowledging that there is added uncertainty related to the U.S. federal government shutdown and how that may affect demand in the U.S. Overall, we expect organic sales will likely be flat to down low single digits in the fourth quarter, but still with the potential for low single-digit growth depending on the timing of certain defense orders as well as the restart of certain energy projects in the U.S. Accordingly, our updated adjusted EBITDA range for the year is now $540 million to $550 million. Lower interest expense from paying down debt and a favorable tax benefit in the third quarter are offsetting the slightly lower adjusted EBITDA range, allowing us to maintain our previous adjusted EPS guidance range of $2.77 to $2.87. For the full year, adjusted EPS growth will be driven by higher margins from favorable mix and productivity initiatives as well as lower interest expense. We expect to reduce debt in total by $150 million this year, having already repaid $100 million year-to-date. We have made no changes to our expected capital expenditures forecast for the year of approximately $110 million, and we anticipate free cash flow will range from $190 million to $210 million, also unchanged. I'll now turn the call back over to Ashish for some closing comments. Ashish Khandpur: Thank you, Jamie. Thus far, 2025 has been characterized by trade wars, shifting supply chains, labor market challenges, weak consumer sentiment and most recently, a U.S. government shutdown, all of which have negatively impacted demand. But amidst all of that, our teams have navigated the challenging operating environment and delivered positive earnings growth. I would like to thank the Avient team for their tireless and focused efforts on serving our customers and executing with discipline. With that, we would be happy to take any of your questions. Operator, please begin the Q&A session. Operator: [Operator Instructions] And our first question comes from Michael Sison of Wells Fargo. Michael Sison: Nice quarter. I know it's a little bit early, but when you think about 2026, Ashish and most companies that have reported have suggested sort of similar difficult slow conditions heading into the first half. What do you think your growth algorithm for next year on just -- could be if this environment persists? Ashish Khandpur: Yes. Thanks, Mike, for the question. Obviously, the uncertainty is continuing and not much clarity has happened. So although we are hoping for the best, we are also preparing for Plan B, which is in case things don't turn around. And we'll provide more details on our guidance in the next fall. But just from where we are sitting and based on the business segment, I think if the market conditions persist like this then, the consumer business, the CAI business not consumer, the CAI business will probably continue to face headwinds, while we have good growth coming from SEM based on some new product launches and some innovation and growth vectors kick in there. So overall, it's going to be a mixed bag between the 2 segments. But I think we should be still able to grow in an environment where assuming that those things don't change much. Of course, as we telecasted in the presentation, if things get worse because of the enhanced shutdown or consumer sentiment deteriorates further then we have additional productivity and plans in place that we will enact as things go in this quarter and early first quarter of next year. Michael Sison: Got it. And then as a follow-up, it sounds like your innovation, new product momentum is gaining some traction. You might see some growth there in the fourth quarter in Consumer, which is great. How much momentum do you have heading into 2026? Is there sort of a base level of growth you're going to see from those initiatives next year? Ashish Khandpur: Yes. I mean I just want to say that growth vectors in our strategy, we highlighted the growth vectors are our primary sources of growth creation. And that's exactly what we are seeing right now. I mean, actually, if you look at our portfolio, growth vectors have grown much, much higher than the GDP and actually creating most of the growth for the company. The rest of the portfolio without the growth vectors is actually in the negative territory. So they are carrying a lot of lifting right now with respect to growth, and we expect that to continue next year, especially as more new products come to innovation next year in the market. But there are smaller -- the growth vectors are smaller component of the total portfolio, less than 20%. And so the rest of the 80% of the portfolio needs to get some tailwinds from the market for us to grow consistently. But I think we are really making a lot of progress in that area. And I have to remind this audience that the growth vectors are both in our core as well as in new platforms of scale that we are building around secular trends. So as you are seeing this year, our health care and defense, those are what are growth vectors that we had highlighted and those are growing very well. And then we might highlight some more growth vectors going into the new year, especially around some of the trends that you're seeing around artificial intelligence and data center inputs that are happening. And as a material player, we want to play in that market in a better way. And we have been doing that in the background, but we have not telecasted that. So we'll provide more feedback on that as well in the future. Operator: And our next question comes from Frank Mitsch of Fermium Research. Frank Mitsch: Nice result in a difficult period. Just curious, on Slide 8, the geographic sales changes, the EMEA depiction had always been a tool up field and windmills. And now you're showing a German castle. Are you signaling a new initiative to expand into Germany with that change? Is that how we should be assessing that? Ashish Khandpur: We just thought that we would be bored of the windmills and -- but no, Frank, it's just a choice of a picture. So nothing related to that, don't read too much into that. Frank Mitsch: Okay. The discussion of the government shutdown, are you seeing any changes with respect to defense order patterns, you did indicate something with the Inflation Reduction Act or what have you. But what are you seeing on the defense side of things potentially being impacted by the government shutdown? Ashish Khandpur: Not a lot right now, Frank. I mean, our orders for defense remain robust. And actually, we expect demand to continue both in United States as well as in Europe because of the things that have been happening in the world. So right now, we don't expect much issue from the U.S. government shutdown. However, if the shutdown continues for a very long time, maybe into Q1 or something then at some point in time, our products have to go through inspections and clearances by certain third-party and government agencies. And at that point, it would start affecting the outflow from us. We don't expect change in orders or the demand part, but these products cannot be sometimes delivered until they are cleared by these agencies. So if the agencies are closed, that might create some issues. But for now, in Q4, we don't expect any of that to happen. Frank Mitsch: Okay. Great. I don't think that, that will happen either. I don't think it's going to spend that long. And then lastly, the range that you offered on EPS, you gave us a point range for 3Q and then we have a $0.10 range on 4Q. Can you speak to what gets you to the low end and what gets you to the high end of that EPS range? Jamie Beggs: Yes. So Frank, I'll take that one. So from a high range perspective, part of this goes into the lumpiness that we sometimes see in defense. And to the high end of that, if we're able to close on some of those orders and get them into Q4, that could definitely be a catalyst to get on the higher end. Ashish also mentioned these energy projects, which we have seen some delays. We've been in close contact with several of our key partners and a customer perspective. And they're optimistic that we may be able to see some of those projects come into the Q4. We're not counting on it at this juncture just because of the slowdown in the U.S. and there's a little bit of volatility there. But there are 2 items that I think could push us on the upper end of that range. From a downside perspective, if we see continued weakness in consumer and packaging which are our 2 largest markets. There is some uncertainty there. We do have some favorable comparisons in Q4 versus Q3. So we don't anticipate there to be any significant deterioration. If anything, we think things will get better on a year-over-year comparison. But obviously, we're living in a very uncertain macro environment. So we want to be a little bit cautious and that's why the range for Q4 is represented as such in what we provided out in the earnings release. Operator: And our next question comes from Aleksey Yefremov of KeyBanc Capital Markets. Aleksey Yefremov: I wanted to ask you about the level of inventories at your customers. Do you have any insight into whether they're still reducing inventories or they're happy with their level of inventories? Or perhaps if that level is too high or too low? Ashish Khandpur: Yes. So maybe I'll break it down for the 2 different kinds of business segments. For the Color business, our customers have -- they have started ordering smaller lots and more frequently because we have been -- we can serve them on a short cycle time period. So there is no need for them in this whole dynamic emerge during the COVID times. And so I think that pattern continues. Our customers count on us for delivering on a short notice and don't carry much inventory. And then we are in the same situation. So we don't have much visibility with this Color customers for typically for 2 to 3 weeks -- beyond 2 to 3 weeks. And from what we can say there is not any inventory sitting in the channel or with the customers. With respect to the SEM business, that's mostly a spec-in business although we do have a bit of a business that goes through distribution. And really, there is not an issue of inventory there. The only inventory that we were worried about is because of this energy demand that we signal that the energy projects were put on pause and for a while, the customers who are carrying because these are big projects and our customers have started building inventory. And when the projects were paused then the inventory destocking took some time. Based on our current knowledge and talks with our customers, they are getting back to normal levels of inventory both at their own level, distributor level as well as the utility level. But -- and we have started seeing some orders trickle in from energy side, but we are not counting on them to come in Q4. Our expectation is most of that action will take place in Q1, the orders to come back to us. And so overall, I would say inventory is pretty healthy now in SEM side as well. Aleksey Yefremov: And I've seen some headlines about just consumer companies noting a little bit of an uptick of consumer demand in China. I know you have some business that's China for China. What are you seeing on the ground there? Ashish Khandpur: Yes. I think what we are seeing is that we are seeing more demand coming from local China OEMs versus for export. If you think about our consumer businesses in China, the consumer discretionary is the bigger part of it and most of it gets exported out, which is in textiles and apparel materials and also small appliances are the other part of it. But I think most of it is apparel, about 40% or so is apparel. And that was down double digits in Q3 for us there. So really, China was not exporting much outside. And a lot of that material goes to Europe, but some to United States as well. So China was not exporting a whole lot in Q3 in terms of clothing and textile-related stuff. But we do continue to win share on the flip side with the local OEMs. And so I think to answer your question in a succinct way, we are seeing demand from the local OEMs, but not from the global OEMs who are playing in China. Operator: And our next question comes from Graham Panjabi of Baird. Joshua S. Vesely: This is actually Josh Vesely on for Ghansham. Maybe the first one just on Slide 4. You mentioned consumer showing some signs of recovery in September. Can you just help us reconcile those comments relative what you're hearing in the news and what you're seeing throughout reports through 3Q, just about sequentially weaker consumer. What's specifically driving that for you guys? And is that any particular region that you're seeing that? Or is it more broad-based? Ashish Khandpur: Yes. So maybe I'll paint the picture this way. Let me start by saying that consumer last year so Q3 of 2024, we were up 11%. So the comps were extremely tough for us as we were walking into this quarter for consumer. And so when we go through -- and then when I come to this year, and I go month by month. So in July, for example, our consumer was down minus 14% year-over-year. In August, it was down minus 8%. And in September, it was plus 1%. So we could see the sequentially our results getting better compared to last year. And it's largely coming from 2 things. One was comps because the comps were getting better versus every month. And then the second part was that we did see an uptick in our consumer staples business. Consumer for us is 2/3 discretionary and 1/3 staples. And we did start seeing uptick on the staple side, especially on the SEM part of the business. As we go into Q4, comps get really better. So consumer goals went from plus 11% to plus 4% in 2024. So Q4 was 4% growth. So that's a much better comp than against 11%. But on top of that, we are seeing -- there is some -- even in the discretionary side of business, especially in SEM where we are going to -- where we had a bad year because of another specific reason and that this year, it's just getting normal demand from that perspective. So we do have a little bit of a tailwind from a certain business on the SEM side, which is causing consumers to get split positive beyond the comps getting easier. So that's the commentary I can give. And as I telecasted, it's hard to say whether it's true demand or it's just a comps thing because the comps were so dramatic. But we do believe that some of the consumer part, especially the staples is coming back and some of the parts of discretionary is coming back as well for us. Joshua S. Vesely: Okay. Great. That's super helpful. And then maybe a question for Jamie on capital allocation. You talked about paying down $150 million in debt this year. It looks like your balance sheet is roughly 2.8x net debt-to-EBITDA current. Just given the year-to-date share performance, is there any preference or opinion from you guys just in terms of being a little aggressive in the near term just when it comes to share repurchases. Any thoughts there would be great. Jamie Beggs: Yes, Josh, that's a great question. I will tell you, if our leverage is in a better spot, closer to 2.5x, we'd be buying back shares. We do believe our multiple is at a historic low based on the quality of the portfolio changes that we made today. But we also be cautious that this is an uncertain macro environment and a lot of our major investors really want to ensure that our balance sheet is strengthened as we continue to see this macro uncertainty. We do expect to get to 2.5x probably back half of 2026 at this juncture. And once you see that, if our stock price still hasn't recovered from the standpoint, I imagine we'll have some conversations on what's the best capital allocation to make sure that we're returning value back to our shareholders. Operator: And our next question comes from Vincent Andrews of Morgan Stanley. Vincent Andrews: Just wondering if you could talk a little bit more on the packaging side and just help us understand sort of what the rate of change is in the various end markets within there. And if you're seeing any signs of life in certain areas versus incremental challenges and others? Ashish Khandpur: Yes. So Vincent, let me just start by saying that year-to-date packaging is plus 1% for us. So it's low single digits positive. And now having said that, let me just tell you what happened in Q3 and so on and so forth going into Q4, what we are seeing. So we saw a negative high single-digit growth so degrowth of packaging in both United States and specifically, EMEA, which is our biggest packaging market. But also packaging was negative in Latin America. So the food and beverage industry there utilizes quite a bit of our packaging and that was negative as well. So 3 out of the 4 geographies were negative on packaging. The only geography that was positive was in Asia and part of that was that our team is getting some business there on local food and beverage, but also part of it is our packaging systems that go into semiconductor and wafer packaging and all that. So it's not traditional consumer packaging, so to say. So I think overall speaking, that we saw a positive growth in positive high single-digit growth in Asia, but negative everywhere else. When I go into Q4, I think the big piece is that we are seeing some business gains on packaging in the United States. At least EMEA will continue to be a little bit weak for us. But Latin America, because it's summertime there will be in Q4, we generally have a seasonality of positive food and beverage there. And so that's what's baked into our numbers, and we would -- we expect to grow positive on Latin America side. Vincent Andrews: No, go ahead, Ashish -- sorry. Ashish Khandpur: I was going to say in Asia, we continue to see positive packaging driven by the semiconductor trend. Vincent Andrews: Okay. And maybe, Jamie, just remind us what's the minimum level of cash you need to hold versus where you are now? Jamie Beggs: That range is around $350 million. I think we ended the quarter, Joe, at about $450 million. Yes. And maybe as a reminder, we do generate quite a bit of cash in the fourth quarter mainly as a lot of our cash uses happened in the first half of the year. And then with working capital coming down as sales come back from seasonality, we do expect to have quite a bit of cash generation. So going into the fourth quarter, as we kind of telecasted in our comments earlier is that we do expect to pay down another $50 million within the quarter, and that's going to be reflected once we get to the year-end cash balances. Operator: And our next question comes from Michael Harrison of Seaport Research Partners. Michael Harrison: Was hoping that we could address a couple of questions that I had in packaging. First of all, is there any sense that you might be losing some market share either to competitors or to paper or other types of packaging, why don't you go ahead on that? Ashish Khandpur: Yes. We don't think so. Our teams doesn't think so. And as I said, overall, when we compare ourselves to some of our competitors seems like we are printing better numbers. Also, we have pretty good insights with our converters and suppliers on the other side and these suppliers supply to most of our competition as well. So we believe that this is real slowdown. And both consumer and packaging, if you look so broad-based down across the globe, it's really a reflection of all the uncertainty that the globe is facing and the consumer sentiment across the globe is bad. And that's what it reflects, Mike. I don't think it's a matter of losing share. I think if anything, we might be gaining share in certain places. Michael Harrison: All right. That's very helpful. And then you had previously been optimistic or at least expected that you could see some growth in packaging as a result of more recycled content starting to drive greater consumption of Color and Additives. I was wondering if you could give an update on what you're seeing with that trend? Are your big CPG customers still committed to increasing the amount of recycled content? Or have they stepped back from some of those goals? Ashish Khandpur: So Mike, I think that phenomena still very much exists both in Europe and Latin America. We are seeing our customers to continue on that front. I think in the United States, it has taken a little bit of a backseat, but it was never a big piece here. But I think that trend continues. And we are seeing supply chains moving from Europe to Latin America. Originally, some of that recycled content was being supplied from Europe to Latin America for their local packaging and now the supply chains are moving into Latin America. So our job in this case is to make sure that we don't lose businesses as they move across the ocean. And that we continue to qualify ourselves as the right partner for our customers. But no, we are not seeing any change outside the United States on that front. Operator: And our next question comes from Laurence Alexander of Jefferies. Laurence Alexander: There's been a flurry of announcements of new reshoring capacity in the U.S. around appliances and durable goods. Can you give us a sense for how much visibility that might give you for demand in the back half of '26, '27, like when you think that will start to have an impact? And secondly, can you give a characterization of what you're seeing in terms of competitive intensity in both the color side and the engineered materials from regional players or emerging market players. I mean are they -- is the competitive intensity intensifying given the weak demand environment? Ashish Khandpur: Yes. So maybe I'll take the second one first. And from a competitive perspective, yes, I mean, there is, as you know, quite a bit of overcapacity, especially on the color side of business. And especially if you think about it from Chinese competition in different parts of the world. And that has been always there. Our strategy has been always focused on rather than just providing a commodity, providing a solution working with the customer all the way from the design stage of the product to then helping them pick the right thing and then qualifying it for them. So it's not just selling a commodity to them. It is working with them all the way from inception to finally, the product is launched and then serving them globally with great quality and service on time. And I think that's what our customers pay us for that's where our positioning is. We don't chase commodity business, which is where most of this competition is coming in. Having said that, competition is getting aggressive and we have to deal with that, and we are dealing with that. Our teams are doing a good job. As you probably saw, Laurence, our price/mix is still positive, and we are still expanding margins on the color side of our business as well. So -- and we have done that 3 quarters in a row. So Q1, Q2, Q3 there has been margin expansion in that business. So the teams are doing a great job passing on the price and still not losing to competition because of the value that we bring to the customer. With respect to competition on the SEM side, I would say that the fact that our businesses are growing there, and the only reason SEM didn't do as well as we thought it would do in Q3 was because of this energy dynamics that we highlighted. There is pretty much I mean, the competition is there, but there is no direct competition to some of the new innovations that we have launched out of our personal protection business in Dyneema lines. And that's a true differentiator, and we feel that because of that, we can keep winning share and be relevant in the market for times to come. So our innovation is kicking in on the SEM side, and we are beginning to differentiate our product lines, and that's how we are dealing with competition there. Now with respect to the appliance question, sorry, I'm going a little long here. We do work with the global appliance makers all across the globe. And as supply chains shift from 1 region to another, it's hard for us to say whether it's going to create additional volume for us because for all -- pretty much all big appliance makers, we are already spec'd in. And so for us, in that case, the option would be to more make sure that we don't lose that business as it moves. So that's all I can share at this point, Laurence. Operator: And our last question comes from David Begleiter of Deutsche Bank. David Begleiter: Ashish, looking at 2026, can you discuss what's in your control such as productivity and what headwinds you might face from either wage inflation or other costs impacting you? Ashish Khandpur: Yes. I mean it's a similar story like this year with flat sales and growth, we still drove EPS growth of -- if you look at our range, it's 3% to 8%. So I mean I think that's a great example of what this team can do under stressed conditions. And I think we will obviously make sure that we are if the demand doesn't come, as I said earlier, I think we still believe that on the SEM side of our business, there is enough growth there to drive some growth on the top line, and that will help us bring more on the bottom line. So that's one thing we can influence, commercialize our innovation quickly and to scale on that side of the business because the demand is there. And in certain markets, how much can we supply will also depict how well we do. So that's something that we influence and our teams are working on that side. On the other side of our business, where the demands are not great we are driving productivity and structure reduction and also footprint optimization. And we have done that this year, and we'll continue to do that going into the next year. Either way, I mean that just has to happen anyways. And if demand really falls off the cliff, then we have another plan to go deeper into that playbook. David Begleiter: And just lastly, as you move through Q4, are you seeing or expecting to see below normal seasonality? Ashish Khandpur: We've just seen 1 month of Q4, and it has really come actually a tad bit better than what we had thought, but it's too early to say because in our business, things can shift around quickly. But October clicked pretty okay based on what -- where we were expecting it, and as I said, a tad bit better. So I don't see -- I think that the comps are favorable for us, and that's going to help us. So year-over-year, it's going to be a better situation, but also seasonality in certain areas, kicks in Latin America, I mentioned earlier, but not a whole lot change, I think comps and then just executing in the current environment. And we are winning some share in packaging in the United States, as I said earlier so that would help. But no, nothing unusual. Operator: This concludes the question-and-answer session and also our conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Marks and Spencer Analyst Call. This meeting is being recorded. At this time, I'd like to hand the call over to your host, Archie Norman. Please go ahead, sir. Archie Norman: Well, good morning, everybody. It's Archie here, and I'm joined by Stuart and Alison, obviously. Thank you for joining us today. I was going to say, great to see you,, but I can't see any of you. So look, I think this is a set of results where we slightly feel we've said all there is to say about it, but I'm sure you'll think of some interesting questions. So let's crack on. Stuart is going to make a brief introduction, and then we'll take whatever questions there are. Thank you, Stuart. Stuart Machin: Well, good morning, everyone. Thank you for joining us. As Archie said, Alison joins me in the room today. We've also got Fraser and Helen, so they're on hand for any follow-up questions you may have throughout the day. I'm going to start with a look back at the half from April to September before moving on to give you some detail on where we are today. I will then look ahead to Christmas before finishing with the outlook for the rest of the year. I want to cover 3 objectives that we set out a couple of months ago, which were, firstly, to regain momentum; secondly, get back on track with growth; and thirdly, accelerate the pace of our transformation. So let's start with the last 6 months. The first half, as I've said, was an extraordinary moment in time for M&S. I'm not going to go over all the old ground today because I briefed everyone on the incident during our call in May. But everything regarding the incident has been well documented, and we are now getting back on track. Our customers have been fantastic as always, and I want to thank them again for their continued support and loyalty during the period. I also want to thank our supply partners and of course, our colleagues across the whole of M&S, who showed real determination and grit. This support, together with the underlying strength of our business, our healthy balance sheet and robust financial foundations gave us the resilience to face into the incident and deal with it. At the prelims in May, we anticipated the material impact of the incident on group operating profit to be around GBP 300 million this financial year, and we are broadly in line with that. I can confirm that this is mitigated by GBP 100 million of insurance that we claimed and received during the period. This is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture, and it has no impact on our share of the business. Now let me just touch on the headline numbers because across M&S, group sales grew 22% versus last year, but that was driven mainly by the accounting inclusion of consolidating Ocado Retail. Excluding the consolidation of Ocado Retail, M&S sales were broadly flat with last year. Group profit before tax and adjusting items was GBP 184 million. And excluding lease liabilities, we are still in a net funds position. Now we put customers first and prioritize availability, which did drive waste and therefore, increased costs in our food business. With our systems off, we didn't have a clear stock view. And of course, we were using manual processes, but we took the decision to allocate stock out, fill the shelves, and that was the right thing to do for our customers. Despite the disruption in food, the business was resilient with robust sales growth of 7.8% in the half. Fashion, Home and Beauty sales in the half were down 16.4%. We had a particularly tough time here due to 3 key challenges. Firstly, we paused the online operations for just over 6 weeks and then brought them back gradually. Secondly, this impacted click and collect, which affected footfall into stores. And thirdly, supply chain disruption caused availability issues. As I said, this incident was an extraordinary moment in time. But change, on the other hand, is not a moment. And in M&S, change is a constant. We have a clear plan to reshape M&S for continued growth, and we have never lost sight of this despite the disruption. That is why we accelerated our transformation during the half with investment in our 3 priority areas of store rotation and renewal, supply chain modernization and technology transformation. On store rotation, we opened 15 new or renewed stores in the first half and we will open more than 20 in the second half. This includes opening 2 flagship full-line stores, Bristol Cabot Circus, which opens next week, and Bath open in February. On supply chain, in August, we announced a new 1.3 million square foot automated food distribution center in Daventry, which opens in 2029 to boost capacity for future growth, lower our cost to serve and improve product availability. A new regional food depot also opened in Bristol in 2026, increasing the proportion of stores served from their nearest depot. These investments are helping us get ahead of the growth curve and build a bigger, better food business. And on technology, we use the incident as an opportunity to strengthen our technology foundations and fast track some time lines, including the new Fashion, Home and Beauty planning platform. Our job is to ensure we continue to transform and grow M&S while maintaining a strong investment-grade balance sheet. That means being disciplined in our investments and their hurdle rates. Let me add a little color to each of our businesses. In Food, sales and market share growth are back on track. With 3 years of consecutive monthly volume growth outperforming the market, more customers are filling up their basket to M&S more often. In fact, the latest Kantar figures show that M&S is the fastest-growing store-based retailer in volume over the last 4-week period. In the last 12 weeks, we served 800,000 more customers year-on-year. In the half, customers made 14 million more shopping trips to M&S Food than the same period last year, demonstrating more people are shopping with M&S Food more often. You've heard me talk about our strategy, protecting the magic and modernizing the rest. In food, the magic means going to great lengths to ensure the absolute best quality, the leading on innovation and delivering trusted value. Our obsession with delivering world-leading quality continues to drive sales. Take our upgraded Italian meals range with sales up 1/3, for example. And our focus on innovation brings new products and new customers to M&S. Our viral Strawberry Sandwich sold 1 million units in just 4 weeks. In fact, we launched 700 new more quality upgrade products in the first half of this year alone. At the same time, offering trusted value is at the very heart of what we do. Sales of our value ranges are up 29%. Alex and the Food team have made good progress, but we have so much opportunity ahead of us as we work towards becoming a full shopping list retailer and doubling the size of this food business. Now turning to Fashion, Home and Beauty, where the recovery curve in this part of the business has been slower than in Food, as I said, due to the pause in online sales and stock flow disruption. But now with online back up and systems running, we're making progress every day. And over the coming weeks, we expect stock flow to settle into a more normal rhythm. Despite this, we used the period to make further progress in improving our product ranges because outstanding product sits at the very heart of our strategy for Fashion, Home and Beauty with the M&S magic being a combination of quality, value and style. We consistently lead the market in value and quality. And now I can say for the first time, based on YouGov report yesterday, we're #1 for style too. And the latest Kantar figures just out show M&S #1 in fashion market share in the last 12 weeks. This includes leading the market for womenswear and lingerie. So look, we're making progress, and this is encouraging, but there is so much opportunity in this part of the business, and there's lots for us to go after. John, as the MD has been here now 6 months and has started to accelerate the strategy, being laser-focused on the big rocks that we haven't yet really tackled, mainly the foundations of the business from sourcing through supply chain, through merchandise planning and accelerating our online performance. In international, sales were down 11.6% due to our international websites being offline and shipment disruption. However, during the second quarter, performance improved as we restored systems and websites. Mark and the team have now made encouraging progress resetting commercial terms with some of our franchise partners, which has helped enable investment in trusted value. We expanded our partnerships with Zalando and Amazon and put in place new wholesale arrangements, for example, launching lingerie in David Jones, Australia, already performing ahead of plan. The summary for international is we continue to -- it continues to be a growth opportunity in the medium term, but performance over recent weeks has been encouraging. Touching on Ocado Retail, sales were strong with growth of 14.9% over the half, driven by sales of M&S products, which grew faster at 20%. Sales growth has been encouraging, but we know there's lots to do to the path to profitability. Key opportunities include improving delivery efficiency with more same-day slots available, extending picking hours and rolling out further automation. These initiatives will boost capacity over the next few years and support the path to profit. To finish, I will turn to the outlook. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, quality, innovation and of course, in fashion, style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half alone, the increase in national insurance contributions and packaging tax cost an extra GBP 50 million. But there is much in our control and the increase in our cost reduction ambition will help to address this. We're confident we will be recovered and fully back on track by the end of the financial year. In the second half, we therefore anticipate profit at least in line with the prior year as residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed and our determination to knuckle down and deliver is stronger than ever. To date, we have delivered meaningful progress, but that's what's exciting because there remains so much more to do. And for us, it's all to play for. I'll hand back to Archie for questions. Archie Norman: Brilliant. Thank you, Stuart. Okay. We've got a few hands up for questions. So let's just crack on Frederick Wild from Jefferies. But by the way, could you be helpful if just one question at a time because our memory is not very good. And -- we take a couple each. All right, Frederick? Frederick Wild: So first of all, I'm going to ask a terrifically boring question, I'm afraid. Could you give us a few more details on October trading in Fashion, Home and Beauty, what sort of the overall sales growth was have you seen versus the market? Stuart Machin: Well, look, I mean, top line, as you can see, the market has been soft. You can look at the graphs in the RNS because we put those in to help people understand. And there's a couple of things. I do think people are holding back a bit because of the budget, but also the market is soft because the weather -- I'm looking here, I mean water side and it's bright sunshine. Autumn hasn't even hit yet, never mind winter. So the market is somewhat soft, and the market is very promotional. I think the latest stats I saw was high promotional participation averaging 50% already. For us, look, it is behind the curve slightly. I think there's some good news because we're not quite where we want to be yet on Fashion, Home and Beauty, but every day is getting better. And I think by the time the cold snap arrives, we will have pretty good availability, especially around fashion. So I think it's working in our favor at the moment. Frederick Wild: And then beyond that, with the -- at least in line guidance for half 2, can you help me understand the sort of moving parts within that, what could get you above be in line? And is it the consumer backdrop? Is it the speed of your availability? How should we measure that and think about that? Stuart Machin: I'll give a high level and hand over to Alison for some detail on this. But Look, in half 2, if you just compare last year, I think in Food, we're on track. I mean it could be a bit better. We're planning for a good Christmas. But I never like to overpromise and underdeliver, but we're getting back to stronger growth in food, and it's all to play for, as I say in my opening. In Fashion, Home and Beauty, we are concerned about the weather. It is something that I don't like to talk about internally, if I'm honest. I always say don't blame the weather. But on an analyst call, it is helpful just to bring it to life because if we do have a cold snap, I think we'll be pretty well set up. So my summary, Food could be a bit better and Fashion & Home could be a bit softer, but we're planning for a good Christmas, and we'll see. I'll hand over to Alison for some detail. Alison Dolan: Thanks, Stuart. So really, I would say it's all about the pace of recovery in both businesses. As Stuart has already said, we're gearing up for a strong Christmas in Food and then a good new range to launch in the fourth quarter. All of the systems that we need now to manage waste and stock loss are fully back and each week sees an opportunity -- season improvement, sorry, in waste, and we are getting to grips with it. In Fashion, Home and Beauty, I think for the third quarter, as the systems come back online, they are now all back, but stock is not in the right place everywhere. If you think about all the moving parts in our distribution network, getting stock out of ports into the right DCs that allow us to fulfill online orders as well as dispatch stock into stores. That is still being worked through in the third quarter. We expect it will be fully done, certainly by the financial year-end, but operational in the fourth quarter as well. And then Ocado, we expect to continue with their strong sales. International really to have a good strong year. And as far as cost is concerned, we continue to focus on cost elimination, as you've already heard. So really, that is all playing into an expectation that at least we will be flat in the second half to the comparable period last year, and then you'll have a judgment to make as to where to take us up from there. Archie Norman: I think Alison and [ Fredrik ] just quickly raises a good point on food waste. We're getting back now online. Clothing, we're just mindful we're holding a bit more stock for the second half. So we need to manage that. There is some good news on new stores in H2. We've got 10 new food halls, 4 food store extensions, 7 renewals and 2 new full-line stores. So there's some positives. I think my summary would be we're confident we're going to start FY '27 in a good place. Okay. Good questions. Thanks, Fred. James Anstead. James? James Anstead: So you've had this cost of GBP 324 million in the first half of the year. I just wonder, you're clearly now getting very close to being back to normal, but how much more do you think that might tick up in the second half? And associated with that, and I do appreciate fully that you rarely give PBT guidance for the current year, let alone next year. But if effectively, you're guiding for PBT of at least GBP 652 million this year and the cyber impact, which is probably going to tick up a bit from GBP 324 million. Is there anything wrong with starting my spreadsheet for next year with a PBT of about GBP 1 billion. I appreciate there's a consumer outlook that we have to take a view on, and there's hopefully some underlying growth in the core M&S business. But are there any technical bits, Alison, you would say that's far too naive a starting point? Alison Dolan: Well, I'll start with the first question, James. So above the line in terms of any lingering impact on trading, you've already heard all the detail there. There's nothing beyond everything that we've set out, which is largely about the pace of recovery, particularly in FH&B and making sure that stock is in the right place. And that is in relation to the GBP 324 million impact. Below the line in adjusting items, there will be about GBP 30 million of incremental cost in the second half as we finalize standing down all of the incremental resource that we've talked about earlier, largely replacing offshore E&P colleagues with onshore resource augmentation. That will carry through into the first couple of months just as we stand that resource down. But beyond that, there's nothing. And then with respect to your second question, James, no, not really. The only thing in addition to, there's nothing technical from our side. As Stuart already said in relation to the last question, our expectation is that we are fully back to normal by the fourth quarter of this year, so that FY '27 is a clean, unimpacted year. And the forecast that you had previously in place are good for FY '27. There's nothing beyond that. Stuart Machin: I think, James, just to build on that, only a couple of summary points, a bit cheeky question on the numbers. But there's no change to our view for next year. We're in line with sort of where the consensus is currently, free to take your own view on that. But I would say we've got quite a bit of recovery in the next 6 months in Fashion, Home, Beauty and the consumer outlook is still uncertain. We're getting a lot of feedback about the sort of nothing presentation yesterday. Everyone's waiting for the 26th of November. And so the next 6 months is going to be a bit uncertain. We're hoping to start fresh, as I said, in FY '27 and be back by then. But I wouldn't overdo the ambition. Archie Norman: Okay. Thank you, James. And -- if you need help with your spreadsheet, Fraser can help -- you got a computer program. Let's go to Anne Critchlow and then we'll see Clive Black has joined us. So we'll go to Clive afterwards. Anne? Anne Critchlow: I just wanted to ask about the spring/summer fashion stock from this year. Is there any stock overhang as into the not marked down or sold through? Anything you're overwintering, anything that might need to be written off or down in the future, please? Stuart Machin: Well, it's a good question, Anne. I mean we have provided for that in the numbers. If you look at our stock cover, I'm a few days out, but as of a few days ago, we had 13 weeks stock cover. So that was 2 weeks more than last year. So we have provided for some of that in H1 already and we are holding more stock as of the half year. So it's in the H1 gross margin, you can see where we provided for it. And unfortunately, my whole strategy about not having a sale is not going to be achieved this year because when John joined us as the new MD, I said one of the key objectives is everyday pricing, let's get rid of sale and not do it. And then obviously, within 1 week of him joining the incident happened. So there's a lot to go after, though, and it is a bit uncertain, but we provided in H1. And now we'll see how winter trades, and we are going to make sure we sell our way through in H2. And that's a bit uncertain as we sit here today in the sun. Anne Critchlow: Okay. That's helpful. And could I ask -- could I ask a second question, please, on systems. So just wondering to what extent there's been a temporary fix that will perhaps need redoing. And to what extent the cyber incident might have accelerated? What you're going to do anyway and perhaps even made it simpler and better, and any examples you can give? Stuart Machin: Well, I'll start and maybe Alison has some thoughts as well. Our biggest priority for technology is recovery. And as part of that, there are some things, by the way, that we didn't bring back up. I mean there's a system in food called RTA that was very old, very clunky. It used to basically give better split of products in our DCs in different price. But actually, we haven't brought that up because we're going to buy a more simpler modern system. But really, it's all been about recovery. And now if I'm honest, it's all about resilience for Christmas. So there are some things like that food system. In John's business, he's taken a fresh look at the o9 planning platform and has actually sped that up. I mean it's going to take half the time of what it was going to take. And there are some other things we're doing like investing in loyalty, which really we're playing catch-up on. So my summary is, we haven't really accelerated a lot. We haven't really opened some systems that we didn't think -- either we thought we didn't need. But really, our transformation is going to get back on track by the end of the financial year. And we'll also talk about this at the Capital Markets Day. Archie Norman: Clive, we assume that you -- I didn't want to apply your late meeting, by the way, but we assume you're celebrating in Liverpool. Clive Black: Indeed, Archie, I was actually on time, but your systems clearly haven't got up to speed yet. But -- and also, Archie, it's great to know that you're going to be hanging around Paddington for a little bit longer than they have been the case, which is good news for everybody in my book. So first question, if I may. I'm going to try and stay away from everything from the spring. And I know you have a Capital Markets Day coming up. But Stuart, in your video this morning, you talked about M&S being a shopping list grocer. I just wondered what does the firm need to do to reach that aspiration? And what does it actually mean to M&S? Stuart Machin: I mean, Clive, in simple terms, what we're realizing in our bigger food halls, where we've got more of a grocery range that includes frozen food, our customers are relying on us to do a fuller trolley shop. I see this in my local store in [indiscernible] where over half of the shopping trips are in big trolleys and the other half of baskets. And if you look at all of our data, not just recent, but the trend in the recent years, more customers shopping more frequently and our spine of the basket, which we call center of plate, the key commodities customers buy and could buy elsewhere, that has actually grown in this half by 12%. So the key to this is the store rotation program. As you know, we're only 4% market share. I will say to Alex, it's still piddly, is the term I use, it's still small, which really just encourages us because we've got more than 50 food stores in the pipeline already approved. And that means that gives confidence. Now one of the key investments that we made during the last 6 months was -- which I called out in my opening and it's in the RNS, which is our Daventry new distribution center. Now that's 2029. But the reason we needed to commit and invest in supply chain is so we get ahead of that growth and enable that growth. So I think we're well on track. The food business is in a strong position, whether it's building a better supply chain, the work Alex and the team are doing on what we call factory resets and fortress factories, the strategy about really close partnerships and the work we're doing on range, importantly, the work we're doing on value. And we're tracking all of those top 200 items every day. Inflation is a challenge for us to manage with the extra costs headwinds that not just us, our suppliers have had, that all gets passed through to us and it becomes a challenge. But our value lines are up 30% in the year, and our value perception has the greatest increase of any other grocer in the last 3 years. So all of that added together should enable the food business to be more of a bigger shopping list retailer. Clive Black: And of course, I think you also said you still plan to double your market share in your statement this morning. And then in a similar vein, if I may, you talked about also seeing the opportunity to double your online sales in Fashion, Beauty and Home. And I guess, again, what are the mechanics by that? And just as a sub-question, I presume you still have ambitions to build, to grow your in-store activities in this respect as well. Stuart Machin: Well, I think the key thing, online sales, I mean, we said double the online sales, I think, from FY '22, which were GBP 1.1 billion. And our plan is to double that. At the moment, only 1/3 of our Fashion, Home and Beauty sales are online. And of course, that's been impacted in the last few months. But we have not lost sight of that long-term ambition. And that's very clear. Don't forget in Home and Beauty, our participation is actually very small. It's not going to be the biggest part of our strategy, but there is opportunity to grow and improve our home offer, and we will be doing that over the coming years and resetting our beauty categories, which is under review now. I think the biggest thing, just to go back on Food, just to clarify, we said double the food business. We really mean sales hopefully, that leads to a much bigger market share, of course. I think we're in a good place online. We serve over 21 million customers, but let's be really frank, we have got to do a better job online. We want to do much better on service, much better on availability, much better on personalization. There is no short of demand when it comes to our customers wanting more, whether it's in store or online. So we've got to be quite ambitious, but there's quite a lot to go for over the coming years. Clive Black: Do you see a switch out of in store into online, sorry, Stuart, just to finish as part of that process? Stuart Machin: Well, I'm hoping not, but I'm hoping we hold a lot of our stores flat at the same time. I mean online market share for us is 7% stores is higher at 12% and obviously, the focus is going to be online. If we could hold the stores, that would be good news. Clive Black: Sorry to interrupt you, Archie. Archie Norman: No, no. Thank you, Clive. Good clarification. Just to be clear, the doubling of the online is from 2022. So that would take us to 50%, the objective to get to 50% of total sales. Thanks, Clive. That's great. Let's go to Georgina Johanan, and then we'll move on to Richard Chamberlain. Georgina? Georgina Johanan: I've got 3, please. I'll ask them one at a time. The first one was just in terms of the Fashion, Home and Beauty sales, obviously, I appreciate the consumer environment and so on, but it would be good to understand what you've got planned in terms of any activities to sort of reengage that consumer and also the time line on that because presumably, you don't want to be sort of overly reengaging at a time when availability is still a little bit below where you'd like it to be. That's my first one, please. Stuart Machin: I mean, Georgina, in simple terms, I mean, where you're dead right is we could probably say we reengaged our customers too quickly before we were really ready with availability online. But we've got no issue with customers' engagement, but we have got to get the stock flowing better. And the only thing working in our favor, by the way, is that, as I said, it's very sunny here in Waterside. I don't know where you are, and we're hoping the cold snap will arrive just in time when our winter product arrives and we're ready to serve. But we don't have an issue with demand, but we are a bit slower than we would like in getting the stock from supply through to our ports, through to supply chain, through to stores, through to online. And this is John's priority as we plan for Christmas. Georgina Johanan: And perhaps just a follow-up one there, Stuart. When you're saying you don't have an issue with demand, is there something that you can sort of point to for that? Like, for example, is web traffic a lot stronger than we can see in terms of the actual sales data and perhaps conversion is down? Is there anything sort of tangible that we can point to there? Stuart Machin: Well, it's a good point. The reason I don't say there's a problem with demand is we're holding our own. In fact, our market share has improved in the last 4 weeks, if you look at Kantar. If you look at the YouGov results yesterday, it's encouraging. We're back to #1 on brand buzz. And as I said, for the first time ever in history, we're #1 on style. Now that doesn't mean we'll always be #1 on style, but it is the first. And if you look at traffic, I haven't got the number. I can't remember it, and [ at the start, ] but we'll get someone to find the number, but traffic is actually sharply up on last year. To your point, online sales are up over recent weeks. Transactions are up, but we have got to get a better availability. By the way, a session I had with Maddy and Helen just last week, you will probably notice this, but we do have a bigger demand for smaller sizes. And that's been a trend over the last 3 years. But actually, it's one of our biggest problems today online. I've just been given a scribbled note from Fraser that says September traffic was -- September traffic was up last week, 17% on last year. Traffic September up 21% in September, last week up 17%. Another one? Georgina Johanan: Yes. If that's right, please, it was just on CapEx. I guess just understanding if I was understanding right in the release that it's actually going to sort of GBP 650 million to GBP 750 million for this year, what we should be looking for in the outer years and why we're seeing that increase, please? Stuart Machin: Okay. It's a good question. I'll hand to Alison. Alison Dolan: Georgina, thanks. So you'll be aware that we have continued through the half with our strategic programs investments, so in supply chain, in stores and in D&T. Obviously mindful to protect our investment-grade rating, and that is a key priority. But as the cash generation comes through, our ability to maintain that investment, see the returns coming through, invest, as Stuart said, in the online experience, both on the website and on the app behind growing that traffic means that we can increase the envelope slightly. Depending on a particular year, there will be some disposals that we can offset that with. But we are a growth business. We have opportunities to invest behind, and we'll talk a lot more about the details behind that at next week's CMD [indiscernible] just all while aiming to grow the dividend as you've seen today. Stuart Machin: I think that's right. I mean, I would say strong discipline. We've got clear hurdle, right, Georgina. But as you know, some of the big bumps in that CapEx will be things like the NBC, which we've already announced as well. And the focus areas of stores, supply chain, D&T, and that includes online as well. Archie Norman: All right. Thank you, Georgina. We're eating up the time. So I just ask people to go at a bit of a cliff if we can. Richard Chamberlain from RBC, and then we'll go to Adam Cochrane and Deutsche. Richard? Richard Chamberlain: I'll stick to 2. I know you've got your CMD next week. So both on the clothing side, please. What's the timetable now for upgrading Sparks next year, I think you're talking about and what needs still to happen for that to take place? That's my first one. Stuart Machin: Thank you, Richard. Well, it's a short answer because in Sparks, we had a plan 6 months ago that we literally just paused and said we will come to it when we're through these last 6 months and the incident. And we've only just started to put resources from D&T back onto that program. What that will focus on is real personalization. It will focus on experience, but it won't be a big bang relaunch. There will be some good news, some good partnerships, but it will be a better way of engaging with customers and giving them a more personal service. It won't be a rewards, i.e., a different price architecture for those customers. I've never been a fan of loyalty card pricing. We research this all the time. But for us, to stand out from the crowd and try and deliver better value and value every day is an important underpin to our strategy. But really, this is all a way of getting closer to customers. It's not going to be one big bang. It will be a relaunch in March or April. And then basically, every 6 months, we will continue to improve loyalty over the coming years. Richard Chamberlain: Got it. Okay. And my other one is just on marketing spend. I'd just be interested in what's been happening on that and thoughts on whether you need to step that up now to continue sort of regaining the top line momentum in clothing. I think you rephased some marketing from sort of earlier in the summer to early autumn, if I'm not mistaken, I mean, for obvious reasons. But just wondered, yes, thoughts on sort of marketing, whether that needs to go up a bit now. Stuart Machin: I mean my summary for this, it won't be more spend. I'm not giving our marketing team any license to spend more, but it is about relooking on how we spend it. I mean, for example, there is no big fashion Christmas advert this year. We have decided to do more product ads more through social. There's different ways, we want to use YouTube and social media. So I think it's about spending it differently. The thing we've been conscious of and we're watching is making sure we spend it in line as product availability improves constantly, and that's across Fashion, Home and Beauty mainly. In Food, we're on track, and we're spending in line with the budget we laid out. Archie Norman: Thank you, Richard. Okay. We'll go to Adam at Deutsche, and then I'll take a couple more. I think we're going to run out of time. So I know everybody has been waiting very patiently. But Adam, crack on. Adam Cochrane: Just the first one, you talked about the confidence of clothing being back on track. I know over the summer, you possibly lost some customers to other retailers. Is it apparent that you're already regaining those customers who have shopped to other retailers and are now coming back to M&S? Stuart Machin: Thank you, Adam. Well, I'm saying getting back on track. So I haven't said we're back on track. We are planning that by the end of this financial year, our Fashion, our Home and Beauty business will be back on track. I mean, I think the biggest issue we had, obviously, through the incident was the lack of availability and the online business being paused. And therefore, that obviously did set us back. But as I said at the start, we're back to #1 market share in the last 4 weeks when you look at Kantar out this morning. So we're back to #1. Our product is definitely resonating. Our value is resonating. And as I said, we're #1 for style on YouGov, which came out yesterday for the first time ever in our history. So you would have seen in Kantar the improvement every month. And I think we put some of that in the RNS. So the reason I don't want to get overpromising is there is a tendency for us to say, isn't this great? We're all back to normal. But actually, it takes a bit longer in Fashion for the stock to flow, for the systems to reconcile the stock, so we know exactly where it is. And we are carrying a bit more stock than we would like. We've got to get through that. We've got to look at what's going to happen over autumn/winter. There's no autumn yet. It's not an autumn yet. Let's hope for a cold snap winter. And then we need a really clear plan as we get into the Q3, Q4. So I think it's all to play for. There's no short of demand, but stock flow has to catch up, and it's on John and his team's priority list. We go through it daily. Adam Cochrane: Okay. And on the international. And just very quickly, the expanded agreements with Amazon and Zalando, what proportion of the range are they able to access? How excited are you about increasing the growth internationally by the aggregators? Stuart Machin: I think it's a very good question. What I would say is it's very, very small. It's really testing and learning. If you look on there, you'll see on Zalando and Amazon. It is encouraging because the brand resonates, so we know that, and it's slightly ahead of our plan, but it's very small in the grand scheme of things. But I think in a year from now, this will be a good opportunity for our international business as we get more of our range on both of those sites. And I think more broadly, what Mark and the team are doing with our partners will set us up for future growth. The reset with our franchise partners in terms of how we do the agreement encourages our partners to invest. It encourages our partners to deliver better value. And in some markets, I mean, last week, I was looking at the UAE and Food is very small and the volumes are small. But just by right pricing, that business was already up 70%. Now I will say 70% up on things that never really sold much volume. I think resetting all of that is good news. And the third, the wholesale partnership, it's not just about Percy Pig in Target, although the sales of Percy Pig in Target U.S. are way beyond what we expected. So we're now putting more runs of Percy Pig on. But the wholesale partnerships, I do think in the medium-term is a growth opportunity, whether it's David Jones Lingerie, we're going to launch womenswear as well soon, then menswear. So I think there's good opportunities in the medium- to long-term for us to be this global brand that we set out last year. Archie Norman: Okay. Thank you. Well, now look, we're over time, but I'm going to go to Monique Pollard because you've been waiting very patiently. And then Warwick Okines and then we [indiscernible]. Monique? Monique Pollard: The first question I had was just on this availability issue. So what I understood that you were saying, Alison, is that the -- am I right to understand that the availability issue is more acute in online for Fashion, Home and Beauty than it is in store? If you could just give us some color on the sort of the differences in availability store versus online? Alison Dolan: Not particularly, Monique. Availability was affected by the slower stock flow, and that applied to both businesses. In online, it's slightly compounded because we don't fulfill online orders from all of our DCs. So there was that additional complication, but really both businesses were impacted. Stuart Machin: I think the summary, Monique, is we're about 5% off at the moment where we want to be. But every day is getting a bit better. Our online availability this morning, for example, was down 1% on last year. So every day is getting better, but it is split between stores and online. Your second question, Monique. Monique Pollard: Yes. The second question, just a quick one. It's on the U.K. budget and the potential for business rate increases. So if we do see business rates increase for ratable values over GBP 500,000, what kind of impact does that have on your cost base on an annualized basis, please? Stuart Machin: Well, that's a complicated one. I'll hand over to [ Alison Dolan. ] I think the -- a couple of things to just summarize, as you probably know, is this half year, with a GBP 50 million. And that's only on 2 things: one, the packaging tax; and two, the increased, what I call the double whammy on national insurance. So that was GBP 50 million for the half. When you add that to living wage, which for us, we already plan to increase wages for frontline colleagues. So we look at that as a good cost, but that is GBP 150 million for the year. I think what really worries us is what's coming down the line. We have this deposit return scheme, which is a huge headwind, a challenge in stores operationally. The setup of that is nearly GBP 30 million. Running that is a GBP 7 million cost every year for these huge monstrosities of this unit in every store for customers to bring plastic back. And by the way, in the Republic of Ireland, they break down every 5 minutes. And on top of that, you've got other big impacts because it's not just about us. All of these impact our farmers, impact our suppliers and then all of those costs get transferred to us, and then we try and mitigate them in order to provide value. So -- and I think it's not just that it's other regulatory stuff. So we've been working quite closely with people in government, talking to them about these challenges every day, hoping to influence in some way. I've met Rachel Reeves a few times now, but it is top of our mind, and we're hoping. Well, we're preparing for the worst on the 26th because everybody -- it's a bit of a nothing speech yesterday. We all sort of finished it saying, well, what did that really mean? But we're sort of planning for the worst and hoping for the best. Alison, on our particular numbers. Alison Dolan: Yes. So I would just say that at the moment, our business rate still is about GBP 180 million a year. So it's clearly material talking about that one specific item. And obviously, any increase also has the potential to be material. About 60% of our properties have a ratable value of over GBP 0.5 million. So the rumored break for larger stores would clearly be welcome for us. But that's about the scale of the bill right now. But I think... Stuart Machin: About GBP 7 million benefit. Alison Dolan: It's about GBP 7 million saving if we were to get that break, yes. But I think the bigger point really is in the aggregate of all of this new government-induced incremental charges. The EPR, for example, alone that Stuart talked about was a GBP 40 million charge for the year. The deposit retention scheme, big one-off upfront. NIC business rates, the apprenticeship levy, we can only use about 20% of it, and that cost us about GBP 7 million a year. So it's a combination really of all of these official regulatory costs. Stuart Machin: I think the only good news, Monique, for us is there's a lot in our control. Our investment in things like supply chain automation will help give better productivity. So that's why we've increased our cost saving program -- so there's a lot for us to go after as well. Archie Norman: Okay. All very good points. Thank you, Monique. Right. Look, apologies for those who haven't got in. I appreciate people have been waiting, but we're running down the clock. And we will make sure we get back to you those of you've been waiting. So I appreciate that. Last one, last shout from Warwick Okines at BNP. Alexander Richard Okines: Just 2 quick ones to finish off, and I'll do them both at once and test your memory actually. These are quick ones. Firstly, on costs, you may have answered this already, Stuart, but you've raised the structural cost savings target to GBP 600 million. So is there anything particular to call out on where those savings have come from? And then secondly, could you give us a bit more detail about what your customer barometer is telling you? Stuart Machin: Okay. I'll kick that off. On GBP 600 million, we set by FY '28, mainly through end-to-end supply chain. There's quite a lot in our plans for that and also some of our factory to floor programs and store productivity programs. By the way, we've never really got under store-friendly deliveries, which means our stores spend a lot of money unpacking things 3 or 4 times. And the good news is it's the first thing John Lyttle raised when he did his first month in stores. So whether it's supply chain or end-to-end through our stores. Look, it's a challenge, but there's plenty of us to go after on the cost side. That's why we set the GBP 600 million to start to mitigate some of the extra headwinds coming our way. In terms of customers, I mean the good news is we talk to quite a few customers every month. We have a collective where we talk to about 40,000 customers, and we ask their view, and we have 1,000 customers in Fashion, Home and Beauty and we get their views. There's never big changes, I have to say. The October survey really calls out customers talk more about rising costs. They talk a lot about the budget. There was a lot of questions, why does it take so long to set the budget. There's a lot of emotion in there about blaming the past all of the time that this is going to be a break in the manifesto and therefore, does it mean I'm paying more tax. Pension -- slightly older customers have pensions on their mind. and capital gains on their mind. So there's no doubt that takes the big part of the feedback we get. But at the same time, it's not all doom and gloom because when you get those issues on the table, what actually comes out is, well, we're looking forward to a bigger, better Christmas. And actually, we measure what we call excitement and positivity about Christmas and how you plan to celebrate. And that for our customers, of which now there's a few thousand in that pot, as I said, that's been the highest it's been. And if we just look at the early indicators, Christmas food to order is already up 7% on last year. We launched third-party food in stores. It's always an introduction, but that exceeded our expectations. And even if we look at some of the other things like Christmas decorations or the gift shop, I still think we need to relaunch this in a much better way in the years to come. But even that's trading 20% up. The softness is in fashion, but that's because of the weather and us catching up. But that's really the summary. I hope that helps. Archie Norman: Good. Well, look, thank you so much, everybody. All good questions, and there's a lot we could still talk about. But I think we should draw a line there. There's a lot of work to do, obviously. And just to remind you, those of you who are coming or able to watch, we have got a Capital Markets Day next week. By the way, we're not really expecting to mention the C word on that day at all. Stuart looking at me grinning. And there's going to be a forward-looking event and a chance to able to meet the management team. So I hope those of you who are coming will enjoy that. So we look forward to seeing you all there or thereabouts shortly. Stuart Machin: I thank everyone for your support and questions, and please shop with us this Christmas. Thank you. Operator: Thank you so much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.
Operator: Good day, and welcome to PFG's Fiscal Year Q1 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir. Bill Marshall: Thank you, and good morning. We're here with George Holm, PFG's CEO; Patrick Hatcher, PFG's CFO; and Scott McPherson, PFG's COO. We issued a press release this morning regarding our 2026 fiscal first quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026 or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I'd now like to turn the call over to George. George Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Performance Food Group is off to a great start in fiscal 2026, building upon the momentum when we saw exiting 2025. All three of our operating segments are contributing nicely to our profit performance, and we are seeing a nice combination of revenue performance and margin expansion. This morning, Scott, Patrick, and I will share an update on our company's progress and provide our thoughts on the industry and external environment. We finished our first quarter with excellent results, including double-digit top line growth, acceleration in our independent restaurant case volume and gross margin expansion. Our diversified approach to the food-away-from-home market continues to pay off as we are seeing broad-based market share gains. Our success is a direct result of our team's ability to execute in the current market environment. Within our Foodservice business, independent case growth exceeded 6%, propelled by market share wins and increases in customer penetration. We have continued to see case performance in our independent business gain momentum since early in the calendar year. Also, during the final weeks of the quarter, Core-Mark began shipping to Love's Travel Stops. The first of two large new account wins that we are onboarding in the Convenience space during the fiscal year. Scott will share more details on our progress in the Convenience segment in a moment. Our Specialty segment continues to navigate the economic backdrop by driving efficiencies through the business leading to double-digit adjusted EBITDA growth in the quarter. We are seeing pockets of strength in our Specialty business, including vending, office coffee, campus, retail and e-commerce fulfillment channels. Our teams are capitalizing on our PFG 1 approach, which encourages collaboration across our business segments to drive revenue and profit growth. We believe we are in the early stages of this initiative, but have already begun to see the benefits due to market share wins, sales growth and margin expansion. We are investing in our people and technology to support our growth profile. In the first quarter, our Foodservice salesforce head count increased about 6% compared to the prior year. We are committed to adding talented salesforce head count. The slight deceleration from the fourth quarter to the first quarter was due to normal fluctuation in hiring across the organization. We continue to attract high-caliber sales associates and believe this will be an important contributor to our growth in the years ahead. Before turning it over to Scott, who will provide more detail on our results. I'd like to reinforce how pleased I am with our organization and the efforts from our 43,000 associates. Their hard work and dedication directly reflect our company's success. Our diversified structure across the entire food-away-from-home market is well designed to succeed, and I'm excited for the future with PFG. With that, I'll turn it over to Scott. Scott? Scott McPherson: Thank you, George, and good morning, everyone. Let's jump in and review some highlights of our first quarter results. As George mentioned, we are very pleased with our start to the fiscal year and are seeing contribution across the organization due to our team's solid execution. Starting with Foodservice, the segment built upon its momentum by accelerating independent case growth compared to Q4 and maintaining chain case growth in the low single digits. Total Foodservice cases were up 15.6% in the quarter, including incremental sales from Cheney Brothers, which we began lapping in early October. On an organic basis, Foodservice cases grew 5.1%, fueled by 6.3% organic independent case growth. Our independent case growth was driven by a 5.8% increase in new customers year-over-year and an increase in customer penetration. We were encouraged to see our lines for drop increase in the quarter, which is a key driver of long-term profitability. Our chain business grew cases 4.4% in the quarter as we continue to benefit from new account wins that were onboarded last year. Our pipeline of potential new chain business remains robust. In total, sales for our Foodservice segment increased 18.8% in the quarter, with organic top line growth increasing 7.7%. Shifting to margins, positive mix shift, low single-digit inflation and procurement efficiencies drove gross margin expansion. Cost inflation during the first quarter was 2.5%, roughly in line with the fourth quarter and a modest deceleration from what we experienced over the full year of fiscal 2025. Double-digit inflation in beef was largely offset by lower poultry and cheese prices in the period. Taking a look back at the quarter, the balance of growth, margin expansion and operational execution led to very strong segment adjusted EBITDA growth of 18.1%. Excluding the contribution from Cheney Brothers, our Foodservice segment adjusted EBITDA was up by low double digits. We could not be more pleased with the performance of our largest segment. We are optimistic that these results will continue through the fiscal year as we remain laser-focused on capturing profitable market share wins and continuing to execute operationally. Turning to Convenience. During the quarter, our Convenience segment saw a 3.5% sales growth on a modest volume increase and the benefit of inflation. Once again, our Core-Mark business outperformed the industry, delivering strong relative volume performance in many key categories, including Foodservice, snacks, and health and beauty care. Core-Mark is also seeing sizable growth in the non-combustible nicotine space led by the popularity of oral nicotine products. Core-Mark is just beginning to see the positive impact from the onboarding of one of two recent chain account wins, which George mentioned earlier. In mid-September, Core-Mark began shipping to hundreds of additional Love's Travel centers, and in December, will begin delivering to RaceTrac locations nationwide. I'd like to thank our Convenience associates who manage this onboarding process, which has gone extremely well to date, positioning us to build upon our partnership with these two industry-leading retailers. We believe these wins, coupled with a strong pipeline will continue to fuel top and bottom line performance in the quarters ahead. The Core-Mark organization has been working diligently to win new business, increase efficiency and produce strong bottom line results. In fiscal 2025, our Convenience segment saw these efforts translate into double-digit adjusted EBITDA growth. With the new business wins that have just started to roll in, we believe fiscal 2026 will deliver another year of excellent sales and profit performance. We recently passed the 4-year anniversary of PFG's acquisition of Core-Mark, which has provided PFG's shareholders an impressive return with significant growth potential in the years ahead. I'll finish our segment commentary with Specialty. Similar to our Convenience segment, Specialty has been impacted by a slower industry backdrop, partially due to persistently high price points in the candy and snack categories. While this continues to impact sales growth for Specialty, the segment's ability to improve operating leverage resulted in an outstanding profit performance in the quarter. During the first quarter, Specialty's net sales declined 0.7% due to a challenging quarter for theater and value. However, as George mentioned, there were some bright spots, including vending, office coffee, campus, retail and our growing e-commerce channel. We are also very encouraged by the pipeline of new business opportunities for Specialty and expect to onboard several new accounts in the back half of the fiscal year. Specialty is unique in the food distribution industry, which positions us to efficiently deliver to a broad range of channels and customers, which in aggregate, provide the company with a very strong return. This, along with our focus on operating efficiencies led to 13% adjusted EBITDA growth for the segment in the quarter. We expect to see improvements in volume performance over the next several quarters, blazing the path for continued contributions to PFG's EBITDA growth. To summarize, we're extremely pleased with all three of our operating segments, each of which contributed to our strong first quarter results. Our diversification provides consistent performance in a range of economic scenarios and our strong pipeline of potential new business should result in consistent long-term revenue and profit growth for PFG. I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick? Patrick Hatcher: Thank you, Scott, and good morning. Today, I will review our financial results from our first quarter, provide color on our financial position. I'll review our updated guidance for 2026. To echo both George and Scott, we are very pleased with our start to fiscal 2026, which helped us maintain our solid financial position. In the quarter, we achieved net sales above the top end of our guidance range we announced in August and adjusted EBITDA at the upper end of the guidance range. As a result of the strong performance, we are raising our sales guidance for the full year and reiterating our adjusted EBITDA targets, which we have a high degree of confidence in. We also remain on track to achieve the 3-year sales and adjusted EBITDA targets announced at our Investor Day in May. Before I give more details on our outlook, let me highlight our financial results for the quarter. PFG's total net sales grew 10.8% in the first quarter due to strong underlying trends in our three operating segments and the addition of Cheney Brothers. As a reminder, we started lapping the José Santiago acquisition at the beginning of the first quarter and closed on the Cheney Brother acquisition in the second week of October last year. This means that Cheney will be organic for 12 of the 13 weeks of the second quarter. Total company cost inflation was about 4.4% for the quarter, which is slightly higher than what we experienced in the prior quarter. Foodservice inflation of 2.5% was in line with the prior quarter and roughly in line with our model. While certain commodities have been volatile, headline inflation in the Foodservice space remains in the low single digits, which we view as a normal level for our business. Specialty segment cost inflation was up 3.8% year-over-year, about 50 basis points higher than the fourth quarter, mainly the result of candy price inflation. Convenience cost inflation increased 6.8%, again, slightly higher than the prior quarter. As we have demonstrated over the past few years, our company is well equipped to handle a range of inflationary scenarios. The current inflationary environment has been consistent with our modeling, which has rates remaining in the low to mid-single-digit range throughout 2026. As a reminder, we source the majority of our inventory from domestic suppliers, and therefore do not expect a material impact from tariff increases. Moving down the P&L. Total company gross profit increased 14.3% in the first quarter, representing a gross profit per case increase of $0.32 as compared to the prior year's period. In the first quarter of 2026, PFG reported net income of $93.6 million, and adjusted EBITDA increased 16.6% to $480.1 million with all three operating segments contributing to our strong performance. Diluted earnings per share for the fiscal first quarter was $0.60, while adjusted diluted earnings per share was $1.18, representing a 1.7% increase year-over-year. Our effective tax rate was 23% in the first quarter. At this time, we continue to expect our 2026 tax rate to be closer to our historical range. Turning to our financial position and cash flow performance. In the first quarter of 2026, PFG used $145.2 million of operating cash flow to invest in working capital to take advantage of favorable inventory buys. We invested about $79 million in capital expenditures during the quarter. We continue to anticipate full year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. We did not repurchase any shares in the quarter. Looking ahead, we will continue to prioritize debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance. Today, we announced guidance for the second quarter of 2026 and updated our range for the full year. For the second quarter, we expect net sales to be in the range of $16.4 billion to $16.7 billion and adjusted EBITDA between $450 million and $470 million. For the full fiscal year, we are increasing our sales target and now project net sales of between $67.5 billion and $68.5 billion. This new range represents a $500 million increase to the top and bottom end of the previously announced range. We are reiterating our full year adjusted EBITDA range and continue to expect results between $1.9 billion and $2 billion in 2026. We have a high degree of confidence in our adjusted EBITDA range. Our results keep us on track to achieve the 3-year projections we announced at Investor Day, with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028. To summarize, PFG began fiscal 2026 with strong results. All three of our operating segments are performing well, contributing to our overall results. We are in a solid financial position which supports our growth investments and capital return to our shareholders. We are excited about the future and believe we are well positioned to continue to win business within the food-away-from-home market. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, George, Scott and I would be happy to take your questions. Operator: [Operator Instructions] We'll take our first question from Mark Carden with UBS. Mark Carden: So, to start, you guys posted another quarter of solid top line results against what's been a pretty uneven backdrop in the restaurant channel. Just curious, how did your independent case growth progress by month? How is it trending quarter-to-date? And then related, is it simply the strength that you've seen to date that led you to bring up the top of your guidance? Or are you any more optimistic about the go-forward as well? George Holm: Well, we saw consistent growth through Q1. We had a very strong October. The last few weeks, kind of since, the shutdown, we've seen a little softening. And as far as our confidence to raise it, we have some additional new business coming in primarily in the Convenience area. We've got some business in the national count within our Foodservice area that we thought we had kind of over the hump to come with us and they want to sit on the fence until it's determined what happens in our clean room. But you add all that together, and we have real good confidence in bringing up that annual sales growth number. Mark Carden: Got it. That's helpful. And then, you talked about the slight deceleration on sales force hiring, but it seems to be in line with normalized fluctuations. Just curious, does the heavy commission focus that you guys have ever make it any more difficult to attract talent if the environment remains challenging over an extended period of time? Any impacts from just any uncertainty related to U.S. or what you're seeing with Cisco having passed through some of the hiring challenges in the past? Scott McPherson: Well, first off, I'd say that I think our commission structure has been a great tool to attract great talent and people that want to grow their business. When I think about the hiring pace, we came out of last quarter at 8.8%. That's pretty rich. We feel really comfortable in that 6% to 8% range. This quarter, we were at 6%. So, if you look at the two-quarter stack being at 7.5%, we feel really good about that hiring pace. The other thing I'd say is if you just look at how we're structured from a decentralized state, we really rely on our OpCo presidents to make those hiring decisions. And George and I don't go out there and say, you've got to hire at a pace of 6% or 7% or 8%. We really let those folks make those decisions. Clearly, they're finding great talent on the street, and we've been able to continue to hire at that pace in that 6% to 8% range. George Holm: I would also add that we're very committed to having a commissioned sales force. But we also have a structure in place where we compensate them above the commission for a period of time, to make sure that we keep good people. And once we realize that someone's talented that they'll put in the effort, that they're committed to getting on commission, then we become very patient people. Operator: Our next question comes from Alex Slagle with Jefferies. Alexander Slagle: You talked about some of the big chain business wins in Convenience. I imagine that remains a big needle mover there. But just kind of curious if you could fill us in on progress you're making, some of the smaller chains and independents just in terms of sort of winning new accounts and finding ways to accelerate the penetration of the Foodservice programs to those customers and how we should kind of think about that through the course of the year? Scott McPherson: Yes, Alex. When I think about Convenience in particular, we're really happy with what they've done from a growth standpoint. And we're specifically talking about those two big accounts just because they're sizable. But our Convenience segment has done a great job picking up regional accounts as well. And I think through Service, everything you hear in the Convenience industry did today, we just returned from the big Convenience show, and there's so much focus on Foodservice. And if you look across the Convenience landscape, the chains and the customers that are performing well are the ones that are deeply ingrained in Foodservices. So, we think that's a huge competitive advantage for us. We think that was a prevailing reason in us getting some of these big and regional chain wins, and we expect that to continue. Alexander Slagle: Got it. And then, on the guidance. Can you ballpark interest expense and depreciation at all just to help us calibrate our models. It seems like these were a bit higher than I expected in the quarter, but any help there would be appreciated. Patrick Hatcher: Yes, Alex, I'll take that. I mean, what I would do is take this quarter and use that as a strong run rate. I mean again, we continue to invest in the business. So, we've added some new buildings that are increasing depreciation. We continue to add fleet, but continues to increase deflation. And obviously, as you saw in the quarter, we invested a lot in inventory. So, maybe a little more borrowing than normal, but that should come down a slight bit. But I think if you take this quarter as a run rate, that will be a good indicator of the future quarters. Operator: We will move next with Edward Kelly with Wells Fargo. Edward Kelly: I wanted to dig in on the Foodservice EBITDA growth for the quarter. If you look at EBITDA growth relative to revenue growth, they were a bit more similar, which is not typically the case for you. It seems like OpEx per case was a little high. I'm just kind of curious as to what's happened with the OpEx side of the business within Foodservice that maybe prevented you from delivering a little bit better organic EBITDA growth in the quarter. And how we should think about that relationship moving forward the rest of this year? George Holm: Yes. Ed, we've invested a good bit in brick-and-mortar for one. And in these new distribution centers, you tend not to be as efficient in the early going. And obviously, you got a little bit more expense. We've had higher expense in our acquisitions, particularly in Florida, because we're investing, and we're investing heavily, and we're doing that during their slow time of the year. We're just so satisfied with these acquisitions and with the talent that we received, we're going to make sure they have the capacity available. We also are in the midst of a big freezer addition at our Jose Santiago building. With that, I'll turn it to Patrick too, to see if you have some other comments. Patrick Hatcher: Yes. Just to touch a little bit more on that, Ed. One, again, if you look at all three segments, actually, we saw a really nice OpEx leverage organically, specifically to Foodservice, George already mentioned. If you take out Cheney, there was OpEx leverage. Cheney, just again, it's their slowest quarter. It's similar to Foodservices Q3. So they reduced some leverage there. And then as George mentioned, we're taking on some additional expenses. But those are really the reasons why you saw that this quarter. Edward Kelly: Okay. Great. And then, I wanted to follow up on a response that you made on independent case volume momentum. October seemed good, especially at the start, but I think your compare was easier maybe with weather. It sounds like recently, there's been a little bit of slowing there. Could you just talk a bit specifically about independent case momentum for the industry, what you're seeing there in terms of like real time, I guess? And then, how are you feeling about sustaining a 6% or a better rate in Q2? Scott McPherson: Ed, this is Scott. So, I think you hit it as we came out of Q1 and started into Q2. It continued to be strong over the first few weeks. But then we did have a little bit of choppiness over the last few weeks when we think about kind of lapping some of the weather from last year. So, it's a little tough to get a read on it right now. I wouldn't set a target for this quarter as far as independent case growth. Well, I would say is, we still feel good about the full year targeting 6%. And what's really driving that for us is just our independent account wins. As we mentioned, those are up 5.8%, and that's really what's driving our case growth. Operator: Our next question comes from John Heinbockel with Guggenheim. John Heinbockel: Can you guys parse out the 5.8%, that's a net growth in new accounts. When we think about sort of the gross wins, I don't think you've ever had real elevated losses, but the wins, the losses. How does that kind of shake out? Or how has it shaken out here? And then, you talked about the lines per drop. We were waiting for a long time, right, for penetration to pick up. Is it possible we're at the early stages of that and what may be driving that? Scott McPherson: John, this is Scott. First off, I would say we don't call out a gross number. So you're right, the 5.8% is net. I would say that our customer churn hasn't really changed materially. So, we feel that our reps are out there doing a great job retaining customers, and really happy with the 5.8%. The penetration now has been a couple of quarters. So we're really optimistic about that. If the macro gets better, that really positions us exceptionally well. And so, that's something we're focused on. And for us, I think the differentiator out there has been our area managers. It's been our folks that are in front of our customers, working with them every day, growing those lines for drop, and that's been critical. George Holm: Yes. What I'd like to add, John, this is George. We continue to see SKUs grow faster than our penetration number into independent customers. So that tells me that they're probably in aggregate, running same-store sales declines still. And as far as lost business, we spent a lot of years working hard to get that number to single digit. And it's a rare month that we don't come in with single-digit loss in accounts. And I think when you look at the percentage of accounts that don't make it in our difficult industry, I think, we're doing a good job of making sure we don't lose accounts. So we always, and I mean always, have a nice spread between our lost business and our new business. John Heinbockel: And then maybe as a follow-up. I know you guys have targeted the $100 million to $125 million of COGS savings. Just remind us maybe the cadence of that. I don't think it was quite linear. And then, when you look longer term, right, is there still, because you guys have now right been breaking out segment margins. And I know customized is a drag. But when you think about the opportunity beyond the next 3 years, would still seem fairly substantial, correct? Patrick Hatcher: Well, John, on the COGS savings, yes, at Investor Day, we laid it out. And I think the way to think about it is just, we always are doing work here. So this wasn't something new. I've given you guys a target was maybe something we haven't done in the past. But, we look at that as being pretty evenly spread over the 3 years, and each year pretty evenly spread over the quarters. We're actively working on those savings, and we're seeing some good opportunities out there. Operator: We will move next with Kelly Bania with BMO Capital. Kelly Bania: I wanted to just follow up on the Specialty segment. The profitability was quite strong there despite what seems like a pretty still soft candy snack consumer backdrop. So, just curious if you can add more color on what drove your ability to achieve that? How much more that could continue if that backdrop remains soft there? George Holm: Yes. I mean, we've made real good progress with most of the channels. If you look at the margin aspect, our theater business has been down fairly substantially. A couple of account losses plus the theater industry is not very robust at this point. That is our lowest margin business that we have within our Specialty business. And then, the value area has also been slow, and that is our lowest gross profit per case. So, our improvement is somewhat expense control, but it's also really led by just a change in mix of business, which has been a real positive for us. And as Scott mentioned, we've got a real good sales fund when we've got some nice business coming in the back half of the year. So, we're feeling really good with Specialty. Now, if you look at inflation and you look at pre-COVID and you look at today, candy and snacks are way up close to the top as far as price increases. And it may appear that those are very discretionary purchases and not real price sensitive, but that's not the case. The big consumer of those products is very price sensitive. And they just got to get used to higher prices, and I think we'll see some comeback in that. When you look at the things that our Specialty area has been up against, they're doing exceptionally well. Kelly Bania: That's very helpful. Also just wanted to ask, it seems like a growing number of complaints regarding the state of the consumer, particularly with younger consumers. And just curious if you could talk a little bit more about if you would agree with that as you look at your kind of diverse channels and customers that you serve, if you see that and if there's anything that you are doing to kind of help that either with private label or other promotional activity with vendors that you're working on to help those end customers? Scott McPherson: Kelly, this is Scott. Certainly, we've heard that same message around the younger generation consumer. I wouldn't say that we've seen that specifically in our business. If I look across our chain segments, I mean, obviously, QSR remains highly pressured. I think that low-income consumer continues to struggle. I think for the last year, you've seen some of these fast casual concepts, I'd call them the high flyers that we're seeing double-digit same-store comps. They've kind of come back or normalized. And we've also seen some others sprout up. And I think really, right now, what we're seeing is that value proposition is what's really making the day for concepts. If they've got a really good value proposition that resonates, they're seeing reasonable same-store sales comps. For us, I think you hit it right on the head. We're focused on brands. We think that, that's the best value we can bring to our customers. We've seen our brand share grow with independents and chains. And so that's been -- I wouldn't say it's a positive for us. We'd like to see more store traffic and a more robust consumer, but we feel like we're in a really good position. Operator: Our next question comes from Lauren Silberman with Deutsche Bank. Lauren Silberman: I want to start, if you could just clarify, are you guys seeing disruption in your salesforce or the ability to track new customers, because of the news of the deal? Just trying to understand and how much is seasonality versus influx of new hires and what's going on there? George Holm: Well, we've just -- this is George. We just had a couple of large events, which we have at the same time of the year every year. One is what we call Circle of Excellence, where we honor our top salespeople and sales management with most of our OpCo presidents at that event. And then, we do a food-centric where it's more customer focused, and we have some large particularly independent customers from around the country come. And we have every Opco President that's present at that. And what I would say is that morale is extremely high, particularly with the sales force. The only negative being some national accounts, like I said, sitting on the fence. And we're consistent with our people or as transparent as we possibly can be. And I don't really think that we're experiencing disruption. It doesn't seem to affect our hiring right now. It hasn't had any negative impact on our turnover. And I'll turn it over to Scott. He's a little closer to it than I am, but that's why I see it right now. Scott McPherson: No. I think I'm totally aligned with George's comments. We have -- we've seen great availability of reps on the street. Hiring at 6% versus last quarter at 8.8%, like I said earlier, that doesn't concern me at all. We kind of bounce back and forth between that range of 6% and 8%. There may have been a handful of reps here and there that took a pause, because they were waiting to see what happened. But I would say, overall, I think I just look at our results, our independent case growth, our new account growth, and that gives me great confidence that our Opco presidents and our area managers are focused on the right things, and we continue to grow share and grow our independent business. Lauren Silberman: Great. On the OpEx side, what seems like some incremental investments in Cheney, should we assume some pressure on that line over the next few quarters? Or is this the bigger investment in this quarter, a bit more onetime? I know there's some seasonality, but just trying to understand the magnitude and how that is based? Patrick Hatcher: Yes, do you want me to... George Holm: Yes. I'll take it real quick. And then you can add to it. I think that the seasonality change will help a lot in Florida. We have also seen the international traveler and Canadian travelers just haven't shown up in Florida like they typically do. But I think a lot of this will alleviate itself as we get into season. And they're very, very focused company and a great morale there as well. And we just feel like it's just a company that's going to flourish. Go ahead, I'll turn it to you. Patrick Hatcher: Yes. I'll just add a couple more things. One, as George mentioned, there's a little reduction in leverage in the first quarter. And again, they're 1 year in. And so we've been also doing a lot of integration, but the integration that happened early on is usually around IT, HR. So, sometimes that can add some additional expenses. But when I look at how they performed in the first quarter, it was very much in line with our expectations, and it's very similar to prior year. So, we do expect that as we go a little further out, we'll start to see the synergies. As we've said, we'll really see the bulk of the synergies at the end of year 2. But we're doing a lot of integration work as we speak. So, it should dissipate as we go through the year most importantly, is what George said, though, as we get out of -- into the high season, it will definitely help. Lauren Silberman: Great. Just a final follow-up. The independent sales growth that you're seeing in October, understand started strong, a little bit slower with the government shut down. We've heard a bit of a range in restaurant world. I guess, are you guys still running in the mid-single digits? It's just hard to understand what's going on with the magnitude of a step down, particularly for the independents. Scott McPherson: Yes. We're still running in that mid-single-digit range. Like we said, we've seen some volatility as of late, but we're still running in that range. Operator: Our next question comes from Jeff Bernstein with Barclays. Unknown Analyst: Thanks. This is [ Pratik ] on for Jeff. You've talked about taking share for a while now. And I believe you mentioned that some of the segments like QSR and fast casual have been a bit more challenged of late. So, just wanted to unpack where you're seeing strength, what particular segments of the industry. ?And are your share gains coming from your larger peers or smaller operators? Or is it all of the above? George Holm: Well, I'll start with the last comment. We don't have a good method of knowing where our share gains come from. We have a tool report that we use that shows how we did and how the rest of the market does. So, we don't really know how anybody specifically does. So, I don't know that we can really comment that, on that. But just to give you an idea where it's slower and where it's done better. the shutdown, of course, has affected our Virginia and Maryland company the most, and both of those were on extremely good growth rates going into that. Not much anywhere else. The international tourism, it's been the upper Midwest, where we've seen -- I mean, I'm sorry, the Upper New England area, where we've seen the total market slow. But actually, our companies there have been gaining significant share. So, it hasn't had much of an impact on us. And of course, Florida and then Vegas has been affected quite a bit, and we do very little business in Vegas so that hasn't had much impact. Where we've seen market slowness the most has been the Midwest, the upper Midwest. And we have markets there where we're negative to last year and gaining share, which is a really unusual situation for us. So that's how I would put it. But we don't want to overdo this. I mean, we're still running good independent growth. And if the -- I think, if we didn't have the shutdown and the slower business in a couple of markets, we would be just as we were in the first quarter. Unknown Analyst: That's very helpful. And then Patrick, on the inflation outlook, you reiterated your expectation for low to mid-single digits. Anything that would cause you concern and would maybe push that to the upper end of the range? I know you mentioned some of the Specialty and snacks items that are seeing high degrees of price increases. But anything else on the commodity side or other product lines that may kind of push that to the upper end of the range? Patrick Hatcher: Yes, great question. Honestly, a lot of the candy price increases we've already seen those and other suppliers taking price. On the commodity side, so I would again just reiterate on Convenience, we expect them to be in that 6 plus range, mid-single digits, Specialty a little bit lower, but staying very consistent for the rest of the year. And Foodservice, as we mentioned, is in the low single digits, and we do expect that to continue lots of commodities. And as everyone knows, beef and pork has been pretty high lately and inflationary, but we also over-indexed in cheese, and that's been deflationary. Poultry has been deflationary. So, the way we look at it, we -- that market basket of commodities should keep us in that low single-digit range. Operator: We will move next with Danilo Gargiulo with Bernstein. Danilo Gargiulo: I was wondering if you just take a step back and we look at your very long-term strategy. How do you plan to strengthen your ROIC? And what do you think is a realistic timeline for the ROIC to be increasing by mid-single digits. So what would be the key levers to that? Patrick Hatcher: Yes. Good question. We obviously look at ROIC very closely, too. And as you know, we've recently made some larger acquisitions. We've also been, as George mentioned earlier, we're investing a lot into capital for buildings and fleet. And all those things are really surrounded by growth. So, we've given you, obviously, our projections on EBITDA growth for the year, and we continue to work very closely on driving higher growth on income as well as managing our capital. So I would say, over the balance of this year, we should see improvement in ROIC. Danilo Gargiulo: Okay. And then, I want to follow up on the comments that you made on the M&A pipeline remaining robust. And specifically, the evaluation of strategic M&A and in light of the potential synergies that you might be having with a business combination with U.S. food. I was wondering if you can help us understand a little bit better what will you need to see in the data or in the strategic evaluation for the decision to have a positive or maybe a negative outcome? So what are the puts and takes on that? Patrick Hatcher: Yes. On that, the process is ongoing. We've disclosed what we're doing in terms of the clean room. We really don't have an update to share at this time and just would ask that we keep our questions focused on our Q1 results and guidance. Scott McPherson: Just adding on to the M&A pipeline. We talked about that. We're very active in the market. We talked about a small acquisition in our Convenience segment. And George and I continue to talk to a number of different people about opportunities primarily in the Foodservice space, but also across our other segments, we're always looking at opportunities. So, I still feel like that pipeline is robust. Danilo Gargiulo: And then focusing on the more near term. You mentioned the kind of market fluctuations that you're witnessing as we are in the overall restaurant segment. So, I'm wondering if there are any actions that you might be exploring in the near term to increase the capture rate of independent cases therein the better near term without necessarily compromising the quality of power, which has been extremely strong over the past few years? Scott McPherson: Well, I would say, first off, philosophically on the street, we're decentralized. We let our OpCo presidents really drive their market area. And we're really happy with how we prepared our area managers from a training standpoint. I mentioned earlier, I think brands has been our calling card and is a big driver for us, especially in an environment where cost of goods is critical and menu pricing is critical. But I don't see anything philosophically that we're going to change materially in our approach. We believe in the partnership with our customer, and we believe in the strength of our area managers on the street. Operator: [Operator Instructions] We will move next with Karen Holthouse with Citi. Karen Holthouse: A couple kind of more on the C-store side of things. Thanks for the guidance for mid-single-digit inflation. And I can appreciate that your suppliers are domestic. Have your conversations with them that are getting you to mid-single-digit number contemplated how tariff -- tariff-related inflation and more of like the packaging side of things might ultimately impact that number? Scott McPherson: Yes. I think if I understand the question right, I mean, we talked about cost of goods being domestically sourced and not having a big impact there. But to your point, I think there are other inputs that could cause inflation, whether it's packaging, and for us, when we look at the broader picture of inflation, it's not as much cost of goods, it's probably share of wallet. And as we see consumers be pressured, whether it's other SNAP benefits going away or other things that are happening in the market that affect discretionary income, that definitely could have impacts. But to this point, we haven't seen anything material. Karen Holthouse: Okay. And then is there anything to consider as you're starting to onboard Love's and RaceWay (sic) [ RaceTrac ] in terms of margin profile of those businesses versus the existing business? Scott McPherson: So first off, I would say the Love's piece, I do want to just take this opportunity to shout out to our Convenience segment. They onboarded over 600 Love's locations in September in the last couple of weeks. I did just an incredible job, including opening a new facility to help accommodate that. And it's actually RaceTrac. They are also the master -- they're the owner of the franchise RaceWay. So, you were right there, RaceTrac, we rolled out in December. So again, preparing for that, I feel like we're in a great position. And when I think about the margin profile, I would say it's consistent with the rest of our Convenience business. Karen Holthouse: And then one final one on Convenience margins. I think there was a comment in the prepared remarks about stronger performance in tobacco with growth of oral nicotine. Is that getting you to a point where like tobacco as a share of total Convenience sales is stable or even increasing? Scott McPherson: No. I mean, I would say cigarettes, because of taxation are always the revenue driver. When you think from a margin standpoint, oral nicotine and the other alternative nicotines are really accretive to margin, but because of taxation, cigarettes are definitely a revenue driver. Operator: We will take our last question from Peter Saleh with BTIG. Peter Saleh: Great. I apologize if you guys covered this already. But just curious if you can comment, I know we've been seeing across the restaurant space that really casual dining has really been outperforming QSR and fast casual. And it seems like fast casual has really taken us a leg down in the most recent quarter or 2. Just curious if you guys can comment on if you're seeing the same thing within your customer base? And any thoughts on why the -- maybe why the customer shifted so much in the past couple of months? George Holm: Well, casual dining has been a big part of our business for many years, and we supply a lot of the large casual dining chains. And they're doing better versus the previous year in many instances, but they're doing much worse than they were doing in 2019. So, there's a little bit of the kind of bouncing off the bottom. I think there's some that have done some great marketing. They have their pricing to where their -- at least a similar value to fast casual with a higher touch with the customer. So, I think that's helping them. I don't know that there's a long-term change with what we're seeing today. Just got to watch it and see what happens, but I don't think there's a long-term change. Operator: Thank you. And this concludes our Q&A session. I will now turn the call back to Bill Marshall for closing remarks. Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations. . Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and welcome to the Great Elm Capital Corp. Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Adam Yates, Managing Director. Please go ahead. Adam Yates: Hello, and thank you, everyone, for joining us for Great Elm Capital Corp's Third Quarter 2025 Earnings Conference Call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of our SEC filings, please visit Great Elm Capital Corp.'s website under Financials, SEC filings or visit the SEC's website. Hosting the call today is Matt Kaplan, Great Elm Capital Corp.'s Chief Executive Officer, who will be joined by Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's CEO, Matt Kaplan. Matt Kaplan: Thanks, Adam, and thank you all for joining us today. After a very strong first half of 2025 we had a solid start to the third quarter, and we're on pace to meet and potentially exceed our internal income generation targets for 3Q. In August, and through the first half of September, we raised significant equity at NAV, doubled the size of our revolver, reduced the revolver's interest rate by 50 basis points and successfully refinanced our highest cost 100 basis points lower. These transactions leave us with ample deployable cash and capacity to invest in income-generating opportunities in the coming quarters, leaving us in a position of strength to capitalize on attractive risk-adjusted investment opportunities and further our long-term growth strategy. In contrast to a positive start to the quarter, our results are colored by First Brands, which traded down sharply in the back half of September before filing for bankruptcy at the end of the quarter. GECC has held exposure to First Brands through syndicated loans since 2020 with a portfolio allocation of over 5% to First Brands since 2023, as noted in our recent 10-K. First Brands was paying cash income to GECC and we received our last regularly scheduled full cash quarterly interest payment at the end of July this year. As outlined in our October 7 press release, our direct exposure to First Brands adversely impacted NAV by approximately $16.5 million in the third quarter. In addition, we put loans on nonaccrual, which adversely impacts our income generation. On the other side of the spectrum, I want to highlight the tremendous success we had in the quarter with Nice-Pak. In 2022, we funded a secured loan with warrants to Nice-Pak, a wet wipes producer. The company was acquired this past quarter, generating an approximately 38% IRR to GECC over the 3-year holding period. Over the last few years, we have found certain select and unique income-generating opportunities to deploy capital into with strong upside convexity, like Nice-Pak as well as some of our insurance and CoreWeave related investments. I am confident that our strong sourcing engine is intact, and I remain excited about the future of GECC. We entered the fourth quarter with leverage in line with our target and ample liquidity with over $25 million of cash to deploy. In addition, we expect to begin harvesting nonyielding assets in excess of $20 million to prudently deploy into cash-generating investments. As we enter this final quarter of 2025 on a strong foundation, our Board of Directors has approved a $0.37 dividend for the fourth quarter of 2025. Furthermore, the Board has approved a $10 million share repurchase program. I'm confident that with our strong capital position, our focus on risk management and further portfolio diversification, we can rebuild income and NAV from the third quarter to deliver strong returns to shareholders. Before diving into the numbers, I want to further touch on First Brands. In retrospect, our exposure to First Brands was too large. We are fortunate to have a strong balance sheet and ample liquidity and will be focused on driving further portfolio diversification and reducing our average position sizing as we deploy capital. Now turning to our third quarter numbers. our NII was $0.20 per share. The decrease from the second quarter was largely due to the anticipated decline in distributions from our CLO JV, which totaled $1.5 million in the third quarter down from $4.3 million in the second quarter. Also, NII was impacted from elevated interest expense associated with the refinancing of our high-cost GECCZ notes, where we wrote off approximately $1 million of deferred offering costs and had double interest expense for most of September. In addition, our preference shares in an insurance-related investment did not pay a dividend this quarter as we expected, after paying $2.1 million in the second quarter. In the fourth quarter to date, we have received $4.3 million of distributions from our CLO JV but do not expect a distribution on our insurance-related preference shares until potentially 2Q of 2026. I would like to note that even with all of the moving parts in our numbers, we reported NII of $0.40 per share in the first quarter, $0.51 in the second quarter and now $0.20 in the third quarter, which totals $1.11 and compares to $1.11 per share of regular quarterly distributions in the first 3 quarters of this year. As we look into the fourth quarter and our modeling today, we expect NII to significantly rebound from the third quarter based on increased CLO distributions, normalized interest expense and income generated from our capital deployments. It's worth noting that our share count has increased over the past year as a result of our capital-raising programs, which have successfully led to GECC issuing shares and transactions that did not dilute NAV like past rights offerings. These transactions have been a huge positive to scaling our platform. However, they have led to short-term cash drag impacts and have modestly offset our absolute NII growth on a trailing 12-month basis. Moving on to portfolio performance. Our NAV per share declined to $10.01 from $12.10 as outlined on Slide 9. The decrease in NAV was primarily driven by unrealized losses associated with First Brands and to a lesser extent, an unrealized decline in the fair value of our investment in CW Opportunity 2 LP as the underlying CoreWeave common stock declined approximately 16% in the quarter. Looking ahead, we have ample liquidity and are actively working to further diversify our portfolio across senior secured investments that we believe are well positioned to perform amid evolving market conditions. With a solid foundation and disciplined investment approach we remain confident in our ability to generate sustainable returns and deliver increasing value to our shareholders. With that, I'd like to turn the call over to Keri Davis to discuss our third quarter 2025 performance. Keri Davis: Thanks, Matt. I'll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. During the third quarter, GECC generated NII of $2.4 million or $0.20 per share as compared to $5.9 million or $0.51 per share in the second quarter of 2025. The decrease in NII was primarily driven by the lack of the distribution from an insurance-related investment and lower income from our CLO JV. Our net assets as of September 30, 2025, were $140 million, consistent with $140 million as of June 30. Our NAV per share was $10.01 as of September 30 versus $12.10 as of June 30. The decrease in net asset value was primarily driven by losses on First Brands as noted. Details for the quarter-over-quarter change in NAV per share can be found on Slide 9 of the investor presentation. As of September 30, GECC's asset coverage ratio was 168.2% compared to 169.5% as of June 30. As of September 30, total debt outstanding was approximately $205 million, and we had nothing outstanding on our $50 million revolver. Cash and money market securities totaled approximately $25 million and we have $50 million of availability under our revolver. Our Board of Directors authorized a $0.37 per share cash distribution for the fourth quarter, which will be payable on December 31 to stockholders of record as of December 15, from distributable earnings. The distribution equates to a 14.8% annualized dividend yield on our September 30 net asset value. I'll turn the call back over to Matt. Matt Kaplan: Thanks, Keri. We continue to enhance our portfolio strength by maintaining a focus on secured debt positions. Our corporate portfolio is comprised of over $220 million of investments and first lien loans comprised 2/3 of the corporate's portfolio as of September 30. As we deploy capital, we are focused on increasing our allocation to first lien senior secured investments. This demonstrates our commitment to enhancing portfolio quality while maintaining a focus on secured income-generating assets. Before moving on to more portfolio detail, I think it is important to highlight our nonyielding other equity mix as outlined on Slide 17. The bulk of this is attributable to CW Opportunity 2 LP the vehicle we discussed last quarter that initially held a preferred investment in CoreWeave, which converted into common equity in connection with the IPO. While there is no more income from the coupon on the preferred to distribute going forward, reducing our gross portfolio yield, this investment is a meaningful positive to our shareholders. In the third quarter, we began to receive capital distributions as the vehicle took steps to generate liquidity for its investors. We received $2.9 million of capital distributions in the quarter, almost half of our original $6 million investment, and the post distribution value was $14.8 million as of September 30. In October, we received an incremental $2.8 million, bringing our life-to-date income and capital distributions to $6.1 million or 102% of our original investment in CW Opportunity 2. Importantly, as we receive distributions from CW Opportunity 2 and monetize other non-yielding equity investments in the coming months, we will rotate this capital into cash income generative investments and further diversify our portfolio. As of September 30, our nonaccrual positions included investments in First Brands, Del Monte and Maverick Gaming, representing 1.5% of portfolio fair value. Aside from our nonaccrual investments, our corporate portfolio has performed well on the whole, and we saw solid performance in Specialty Finance. Importantly, we have no exposure to nonprime consumer finance issuers or tricolor. In addition, we have limited exposure to software and have been monitoring portfolio investments for signs of disruption from AI. There are many widespread concerns about businesses at risk from AI disruption. We believe caution is appropriate but needs to be addressed on a case-by-case basis. To date, we have otherwise seen minimal direct impact of tariffs on our portfolio. Our portfolio maintains broad diversification with a predominantly domestic focus and minimal exposure to China. We continue to monitor the changing landscape and also work to evaluate the second and third order effects on tariffs and shifting trade dynamics. With our defensive portfolio structure, we believe we are well positioned to navigate the ongoing tariff uncertainty. As we look ahead, we are focused on deploying capital into high-quality income-generating investments. We are taking a measured approach to new originations, prioritizing credit fundamentals and downside protection along with increased portfolio diversification. With $25 million of deployable cash, monetization of our non-yielding equity investments and $50 million of revolver availability, we have significant dry powder and financial flexibility to capitalize on opportunities. We remain excited for the future of GECC and with that, I would like to turn the call over to Mike Keller to provide an update on Specialty Finance. Michael Keller: Thanks, Matt. Great Elm Specialty Finance had a very strong third quarter and increased its distribution to GECC to approximately $450,000 from $120,000 last quarter. We continue to execute on GESF's strategic transformation by simplifying our business model and securing favorable financing arrangements, successfully repositioning the platform for future growth and improved profitability. In April, we completed the rebranding of Sterling as Great Elm Commercial Finance, which now offers traditional asset-based lending solutions to a broad range of industries. In July, GECF upsized its back leverage facility by more than 20%. We continue to work with lenders to scale this platform as our deal pipeline remains robust. As part of our strategic changes made earlier this year, we are pleased to report that Great Elm Healthcare Finance is now better positioned for profitability and generated strong distributable income in the third quarter. Prestige, our invoice financing business had a phenomenal quarter. As a reminder, Prestige provides spot invoice financing solutions and has exhibited high ROEs over the course of the year but can be lumpy quarter-over-quarter. In summary, these initiatives have streamlined our operations and better aligned our platform with long-term growth objectives. We're seeing the benefits of our strategic repositioning take hold, and we remain confident in our ability to generate improved sustainable returns going forward. Matt Kaplan: Thanks, Mike. In closing, we had a challenging end to the third quarter. However, we remain well capitalized and are focused on protecting NAV and generating NII. We are excited to close out 2025 with a strong balance sheet and ample liquidity as we look to execute on our growth and optimization initiatives. We believe we remain well positioned to rebuild our NAV over time and to deliver attractive risk-adjusted returns for our shareholders. With that, I'll turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question on CoreWeave and the capital distributions you've started to receive. Curious if you could provide any kind of color expectation into the cadence and timing of any future distributions if there's been something kind of formal announced? Or if you just kind of perceive them periodically? Matt Kaplan: I think we provided the color on the capital distribution in the September period as well as October. I think importantly, we've received distributions that cover all of our cost basis and the investment and everything from here on out is going to be generating additional capital for GECC to invest in income going forward, we'll provide the market an update next quarter when we report on where we've been seeing the distributions. But again, that vehicle has been making returns of capital, and we're fortunate to be able to be in a position to redeploy that income-generating opportunities going forward here. Erik Zwick: And then you kind of combine those distributions with your expectations to harvest. I think you mentioned kind of $20 million of kind of capital from nonyielding assets. Is those $20 million separate from any future expected distributions from CoreWeave? And yes, maybe kind of answer that question first, would be great. Matt Kaplan: Sure. I think the $20 million or over $20 million includes CoreWeave and a couple of other non-yielding assets that we've identified that we believe we'll be able to harvest over the coming months here into 2026, early '26. Erik Zwick: Great. And then just kind of taking that to the next step, you've got this kind of capital coming, you've got liquidity in your revolver. Can you just talk maybe about the opportunities that you're seeing in your pipeline today? How you evaluate them from kind of a risk-adjusted perspective and just the size of the pipeline relative to maybe kind of 3 months ago? Matt Kaplan: Yes. I'd say spreads in the public markets are tight right now. We're not reaching for yield. We're very focused on secured and income-generating opportunities, investing at the top of the capital structure. We continue to work on various private credit transactions and are expanding the funnel, also working to get more granular in the portfolio and diversify. There's one private credit transaction that we're working to close on this week. That is a teens-type return profile and comes with warrants. I highlighted Nice-Pak, which was a tremendous success in the quarter, which had a warrant package as well. So as we look to rebuild NII and NAV, we're focused on trying to find those interesting opportunities and that's at the top of the capital structure and find certain situations that provides some upside complexity going forward. Erik Zwick: And if I can squeeze one more in, and then I'll jump back in the queue. My understanding, most CLOs make their distributions towards the beginning of the quarter. So the $4.3 million that you mentioned that you received so far in 4Q. Is that likely to be pretty close to the full number for 4Q? Or is there anything else you're expecting to receive later in the quarter? Matt Kaplan: I would say you should use that number for the quarter. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Matt Kaplan for any closing remarks. Matt Kaplan: Thank you again for joining us today. We look forward to the continued investor dialogue, and please let us know if we can help with any follow-up questions that you may have. Thank you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Mia Nordlander: Very welcome to Sinch Q3 2025 Report Presentation. My name is Mia Nordlander, and I'm Head of Investor Relations & Sustainability. With me here today, I have our CEO, Laurinda Pang; and our CFO, Johnas Dahlberg. We will hear them presenting the quarter and thereafter, there will be time for questions. [Operator Instructions] So once again, very welcome to this presentation. I hand over to you, Laurinda. Laurinda Pang: Thank you, Mia, and thanks, everyone, for joining us today. One year ago, at our first CMD, we shared a strategy for value creation and today marks a clear milestone of our disciplined execution and value delivery on that strategy. Let's turn to Slide 2 to look at the highlights from the quarter. As we begin, I will remind you of the continued large FX headwinds in the quarter, mainly due to a weak U.S. dollar. As we always do, we will point you to organic changes, which normalize these swings and are a consistent representation of the underlying business. I am pleased to report a quarter of continued organic gross profit growth, improved profitability and the initiation of our share buyback program. We delivered solid performance that demonstrates focused execution against our strategic priorities, even though currency effects obscure some of the underlying momentum. Gross profit of SEK 2.3 billion grew 5% organically year-over-year and roughly in line with last quarter. We expanded gross margin to 35%. Both the gross profit and gross margin development are a testament to the strength of our offerings and our focus on higher-value interactions and more profitable product lines. Our ability to expand profitability in a dynamic market highlights the resilience and efficiency of our business model. However, turning to the top line. Net sales were flat year-over-year at SEK 6.7 billion, and I want to be direct about this. While our profitable growth is very positive, this level of revenue is not what I expect nor is it the shape of the growth we are aiming over the long term. I'll address this further on the next slide when we break out the regional segments. Adjusted EBITDA of SEK 915 million increased organically by a strong 8%. This was an adjusted EBITDA margin of 14%, which was the highest on record since 2019 and was driven by gross profit growth and operational efficiency. As a reflection of our confidence in our strategy and financial strength, Sinch initiated its first ever share buyback program during the quarter with 1.8% of shares now held in treasury. Beyond the financials, we are proud that Sinch was named a leader in Gartner's Magic Quadrant for CPaaS for the third consecutive year, a powerful validation of our market position and strategy. We also ranked #1 in their critical capabilities for CPaaS report for multinational organizational use cases. This highlights the strength of our platform's ability to meet the complex needs of global enterprises. We also strengthened our position in AI during the quarter with leading innovators across all regions adopting our API products to power customer engagement, underscoring the scale and robustness of our platforms. And in an important milestone of conversational messaging, we launched RCS for business with all 3 major mobile operators in the U.S., cementing our leadership in this transformative channel. Let's look at Slide 3 next, please. To begin, let me provide some color on the flatness in net sales. This primarily reflects 2 factors: First, we've encountered competitive pressure in the traditional messaging space concentrated within a few large accounts in the Americas customer base and in the India market more broadly. Second, we have continued to steer away from fixed price contracts that have negatively impacted EMEA and, to a lesser extent, Asia Pac as these opportunities do not fit an acceptable risk profile. However, we're not standing still. We are proactively reshaping our revenue profile for more sustainable long-term success. This strategy is twofold: first, diversifying our customer base; and second, accelerating our leadership in conversational messaging. We are making excellent progress on customer diversification, having recently secured several notable new enterprise clients who are in the early stages of ramping up their volumes. While their full contribution is not yet reflected in our top line, they represent a significant driver of future growth. And the key reason we are winning in our leadership is our leadership in conversational messaging. We grow here by winning new customers directly on to modern channels like RCS and WhatsApp and migrating our existing base to these higher-value interactions. In India, for example, this combined success in over-the-top channels and strong growth in e-mail has neutralized the pressure on traditional messaging. In the Americas, while net sales were flat, the region delivered strong organic gross profit growth of 8%, with margins expanding by 2 percentage points. This was driven by a strong turnaround in our U.S. network voice business and solid performance in other product categories. In EMEA, organic net sales and gross profit declined by 2% and 3%, respectively. This was primarily due to the strategic decision I just mentioned regarding steering away from fixed-price contracts. Notwithstanding this, the underlying API business remains healthy and is growing. And in Asia Pac, organic net sales grew by -- I'm sorry, 7%. Organic gross profit increased by 1%. The strong net sales performance was driven by new large messaging wins, but was offset by competitive pressure in applications in Australia and the India SMS pressure I mentioned earlier. We've been experiencing this downward pressure for some time, but Sinch India has now stabilized sequentially. Before we leave this slide, let me reiterate the actions I mentioned diversifying our base, leading in next-gen messaging and e-mail and improving our commercial terms. These are fundamental to building a more resilient and sustainable business. They strengthen our foundation and position us to capture higher quality growth going forward. Next slide, please. Our strategy for value creation is very clear. We are executing with discipline. It is built on 3 core pillars: reaccelerating growth, expanding our EBITDA margins and disciplined capital allocation, all fueled by continued cross strong cash generation. The third quarter marks another period of significant progress across each of these pillars and is another firm step on our path to delivering our midterm financial targets of 7% to 9% organic growth and 12% to 14% adjusted EBITDA margin by the end of 2027. Next, on Slide 5, let's look at the progress for growth reacceleration. The 4 growth drivers we outlined are deeply interconnected. In enterprise expansion, we are winning with the world's most demanding businesses. Our large enterprise customer base has increased by 5% year-to-date, including the addition of companies like Nespresso, Visa, Dollar Shave Club and Nordstrom. Our self-serve products continue to be a powerful growth engine, delivering high-margin, double-digit growth year-to-date. As another proof point, our self-serve capabilities are resonating in the market. We have increased our customer count to more than 190,000. As it relates to RCS, our traffic has tripled year-to-date. And as mentioned in the third quarter highlights, we have now fully achieved coverage with all U.S. Tier 1 operators. Touching quickly on our continued strength in e-mail, volumes have increased nearly 40% since last year. And finally, partners and ecosystems, which is all about scale. We embed Sinch directly into the workflows of the world's leading enterprise software companies. The partner-enabled business has grown gross profit by 5% on a year-to-date basis. These growth drivers are powered by 2 major opportunities. The growth in conversational messaging and the rise of generative AI. Let's move to Slide 6 to take a look at our progress in conversational. We are a leader in this transformation and the momentum in conversational messaging is a clear testament to the market's demand for richer engagement to enhance the customer experience. Our RCS message volume growth is being led by India, LatAm and early adopter markets in EMEA, like France. And in the U.S., we have some great early use cases with brands like Enfamil and Omaha Steaks. We have launched WhatsApp upscale as a complement to RCS upscale. This is more than just switching channels. It's about delivering real business impact through better security and higher trust, improved conversion rates and more innovative customer communications. To illustrate the last point, our customers, Picard, Courir and Clarins were nominated for innovation awards for their high-impact RCS campaigns. Clarins took home the win. By transforming customer communications with rich interactive messaging, their campaigns deliver much higher engagement and stronger business outcomes. Next page. Generative AI is set to dramatically amplify the effectiveness of conversational messaging. While these 2 phenomena evolved independently, they are now creating a powerful synergy, where each makes the other more valuable. Put simply, consumers now expect conversations that are intelligent and context aware. AI provides the intelligence to meet this demand, while rich channels like RCS and WhatsApp provide the perfect vehicle to deliver those enhanced experiences. This powerful combination is creating an exciting new era for digital customer communications. In this era, machines themselves are becoming new buyers of communications. As autonomous AI agents begin to orchestrate interactions, they will drive a significant increase in overall communication volumes. On the next slide, I'll talk about what this inflection point means to Sinch. First, we see strong market validation that we are a platform of choice. The world's leading AI innovators are building their future on our infrastructure, choosing Sinch's APIs to power their communication needs across all regions. This reinforces our unique position as the trusted execution engine. These companies need to know that when AI triggers a message to be sent, it gets delivered securely and reliably every single time. That is our core strength. Our leadership in this new AI era is built on a foundation we have been laying for years. We have strategically embedded AI across our product suite to make our solutions smarter, more intuitive and more valuable. Let me give you a few tangible examples of how we are delivering value to customers today. In e-mail, Mailgun Inspect uses AI for quality assurance and our open source MCP server allows developers to query at e-mail analytics using natural language. In multichannel campaigns, our Sinch Engage platform uses AI to orchestrate campaigns, personalize experience and create content. In voice, our programmable voice API allows businesses to automatically capture and transcribe conversations for compliance analytics and deeper customer insights. And in our core messaging offering, AI is deeply embedded to enable our customers to recognize intent, perform sentiment analysis and protect their users from detecting -- by detecting profanity and spam. We are continuing to enhance our platform's capabilities and enabling campaigns and conversation orchestration. We have already seen a 41% year-to-date volume increase in conversations facilitated through our chat layer platform and are now developing AI agents directly within our Sinch Engage platform. We expect to launch a closed beta with our first customers before the end of the year. In summary, this trend directly fuels our platform's capabilities and growth. More AI adoption means more traffic generating more revenue in our existing core business. We are the essential communications layer for the AI economy, and we are well positioned to grow as it does. With that, I'll hand the word over to Johnas to take you through the financials in more detail. Johnas Dahlberg: Thank you, Laurinda. So let's get into the financials and we start at the top of the [indiscernible] with net sales. So first, a couple of words on our financials. When looking at Sinch's financials, it's important to understand a couple of things. The first thing is that we have a strong seasonal pattern, where there's typically the year-end, that's the strongest driven by the retail season. Secondly, we have significant FX effects. And our reporting currency is Swedish krona, but it's a very limited share of our business. In fact, the U.S. dollar is the dominant currency of trade with about 60% of the business. So there's a lot of FX effect, and that's why we always communicate organic numbers for comparability and communicated year-on-year. So in the quarter, net sales came in at SEK 6.7 billion, and that's down 7% due to currency translation effects. However, when adjusting for this effect, we have a marginal positive organic growth. Now under the surface, there's actually more excitement as we exhibit continued solid net sales growth in our high-margin products such as our e-mail product and several of our applications. Moreover, we continue to diversify our customer base and reduce customer concentration in all this provides a positive mix effect and stronger financial profile, both here and now and for the future. Next chart, moving on to gross profit. Looking at organic numbers, we continued with a stable 5% growth in the quarter with the strongest growth coming from our most important market, which is the Americas. The improvement in Americas is driven by all product categories, including our API and application business, but with a particularly strong quarter for our network business, which is now really back after the turnaround. What's positive in the quarter across the company is that all product categories contributed to organic GP growth as well as 2 out of our 3 regions. However, on a reported basis, we have this currency translation effects and the impact is 8 percentage points as a currency translation headwind. Moving to our margins. Combined, we have a very positive development of our margins with a strong 34.8% gross margin in the quarter, and this is an increase of 1.2 percentage points year-on-year. And this improvement is driven by a combination of both increased profitability at product level as well as a positive product mix shift. As I mentioned earlier, our most profitable products continues to grow faster than the average mix and this is mainly our e-mail products and application hence, contributes positively to the higher margin through a positive product mix shift. Disaggregating these 2 effects, about half of the margin increase comes from a positive development of product margins, while the other half comes from a positive product mix shift. Moving over to EBITDA margins. We delivered close to a record high 14% adjusted EBITDA margin. In fact, in modern Sinch time, I would say, it's highest post-2019 and acquisitions we did in '21, which truly transformed the company. And we also see a very strong margin on non-adjusted EBITDA and we're already now at the upper range of our 12% to 14% EBITDA margin target for the end of 2027 that we established 1 year ago at our Capital Markets Day. So in terms of the targets that we set out 1 year back, one is down and that's the EBITDA margin target and now it's one to go, which is really to get the gross profit growth also going. Moving to the next page to take a closer look at cost and EBITDA. Starting with operating expenses. We continue on our path of cost discipline and continued synergy extraction in the combined Sinch. So OpEx is down 5% compared to the same quarter last year, which represents a marginal 3% organic OpEx increase. Measures we're taking on the cost side are about leveraging truly the combined strength of Sinch, consolidating platforms and products, consolidating support functions to lower cost locations and recently leveraging AI to gain efficiency throughout our operations. I want to stress that this is not a one-off effort, but rather an ongoing effort over several years to increase our cost efficiency, and this effort will continue and there is more potential. It will both support the potential of increased profitability in line with our target as well as allowing for investments in future growth, predominantly through investments in sales, marketing and product development. So with an organic 5% GP growth with only 3% OpEx growth, we get a favorable drop down to adjusted EBITDA with an 8% organic improvement in the quarter. And since we have lower adjustment items, primarily through SEK 41 million lower restructuring and integration charges, we achieved 16% organic EBITDA improvement compared to the same quarter last year. Moving over to cash conversion and cash flow. Operating cash flow amounted to SEK 1.4 billion over the last 12 months, which corresponds to a 30% cash conversion rate and this is very close to our guidance of 40% to 50% cash conversion over a 12-month period. It's important to emphasize that we have some working capital swings between quarters, but this is quite normal for us. So I would like to say that the cash conversion rate going forward and what we report now is very much in line with what you can expect. So just to prove this point, I would like to move over to net working capital. Sequentially, we're essentially at the same level of receivables as the last quarter and the negative impact on working capital mainly comes from lower payables in the quarter. And in fact, it's the lowest level of payables in several years. But in all, we continue to operate the business with a negative working capital, although a slight increase from the previous quarter. So while we have and will likely to have variations in cash flow impacting quarterly, sorry, in net working capital influencing quarterly cash flows, we don't see any structural changes impacting our working capital and stay confident with our cash conversion guidance. Lastly, before handing back to Laurinda, looking at the balance sheet. We continue to have a strong balance sheet with net debt to adjusted EBITDA, slightly increasing to 1.4x. And as you know, in the last quarter, the BOD result activates the repurchase program mandated by the AGM, allowing for a repurchase of up to 10% of outstanding shares. And during the quarter, we repurchased 1.8% of outstanding shares for some SEK 519 million. And in addition, we spent SEK 241 million for an equity swap arrangement to hedge Sinch long-term incentive program. And in this program, a partner bank acquired further Sinch's stock for SEK 241 million. So in total, this corresponds to 2.7% of outstanding shares. And in combination, these are the drivers for a slightly increased leverage ratio in the quarter. What's worthwhile to mention also is that during the quarter, we also refinanced existing bank facilities at largely unchanged and very favorable terms, which means that currently have an additional SEK 4.2 billion in unused credit facilities. And with that, I'm handing back to Laurinda. Laurinda Pang: Thanks very much, Johnas. Okay. So before we go to questions, I just wanted to reiterate our value creation agenda here. It's around 3 pillars: reaccelerating growth, expanding EBITDA margins and a disciplined capital allocation strategy. We've in the third quarter, delivered on all 3 of those, an important step towards our midterm guidance, which we also reaffirm here today. So with that, I'll open it up for questions. Mia Nordlander: [Operator Instructions]. First, online we have Erik Lindholm-Rojestal. Erik Lindholm-Rojestal: Yes. So 2 questions. please, if I may. I'll start with one and then come back with the second one, perhaps. So just on API platform. You had quite solid development in this area in Q2 that seemed to slow quite clearly in Q3. I'm just wondering sort of what gives you confidence that you can reaccelerate in this area? And is it mainly sort of driven by these new enterprise wins and the conversational piece that you mentioned? Or -- and is it fair to say that the growth here maybe will be a bit lower during the period of shutting out these fixed price contracts in EMEA? Laurinda Pang: Yes. Thanks, Erik, for the question. To your point, the 2 pieces or the 2 headwinds that I called out do both affect the API platform. And to your point, the fixed price contracts will -- they will cycle out over the next several quarters. So that will continue to put pressure from a year-over-year standpoint. However, the increases in the new customer wins, those are within the API platform. And as those volumes come online, we've seen some of them, but they're not at full levels. But as those volumes come online, they will have a positive impact as well conversational messaging. It will show up in the API platform as well. So we've called out the headwinds, but we also have a good line on what the incremental growth will look like. And I'm sorry, one last point I would make is the AI contracts that I talked about that we have come to agreement within the third quarter. Those will also positively impact API over the long term. Erik Lindholm-Rojestal: Great. And just as a follow-up to that, perhaps, I mean how meaningful are those AI contracts today? And when do you think we will start sort of moving the needle meaningfully on the group level? Laurinda Pang: Yes, they're not meaningful today because they just got -- the agreement just came to term. So they've yet to ramp. The way that I see this -- this new way of doing business in this new AI world with these innovators is they're going to come to us with regards to specific use cases, and they will grow from there. So I do think that, as I mentioned in my prepared remarks, this combination between AI and conversational messaging will absolutely generate larger volumes for communications, ultimately, and again, these newer contracts are the first step to being able to capture those volumes. Erik Lindholm-Rojestal: All right. Perfect. And then just a question on customer connectivity. It's really a stellar quarter and it looks like more than 20% organic GP growth in Americas in this segment. I mean how sustainable do you think this gross profit level is? And yes, what are your sort of more long-term hopes for this business? Laurinda Pang: Sure. On the network connectivity side, if you remember a bit over a year ago, this part of the business was on a fairly rapid decline, and that resulted from some significant price increases from carriers in the U.S. And we have completely reversed that. So the performance in network connectivity today is as a result of turning around that business that comes after really 3 aspects. The first was price negotiations. The second was price increases to customers that leverage these services. But then the third was also the transition from the legacy network infrastructure into a go-forward infrastructure. And I think we've spoken about that quite a bit in the past. So the price increases to customers you can only go so far. I would say that we're getting closer to the end of that. The cost savings from price negotiations are fairly flat, I would say. But the larger opportunity for us is to get completely off of this legacy infrastructure that will have a very meaningful impact to us on the cost side. The other thing I would call out in Q3, and I apologize, is there was an actual release -- an accrual release that positively impacted us in Q3. So you should not look at Q3 performance for network connectivity and think of it as the new baseline. It's unusually high. Erik Lindholm-Rojestal: All right. Great. Are you able to quantify that one, the accrual? Johnas Dahlberg: I think what you should look at is more the sequential development and then from previous quarters, which is a step-up from previous performance. And then it's difficult to say with precision, of course, and we don't give exact guidance, but it gives you a hint. Mia Nordlander: Next online, we have Ramil Koria from Danske Bank. Ramil Koria: Just trying to parse out sort of the moving parts here. Trying to sort of understand what's new here in Q3, which you didn't know going into the quarter, so to say. So the pressure in Australia, competitive pressures on large U.S. customers, fixed price contracts in EMEA being phased out. Like what's new of this? And why did you decide to take the actions you took now in Q3? Laurinda Pang: Ramil, excuse me, it wasn't my voice. So if you remember, in Q2, what we said from a GP perspective was that you should expect the average of the first half of the year to look quite similar in the second half of the year. So I think we started in Q1 with 2% gross profit growth, and we went to 6%. Now we're roughly at 5%. So we actually did call for a fairly, call it, quarter-over-quarter stable quarter. And so the fixed price contracts is a continuation. I raised that in the first quarter. I wanted to remind everybody of that because it did dramatically affect the EMEA business this quarter. And then as far as the price compression or the price competitiveness, that's been going on, I would say, for roughly the last call it 6 months or so. And so we've had to make a few concessions there. But conversely, we've had some good wins. So these are pieces that we've known. And we're just telling you what the headwinds are that affected us this quarter. Ramil Koria: That's very clear, Laurinda. And then, I mean, I'm clear, clearly, there is some mix shift happening in the business as well. Year-to-date, the gross margin is up more than 80 basis points year-over-year. How dependent are you on volume growth into 2026 to deliver on the notion of Sinch being a growth company? Johnas Dahlberg: So first of all, the most important metric for us is GP growth. Having that said, over time, we obviously need net sales growth as well. I think it's -- the audience has to define what's a growth company. But we are progressing towards our target of 7% to 9% gross profit growth at the end of 2027. You remember that we set out 2 targets 1 year back. One was on profitability. We said we would deliver 12% to 14% EBITDA margin on an adjusted basis, we're now actually at 14% and nonadjusted 13%, so we're already at the upper range. So one down, one to go. But we also said it won't be a straight linear extrapolation when it comes to growth. So we are confident that we're on the right track towards our targets and we're progressing basically. Ramil Koria: Okay. And then a question I've asked before, perhaps I'm sounding like a broken record here, but trying to understand like where the competitive pressures are coming from because all your listed competitors operating in the U.S. have higher gross margins and they seem quite reluctant to dilute the gross margins? And you guys coming from sort of a lower base, so to say, in having the scale benefits, when you bargain with carriers. Could you shed some light on -- are these U.S., European or Rest of World players competing for these volumes? And where are the volumes originated that you're giving concessions on right now. Johnas Dahlberg: So first of all, the absolute level or the gross margin level with competitors depends on the mix. That doesn't mean that they have parts of the business where they can compete with us and be quite aggressive. And where we see competition is -- competitive pressures is mainly on a very limited number of very significant accounts, who basically set up multi-vendor relationships and there, it's highly competitive. Now this is a continuous competition. And we -- sounds like we're losing any customers. We may have lost a bit of volume, but we can fight back also. Laurinda Pang: And Ramil, the competitive pressure we're talking about is predominantly on the messaging side, the traditional messaging side, right? So yes, we've had a disciplined approach, but we also have the ability to change the product mix and deliver on higher-valued products, which do bring higher gross margin. So when you look at the overall mix of the business, to your point in shifting and it is maintaining our gross margin level. And so I would just make sure that that's not lost on the audience here. Ramil Koria: Okay. And then just geographically speaking, where are you seeing the competitive pressures in terms of termination of the volumes? Laurinda Pang: So it's -- as I mentioned, a few accounts in the Americas, we're seeing large pressure in the India market very specifically, but that is intra India. It is based off of the telcos getting into the SMS business for large local companies. Those are the 2 callouts that we would make. Mia Nordlander: Next one is Predrag Savinovic from DNB Carnegie. Predrag Savinovic: The first one, based on what you said, our network connectivity and on accruals, so if we think then of organic GP growth for Q4 and sort of start of 2026, will these growth rates be declining from the level we see now in the third quarter? Johnas Dahlberg: Sorry, I didn't exactly get your question here please. The accruals? Predrag Savinovic: And based on what you said in terms of network connectivity that the growth rate there could be on an alleviated level right now in the third quarter. So if we look down to Q4 into 2026, the start of '26, could we see that the growth rates will be declining from the levels we see now in the third quarter? Johnas Dahlberg: I think as Laurinda said, you can't use the third quarter as our new baseline for the sequential development of network voice. But -- so look more at the sequential numbers you've had earlier in the year, and then we continue to improve the business. But again, we can't give any precise guidance. What we can say is this business is turnaround, and we continue to work on the cost side. Shifting out legacy TDM technology with much more cost-efficient IP technology, and that will continue to drive margins, but that will mainly come in the next year. Predrag Savinovic: Sure. And I was unclear. I was thinking more of based on the potential extra tailwind in that segment and then refer more to the organic growth rates on group level, if 5% makes sense or 4% makes sense, average of Q1 to Q3 makes sense towards the next coming 1, 2, 3 quarters? Johnas Dahlberg: Yes. So what we've said and what we continue to say is the same thing that the second half of the year on average will be in line with the first year -- first half of the year. Predrag Savinovic: Okay. Super. Then in terms of the customer account growth of 5% that you call out in Q3, if you can relate this to the first and the second quarters, please? Laurinda Pang: We've been on this study -- this is 5% on a year-to-date basis per drag and so this has been steady since Q1. I think we actually called it out in Q1 as well at 5% and what -- the definition of enterprise customers is customers who are spending north of USD 150,000 per year with us. Johnas Dahlberg: U.S. Laurinda Pang: U.S. dollars, sorry yes, U.S. dollars. Predrag Savinovic: Yes. Super. So basically, you're continuing on a healthy net adds trend on the customer side is the message here. Laurinda Pang: Yes, absolutely. Predrag Savinovic: And then on a follow-up question on what you've discussed on AI so far and the benefit you see and what drives this. So I think from the outside, it looks to me that Sinch is mostly beneficiary from playing on the infrastructure level rather than the application level compared to, for example, Twilio based on the examples you gave, but I may be wrong here, I would love to hear it takes here and more on what Sinch could be powering on an application level as well if that would be the case. Laurinda Pang: Yes. So we actually do both. We have, on the application side, I actually called out a couple of examples of what we're doing there relative to our e-mail product as well as our Sinch Engage platform. So we are embedding AI capabilities into both of those platforms to enable customers to be able to develop their own campaigns, to personalize content, to create content, et cetera. And that -- the application side of the house is the side of the house, it's the highest margin and our self-serve business is growing at a healthy double-digit rate. So that's positive. The other piece to your point is the infrastructure side. Our infrastructure -- the fabric of the network and the capabilities that we have is the perfect vehicle for AI-powered communications. And so that, I think, comes through a couple of different ways. One is through the large innovators themselves and their needs to power their customers and then also with agents more directly. And those can come from the large innovators as well as enterprises as they become more -- they lean more and more into Agentic AI. Mia Nordlander: And next online, we have Laura Metayer from Morgan Stanley. Laura Metayer: 3 questions, please. The first one is on the -- on your midterm growth targets. What do you need to do to bridge your gross profit growth to your midterm targets? And what are the key priorities? Second one is, you talked about early success in terms of benefiting from increased communications from autonomous AI agents. Can you give us a sense of the kind of contract terms that you have on those first contracts that you've been signing? Are they aligned with your usual types of contracts? And then lastly, so AI is expected to reduce the cost of coding and software development, could you please get your view on whether you think Sinch is insulated from the risk of AI disruption in the form of in-housing? And if so, why do you think that's the case? Laurinda Pang: Okay. Laura, so midterm growth. To your point, we have organic growth of 7% to 9% that we've called out and what we need to do in order to bridge that is deliver on the growth drivers that we've called out. So that's expanding enterprise that's to continue this double-digit rate in self-serve -- it's to win in the conversational in the e-mail space. And then it's also the need to win in the partners and ecosystem space. So those are the 4 key growth drivers that we've called out. When we did call those out, we didn't have AI in the mix. And so I would say that AI will be in addition to that. In terms of the contracts with these AI innovators themselves, we're not going to talk about terms per se, but I wouldn't say that they're unusual at this point. I think that right now or I know right now, these sorts of contracts are coming in at a use case level. So they're pretty limited in terms of volumes. But I would imagine as we grow with them, that there'll be terms that will become a bit more aggressive or competitive. And then finally, the in-housing or the cost of coding. Did you -- was your question, do you think we're immune from that or? Laura Metayer: Correct. Yes. Johnas Dahlberg: If there is a risk that we will be disrupted. So if I start, really, the core of our business is a communications -- infrastructure that powers communications and that will not be disrupted. If anything, it will be enabled by AI, making the communication easier and also drive more communication. So the answer is no. Laura Metayer: One follow-up, please, when you talked about the growth drivers for your midterm targets, you said that you can have AI in the mix when you call those out initially. Does that mean that with AI now representing an opportunity for you, you think you could potentially grow faster than what you said are your midterm targets? Laurinda Pang: Yes. We haven't changed our midterm targets yet, but I'm being, again, full disclosure. We had those core drivers outlined 1 year ago, and AI was not a part of it. Johnas Dahlberg: The thing I'd like to add on the midterm growth is you're asking what do we need to achieve to get there? I'd like to remind you that there is a bit of drag currently from the fixed price contracts in India that influence how we deliver on, I guess, comparable numbers. So once we're out of that drag and obviously, assuming there is no new drag coming into the business, that's also positive. Mia Nordlander: Next one is Daniel Thorsson from ABG. Daniel Thorsson: Yes. 2 questions. The first one on the phasing of the fixed price contracts in EMEA and also related to your reasoning on the financial targets being in the upper end of the margin already and now looking to reinvest into growth. Does that mean that those fixed price contracts are actually loss-making because otherwise, they would likely help you to reach a higher GP growth as you are already within the margin range. So just to understand why you do this and also if you have more to come ahead as well? Johnas Dahlberg: Yes. Thank you, Daniel. Excellent question. So the problem with the fixed-price contracts are not really the margins per se. It's more the cash flow profile and the risk profile and if you go back a couple of years, you will actually see the discussion around this contract. So it's part of more risk management and also the sustainability of those contracts is more a transaction over a limited period of time, and it becomes pretty volatile. So -- this is more the logic why we're not super excited about those contracts. We haven't taken a decision to completely exit, but it's more taking a more cautious stance. To provide some numbers here at the peak, this represented maybe 3% of GP and now 2/3 of that is gone and that has happened over a 12- to 18-month period. And now what we need is another 12 months to get it out of the comps. So that gives you a little bit of guidance of that impact. And it's predominantly consolidated in the EMEAs. That's why you see the drag on EMEA. Daniel Thorsson: Okay. Excellent. That's very clear. And then the second one on the increased competition in certain markets you mentioned here. Does that increase your appetite for a return to M&A by consolidating some markets and become a larger player? Or do you view your options differently here? Laurinda Pang: Well, first, I would say that M&A continues to be a part of our strategy, although we've been quiet for the past couple of years as we've been integrating these companies. So very much, we have an appetite for that. Certainly, we've been spending the last 2 years cleaning up inside of Sinch and while we're not complete, we've certainly made progress. So -- we certainly are in a position at this point in time. The balance sheet is strong. So again, we are in a good position. Consolidation needs to happen. We're believers in it. This continues to be a fairly disjointed or disaggregated industry. So there are plenty of opportunities there to potentially consider. Daniel Thorsson: Okay. So can I just end with the final short one here. Is the emergence of RCS and WhatsApp volumes here growing 3x year-over-year? Is that hampering net sales growth, but enhancing gross profit growth due to potentially lower prices but higher profitability for you? Laurinda Pang: No. Mia Nordlander: Next one is Fredrik Lithell from Handelsbanken. Fredrik Lithell: I thought, Laurinda, maybe if we saw Twilio report a bit earlier here last week or something like that. And they had an organic growth of north of 10% and you're about flattish. I know -- I mean, your peers, but you're not apples to apples. So if you would pick some of your pieces apart and compare, where do you see you spend in comparison to Twilio's similar units would be interesting to hear your elaboration on it without sort of picking on Twilio necessarily? Laurinda Pang: Thanks, Fredrik. Yes, it's -- to your point, it's hard to do a direct comparison because certainly, I think the normalization of the business, I know how we do it, I don't know how they do it. So that's hard. The other piece is just the business mix is different, even though we sell similar products, just the segments as well as the geos that we sell in or at least have the majority of our business in is different. If I try to peel it apart and look at a more comparable Americas business, versus Twilio and the growth that we see in the underlying API business-specific to messaging. The comparison is that the gap is not nearly as large as one might look at, at the very highest of levels. So I think for me as the leader of this business, it's important for [ Sinchers ] to play our game and to win in the markets that we have invested in. And within the Americas right now, again, the teams are doing a very good job winning new business so that we can shorten or rather lower the customer concentration in that market. We're doing it with a disciplined approach. We're doing it with multi-products so that it provides a higher value to the customers. And we're also within this diversification also being able to address a market that's a bit lower and less price sensitive than what we experienced at the very highest ends of the market. Fredrik Lithell: But is it so that you feel that you are losing market share to Twilio when you meet Twilio? Laurinda Pang: No, I don't, actually. In fact, I mentioned a lot of the wins -- the good positive wins that we're seeing in Americas and then Asia Pac as good examples, where we, of course, are winning against our competitors. So -- and they happen to be one of them. Mia Nordlander: Next one is Thomas Nilsson from Nordea. Thomas Nilsson: Since you're spending quite a bit of money investing in your network and your infrastructure, how many of your competitors are investing into the network at such an ambitious level? And how do you view this will differentiate the various players in the CPaaS market in the coming years? Laurinda Pang: The network infrastructure, maybe that I'm not sure what you're looking at. Johnas Dahlberg: Can you repeat the question? Thomas Nilsson: I mean your level of investment in your -- in CapEx is quite high. And how many of your competitors do you see investing at such a high level as you and Twilio? And how do you think this will play out in the market in competitive terms in the coming years? How many of your competitors are really investing in the networks where you are? Johnas Dahlberg: Well, I think, first of all, I'm not sure I subscribe to the idea that we have a very high CapEx level, it's around SEK 1.5 billion a year in line with historical depreciation, give and take some change. It is a level we've been at. It's a level we think we will continue to do that. And it's -- don't expect any big changes, at least not material changes in the grand scheme of things. When it comes to our competitors, I can't really comment that and their investment plans. Laurinda Pang: The other thing I would call out is just on the network connectivity piece, we are -- and this might be what you're talking about, Thomas, is -- we have been investing in the migration from a legacy network to a digital or an IP network. That cost will go away roughly at about mid next year. Mia Nordlander: Thank you very much. I think that was it for today. Thank you very much to everyone who called in today. We will be back here with Q4 report on the 17th of February. And if you have any questions, feel free to reach out to the IR Department. We are very happy to answer your questions. Once again, thank you very much, and goodbye.
Operator: Good day, ladies and gentlemen, and welcome to Frontdoor's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, and he will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis. Matt Davis: Thank you, operator. Good morning, everyone, and thank you for joining Frontdoor's Third Quarter 2025 Earnings Conference Call. Bill Cobb, Chairman and CEO; Jessica Ross, CFO; and Jason Bailey, VP of Finance, will be joining me on today's call. The press release and slide presentation that will be used during today's call can be found on the Investor Relations section of Frontdoor's website, which is located at www.investors.frontdoorhome.com. As stated on Slide 3 of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the SEC. Please refer to the Risk Factors section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements. All forward-looking statements are made as of today, November 5, and except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We have included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to better assist you in understanding our financial performance. I will now turn the call over to Bill Cobb for opening comments. Bill? William Cobb: Thanks, Matt Davis, and good morning, everyone. What a year Frontdoor is having. Our results reflect the continuation of superior financial and operational performance and we are on track for record financial results in 2025. Let's get into the third quarter highlights on Page 4. Starting with revenue, which increased 14% period-over-period to $618 million. Gross profit margin increased 60 basis points to 57%. Net income grew 5% to $106 million and adjusted EBITDA grew 18% to $195 million. Additionally, first year organic DTC ending member count grew 8%. Real estate member count grew sequentially in Q3, a milestone that we have not seen for the past 5 years. New HVAC revenue continues to crush it. Synergies from the 2-10 acquisition remain ahead of schedule, and we have used our strong cash flows to repurchase shares, totaling $215 million through October 31. Our results speak for themselves, and they show the power of our strategy and the momentum we've built. Now flip to Slide 5. We are firing on all cylinders, and that strong momentum has positioned us to deliver across our business. First, operational excellence is at our core. Three years of disciplined execution have built a strong foundation to accelerate growth. Second, DTC continues to perform, 5 straight quarters of organic member growth. Third, we see the real estate channel turning the corner, supported by the return of a buyer's market. Fourth, retention rates are strong and remain near all-time highs. We're committed to delivering an outstanding experience for our 2 million-plus members through continuous innovation and technology. And finally, our nonwarranty growth continues to be a game changer. Leveraging the success of the new HVAC program, we are well positioned to replicate that model by expanding into other replacement categories. Let's double-click on each point, beginning on Slide 6. We've talked a lot over the past few quarters about building a foundation of operational excellence and for good reason. These efforts have translated directly into stronger financial results. Over the past 3 years, we have focused our margin improvement efforts in 2 key areas: one, pricing actions; and two, operational efficiencies. Let me start with pricing. In 2022, we faced the highest inflation in the generation, and we responded decisively with double-digit price increases, not only to catch up to those inflationary pressures, but also to address where inflation was heading. We did this using our dynamic pricing capabilities, which deliver smart and strategic price adjustments, particularly for higher usage members. We also raised our trade service fee, which is actually an offset to claims costs, providing us another lever to respond to inflation. Now turning to operations. We've made meaningful strides in improving execution and cost discipline. We have enhanced and accelerated our contractor management process. This has driven better alignment, better execution, better member experiences and better costs. One key proof point is that our preferred contractor utilization has improved 200 basis points on average over the last 3 years. Our supply chain team has done an excellent job of leveraging our purchasing volume and extensive supplier network to negotiate better terms and allocate purchases to maximize cost savings. When you combine these pricing actions and operational efficiencies, we have improved our gross profit margin over 1,000 basis points since I started in the middle of 2022. In fact, we have had so much success improving our margins that we are reevaluating the long-term margin targets we provided at Investor Day earlier this year, and we will provide more information about that on our next earnings call. Moving to the direct-to-consumer channel on Slide 7. The DTC channel is performing very well, and our efforts to drive member count growth are paying off. In the third quarter, we grew organic DTC member count by 8% versus the prior year period. This is now 5 consecutive quarters of organic growth. Our success in DTC is due to several factors. First, the Warrantina campaign is working. I'll show you supporting data on the next slide, but we developed this campaign with younger audiences in mind, specifically millennials, since the average first-time homebuyer is now 38 years old. From a targeting perspective, we have sharpened our media strategy to focus on the middle of the media funnel, where consumers go from being aware of us to considering us. This strategy has improved our marketing effectiveness and media efficiency. Next, simply speaking, our promotional pricing strategy is bringing in more members. This strategy works because we can quickly return these cohorts to traditional pricing within the first 2 years without compromising renewal rates. Further, we are directly targeting new homebuyers who did not purchase a warranty with their new home transaction. Our multichannel approach includes paid search, social media, commercial partnerships and word-of-mouth campaigns and we are getting more sophisticated in our digital marketing approach. AI is coming into play and enhancing our search strategy by moving beyond traditional keyword targeting. We are using more intelligent, context-driven approaches, which have improved discoverability and relevance with large language models or LLMs, such as ChatGPT. Let's turn to Slide 8 to talk about the effectiveness of the Warrantina campaign. The campaign is resonating, and we are leaning into education to balance the entertainment factor. Our research shows that key metrics such as likability, relevance and purchase interest are up significantly in just 6 months' time. And as you can see in red, our value proposition of budget protection and convenience is landing even more with those under the age of 45. The team's work over the past 5 quarters has been excellent. But we are not stopping here. We are allocating more marketing spend in the fourth quarter to position us for another strong year in 2026. Now turning to Slide 9 and the real estate channel. The story here is finally one of optimism. Despite ongoing macro challenges, our ending member count in the real estate channel has increased sequentially in the third quarter, the first improvement since 2020. While the macro environment in the real estate sector is showing some signs of improvement, challenges still remain. According to the National Association of Realtors, September existing home sales increased 4.1% to a seasonally adjusted annual rate of $4.06 million. However, this is still among the lowest level of home sales in 30 years. Moreover, affordability remains a concern with home prices climbing another 2% on average in September to $415,000. The bright spot Total housing inventory increased 14% year-over-year, and we are now at 4.6 months of supply. While inventory remains below pre-COVID levels, it is now at a 5-year high. This shift signals that a transition to a buyer's market is underway, where homes stay on the market longer and sellers are more likely to add a home warranty to help close the deal. Here are some of our aggressive actions to improve sales. Increasing engagement with real estate agents, we are delivering a differentiated product and agent interest has picked up significantly around our video chat with an expert feature. We are also continuing to provide education on the benefits of a home warranty and have a compelling value proposition that keeps our brands top of mind. Additionally, we have implemented targeted promotions to drive renewed interest and excitement with both agents and new homebuyers. Our actions, combined with these market dynamics are resulting in us outpacing the market. Moving on to retention rates on Slide 10. In the third quarter, our customer retention rate was at 79.4%. Retention remains strong because we are delivering a better member experience through technology and process improvements. On the technology side, we have had 2 big wins. First, AHS App adoption is growing. Launched only a year ago, almost 20% of our members have already downloaded our app, an outstanding result. This enables easier service request submission and real-time contractor updates. In the past 12 months, members have submitted 200,000 service requests through the app and usage continues to ramp. Second, and to quote one of our members, "Video chat with an expert is dope." Since the launch in February, our visual experts have completed about 35,000 video chats and members love it, giving us nearly perfect thumbs-up ratings. It is a true differentiator in the home services industry and it is free for our members. Behind the scenes, we're also driving continuous improvements to deepen member loyalty and strengthen retention such as early engagement with new members through onboarding and tailored offers, improving the number of members on AutoPay, usage of preferred contractors, which was 84% in the third quarter. And we are also leveraging technology to improve the member experience, including system improvements to support smarter job routing to our contractors, and using AI to accelerate authorizations and assist in coverage decisions, enabling a 10x increase in the speed of coverage reviews. The impact is clear. Stronger relationships, higher satisfaction and a service experience that sets us apart. Retention isn't just a metric. It's proof that our strategy is working. On Slide 11, let's talk about another bright spot of Frontdoor, nonwarranty revenue. This is a major success story and an even bigger opportunity. As a reminder, nonwarranty is comprised of a number of programs but is currently fueled by our new HVAC sales. The program is scaling fast, and we are raising our full year outlook for new HVAC revenue again. Now to $125 million, a 44% increase over 2024. The opportunity ahead is enormous. In 3 years' time, we have sold around 50,000 HVAC units to our base of more than 2 million members. The runway for expansion is clear. We are now applying these learnings to other trades. We recently expanded our appliance replacement pilot, offering great deals on a full range of new appliances, and we are looking to launch this great offer nationwide next year. We are also exploring opportunities in roof and water heater replacement. Again, together, these categories represent an opportunity of $2 billion with our members, opening the front door to significant long-term growth. We especially love this program because every sale is a relatively CAC-free opportunity across our member base. And looking into the future, we see additional potential through our 210 acquisition, which provides us access to 19,000 builder partners. This positions us to expand beyond HVAC and create new revenue streams across multiple trades and in new customer channels. We will share more about this on our next earnings call. On that high note, I'll now turn the call over to Jessica. Jessica Ross: Thanks, Bill, and good morning, everyone. I will now cover the financial results for the third quarter, beginning with revenue on Slide 13. We delivered strong top line growth of 14% in the third quarter with revenues reaching $618 million. This performance was driven by 12% from higher volume and 3% from higher price. From a channel perspective, renewal revenue was up 9%, benefiting from 2-10 volumes and higher price realization from leveraging our dynamic pricing capabilities. Real estate revenue grew 21%, driven primarily by contributions from 2-10. Direct-to-consumer revenue increased 11%, supported by volume gains from our promotional pricing strategy and targeted marketing efforts as well as contributions from 2-10. This was partially offset by lower pricing. And finally, our nonwarranty business continues to be a key growth engine with other revenues up 73% year-over-year. This growth was propelled by our new HVAC and loan programs along with contributions from 2-10 new home structural offering. Now moving down the P&L to gross profit on Slide 14. Gross profit grew 16% to $353 million in the third quarter, with gross profit margin expanding by 60 basis points versus the prior year period. During the quarter, inflation was in the low to mid-single digits across contractors, parts and equipment. Favorable weather trends reduced the number of service requests in the HVAC trade, providing a $6 million benefit and claims cost development was a $5 million benefit compared to a $3 million benefit in the prior year period. Turning to Slide 15, where we will review net income and adjusted EBITDA. For the third quarter, net income grew 5% to $106 million and adjusted EBITDA grew 18% to $195 million. Adjusted EBITDA margin improved to 32% in the third quarter, up about 100 basis points from the prior year period. Let me quickly walk you through the drivers. We had $47 million of favorable revenue conversion, primarily from the 2-10 acquisition and higher price. Contract claims costs were flat versus the prior year period, which includes the already discussed inflation impacts and favorable incidents and claims development. We also had $20 million of higher SG&A due to the addition of 2-10 and personnel costs. Now moving to earnings per share on Slide 16. On a fully diluted basis, earnings per share grew 9% to $1.42 per share, and adjusted earnings per share grew 15% to $1.58 per share. Now turning to Slide 17 and our free cash flow and financial position. Our year-to-date free cash flow increased 64% to $296 million, and our total cash position increased to $563 million. Through October, we purchased $215 million worth of shares. Now let me take a step back and really highlight our cash flow conversion. Our year-to-date cash conversion was 60% compared to 46% in the prior year period. This sustained cash generation and conversion is a defining feature of our business model and a cornerstone of our financial strength. With that, I will now turn it over to Jason to walk through the outlook. Jason Bailey: Thanks, Jessica. Now turning to Slide 18 and our fourth quarter outlook. For the fourth quarter, we expect revenue to be in the range of $415 million to $425 million. We expect fourth quarter adjusted EBITDA to be in the range of $50 million to $55 million. This range anticipates higher SG&A spend as we are reinvesting some of our gross profit favorability in the marketing to drive growth. Now turning to Slide 19 and how this translates into our full year outlook for 2025. For the full year, we are increasing our revenue outlook to be in the range of $2.075 billion to $2.085 billion, driven by better-than-expected performance in the new HVAC program, the renewals channel and the real estate channel. This is approximately a $15 million increase from our prior outlook at the midpoint. Based on this, total revenue is expected to be up 13% in 2025, driven by about 10% from the 2-10 acquisition and 3% from organic growth. Our underlying revenue assumptions include a 10% increase in renewal channel revenue, a 12% increase in real estate channel revenue, a 3% increase in D2C channel revenue and a $75 million increase in other revenue. Turning to operating performance. We are narrowing our gross profit margin expectation to be approximately 55.5%. As previously mentioned, we are increasing our sales and marketing spend during the fourth quarter which translates to full year SG&A in the range of $670 million to $675 million. Taking this combined with the strong third quarter performance, we are raising our full year adjusted EBITDA to be in the range of $545 million to $550 million. As a reminder, our full year adjusted EBITDA outlook also includes interest income and excludes $8 million of 2-10 integration costs and stock-based compensation of approximately $33 million. We are lowering our capital expenditure expectations to approximately $30 million. And lastly, our annual effective tax rate is expected to be approximately 25%. And while we're not providing 2026 guidance today, we look forward to sharing more details on our expectations and priorities during our next earnings call. I will now turn the call back over to Bill for a few closing remarks. William Cobb: Thanks, Jason and Jessica. I wanted to close with a few thoughts. Once again, the Frontdoor has delivered. Our execution has been outstanding, and we have fundamentally changed how we think and how we operate. This has helped to drive record financial performance and cash flows. We are raising our revenue and adjusted EBITDA outlook again. And with that, we expect to finish 2025 on a high note. And at the same time, we have made measurable progress on our strategic initiatives, and we remain hyper-focused on driving member growth. Now one final item. Earlier this morning, we announced that Jessica has resigned as CFO and will be succeeded by Jason Bailey effective November 10. We regularly challenge ourselves to make sure we are organized to best leverage and deploy our deep bench of talent. As Jessica feels, she has accomplished what she set out to do when she first joined us that led to her decision to resign from the company. To her credit, Jessica has agreed to stay on as an adviser to me through December to ensure a smooth transition. Jessica has made many contributions to our company over the past 3 years. During her tenure, our revenue and profits have grown to new heights, and we have delivered on our financial commitments to our shareholders. I would like to thank Jessica Ross for her dedicated service as CFO. At the same time, the Board and I are very excited to name Jason Bailey as our next CFO. Jason brings over 25 years of progressive leadership experience in finance and public accounting, including over 15 years of service with Frontdoor and its predecessor. He also has 11 years of public accounting experience at Deloitte and Arthur Andersen. I've had the privilege of working closely with Jason for the past 7 years. He knows the home services industry deeply. He is truly an expert in all aspects of our business, and I'm very confident in his ability to lead our finance organization. This will be a seamless transition. With that, operator, please open the line for Q&A. Operator: [Operator Instructions]. Thank you. Our first question is coming from Jeff Schmitt with William Blair. Jeffrey Schmitt: On the cost inflation, it sounds like it increased to maybe 4% or even 5% in the quarter. It had been trending in the low single digits. Could you talk about what drove that, whether it -- was it mainly tariff impacts just on parts and equipment and it could be temporary? William Cobb: So Jeff, it was not 5%. It was closer to 4%, just about ticking toward 4%, which means we have to call it low to mid. Obviously, for the year, we're still projecting low single-digit inflation. But essentially, you nailed it. It's -- it was a tick up in appliance cost. Most of our another component parts, but our equipment is domestically produced. So we have not been hit anywhere near as much by tariffs as some other areas, but appliance has ticked up. But like we said with our dynamic pricing model and with our trade service fee approaches, with the operational execution we have, we feel we're strongly that we're able to manage through that. But it's something we watch. Jeffrey Schmitt: Okay. And then could you talk about the promotional strategy that you implemented in the real estate channel what all is going on there? And did that drive an increase in attachment rates in the quarter? William Cobb: Yes. I think good news for us is -- as I talked about, the macro environment is improving for us, which enables our -- the initiatives we've undertaken to gain more fuel. Now specific to promotions, we ran a -- generally, we've never run price off promotions. We did do $100 off for the months of July and August. And we also did a partner -- a couple of partner specific promotions that we ran that helped us from our analysis to outpace the real estate market overall. So we're very pleased with certainly the direction and the trajectory of where real estate is going. And as I've said in the call finally. Operator: Our next question is coming from Maxwell Fritscher with Truist. Maxwell Fritscher: I'm calling in for Mark Hughes. In the nonwarranty section or segment the pilot program, what are your early observations there? What sort of timing and pace are you anticipating for that expansion? William Cobb: Yes. We're shooting -- we're not giving a specific -- we'll talk more about this in February, but we're shooting for it to expand nationwide in 2026. It's a little more complicated than HVAC in the sense of the number of appliances. We have to work through that in our platform and the like. But that's also part of the excitement of it is that we have many opportunities to interact with our members across a variety of appliances. So the plan is to go nationwide at some point in 2026. We're still working through that and we're still working through the specifics of appliance ordering and the like. But we think it's a real opportunity and our initial impression is this is being well received by our members. Maxwell Fritscher: Got it. And then a small piece of the overall revenue number here, but the DTC guide of up 3% for the full year, if my math is correct, it implies around a mid-single-digit decline there. So what's driving your thoughts around that segment in 4Q? William Cobb: So pricing is with our unit strength, which is what we feel is the #1 priority because, obviously, that feeds over time into our renewal book, which is the backbone of the company. So the price reductions that we've done, the promotional pricing strategy has taken that revenue down but we're able to offset it and maintain healthy margins and healthy pricing because of the strength of our retention rates. So we do give up some revenue upfront with our first year customers, but we made the strategic decision that that's worth it in order to get our renewal -- get that into the renewal book over time. Jason Bailey: So I'd probably also add that Q4 is impacted by our seasonal adjustment. It's our lowest quarter as we know our guidance. Operator: Our next question is coming from Sergio Segura with KeyBanc Capital Markets. Sergio Segura: Bill, Jessica. I just want to say it was a pleasure working with you and best of luck with what the future holds for you. I had 2 questions. Maybe first on the member growth in the real estate channel. How much of that success there would you attribute to the market shifting to a buyer's market versus some of your strategic initiatives and the promotional strategy and increased agent engagement that you called out in the presentation? And then on the second question, just for the SG&A for the year, the increase in the outlook. Just provide any more color on where those -- where you're investing those incremental dollars? William Cobb: Okay. So on the first one on real estate. I think what -- to your question, which is an insightful one. I think the macro environment improving helps our actions. So it's not that we've suddenly discovered some of these actions of meeting with agents. But the new thing is a promotional program that we talked about earlier. So I think that this has enabled us to -- the macro environment has enabled us to fuel some of these actions. So I'm not sure I can differentiate exactly what's macro and what's our promotional pricing. But it is all working together to help us start to turn the corner in real estate. Now as far as SG&A, where are we spending money, we're -- as we said in the call, we're pretty pleased with the Warrantina campaign, especially how it's doing relative to home -- potential homebuyers under the age of 45, which is where our marketing team is targeting their efforts. So where we're looking to deploy the extra money is around not only the Warrantina campaign, but what we call the middle of the funnel, which is where consideration is higher. So you go from the top of the funnel, which is trying to build awareness and the like, to the middle of the funnel where you're building consideration. And then we're pretty excited about some of the things we're doing in digital marketing, as I talked about, where we're enhancing our traditional search engine marketing with the work we're doing with large language models, the ChatGPTs of the world. And then we think we're getting more sophisticated in that and getting higher demand and eventually higher conversion. Jessica Ross: And thank you, Sergio. It's been great working with you as well. Yes. William Cobb: You'll not hear -- this will not be the last of Jessica Ross. Operator: [Operator Instructions] Our next question is coming from Cory Carpenter with JPMorgan. Cory Carpenter: Bill, thought it was notable that you mentioned on -- in your prepared remarks, the potential reevaluation of your long-term margin target, that's certainly been a big topic of the date given you're punching above what you said earlier this year. Maybe could you just help us with what's changed since the Investor Day that's giving you the confidence to potentially do this when you're doing the exercise this year. And Jason, just a very quick question for you. Thinking you told us organic revenue, I think you expect to be 3% for the full year. Are you able to comment on what organic revenue growth was in the quarter? William Cobb: So I'll take the first one. So Cory, I think what's giving us conviction and as I said, we'll -- we'll talk about this more in February. But with our -- with the strength of our margins, the execution we've done, all of the things I talked about in the call, our ability to price and use trade service fees to potentially combat inflation. All of those things together have given us pause to say, look, I think that we have moved to a new level. We're going to work through what that level is. But I think that the targets we gave you, which were during a time frame when there was a lot of uncertainty, not that -- well, as we go into the year, there's always uncertainty, but we feel pretty confident in our model, and so we'll be looking to come forward with a reassessment of what we said at Investor Day. So I won't comment specifically on what that will be, but that's what we're working through. We're working through getting our final plans approved by the Board, et cetera. But we'll have lots to tell you in February. Jason, as far as the organic revenue question? Jason Bailey: Yes, Cory, for Q3, we'd say it was mid-single digits, probably 3 key drivers there. One, to think about our nonwarranty pricing and then there's still some seasonal adjustment. So when you're comparing that, that's why I'd probably pull you back to the full year at 3%. Operator: Thank you, ladies and gentlemen. As we have no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. [Operator Instructions] At this time, I would like to welcome everyone to the Kinross Gold Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] Now I would like to turn the call over to David Shaver, Senior Vice President, Investor Relations. Please go ahead. David Shaver: Thank you, and good morning. In the room with us today on the call, we have Paul Rollinson, CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 3 of this presentation, our news release dated November 4, 2025, the MD&A for the period ended September 30, 2025, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul. J. Rollinson: Thanks, David, and thank you all for joining us. This morning, I will discuss our third quarter results, provide high-level updates across our portfolio, comment on sustainability and confirm our outlook. I will then hand the call over to the team to provide more detail. Following an excellent first half, our portfolio of mines continued to perform well in Q3. Production in the quarter was on plan, delivering 504,000 ounces at a cost of sales of $1,145 per ounce. The strength of our operating portfolio, combined with good cost management and favorable gold prices resulted in another quarter of strong operating margins. As a result, in Q3, we delivered another quarter of record free cash flow of nearly $700 million and over $1.7 billion year-to-date. Our business is in excellent shape, underpinned by a very strong balance sheet, robust operational outlook and significant cash flow generation. In accordance with our disciplined capital allocation framework, we are committed to further strengthening our balance sheet through additional debt repayment and enhancing returns for shareholders. We have returned significant capital through our dividend and share repurchases. Given our strong position, we are now planning to increase our return of capital to shareholders beyond the minimum of $650 million we committed for this year. Andrea will provide further details on our capital allocation plans later. Turning to our operational highlights. In Q3, Paracatu and Tasiast delivered substantial production at good costs, generating robust free cash flow. Paracatu was once again the highest producer in the portfolio and remains well on track to deliver close to 600,000 ounces. At Tasiast, both the mine and mill continued to perform well with production in the third quarter delivering as planned and operations remain on track to beat guidance. At La Coipa, performance improved in the third quarter and the site remains on track to meet its full year production guidance. At our U.S. assets, production and costs were on budget in Q3 and also remain well positioned to meet guidance. In Alaska, we saw consistent production with strong contributions from both Fort Knox and Manh Choh. In Nevada, production from Bald Mountain and Round Mountain were as planned. At Bald Mountain, mining of Redbird 1 continued to ramp up and study work for Redbird 2, along with numerous additional satellite opportunities is ongoing. At Round Mountain, initial production from Phase S continued to ramp up following the completion of mining at Phase W. At Phase X, underground development is progressing well with over 5 kilometers advanced to date and infill drilling continues to return excellent grades and widths. With respect to our broader project pipeline, we continue to make steady progress at Curlew, Great Bear and Lobo-Marte in the third quarter. These projects, along with other organic opportunities, continue to be backed by an extensive resource base with excellent long-term optionality. Our strong in-house technical team continues to evaluate these value-generating investment opportunities that we may choose to invest in to continue to grow shareholder value. Turning now to a few remarks on sustainability. In Q3, we continued to provide meaningful impact in our host countries. For example, in Mauritania, we contributed to local educational infrastructure by developing new school facilities in the Inchiri region. In Brazil, Paracatu's tailings facilities recently received the top level AA classification from the engineer of record. This is a strong endorsement of the site's safety practices, reflecting industry-leading standards in monitoring, maintenance and risk control. And in Nevada, Bald Mountain earned the Nevada Excellence in Mine Reclamation and Earthworks Award. Turning now to our outlook. Through the first 9 months, we have produced over 1.5 million ounces at a cost of sales in line with our annual guidance. Operations remain on track in the fourth quarter, and we are firmly positioned to achieve our full year targets. Looking forward, we will remain focused on rigorous operational and financial discipline to deliver strong margins and cash flow to support strong returns for our shareholders. With that, I will now turn the call over to Andrea. Andrea Freeborough: Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an update on our balance sheet and return of capital program and comment on our guidance and outlook. In Q3, we produced and sold 504,000 gold equivalent ounces. Cost of sales was $1,145 per ounce and with an average realized gold price of $3,458 per ounce, we delivered margins of over $2,300 per ounce. Cost of sales increased quarter-over-quarter due to planned mine sequencing and the impact of higher gold prices on royalties. All-in sustaining costs also increased as compared to Q2 for the same reasons as well as timing of sustaining capital expenditures. In Q3, our adjusted earnings were $0.44 per share and adjusted operating cash flow was $845 million. Attributable CapEx was $308 million with slightly more sustaining capital versus growth. Attributable free cash flow was a record $687 million or $538 million, excluding changes in working capital. And we received an additional $136 million of cash in Q3 from the prior divestiture of Chirano mine. Turning to our balance sheet. Our strong financial position continued to improve in Q3. We ended the quarter with approximately $1.7 billion in cash and approximately $3.4 billion of total liquidity, increasing by over $600 million over the prior quarter. As of Q3, our balance sheet is in a net cash position of almost $500 million. Our financial strength was recognized by S&P, who updated our credit outlook from stable to positive during the quarter. With respect to the Chirano proceeds, we received $136 million in the third quarter and subsequent to the quarter, an additional $96 million or a total of $232 million since the beginning of Q3. Since the closing of the Chirano transaction in 2022, we have realized approximately $314 million in cash proceeds compared with the original sale price of $225 million. As Paul noted, as part of our disciplined capital allocation strategy, we are further strengthening our balance sheet through additional debt repayments. Yesterday, we issued a notice to redeem our $500 million 2027 senior notes. The notes will be redeemed prior to year-end, resulting in approximate interest savings of $35 million over 2026 and 2027. Following the redemption, we will have $750 million of senior notes outstanding maturing in 2033 and 2041. With respect to ongoing return of capital to shareholders, in the third quarter, we continue to make regular share repurchases, canceling approximately $165 million in shares. Year-to-date, we have repurchased $405 million of our shares. Including our quarterly dividend, we have returned more than $500 million to shareholders to date in 2025, marking strong progress against our initial commitment of $650 million. As Paul noted, given our robust financial position and strong free cash flow, we are increasing our return of capital in 2025. We increased our long-standing dividend by 17%, and we intend to increase share repurchases by $100 million for a total of $600 million this year. In total, this represents more than $750 million in returns to shareholders. And when considering the $700 million of debt repayment, we will have returned a total of almost $1.5 billion in capital in 2025. This is an increase of more than 50% compared to 2024 and a total of nearly $3 billion over the last 3 years. Turning to our guidance. Full year production is on track to be slightly above the midpoint of our guidance with fourth quarter production expected to be slightly lower than 500,000 ounces. Operating costs at AISC remain on track to meet our full year guidance despite higher royalty costs from higher gold prices. All-in sustaining cost is expected to be within the upper range of our guidance as a result of a higher proportion of sustaining capital with Q4 all-in sustaining costs expected to be above Q3. Total capital expenditures remain on track to meet guidance of $1.15 billion. With respect to our cash flow outlook next year, as typical for us, we will have seasonal tax payments due in the first half. Given the higher gold price, we expect these payments to be higher as they relate largely to income realized in 2025. I'll now turn the call over to Claude to discuss our operations. Claude J. Schimper: Thank you, Andrea. This quarter, we continue to expand our Safeground brand by completing additional critical risk management training, and we have had an enthusiastic response from our workforce on this initiative, and we will continue to innovate in how we approach safety at each of our operations. Our focus remains on reinforcing a collective effort to manage costs and capture margin in this strong gold price environment. Going beyond our focus on operational performance, we have put emphasis on getting the best value available out of our contracts, increasing labor efficiencies, improving maintenance and rightsizing consumables as part of our broader cost management strategy. Moving to the summary of our operations. Starting with Paracatu, production of 150,000 ounces was in line with the prior quarter, while cost of sales of $933 per ounce decreased quarter-over-quarter. Paracatu saw strong mining rates, mill recoveries and higher grades in the third quarter. And Paracatu remains firmly on track to meet its guidance range. At Tasiast, we delivered budgeted production of 121,000 ounces at a cost of sales of $889 per ounce, with production in line over the prior quarter. Production was supported by strong mill performance, including high recoveries following the recent mill optimization initiatives. Capital development of the Fennec satellite pit also ramped up in the third quarter and remains on plan. Tasiast remains on track to meet its production guidance of 500,000 ounces at a target cost of sales of $860 per ounce for the year. At La Coipa, we produced 58,000 ounces at a cost of sales of $1,199 per ounce, which improved over the prior quarter as planned. Production and costs improved as mining transitioned into the higher-grade ore from Phase 7. Production is expected to be stronger in the final quarter as mining continues through this higher-grade ore. La Coipa remains on track to meet its full year guidance of 230,000 ounces. Collectively, the U.S. sites delivered production of 175,000 ounces at a cost of sales of $1,469 per ounce in the third quarter. Production in the U.S. operations was as planned and collectively remain on track to meet full year guidance of 685,000 ounces at a cost of sales of $1,420 per ounce. In Alaska, third quarter production from Fort Knox of 96,000 ounces was in line with the prior quarter. Cost of sales of $1,372 per ounce was higher over the prior quarter due to more operating waste tonnes. At Bald Mountain, we produced 42,000 ounces at a cost of sales of $1,148 per ounce. Production decreased over the prior quarter due to the lower grades as planned, resulting in a higher cost of sales. At Round Mountain, production of 37,000 ounces was in line with the prior quarter. Cost of sales of $2,095 per ounce were increased compared to the prior quarter, primarily due to more operating waste tonnes as Phase S transitions from capital waste into operating waste. With that, I will now pass the call over to William to discuss our projects. William Dunford: Thanks, Claude. As Paul noted, our project pipeline is backed by a significant resource base of 26 million ounces of M&I and an additional 13 million ounces of inferred, calculated at $2,000 per ounce. Our in-house technical team continues to focus on advancing these opportunities into our near- and longer-term production profile, while also leveraging ongoing exploration to augment our broader resource base and support future production. With the significant and current resource base, the strong exploration results and the long-term optionality enhanced by current gold prices, we see a number of value-creating investment opportunities emerging across the portfolio to leverage the strong gold price and enhance our production profile in the 2030s and beyond. We continue to focus on extensive technical study, disciplined investment and competition for capital to ensure the projects we approve have significant margin, return and resilience. We will provide further information on these investment opportunities and decisions in Q1 2026. Regarding the near-term project pipeline, you can see we are already well advanced and making significant progress with our projects in the U.S. and Canada. At Bald Mountain, recent exploration and technical work has been progressing well to support an investment decision for Redbird 2 and has also confirmed opportunity to augment the production profile through concurrent satellite pit mining, leveraging economies of scale and shared infrastructure at the site. At Round Mountain, Phase X underground project is well advanced with underground development, engineering, technical study work and permitting progressing to support a project decision in 2026. It's a similar story at Curlew, where engineering and technical studies on the high-grade resource that has been developed over the last few years are on track to support a project decision in 2026. We will provide a separate update for Great Bear, where AEX and main project engineering are progressing rapidly. These are the projects alongside continuation of our existing operations that support our potential to remain at 2 million ounces through the end of the decade. Turning to our longer-term project pipeline for the 30s. Our resource base has significant optionality both for new projects with large resources such as Lobo-Marte and Maricunga come online and for further extensions of mine life at our existing operating assets. We will be progressing a number of technical studies and permitting efforts across the high-quality portfolio over the next couple of years to advance the significant production potential for the 2030s we see at these assets. To provide some more detail on exploration at Curlew in Washington. This year, we have been focused on infill drilling to support the early years of the mine plan. The results of that work have been positive, confirming the strong widths and grades that we expected to see, which are supportive of high-margin underground mining potential. A few notable intersections from this last quarter included 2 meters true width at 22 grams per tonne at the EVP zone and multiple intercepts of approximately 6 meters width and 8 grams per tonne in the K5 zone. We also completed the initial development of the Roadrunner decline and further extensions of the North Stealth development this quarter. This will provide drill positions to explore for extensions of the high-grade resource at North Stealth and to follow up on high-grade intercepts at Roadrunner, which is not currently in the resource or mine plan. We will be focused on this resource extension drilling in Q4 2025 and 2026. Turning to Round Mountain Phase X exploration. You can see in Q3, we focused on further infill of the Lower Zone with results continuing to intersect strong grades and widths, proving out our exploration thesis of a bulk tonnage underground mining opportunity. The extensive infill drilling is now sufficient to support an initial underground resource estimate. Overall, our infill drilling results have been positive at Phase X, supporting potential for a larger initial resource than we anticipated when we made the decision in 2023 to advance this target. We expect to release the initial resource estimate alongside the projects and economics update in Q1 2026. At Great Bear, both the AEX program and the main project are progressing well, and the main project remains on schedule for first production in 2029, subject to permitting. Starting with updates on the AEX, earthworks activities are well advanced as can be seen on this slide. The natural gas pipeline is now complete and commissioned and the AEX camp is now operational. The water treatment plant building is enclosed with equipment installation currently ongoing. The initial development of the portal box cut is progressing well with the initiation of the exploration decline now forecast to commence in the summer of 2026, pending receipt of provincial permits. Geoff will comment further on permitting shortly. As a reminder, AEX is not on the critical path for first production in 2029, but rather is focused on providing underground drill access for infill drilling of the underground resource and exploration drilling to further delineate extensions of the mineralization at depth. With respect to the main project, which remains on track, detailed engineering for key items such as the mill, tailings management facility and other site infrastructure continues to progress well with a 30% design review for the mill completed in Q3. Initial procurement activities for major process and water treatment equipment have commenced with contract awards planned to start prior to year-end. Manufacturing of selected long lead items is expected to begin next year. I will now hand it over to Geoff to provide a brief update on the Great Bear permitting and time lines. Geoffrey P. Gold: Thanks, Will. Permitting of the AEX program and the main project continue to advance as we work with the provincial and federal authorities. For AEX, we have 3 of the 5 permits required, including our closure forestry and wildlife permits, which has enabled us to carry on significant AEX activity. We continue to work with the Ontario Ministry of Environment, Conservation and Parks, MECP, to finalize the 2 remaining AEX water permits that are required to manage contact water for exploration purposes. And in the interim, permitted activities continue as planned. For those who are not familiar, contact water is primarily rainwater that comes into contact with their site and naturally occurring underground water. Our First Nation partners, Lac Seul and Wabauskang, on whose traditional lands the project resides continue to support the project and permitting. These 2 outstanding permits are taking more time than anticipated as MECP consults with other First Nations. As Will noted, AEX is not on the critical path for the main project time line. Construction activities at the AEX site will continue uninterrupted throughout the winter months as current activities and conditions do not require the use of water-related permits. In terms of the main project, which remains on schedule, we continue to work with the Impact Assessment Agency of Canada to advance the project impact statement. The first of 3 phase submissions for the project's impact statement was filed in September with the second submission on track for filing in December. The final phase is targeted to be submitted at the end of Q1 of next year. We also continue to advance our IVA negotiations with Lac Seul and Wabauskang Nations of the Northwest Metis community. I will now turn it back to Paul for closing remarks. J. Rollinson: Thanks, Geoff. After another strong quarter, we are well positioned to meet our market commitments again this year. Looking forward, we're excited about our future. We have a strong production profile. We are generating significant free cash flow. We have an excellent balance sheet. We have an attractive return of capital through both the dividend and share buybacks. We have an exciting organic pipeline, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, operator, I'd like to open up the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq with Jefferies. Fahad Tariq: On the cost side, some of your peers, Agnico Eagle and Newmont, in particular, are focusing a lot on cost reduction efforts. Is that something you're working on? And if so, can you provide some examples of maybe productivity improvements across the portfolio? Claude J. Schimper: Yes. Thanks for the question, Tariq. It's Claude here. No, as I said in my remarks, we have a number of different initiatives globally, different projects to focus on, different cost elements, significant focus on working with our contractors and turning them into true business partners where the relationship works for both of us. At the same time, labor improvements and productivity improvements around that. We're doing a significant amount of training across all sites to sort of standardize some of our performance and then also a big focus on maintenance spares and parts and things that have been traditionally pressed by inflation. Fahad Tariq: Okay. And then maybe just switching gears to Bald Mountain. Can you just remind us, does the Redbird pit displace [ feed ] from other pits? Or is it incremental tonnes and ounces? Unknown Executive: No, it's incremental tonnes and ounces. It's a heap leach facility there. So we stack on top, and we're expanding our heap leaches as we speak to suit Redbird. Fahad Tariq: Okay. And then just lastly, just on the expansion of the heap leach, I know Redbird 2 is still -- we're waiting for the study update. But would it make sense to do the heap leach expansion even if there aren't new satellite pits identified? In other words, is the Redbird pit sufficient to justify the larger heap leach operation. Unknown Executive: Yes, absolutely. Like we do heap leach expansions at Bald fairly frequently. So it's -- we'll continue to do so for Redbird. Some of the satellites are in different areas of the operation. We have a variety of heap leach pads throughout the operation, and we expand those as needed to suit the satellites or the anchor pits such as Redbird. Operator: And your next question comes from the line of Daniel Major with UBS. Daniel Major: A few questions. So the first one, just on the capital returns and the balance sheet. I think it's very encouraging. You pushed up the dividend and committing to an accelerating buyback in the fourth quarter. If we look at the current gold price, consensus or estimates have you generated maybe $2 billion of free cash flow at spot commodity prices and you've got a run rate of about $750 million of capital returns. But when we think about what you'd be committing to next year, can you give us any indication on a balance sheet position that you'd want to get to before you would kind of commit to returning all of your excess cash to shareholders? J. Rollinson: Yes, sure. I'll maybe take a lead on that one, Daniel. It's a good question. Look, I think, number one, we've done what we said we would. We guided last year that it would be our intention to return back on our share buyback. We actually did that ahead of schedule. I would like to say in the same theme, as the year has progressed, we've had more cash than we were budgeting. And so as a result, as we've -- as we're coming into the fourth quarter, we've done more. So from my perspective, I think we've demonstrated that we want to do the right thing as it relates to return on capital as well as paying down debt and improving our balance sheet. So I think that the track record speaks for itself. As we look into next year, frankly speaking, we're right in the middle of our budget cycle. We do give our guidance, as you know, with the year-end in mid-February. That's typically when we give an update. Last year, when we gave our guidance, we were in a sort of a $2,500 gold price environment. To your point, we're in a different gold price environment today. But with that comes higher taxes, higher royalties. We do see opportunities to invest in our portfolio. So look, I think directionally, we want to keep going. But let us just get through year-end budget cycle, and we'll come out with an update in the new year. Daniel Major: Okay. Yes, I look forward to that. The second question is sort of a specific one on the tax payable accrual. If we look at current prices persisting through to the end of the year, for example, what would the working capital reversal be for the tax catch-up in Q1 of next year? Andrea Freeborough: So I mentioned in my opening remarks that we have significant tax payments in 2026 related to 2025. The first one that we typically talk about is Brazil. So we're expecting more than $300 million in January related to Brazil. And then for Q1 in total, it's close to $400 million. And that's just the tax payments that we're accruing throughout this year. And there will be installments on top of that for the 2026 year. Daniel Major: Great. It's clear it's about $400 million in Q1. Okay. That's good. And then a last question just on the permitting time line at Great Bear. You mentioned there's no impact on the project, the fact that the final 2 permits at AEX taking a bit longer. At what stage would those 2 specific permits start to impact the time line of the overall project. William Dunford: Yes. Look, the main project itself is building a mill and open pit mines and an underground, which is what AEX is focused on is the early drilling for that underground. So the whole purpose of AEX is to get ahead and do the definition drilling and do the expansion drilling for the underground. The main project itself and first production is really all about getting the mills built. And if you look at our PEA, we've got significant ore coming out of the open pit at the beginning of the mine to support that mill. So that's why it's not really a critical path right now in terms of those permits. Geoffrey P. Gold: I would also just add to Will's comments that there's really no direct link between the AEX permits and the main project permits. And at this time, we don't really believe we will experience a similar delay for the main project. Operator: And your next question comes from the line of Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Three questions. Maybe over to Paul. I'm just thinking about you're in your budgeting phase and you're thinking about your life of mine plans and your reserve and your resource base. We've had some companies put out some initial targets for what they're running their pits at gold prices on reserves and resources. I'm just wondering how you're approaching that. I know you have your reserve pricing. I think it was $1,600 in resources at $2,000. How are you balancing that with your life of mine plans and your cutoff grades and inflation? J. Rollinson: Sure. Well, I think I would expect -- I mean, everyone is kind of thinking about what the new reserve resource price will be going forward. I think we're all in a good way, lagging where we are in spot. So I do think -- I expect there'll be generally an increase in the industry in our peer group in both reserve and resource pricing. But I think we'll all probably still be well below spot, which is the right side of the line to be on, of course. As it relates to our planning, as we've said, our mills are full. We're not planning to do anything with our cutoff grades. We're really goal seeking margin and cash flow. To the extent we're thinking about cutoff grades, it's low-grade stockpiles, end of mine life, where we might put different material for end of mine life. But as it relates to the near-term production, we're holding the line and still seeking margin and cash flow. Tanya Jakusconek: Should I be then, Paul, thinking that as I look at 2026, should I be thinking that if inflation is running and some companies will go anywhere between 5%, 10%, should I be thinking that if I kind of think about your reserve pricing and think about inflation and cost in that sort of level, that would be something that would be reasonable to adjust our gold price to for reserve calculations? J. Rollinson: Yes. I think to be frank, Tanya, I mean, it's a bit of art versus science. But I think we generally -- we look at it like we do with many things from a different -- from a number of different perspectives. But I think it's not a rule of thumb, and I wouldn't say we do this exactly, but we also take into account sort of a 3-year rolling average as well. And that would be a safe place to be if you were thinking about what we were going to do. Tanya Jakusconek: Okay. All right. I look forward to your approach in the new year. Maybe just on the some of the optionality that you have and you talked about the... J. Rollinson: I'm not sure what that noise is. Tanya Jakusconek: Yes, I don't know either. I don't have anything happening on my end either. So hopefully, we can get through just the last 2 I have. Maybe just on the optionality in the short term on the projects that come in, in that '27 to 2030 time frame, just specifically Curlew and some of the satellites at Bald. Would it be fair to say that they could add incrementally 100,000 to 200,000 ounces in that time frame? William Dunford: You mean between the 3 of them. I think between the 3 of them, there's potential that if they can add more than that. I think it depends on what year you look at. Tanya Jakusconek: Yes, I'm just kind of between '28 onwards, right? I was just thinking the Bald and also just Curlew, would that be like fair in the 100,000 to 200,000 and then if we Round Mountain, that's a bit different. William Dunford: Yes. I mean, Curlew itself, ultimately, we'll provide more guidance early next year, but it might get up to the 100,000 ounce per year as we ramp it up or close to that number. Redbird itself, Redbird 2 and the satellites, depending on the year, will be in that range of 100,000, maybe a little bit higher in some years as you mine through different zones. And then Phase X, we're also targeting to try and get over the 100,000 ounce per annum target, and we'll still be processing remaining stockpiles from Phase S, particularly with these gold prices in combination with the underground at Phase X. So I think our disclosure in Q1 will help you build the profile better, but certainly between the 3 of them, they can add more than 200,000 ounces once they're all up and running. That's coming on -- as other things move in the portfolio, all of that is to try and maintain that 2 million ounces, which we believe we can with those projects. Tanya Jakusconek: Okay. So that could be supplemental to the 2. William Dunford: Sorry, it's not supplemental to the 2 million ounce base. These are the projects that keep us at 2. Tanya Jakusconek: And then my final question for Andrea. Can you -- you're looking at buying back the $500 million in Q4 of the notes and you've got the 2033s and the 2041 notes. Should I be thinking that on the $500 million that for 2026, either one of those would be something you'd be targeting as well? Andrea Freeborough: Look, I mean, we're happy to continue to grow our net cash, and that's sort of how we're looking at it. Those longer-dated notes, they're just not economic to take out ahead of time, but we'll continue to watch that. And if it did become accretive, then we would think about that. Tanya Jakusconek: Okay. And so I should be thinking that maybe the pause on the debt reduction after the Q4 and then maybe the cash flow, as Paul mentioned, would be looking on a positive bias for capital returns. Maybe just to ask, what's the minimum cash that you would need to run your business, I should think about keeping on the balance sheet. Andrea Freeborough: Sure. We typically say the minimum is about $500 million, and then it fluctuates a little bit above that. We just got to net cash as we reported this quarter. So we're certainly happy with that, and we're happy to continue to grow that net cash. So I think it will be a balance between CapEx, continuing to grow cash on the balance sheet and returning capital to shareholders. Tanya Jakusconek: Yes, bearing any changes in those 2033 and 2041 notes. Andrea Freeborough: Right. Operator: [Operator Instructions] And your next question comes from the line of Anita Soni with CIBC World Markets. Anita Soni: Tanya asked a few of them. I just wanted to circle back on, I guess, capital allocation just in broad strokes as you think about it going into next year. Is there kind of a formula that you're using in terms of how you're going to allocate the free cash flow, like obviously, the debt repayment is kind of on pause, but capital return to shareholders as a certain percentage, reinvestment in the business as a certain percentage and anything else as a certain percentage. Could you give me an idea of that? And really, what I'm trying to figure out is, obviously, there's inflation, but that you were talking about in the order of, I think it was 5% to 10%. But what should we be thinking about in terms of capital for next year? J. Rollinson: Yes. A couple of questions in there, Anita. I'll start and Andrea chime in, if you like. Again, number one, we're right in the budget cycle. So again, I'll say what I said a little bit earlier. Directionally, all things being equal, we want to continue with a healthy return of capital. We don't typically think about it on a formula basis. We do believe the majority of our shareholders prefer buybacks. That's where we're really focused. And on our internal metrics, when we look at our valuation, we still believe that, that's the right thing to do with our free cash flow. I would say, though, as I go back to the budget, there's moving parts. We do expect, as Andrea said, higher taxes, higher royalties, inflation is always there. And as we've alluded to, we do see a lot of optionality to reinvest in our business for the future. Things are getting better. Phase X is looking better. Curlew was looking better. That might drive decisions to increase capital spending for longer-term mine lives. So I think I don't really want to get pinned down on a specific. I think as we go into the new year, it's -- we're in a good place where, as you say, we've paid down the debt. We've got lots of free cash flow, lots of organic opportunities. And I think we can do all of the above. Anita Soni: Okay. And then where would inorganic opportunities fit in all that -- the M&A pipeline? J. Rollinson: Look, again, we -- as I've said many times, we're in a fortunate position that given the strength of the organic portfolio, we don't feel under any pressure. We've got a great team here technically. We do look at external opportunities. But as I know you're aware, we've probably only done 3 deals externally in the last 10 years. So we're very careful. We do look at opportunities. If we saw another Great Bear, we do it again in the heartbeat. But we're very careful, and we are not under pressure, and we'll continue to look. Anita Soni: Okay. And congratulations on very solid quarter. Operator: There are no further questions at this time. I will now turn the call back over to Paul for closing remarks. Paul? J. Rollinson: Thank you, operator, and thanks, everyone, for dialing in today. We look forward to catching up with you in person in the coming weeks. Thanks for joining. Operator: This concludes today's call. You may now disconnect. RECONNECT
Ashley Curtis: Good morning. I'm Ashley Curtis, Assistant Vice President of Investor Relations, and I would like to welcome you to Tanger Inc.'s Third Quarter 2025 Conference Call. Yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation. This information is available on our IR website, investors.tanger.com. Please note that this call may contain forward-looking statements that are subject to numerous risks and uncertainties, and actual results could differ materially from those projected. We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information. This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management's comments include time-sensitive information that may be only accurate as of today's date, November 5, 2025. At this time all participants are in listen-only mode. Following managements prepared comments, the call will be opened for your questions. We request that everyone ask only one question and one follow-up question. If time permits we are happy for you to re-queue for additional questions. On the call today will be Stephen Yalof, President and Chief Executive Officer; and Michael Bilerman, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A. I will now turn the call over to Stephen Yalof. Please go ahead. Stephen Yalof: Thank you, Ashley, and good morning, everyone. I'm pleased to report another quarter of strong financial and operating results, contributing to an increase in our full year guidance. Our third quarter results reflect robust execution across all aspects of our business, with our best-in-class leasing, marketing and operations platform, combined with accretive and strategic external growth, driving strong financial performance and positioning us for the future. Core FFO was $0.60 per share, which represents an 11% increase over the prior year period, driven by solid same-center NOI growth of 4%. We achieved record leasing volume with more than 600 transactions, totaling 2.9 million square feet over the trailing 12 months. This contributed to our quarter end occupancy of 97.4%, an 80 basis point sequential increase. Our portfolio reached sales productivity at an all-time high of $475 per square foot. We posted blended rent spreads of over 10%, our 15th consecutive quarter of positive rent spreads, while increasing our lease term durations for both renewals and new deals. We have seen a 50% increase in re-tenanting activity over the trailing 12 months ended September 30 compared to the prior year period. Limited retail development nationally has contributed to a robust leasing environment for our open-air outlet and lifestyle centers, providing a strategic opportunity to replace underperforming tenants, right-size larger stores, diversify merchandise assortments, and encourage reinvestment from existing tenants. These initiatives are allowing us to add more productive stores plus new uses and categories that create variety and vibrancy, which in turn drive more frequent shopping trips, longer stays and ultimately, bigger spend. We are largely complete with our 2025 lease roll, which is aligned with our leasing strategy of increased re-tenanting activity and renewals targeted around 80%. We are already actively working on our 2026 lease roll and see continued opportunities to drive rent, elevate and diversify our centers' merchandise mix. Our shopping centers have evolved into 7-day a week destinations due to substantial changes in demographics and the outward population migration from urban to suburban markets. This has contributed to strong traffic creation in our markets, where residential growth continues at unprecedented levels. This dynamic has fueled the need for more service, F&B and entertainment uses in our centers. And as we continue to deliver these new uses, the shoppers are responding. We are providing a well-rounded high-quality shopping, dining, and entertainment experience that is attracting new retailers and new shoppers alike, contributing to the record sales results we posted this quarter. Our third quarter performance was further bolstered by our early back-to-school and summer of savings campaigns that targeted new shoppers, younger consumers, and our Tanger Club loyalty members with digital, social, and SMS messaging. Tanger team members, influencers and crowd-sourced content creators reached millions of shoppers and created hundreds of millions of impressions through TikTok, Instagram, and Facebook, calling out our new store openings, sharing our best deals and their latest halls. Over the summer, Tanger deal days featured our early back-to-school promotions, and shoppers with concerns over tariff impact on product pricing and availability were encouraged to shop early and were incented to do so with great offers from our participating retailers. This momentum continued through the summer and the rest of the third quarter, and we have already kicked off our holiday selling season, anniversarying our successful 'Every Day is Black Friday' campaign, which started November 1. Across our business, we continue to leverage AI technology to optimize customer service, enhance our data and analytics predictive functionality, and enable more efficient use of resources across our enterprise. We advanced our external growth strategy during the quarter with the acquisition of Legends Outlets, an open-air outlet center in Kansas City, Kansas. This acquisition demonstrates our commitment to disciplined external growth as we have added 6 open-air centers over the past 2 years, including 3 outlets. Legends Outlets has been rebranded Tanger Kansas City at Legends, and aligns with our strategy to acquire well-located retail centers supported by strong residential and economic market fundamentals along with dominant entertainment destinations. Tanger, Kansas City is the only outlet center in Kansas, and it anchors the state's premier entertainment district. Is surrounded by numerous traffic-driving attractions, including the Kansas Speedway, Great Wolf Lodge, a new Margaritaville Hotel, Nebraska Furniture Mart, Major League Soccer and Minor League Baseball stadiums, a large youth sports complex and a professional soccer training facility. The area continues to grow rapidly with Topgolf and the state's first Buc-ee's under development as well as additional hospitality, entertainment and residential projects. We are excited to enhance the center's productivity through our proven leasing, operating and marketing platforms, and to further leverage the area's expanding traffic drivers. Kansas City is one of our many markets where sports is a key traffic driver, and we continue to harness the growing momentum of this category in our marketing initiatives. In that connection, we're excited to announce this quarter our new partnership with Unrivaled Sports, the nation's leader in youth sports experiences to be their exclusive shopping center partner in our shared markets. This partnership offers exceptional cross-promotional opportunities and will put our centers on the itinerary for thousands of young athletes and their families when they travel to these markets for experiences and tournaments hosted by Unrivaled Sports. This is just the latest example of how we are pursuing the strategy of creating compelling partnerships to drive traffic and sales and deepen local engagement in our communities. In today's dynamic retail environment, Tanger's value proposition continues to resonate strongly with both shoppers and retailers. Our record results demonstrate the strength of our platform, while our strategic evolution continues to create new growth opportunities. The strength of our balance sheet with conservative leverage and ample liquidity provides us the flexibility to continue to pursue selective external growth opportunities while investing in our existing portfolio. We remain confident in our approach and in our ability to deliver compelling results for all stakeholders. I want to thank our dedicated Tanger team members, retail partners, shoppers and shareholders for your continued support. I'll now turn the call over to Michael to discuss our financial results and updated guidance in more detail. Michael Bilerman: Thank you, Steve. For the third quarter, we delivered core FFO of $0.60 per share, representing an 11% increase compared to the $0.54 per share in the prior year period. This strong performance was driven by solid same-center NOI growth of 4%, reflecting the success of our leasing and operational strategies across the portfolio and the contributions from our external growth activity. Reflecting the tenant demand that we're seeing, we continue to drive our total rents, reflecting both higher base rents and higher tenant reimbursements, and locking in percentage rent on renewals. We are also seeing growth in our other revenue businesses, successfully selling our assets as marketing mediums and creating additional sources of revenues at each of our assets. We also continue to seek and achieve operating efficiencies, driving our overall NOI growth. Our balance sheet remains strong with conservative leverage metrics that provide us with significant financial flexibility to support both our operational needs and strategic growth initiatives, including selective acquisition opportunities, like the recent Kansas City acquisition. We acquired Legends Outlets in Kansas City for $130 million using available liquidity and the assumption of $115 million CMBS loan that matures in November 2027. In conjunction with the closing of the acquisition, we settled approximately $70 million of previously issued forward equity using those proceeds to pay down our line and hold some cash in escrow for the Kansas City loan assumption. We estimate that the center will deliver an 8% return during the first year with potential for additional investment and growth over time. At the end of the third quarter, our net debt to adjusted EBITDA was at 5x, benefiting from the strong EBITDA growth and the retention of free cash flow after dividends, while our growing dividend only represents 58% of our funds available for distribution. Pro forma for the recent transaction activity, we estimate that our leverage would be approximately 4.7x at quarter end. From a liquidity perspective, we had approximately $581 million of total liquidity at quarter end, including $21 million in cash and $560 million available on our lines of credit. At quarter end, 97% of our debt was at fixed rates, inclusive of our swaps, and our weighted average interest rate stands at 4.1%, with a weighted average term to maturity of 3.1 years. The next significant debt maturity will be our unsecured bonds next September 2026. Based on our strong performance year-to-date and our positive outlook for the remainder of the year, we are raising our full year guidance, and we now expect core FFO per share of $2.28 to $2.32 a share, and this represents core FFO growth of 7% to 9%. We've lifted same-center NOI growth to 3.5% to 4.25%, which is up from 2.5% to 4% previously. We've also incorporated the modest 2025 accretion from the acquisition of Legends, which raised interest expense, as well as raising our weighted average shares outstanding from the settlement of our forward equity. Our guidance does not assume any additional acquisitions, dispositions or financing activities. For additional information and assumptions, please see our release issued last night. The strength of our financial metrics, combined with the operational improvements that Steve outlined, reinforces our confidence in our strategic direction and our ability to generate long-term value for stakeholders. Our focus remains on maintaining this momentum while prudently managing our capital to support both our current operations and our future growth opportunities. We are pleased to welcome analysts and investors to Kansas City last month, showcasing our recent acquisition and how our external growth, leasing, marketing and operating platform creates value for all stakeholders. We look forward to seeing many of you in Dallas in December for Nareit, homes at Tanger Outlets Fort Worth, as well as in Miami for the Jefferies Real Estate Conference in a few weeks. With that, operator, we can now open the line for questions. Operator: [Operator instructions]. Our first question is from Craig Mailman with Citi. Craig Mailman: Just as we look, occupancy was up 80 bps in the total portfolio. You guys are now at 97.4%. You guys are getting pretty close to -- I don't know where you would assume frictional vacancy is. But can you just talk about the opportunities from maybe shifting the temp space? I know you guys are about 10%, would have liked to keep some of that in there for strategic reasons. But just walk us through kind of from 97.4%, where you think the portfolio could go from here and what the earnings power may be if we start to think about that 10% moving subtly towards that 5% historic average? Stephen Yalof: As we look at temp tenancy, it's really very strategic in our portfolio. I mean you go back to the historic 5% pre-COVID temp number. And at that time, this organization had 1 or 2 people working on temp tenancy. The way we're structured currently, every one of the general managers in our shopping centers, our leasing representatives as part of their core responsibility and owning the P&L of their shopping center, they're responsible to make sure that any space that becomes vacant gets tenanted with a short-term lease while we're waiting for that appropriate long-term lease to come in and take that space. So we've basically gone from 2 leasing representatives in short-term leasing to 40 representatives in short-term leasing. So of course, that is going to be a more significant part of our business. In many instances, we bring in retailers that may have never been introduced to our platform before, that become really important part of not only the shopping center where they open, but part of our growth strategy. And in fact, our full-term leasing team has a representative on that team whose job it is to take the best short-term tenants and make sure that we can bring them throughout our portfolio in the form of longer-term leases. So we think the short-term tenancy is very strategic. Now in this leasing environment, where we continue to grow occupancy, where we continue to add more -- better long-term tenants. We've talked about a lot of those great retailers that have just joined our portfolio that are producing higher sales per square foot volumes, that are signing long-term leases; we're going to be very strategic how we add them. And we're also equally strategically replacing some of these retailers who have lost some market share or in some instances, have declining sales productivity. We're downsizing retailers that creates a lot of that frictional vacancy. So I think the important metric is our ability to continue to grow our net operating income. Our ability to continue to grow our business to continue to drive our sales performance on a per square foot basis and using that short term or that temp tenancy as a lever to introduce new people to the platform, bringing great seasonal retailers as we need to for different holidays, whether it's Halloween or Christmas, but also fill that vacancy because we've said before, most of our customers don't know the difference between a short-term tenant and a full-term tenant, but everybody knows the difference between a closed store and an open store. We want to keep lights on. We want to keep the properties cash flowing, and we want to set ourselves up for the great new brands of the future. Craig Mailman: Great. And just pivoting, you guys have done a good job sourcing acquisitions here, with Legends being the most recent. And just with what's going on in the debt market with term loans in sort of the -- in the mid-4% at this point, I mean, what does the pipeline look like of deals? And how do you view using some of that term debt, if available, to kind of finance it to get premium spreads versus your peers given where you guys are going on initial yields? Stephen Yalof: Thanks, Craig, for the question. Our acquisition strategy is not programmatic. We are very focused on what value we can bring to the table. And so, the market remains active. There's a lot of product. The capital markets, as you mentioned, whether it's debt or equity, are supportive. But at our size, we really want to lean in where we can add value. And I think you look at the 5 acquisitions that we've done is how can we bring our operating, our leasing, and our marketing platform to bear to be able to drive value for stakeholders. From a leverage perspective, we're at low leverage today. And I think there is a wide variety of sources of capital that would allow us an ability to accretively deploy. Operator: Our next question is from Jeff Spector with Bank of America. Jeffrey Spector: Steve, can you talk a little bit more about -- you mentioned more trips, longer stays, higher traffic. You talked about the early back-to-school, and then the Black Friday campaign. And it all ties to, I know your platform initiatives and marketing, and maybe some of your data initiatives. I guess, can you just talk a little bit more about that and how that's progressing and maybe anything new coming in '26? Stephen Yalof: Yes, sure. And thanks for asking that question, because I think it's a really important part of our business. I remind you that in the outlet space, marketing is critically important because most of our retail partners are driving customers to their full-price assets, and it really becomes incumbent on us as landlord to drive the customer to the shopping center in that space. And because of that, traffic generation is a huge part of our business plan. In fact, it's one of the 3 pillars of our operating platform and one that we lean extraordinarily heavily into, I probably think more than most in our space. Because of that, we have to take a look at the current environment. We have to look at the macroeconomic environment, and we have to make decisions in advance that are going to lead to traffic-generating opportunity. So in the case of tariffs being announced as early as April, we felt that our customer -- our core customer is going to be concerned about whether or not product was going to be on the shelf in the third quarter of this year, whether or not pricing was going to meet their pricing expectations and they were going to be able to afford the things that they needed for that back-to-school sales season, which is the second biggest shopping holiday of the year. So our marketing team came up with the unique idea of early back-to-school shopping, making sure that, that customer was aware that with participating retailer partners, we were able to offer special benefits, deeper discounts, and doorbuster opportunity for those who took advantage of that early back-to-school selling period. And what happened was we saw our traffic continue to build as early as June 1, into July and August, for the customers that were taking advantage of that opportunity. Smart retailers that participated with us used the strategy of bounce back, where they got that customer in as early as June and then used the opportunity through further discounts, particularly in the outlet channel to bounce them back later in the year. So we saw the same customer coming back. We saw them building bigger baskets, and we were really excited about the prospects of setting up that strategy to have that early back-to-school. And I think that's going to be a perennial plan that we're going to add in '26 and beyond. All levered off of that last year, there was big macroeconomic headwinds going into the holiday selling season. And we brought Black Friday forward last year to November 1. Halloween is a very big holiday in this country these days and also in our shopping centers. Halloween decor is critically important, kids trick-or-treat in what they consider to be a really safe environment. The shopping center, the brands are participating, and we had some great traffic generation with Halloween being on Friday this year. But on that Saturday, the Halloween decor comes down, the Christmas holiday decor goes up. And the Christmas music starts playing, and we start to promote every day of November is Black Friday. It worked great for us, traffic build during the course of that November. We anticipate similar build in this November going into December, and we're looking forward to add -- keeping that as a perennial program for us in the years to come as well. Jeffrey Spector: Great. Then my second question is on the retenanting. I know when you established this goal and plan, you mentioned earlier, 80% was a target for retenanting and then the other 20% upgrading tenants, and you've had a lot of success evidenced by the increase in sales per square foot. Are you evaluating that 80% and maybe even decreasing it? Or like what are your thoughts heading into next year on that? Stephen Yalof: Yes. First of all, the 80% is the renewal. And so, that leaves the rest of that space for retenanting and for new tenants. We have up 150% of our retenanting activity. So the strategy is working. I think that 80% to 85% is probably a pretty good number, especially since we've done a really good job of sort of clearing out some of the retailers that may or may not have been performing over the past few years. The fact that there's not a lot of new retail space being added to the market gives us the opportunity to really be more selective. We're looking at department store contraction. We're looking at -- and in that regard, we feel that our real estate is worth more every single day. And because of it, we're being real strategic with it. Now when you own the shopping center, you're responsible for merchandising that center and making sure that you bring the best retailers into your property that isn't always the one that's going to pay you the last dollar in rent. But in some instances, it's the one that's going to draw the most amount of customers or it's going to draw the most amount of other retailers who see some of those great retailers as barriers that will break through to get new retailers to come into our shopping centers. And we saw that with our -- with the supportive deals that we've made. We recently made a number of deals with Marc Jacobs. There's a lot of other luxury brands that are now paying attention to our portfolio in a way that they hadn't in the past. We're delivering the sales. These brands are excited about coming into our markets -- our mid-tier markets where they need to continue to grow their business. And because of that, we're going to make real strategic decisions on who gets renewed and who gets replaced. But as long as that queue of new retailers who are interested in our environments are paying attention and want to be in our shopping centers, we're going to make sure that they get a really good look. So I'll go back to the fact that our job is to drive traffic. Our job is to continue to drive sales. Those 2 metrics inform that sales performance that we've shown you over the past couple of years as it continues to build. And a lot of our base rents are based on our ability to continue to drive that traffic. So I think that flywheel creates our opportunity to continue to grow long-term sustained NOI over time. Operator: Our next question is from Greg McGinniss with Scotiabank. Viktor Fediv: This is Viktor Fediv on with Greg McGinnis. Probably building on previous question, but more specifically looking into 2026 expiration, it appears that the average rent on expiring leases is just slightly above the portfolio average. So are there any notable potential non-renewals you're aware of at this point? And overall, what spreads do you expect to achieve given the expiring and respective market rents? Stephen Yalof: From a rent perspective, we look at our leasing volume up at 2.9 million square feet. So we still have a significant amount of velocity. When you look at the average base rents, part of it is going to be a mix of what assets, what tenants are rolling. So I wouldn't read too much into sort of that level. And we want to be able to continue to drive total NOI growth, which is not only the role, but what vacancy or what temp we may be leasing and then what are we remerchandising and what are renewing and in totality, driving positive growth on that balance. Viktor Fediv: As a quick follow-up on your watch list overall. Do you anticipate any Carter's store closures, given that they are planning to close 150 stores? Justin Stein: Viktor, it's Justin. Listen, Carter's and Oshkosh have positive trends in our portfolio, both over the rolling 12 months and the rolling 3. So we're encouraged, and they're very productive in our portfolio. We've gotten out in front of this, just like we get out in front of all of our brands where we've been replacing some underperforming stores over the past 12 to 24 months. So where we probably see some downward pressure throughout the country, not just in the Tanger portfolio is probably more on the Oshkosh side of the business, where they have multiple stores with landlords in a center. Like I said, we've gotten out in front of that. We've already replaced a handful of them. We only have a handful left, very little exposure. So we're going to continue to work with them. They're great partners with us, and we're going to work to consolidate those brands in our centers and replace those stores at higher rents and more productive tenants. Operator: Our next question is from Michael Griffin with Evercore ISI. Michael Griffin: Steve, I know you talked a lot about investing in both data analytics and as well as enhancing the F&B component at a number of your centers. Can you maybe quantify whether its dwell time, customer spend that you've seen at centers where you've unlocked that F&B value? And then maybe give us a sense of the ROI that comes from that F&B component as it relates to maybe future improvement in retailer sales. Anything there would be great. Stephen Yalof: Yes. What I can share with you right now is mostly anecdotal. I think a lot of the data comes with our analytics team now using dwell time is a real important metric to determine how long folks are staying when they come and shop at our centers. And we're using that baseline that we're currently creating to inform later years, so we can come back and actually share the metric. So we understand what levers we can pull in order to drive that longer stay with the customers. However, anecdotally, we have operating folks on every one of our properties. And those people have been there for a number of years. We know when the parking lots are full. We know when the customer is carrying certain shopping bags. We see the lineups and the wait times at the restaurants on the property. So we can tell you anecdotally that restaurants and better food and beverage offer, particularly in our outlet shopping centers is really adding to creating a new destination for that traffic, but as importantly, making sure that the folks that are there that might shop the morning and then leave get them to stay. We've got places for them that are a little bit more upscale than the offering that we've had in the past. We're seeing them stay and we're seeing them stay for that afternoon shopping experience as well. We talked about Unrivaled Sports and that partnership. It's critically important that we've got places for those families in between tournaments and games and things that they're doing with that Unrivaled Sports partnership, where we can bring them to our shopping centers. And that's not just for shopping. That's for the entertainment, that's for the amenities. And as importantly, it's for the food and beverage service. As our shopping centers become more 7-day a week destinations because of that outward migration of folks moving from the cities into those mid-tier markets, where most of our shopping centers presently reside, we're seeing that day population grow. We're seeing more people shop during the week than we have in traditional outlet shopping centers in years past. And because of it, it's supporting a lot of these new businesses that we're putting into the marketplace. I can't share currently an ROI. The data points are -- we're in the early innings of creating a real analytical messaging as it relates to why we make these decisions and why it's more prudent to make certain investments rather than others. And we're looking forward to sharing that information with you in the coming quarters and years. Michael Griffin: Great. Then maybe one for Michael, just on the acquisition opportunity set. Are you seeing more institutional capital interested in these deals? I realize that your centers are pretty operationally intensive from an asset management perspective. But my sense is that if you get a going-in yield in the 8% range, stabilizing above that could attract more capital to be interested in these kind of centers. So just maybe talk about the competitive set against and what you're up against relative to competition out there. Michael Bilerman: Thanks, Griffin. I think it's a good sign for retail overall that you're seeing that institutional interest in the asset class. Steve talked about the low supply environment, and you're clearly seeing retail fundamentals across all the retail asset classes perform really well. And so I think institutional capital, whether they own existing assets today or they're looking to deploy, presents an opportunity as well for us; because as you said, we are an operating platform. And we believe that where we want to be able to lean in is where can we bring that platform to bear to create value and being able to tap into different capital sources helps in that regard when we can bring more than just money. We know our balance sheet is in great shape to be able to finance our external growth, but it really comes down to our operating our leasing and our marketing platforms to create that value. You were with us in Kansas City, you saw our team that just descended on that acquisition and is already having an impact as we bring resources from our company to bear to add that value. Operator: Our next question is from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just on 2026, just curious initial thoughts on the bad debt or watch list of tenancies. And curious how far you are along at this point versus last year in handling or taking off lease expirations. Stephen Yalof: Thanks, Juan. Our watch list remains at manageable levels. I think as we progress through the next few months, when we'll come out in February with our guidance, we'll be able to articulate some of that. Things have been relatively stable as of late, but it is a very operationally intensive business from a retailer perspective. In terms of lease roll, we have already begun our '26 and even looking at some further in those discussions. And you can see in the sub that we -- the role already came down, I think, about 100 basis points since last quarter, and we'll continue to make progress as we move the next few months. Juan Sanabria: Great. Then maybe just, Michael, a follow-up. Anything you'd want to flag in terms of '26 considerations as we think about earnings and some of the moving pieces and timing of stuff that happened this year versus full year impacts next year? Michael Bilerman: I give guidance in February. And so, we'll be able to lay everything out. I think our trends this year have been positive. I think you mentioned the credit side, which is always something that you have to think about in the year in terms of a range of outcomes. The other aspect is going to be our capital. And our bonds next year come due late in the year. But how we finance that, when we finance that could have some range to it relative to this year. Juan Sanabria: Glad to hear Mariah Carey's defrosting as planned. Operator: Our next question is from Rich Hightower with Barclays. Richard Hightower: So maybe just to go back to the prior conversation about institutional capital flows into the asset class. I mean, maybe just to turn it on its head for a second. I believe you guys haven't sold too much since 2019 in terms of the magnitude of sales. And so, are there reasons why maybe as we think about the bottom tier, of the portfolio, which is very helpfully broken out in the supplemental. Are there reasons why we wouldn't think about recycling some of that? Is it for tax reasons? Is it for descaling the company reasons? Or are there other reasons why that might not maybe pick up in future years? Stephen Yalof: If you look back over the history, we've actually sold a number of assets pre-COVID and coming out of COVID. We sold an asset in Howell earlier this year. And all of our assets are cash flowing. And what's really important is the same way that we talk about buying outlets and bringing them into our platform and the value that we can create we have that ability to create that on all the assets that we own, and that's really important. We'll always look at our portfolio for areas. And if we see significant change or not consistent, we would look to exit certain assets. But our goal is to continue to leverage this platform and grow. Richard Hightower: Then I know you mentioned 'Every Day is Black Friday' started November 1. So we're not too far into that. But just give us a sense of what you are -- what you might be seeing so far in that campaign and just maybe help us understand how much of a window holiday sales over the next couple of months might be for -- what does that mean for the outlook for leasing and the business as we get into next year? Leslie Swanson: It's Leslie Swanson. We're very excited about getting into launching Black Friday every day just this week. We see a lot of opportunity in the future. One of the best opportunities for us is the partnerships we're seeing from our retailers as far as bringing additional value to the Tanger shoppers. So we're working with them on a weekly basis to continue to layer in more and more value opportunities. We have good inventory in our stores. We've got lots of great things happening from an eventing perspective, our annual tree lightings. We're bringing the local choirs in from the schools in our communities and really doing as much outreach as we can to bring additional traffic to the shopping centers across the holiday season. Richard Hightower: I'd love to be a part of that and attend one of those. Any sort of broad commentary on maybe what that might mean for leasing next year as you kind of see how the campaign is performing over the next couple of months? Stephen Yalof: Yes, Rich, the campaign last year was wildly successful, and our retailers recognized it. And they want to partner with us on the marketing side and get more in depth with our loyalty program, with our marketing team. So we anticipate this to be as successful as it was last year and just like the back-to-school program was for us. So we're very encouraged by the results and our retailers and our consumers are excited as well. Operator: Our next question is from Floris Van Dijkum with Ladenburg Thalmann. Floris Gerbrand Van Dijkum: So Michael, a question for you in terms of -- I know people have been asking about rent roll, et cetera. But talk about operating margins maybe and some of your initiatives on fixed CAM, where do you see your expense recovery and operating margins trending? Michael Bilerman: Thanks, Floris. We have been fortunate that we've been able to grow our margins really through both the top line as well as the bottom line. And so, on the revenue side, we continue to drive total NOI. That's through both our renewal and re-tenanting. But also when you look at our leasing, we have a substantial amount of non-comp leasing. And so, all of that taken together is what's driving our revenue. And as we talked about, when we are negotiating with our tenants, we're somewhat agnostic to lease structure, whether it was a gross lease or whether it's base and CAM because at the end of the day, we're just driving a total rent number. We have been pursuing a greater share of CAM in that total rent, and that's what you're seeing move up. Then on the operating expense side, we constantly look for ways that we can become more efficient. And some of that is just rebidding our general contracts, whether that's security or our insurance. We're trying to get better on our property taxes and all of the elements that we have to run our properties, run them as efficiently as we can to grow that margin. And so, I think we'll continue to see upward trajectory as we move into 2026. Floris Gerbrand Van Dijkum: Maybe my follow-up question, this might be more for Steve. But when we toured Kansas City, I think I was impressed by the billboard opportunity at that particular asset. You've got some existing billboards, obviously, you can upgrade them. Maybe can you talk about maybe not specific to Kansas City, but also the other opportunities you see within the portfolio to increase the billboard revenue and really boost your other revenue line going forward? Stephen Yalof: Yes. Look, that marketing partnership business is a really important one for us. And it really started at almost nothing when we joined the company sort of just post-COVID. And under Leslie's leadership, we've grown to a very substantial business. We think there's a great opportunity on our shopping centers to monetize existing eyeballs. There -- most of the properties are situated on interstates that have great visibility in 2 directions that see over 100,000 cars a day, and we see that opportunity as well to really grow revenue from that off-site billboard program. But for us, I think that the real important piece of our marketing partnership business and the one that has the greatest amount of future revenue opportunity is working with our existing retailers to grow their on-site presentation. We mentioned earlier that it's our responsibility to drive traffic to these shopping centers, which we have a machine that executes. Once that customer gets there, it's worth it to a lot of our retailers to invest in the opportunity to make sure that the -- that everybody who visits our centers knows their store is there. And in that connection, we take certain holidays, whether it's an accessories brand during Valentine's Day to do a full shopping center takeover to make sure every customer knows that they're there. We're doing a lot of that. We're working with a lot of these partnerships. We're monetizing these holidays, and we're turning them into a real revenue opportunity for us. I also want to go back to the Unrivaled Sports partnership that we recently signed. Partnerships like this give us the opportunity to off-site drive traffic to our shopping centers on site. And the more footsteps that we can bring, the more cars we put in the parking lot, the more footsteps we can bring on center makes our product far more valuable every day. We're going to continue to grow this business. We think we're in the early innings of growing this business. And as we acquire additional shopping centers, and you saw it in Kansas City, we've got great opportunities for these brands to present their product to the customer in real unique ways in very creative ways, makes for a real entertaining experience for the customer as well because there's a lot of great creativity that these retailers bring to those initiatives. Operator: Our next question is from Hong Zhang with JPMorgan. Hong Zhang: Two questions from me. I guess first question, would you be able to quantify any seasonal impacts either on the revenue or the expense side as we move from the third quarter to the fourth quarter? Because I think normally, your expenses go up, and I'm not sure if there's any pull forward of revenue from back-to-school in the third quarter this year. Stephen Yalof: Sure, Hong. We've talked previously where a lot of our recovery income is effectively straight line throughout the year. but the expense trajectory is often volatile and especially going into the fourth quarter, we tend to see more traffic. It requires more janitorial, more security. The marketing is typically heavier. So we would expect to see a little bit lower recovery rate in the fourth quarter. And we do also tend to see higher overage rent in the fourth quarter and potentially some volatility in that number. Hong Zhang: Then I guess just on the recoveries, I think you previously indicated that you expect to be around like 87% for the year. Is that still the case just because it would imply a pretty substantial drop in the fourth quarter? And how do you expect -- how much further upside do you see in recoveries in 2026? Stephen Yalof: It will probably be a little bit higher 80s. The third quarter was a little stronger than we had expected. There was just a very modest amount of out-of-period expense recoveries that came in the third quarter. So that skewed it slightly higher. But I would think a high-80s number is probably good for the full year run rate there on expense recoveries. Michael Bilerman: Hong, the other part about the expense recovery is lease structure. And so, part of what we estimated if we had just a gross lease, if we end up doing a lease where they're paying us space in CAM, it's the same rent that we're getting the same NOI. It's just showing up in a different line item. So part of that is what's growing that expense recovery rate as well as keeping our expenses low. Operator: Our next question is from Harrison Slater with Goldman Sachs. Harrison Alexander Slater: On the acquisition side, congrats again on the Kansas City deal. Can you go through how the deal was sourced, the upside opportunity and when some of that could be realized? Stephen Yalof: This was an off-market deal between the seller and us. This asset is one that we know well from its original development, and we work just in partnership with the owner, similar to how the Asheville deal came about. And we're able to successfully transact. We see both near-term as well as long-term upside from this asset as we bring our platform to bear. The asset today is 93% occupied. We think that there's opportunity to grow that occupancy over time. The asset also came with some peripheral land, a parcel that sits right in front of the Minor League Baseball Stadium as well as another parcel around. So there's opportunities over time to intensify the real estate. And then as we bring this asset into our operating platform, we think there's a lot of opportunities to increase marketing from our marketing platform. Floris has talked about the signage that we feel we can improve, and we think there's a lot of opportunities to bring the best of the Tanger tenant portfolio to Kansas City. Operator: Our next question is from Naishal Shah with Green Street. Unknown Analyst: This is Naishal on for Vince. I was wondering if you could touch on co-tenancy clauses tied to the off-price stores from traditional mall anchors. Given the recent headlines surrounding Neiman Marcus and Saks, I'm curious if they were to close some other outlet locations, would the resulting NOI impact be limited to just their box? Or would it also affect some of the other in-line tenants as well? Stephen Yalof: Yes. Great question. In the outlet channel, we have very limited exposure to co-tenancy. Our tenants trust us with our merchandising strategies, and there's very little impact or exposure from that standpoint on the outlet side of the business. Operator: Our next question is from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I wanted to go back to some of the trends that you're seeing specifically around occupancy. So in the first quarter of this year, you experienced a little bit more occupancy loss than in prior years, and it weighed on same-store growth. As you've clawed back that occupancy now, I was just hoping you could provide some insight on early expectations around the sequential change we might anticipate sort of post holidays into the first quarter of next year, whether you think you can maintain higher year-over-year occupancy heading into '26, or if the temp tenant strategy and merchandising strategy results in just a little bit more seasonality around the holidays and post-holiday period than you've seen sort of historically? Michael Bilerman: So the first thing is just in terms of the first quarter and the occupancy decline, there was no impact really on same center from that. And the reason for that is that excess occupancy decline was really the result of 2 boxes in our portfolio, which I know we've talked about this a bit, but our average portfolio is 16 million square feet, 3,500 stores, average store size of under 5,000 square feet. In the first quarter, we had 2 boxes that totaled almost 80,000 square feet, one at our asset here in Deer Park, which was an old Christmas tree shops that was temp with a Wayfair for over a year at temp rent, and we re-leased that space to Main Event, who's taken over possession and will open next year. But that vacancy effectively in the first quarter wasn't that meaningful from a revenue perspective given the prior tenant was a temp. The other piece was a 30,000 square foot box that was bought vacant in Huntsville that we had a Spirit Halloween at the end of the year. And again, temp rent, not a big amount, but it was 30,000 square feet. And that, too, we've re-leased LL Bean will be coming to Huntsville in half of the box, and then we have some plans for the other side. So that occupancy decline when you back out those 2 tenants at 150 basis points was exactly in line with our 20-year historical average going from 4Q to 1Q because in our channel and in our strategies, occupancy troughs in the first quarter where you come out of the holidays and you have your highest amount of lease roll and then we build sequentially each quarter, ending the year at the highest occupancy, as Steve talked about earlier in the call, we want to fill our assets and have open, vibrant options for the consumers who come shop with us. And so, you tend to get that seasonal lift as you move through the year. The rent on that space is not as much as it is on a permanent basis. And that's why in a big part, that occupancy decline in the first quarter didn't have any effect on us where we reiterated the guidance and then have been able to lift it throughout the year. Is that -- was there a second part that I missed in the question? Todd Thomas: Yes. No, that's sort of helpful context and kind of a reminder of the early year impact. I guess it sounds like with those box recaptures in '25, assuming that does not replicate that you might expect to have sort of a higher occupancy rate starting point for the year relative to last year. So that's helpful. If I could shift over then, Steve, you talked about the revenue opportunity for marketing and some of the partnership opportunities here. I understand the increase in foot traffic and how that benefits tenants and Tanger broadly. But is there a more significant revenue opportunity separate from what we see today in the financials that we should consider as we think about the earnings potential for the company? Stephen Yalof: The only thing I can say is as we continue to add new properties to our portfolio, one of the great opportunities that we see across the new additions is our ability to grow that business in those markets. So I would say Kansas City is probably a good example of a shopping center where we will put a tremendous amount of focus on that sort of marketing and partnership business that we call it. I'm not going to sort of guide to how big they can be. We certainly don't want to overcrowd our shopping centers with marketing and messaging. We want to be artful. We want to be elegant. We want to be smart, but we think we're still in the relative early innings with regard to our long-term ability to grow that business and grow sustained rent revenue over time. Todd Thomas: I guess, Michael, if there is any additional revenue that begins to flow through as a result of some of these programs or initiatives, that would fall in the management leasing and other services line on the P&L. Is that where we would start to see that reflected? Michael Bilerman: No, it's in the other revenues. So if you look at the breakdown of our revenues that appears on Page 15 in the supplemental, you'll see there's that rental revenue. And then on the face of the income statement on Page 14, you'll see the other revenues listed there, it's 3% to 4% of our total revenue base, but it's been growing at an above-average pace, which has led to enhanced revenue and same-center growth. And so that's where a lot of those activities fall. Operator: Thank you. There are no further questions at this time. This concludes today's conference call. We thank you again for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. I am Katie, your Global Meet call operator. Welcome, and thank you for joining QIAGEN's Third Quarter 2025 Earnings Conference Call Webcast. [Operator Instructions] Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. [Operator Instructions] At this time, I'd like to introduce your host, John Gilardi, Vice President, Head of Corporate Communications at QIAGEN. Please go ahead. John Gilardi: Thank you, operator, and welcome to all of you who are joining us for this call for the third quarter of 2025. We appreciate your time and your interest in QIAGEN. So joining the call today are Thierry Bernard, our Chief Executive Officer; and Roland Sackers, our Chief Financial Officer. Also joining us today is Daniel Wendorff, our new Head of IR; and Dr. Domenica Martorana, from our Investor Relations team. Before we begin, I'd like to share that our next deep dive on Sample technologies is planned for Friday, November 21. The invitation was just sent out to you. So please register for the event. Domenica has done an outstanding job leading the creation of the series, and we look forward to another engaging session. As always, -- today's call is being webcast live and will be archived in the IR section of our website at www.qiagen.com. Here, you can find the press release and presentation accompanying this call. Please also note that this call will include forward-looking statements. Actual results may differ materially from those projected due to a number of factors outlined in our most recent Form 20-F and other filings with the U.S. Securities and Exchange Commission. We will also refer to certain financial measures not prepared in accordance with U.S. generally accepted accounting principles, or GAAP, that provide additional insights into our performance. Reconciliations to the most directly comparable GAAP figures are in the release and presentation and all references to earnings per share refer to diluted EPS. With that, let me hand the call over to Thierry. Thierry Bernard: Thank you, John, and hello, everyone. Good morning, good afternoon or good evening to all of you joining us from around the world. I'd like to start by thanking the QIAGEN teams across our company and across the world for their ongoing dedication and strong execution in this challenging macro environment. Their focus and collaboration enabled us to deliver another solid quarter. In fact, the 24th consecutive quarter in which we met or exceeded our targets. We continue to see the clear merits of our strategy to prioritize high-growth areas of molecular research and testing while maximizing the reach of our portfolio to customers across both the life sciences and diagnostics. This approach continues to provide balance and stability even in those very volatile and uncertain conditions. This performance in 2025 also enables us to advance key capital allocation initiatives that are strengthening our business and creating value. Two important developments were announced yesterday. First, the acquisition of Parse Biosciences that expands our Sample technologies portfolio into the very fast growing AI-driven single-cell market. Second, a $500 million synthetic share repurchases to be completed in January 2026 that will bring total shareholder return since 2024 to above our 2028 goal for at least $1 billion return to shareholders. We remain strongly committed to our 2028 ambitions even again, in this challenging environment. We have significantly strengthened key pillars in our portfolio and continue to position QIAGEN towards our 7% sales CAGR target from '24 to '28. We are also on track to move well above our 31% adjusted operating income target by the end of 2028 despite currency and integration headwinds. So we are combining top execution with decisive actions to deliver solid profitable growth. So let me walk you through our key messages for today. First, we once again exceeded our targets for the third quarter and delivered one of the fastest growth rates in our industry. Net sales rose 6% to $533 million, where -- while results are constant exchange rates were up 5% and ahead of our 4% CER target. More importantly, core sales, excluding recently discontinued products increased 6% CER over the prior year period. Adjusted diluted EPS was $0.61 at both actual and constant exchange rates and therefore, above our outlook for at least $0.58. Those results, again, underscore the strength of our differentiated portfolio. and the success of our efficiency initiatives in delivering a consistent performance quarter after quarter over the past 6 years. Second key message our growth pillars continue to perform strongly in 2025. QIAstat diagnostics grew 11%, driven by strong instrument placements and double-digit consumable growth on demand across our clinical syndromic testing panels. QuantiFERON also grew 11% CER supported by continued latent TB conversion from the skin test and broader adoption worldwide. Sample technologies returned to growth with sales rising 3% CER on demand for automated consumables despite cautious capital spending. QIAcuity, our digital PCR platform maintained double-digit CER growth with robust consumable demand more than offsetting slower instrument sales among life science customers. And QIAGEN Digital Insight, our bioinformatic portfolio delivered solid double-digit growth, driven by growing demand for clinical bioinformatics and also the integration of Genoox, which has further enhanced our growing edge of AI-driven solution for interpretation of clinical next-generation sequencing data. Third key message. Our strong performance so far in 2025 is allowing us to again raise our earnings target while confirming our sales outlook. This reflects the success of our efficiency initiatives and disciplined execution. Despite currency headwinds and the adverse impact of tariffs and the current U.S. government shutdown, we continue to improve profitability and maintain solid growth. This is fully aligned with our 2028 ambitions for solid profitable growth. Therefore, we now expect adjusted EPS of about $2.38 CER, an increase of $0.10 from our initial guidance for 2025. At the same time, we continue to expect net sales growth of about 4% to 5% at constant exchange rates. And more importantly, 5% to 6% CER growth for our core portfolio. This is definitely another solid and strong quarter demonstrating consistent execution, operational discipline and clear strategic direction. And lastly, let me briefly address the announcement about our leadership transition. After more than 10 years with this remarkable company, including 6 years as CEO, I and our Supervisory Board have agreed that this is the time to prepare for QIAGEN next phase of growth. This decision comes after deep reflection and with full confidence in the strength of our company, the strength of our strategy and above all, the quality of our people. I will obviously continue to lead QIAGEN until a successor is appointed to ensure a smooth and orderly handover. Our focus -- my focus remains unchanged. Executing on our strategy, delivering on our 2025 goals and advancing on our 2028 ambitions for solid and profitable growth. It is a real privilege to serve QIAGEN and to work alongside such talented and dedicated colleagues. And I'm really confident that our company is well positioned for its next phase of growth. With that, I'll hand it over to Roland for more on the financials. Roland Sackers: Thank you, Thierry, and hello, everyone. Let me start with a few key financial highlights. First, QIAGEN remains one of the fastest-growing companies in our industry as core sales rose 6% at constant exchange rates. Second, profitability remains strong. Our adjusted operating income margin for the third quarter of '25 was steady at 29.6% of sales, 30% at constant exchange rates absorbing more than 150 basis points of headwinds from currency movements and the impact of U.S. tariff. And earnings per share at CER were $0.61 and well ahead of the outlook for at least $0.58. Third, cash generation was also strong with underlying operating cash flow of $466 million for the 9 months of '25, including about $45 million cash restructuring payments. And fourth, our balance sheet remains strong, giving us the flexibility to invest in innovation, pursue targeted bolt-on acquisitions like Parse and to increase returns to shareholders as we are doing with our $500 million synthetic repurchase set for completion in January '26. We have a long-standing capital allocation strategy that has created value by directing resources to the highest return opportunities. Based on this new repurchase program, we are well ahead of our target to return at least $1 billion to our shareholders by end of '28. We also anticipate that our leverage rate, our net debt to adjusted EBITDA ratio will move towards the industry average of approximately 2x during '26 as we consider additional capital allocation in the new year. Now let me take you through the details. In terms of sales results, among the 4 product groups, Sample technologies rose 3% CER and driven by consumables growth, especially automated kits that showed double-digit expansion compared to the year ago period. Instrument sales were slightly lower, but included good placements of the QIAsymphony, QIAcube Connect and EZ2 Connect systems. In Diagnostic Solutions, sales rose 4% at CER, but at a faster 8% excluding the discontinued [ NeuMoDx ] system. The top performers were QIAstat and QuantiFERON, both growing 11% CER and supported by further expansion of our companion diagnostic pharma partnerships. In PCR and nuclear acid amplification, sales were stable compared to the third quarter of '24 at constant exchange rates. Our digital PCR platform QIAcuity continue to grow as strong demand for consumers more than offset lower instrument sales amid cautious life science spending. In the genomics and NGS product group sales was 9% CER and led by the QIAGEN Digital Insights bioinformatics business. QDI sales grew at a double-digit rate through a combination of sales growth from the current business and first-time contributions from the Genoox acquisition. Consumables for universal NGS panels also grew over the year ago quarter. Turning to the regions. Sales in the Americas rose 7% CER supported by strong growth in the U.S. against lower sales in Brazil and Mexico. In the EMEA region, sales grew 4% CER, led by Germany, France and Italy along with the Nordic region. The Asia Pacific region declined 2% CER and reflecting a mid-teen CER decline in China over the same period in '24 against higher sales in India, South Korea and Australia. Moving down the income statement. Adjusted operating income grew in line with sales and reached $158 million as the adjusted operating income margin remained at 29.6% of sales compared to the third quarter of '24. R&D investments were 9.2% in the third quarter, 25% compared to 8.9% in the year ago period. The vast majority of our R&D spending continues to focus on our pillars. This includes the upcoming launches of 3 new sample prep instruments, new panels for QIAstat-Dx, the expansion of QIAcuity applications in research and the clinic and also the development of the fifth generation for QuantiFERON. Sales and marketing expenses showed the benefit of efficiency gains declining about 1 percentage point to 21.2% of sales from 22.2% in the third quarter '24, while our teams maintained an ongoing high level of customer engagement. General and administrative expenses declined slightly to 5.7% in the third quarter, 25% compared to 5.9% showing continued cost discipline while investing in IT upgrades, such as the SAP system migration. Adjusted diluted EPS was $0.61 at constant exchange rates exceeding the outlook for at least $0.58 CER. The adjusted tax rate was 18%, and this was consistent with our target. Moving to the cash flow. We saw an ongoing high level of cash generation for the first 9 months of the year over the same period in '24. Operating cash flow was $466 million for the '25 period, compared to $482 million in the same period of '24, but the '25 results included about $45 million of cash restructuring payments related to the efficiency and portfolio initiatives. Free cash flow was USD 336 million, which was slightly below the same period of 24% due to the higher levels of planned capitalized IT investments. Accounts receivables declined to about 53 days compared to about 56 days at the end of '24 as our teams continue to improve in this area. At the same time, days of inventories were 151 days at the end of the third quarter of '25 compared to 193 days at the end of '24 and again reflected benefits from our efficiency initiatives. The improving level of profitability and strong cash flows is further strengthening our healthy balance sheet. This gives us opportunity to make disciplined decisions to invest in innovation, pursue targeted bolt-on acquisitions and increased returns to shareholders, as you saw with the development. This is complemented by our decisions to increase returns to shareholders with a new repurchase set for completion on or about January 7, 2026. This $500 million return program comes after we completed a $300 million synthetic share repurchase in January and also paid our first annual dividend of $54 million in July. So based on this capital allocation decisions announced and also our considerations for further deployment in '26 through attractive return opportunities, we expect QIAGEN's leverage ratio to move towards the industry average of about 2x net debt to adjusted EBITDA. In closing, our strong financial position supports our commitment to solid profitable growth. We are deploying resources in areas offering the highest returns, all designated to improve our position to deliver on our '28 ambitions and create long-term value. With that, let me hand the call back to Thierry. Thierry Bernard: Thank you, Roland. And as usual, let's have a look at the progresses across our product portfolio and particularly focusing on our pillars of growth. You probably remember that we are targeting around $1.490 billion in combined sales from our 5 pillars for 2025, representing a growth of around 8% CER. So based on the results to date in '25, we remain well on track to achieve the goal for this group. Let's start with Sample technologies. We continue to advance our next wave of automation and have taken an important step with the acquisition of Parse to extend this leadership by moving into new technologies. Regarding the upcoming instrument launches, those are perfectly on track. QIAsymphony Connect has now been installed at the first customers, and the initial feedback has been very positive about the performance and enhanced connectivity. QIAmini and QIAsprint Connect also both remain on schedule for launch in 2026 and early field test for QIAsprint Connect are confirming very strong demand for an advanced high-throughput solution. It is indeed extremely interesting to note that we have already received purchase orders for QIAsprint Connect. We have also recently marked the 4,000 placement of QIAcube Connect, reaffirming our leadership in automated sample processing. Beyond automation, we are expanding the reach of our Sample technologies portfolio with the acquisition of Parse, a pioneering scalable instrument-free single-cell analysis. Parse has developed a breakthrough instrument-free combinatorial barcoding technology that removes the need from -- for droplet-based system and enables analysis of millions or even billions of sales instead of thousands. This enables delivering more insight at a fraction of the cost. Parse solutions are already used by more than 3,000 laboratories worldwide, including every top pharmaceutical companies and leading research institutions. So this acquisition is really opening up new dimensions for QIAGEN in this fast-growing single-cell market, and fits perfectly with our Sample to Insight strategy. Parse also creates synergies with our QDI bioinformatics business connecting large-scale single-cell data generation with powerful AI-driven interpretation. Together, we can accelerate discovery, built virtual cell models and help researchers unlock new frontiers in AI-based drug discovery and next-generation biology. So tuning for our Sample technologies deep dive session on November 21, and you will learn more about the exciting area of our portfolio. Turning now to QIAstat. We continue to expand our syndromic testing portfolio worldwide with the launch of a new instrument version in the U.S. and we are preparing for more panel submissions in 2025. In September, we received the U.S. FDA clearance for QIAstat Diagnostic Rise, the higher throughput version of our syndromic testing platform. QIAstat Diagnostic Rise automates up to 18 test simultaneously processing as many as 160 samples per day with very minimal hands-on time. So this high-volume version is particularly attractive to our largest customers. Also, in the third quarter, we were well above 150 QIAstat placement, which is once again a testament to the continued growth and stronger customer adoption of QIAstat system. When it comes to menu expansion, we remain perfectly on track to submit the blood culture panel in the U.S. and in Europe by the end of 2025. On QIAcuity, our digital PCR platform, we continue to expand the assay menu and where we are on track to sell at least 1,000 new assay in 2025. So now back to Roland with the details on our outlook for the year. Roland Sackers: Thank you, Thierry. Let me now turn to the outlook for the rest of '25. We continue to expect another year of solid profitable growth as our teams drive operational efficiency and disciplined execution across the portfolio. For the full year, we are reaffirming our outlook for total net sales growth of about 4% to 5% at CER. The expansion remains broad-based across the business. More important, our core portfolio is expected to grow about 5% to 6% CER since this excludes sales from discontinued products. You saw that impact on our results for Q3 '25 with gross sales rising 1 percentage point faster than total sales. Additionally, we raised our target for adjusted earnings per share to about $2.38 CER, reflecting our ability to improve profitability faster than sales while absorbing the headwinds of currency movements and U.S. tariffs. This marks an increase of $0.10 in our adjusted EPS target from the start of 2025. For full year '25, we continue to anticipate tariffs to create a relative headwind of about 90 basis points on the adjusted gross margin as we work on implementing various mitigation actions. Now on to the fourth quarter where we have decided to take a view that the impact of the U.S. government shutdown continues until the end of the year. In light of that factor and also the current macro trends, we are targeting for total net sales to be steady at constant exchange rates compared to the fourth quarter of '24. And for our core sales and the core sales drives about 2% CER. Adjusted EPS is expected to be about $0.60 at constant exchange rates. As we look at the currency impact market trends, for the full year, we continue to expect a positive impact of about 1 percentage point of net sales but an adverse impact of about $0.02 on adjusted EPS. For the first quarter, currency movements are expected to have a positive impact on net sales of about 1 percentage point, but an adverse impact of about $0.01 on adjusted diluted EPS. On a separate note, I'm pleased to introduce Daniel Wendorff, who joined QIAGEN as of November 1 as our new Vice President and Head of Investor Relations, reporting direct to me. Some of you may know Daniel from his prior role at the Investor Relations team at Merck in Germany and earlier as a research analyst covering QIAGEN and the life science sector. He joins a strong IR team. John Gilardi will continue in his role as Vice President, Corporate Communications. With that, I would like to now hand the call back to Thierry. Thierry Bernard: Thank you, Roland. So we are coming to the end of our call. So to give you a quick summary, QIAGEN definitely delivered another strong and solid quarter, once again exceeding our outlook. And just as important, we took decisive action to strengthen our portfolio and increase returns to shareholders all aligned with our 2028 ambitions. Our differentiated pillars, mainly serving the continuum from basic research to clinical diagnostics continue to perform very well. New product launches and additions to our portfolio are on the way to create new relays of growth. We definitely remain focused on creating value through profitable growth, operational excellence and disciplined capital deployment, while maintaining flexibility to pursue attractive acquisition opportunities like Parse. With the increase to our adjusted EPS target for 2025 and the new $500 million share repurchase, we are definitely delivering on our commitments to value creation by positioning QIAGEN for continued momentum as a top performer in 2026 and way beyond. With that, I would now like to hand back to John and the operator for the Q&A session. Thanks a lot for your time. Operator: [Operator Instructions] We'll take our first question from Jack Meehan with Nephron Research. Jack Meehan: And congrats, Thierry, John, enjoyed working together, but I doubt this will be the end. For my question, I wanted to focus on the Parse acquisition. Just had a few questions on that. Just first, if you could talk about how the deal came together and what brought them to the top of the list of targets as you consider tuck-in M&A? And then if you look at the competitive landscape for single-cell is very competitive kind of have an entrenched leader with 10x. And then Illumina talks about instrument-free approach with Fluent. So if you could just talk about the differentiation of the technology and kind of why it's better in QIAGEN's hands and what you can do with it, that would be great. Thierry Bernard: Thank you, Jack, and thanks for your nice comments. So First of all, for me and for the company, the acquisition of Parse is the typical, very good examples of a very good use of our cash for a strategic bolt-on acquisition. First, it is strategic; second, it is extremely synergistic with our existing portfolio; third, it is accretive to our top line growth; and fourth, it will be accretive to our financials in a very reasonable time frame, in less than 3 years. But -- because there are different knowledges around Parse, let me come back first on what does Parse offer and what could be the everyday application. This is a company that we are following since 2017. We have always believed at QIAGEN that single-cell was a natural extension to our sample prep technology. And since we know them, what has amazed at QIAGEN is that this constantly executed on what they told us they would deliver, either growth or product development. Let us remember first that single-cell analysis is literally turning biology from a blurry group photo into a real sharp portrait of every individual cell. As a result, scientists all over the world, they can now study millions to billions of cells at once, for example, to try to see which ones are driving cancers. Other technologies, groups, all the cells together, so researchers cannot really see which specific cells are actually causing the disease. Parse makes the level -- this level of insights completely possible. And we will combine this with AI-driven tools from our QDI portfolio. So why did we select Parse? There was no way for QIAGEN, obviously, to invest into a me-too product or portfolio of solutions. First of all, Parse is the fastest-growing company in single-cell analysis and is a very natural extension of our sample prep portfolio. Examples, Parse is already present in more than 3,000 labs in the world. Second, Parse offers an instrument-free kit, allowing any lab to use it without costly hardware. Third and perhaps more importantly, Parse differentiates because it can process millions to billions of sales far more than any other system and far more than the competitor that you mentioned. As a result, we consider that it is a very natural fit for Sample tech, but also with synergies with our QDI and also next-generation sequencing chemistry. Does this answer your question? Jack, does it answer your questions? Jack Meehan: It does. Operator: We will take our next question from Hugo Solvet with BNP Paribas. Hugo Solvet: I'd like to focus on QIAstat, please. Can you talk to the traction for the new panels, gastro and meningitis? And how do you see them driving an acceleration going forward? And as some of the instruments placed during COVID will likely arrive at the end of their life cycle soon, can you maybe talk to the opportunity for potential market share gains here? Thierry Bernard: Thank you, Hugo. So QIAstat continues to deliver. I mean, it's very interesting to see again a double-digit growth in Q3. And we all know that Q3 is always normally a kind of softer quarter for QIAstat. Why? Because the syndromic testing market is still driven by respiratory panels, and we all know that in most of the western world, Q3 is rather a low time for respiratory infections. So 11% growth in Q3, 150 more placements of system is a good performance. Respiratory panels are 70% of the syndromic market. But it's very interesting to see at QIAGEN, the growth of our GI panels and meningitis and especially where we can grow, like, for example, in the North of Europe or in North America or in Middle East. For GI and for meningitis, Hugo, we are growing at more than double digits. This is very encouraging and especially in the U.S. I remind you all that the U.S. is still the main market for syndromic testing. So yes, as you said, obviously, some of the customers that we installed during COVID will come from renewal and basically renewing with once again QIAstat is the perfect choice. Why? Because since COVID, they have much more panels opportunities, and they will get more in 2026 with the launch of the blood culture panel. And the complicated UTI by the end of '26 for Europe and '27 for the rest of the world. So we are well on track to execute on our guidance for 2025. And for syndromic testing, Hugo, we will definitely beat our mid-term guidance that we gave in our Capital Market Day in New York, which was, as you remember, $200 million revenues by 2028. I continue to say with the rest of the company that in syndromic testing, QIAGEN will be a very solid and competitive #2 on the market. Operator: We'll take our next question from Doug Schenkel with Wolfe Research. Douglas Schenkel: A couple of quick questions on the diagnostic side. First, on QIAstat-Dx. You now have the 3 key panels, respiratory, GI and meningitis approved in the U.S. I'm just curious how you have seen these contribute to platform growth since then. I know it's relatively early, but I just want to see if placements and utilization are tracking in line with expectations? And then on QuantiFERON, you guys have done a very good job this year with the investment community. Basically talking about the importance of some of the automation capabilities enabled via your partnership with DiaSorin. I'm just curious if -- as we sit here today, given I feel like we've heard less about any competitive disruption to the franchise, but if there's anything new to talk about there, whether it's via the partnership or more broadly, given performance looks quite good there. Thierry Bernard: So I think the main example that I can give for the impact of those 3 panels on our U.S. performance for QIAstat is, as we already disclosed at the end of Q2, Doug, we placed more instruments in 6 months in the U.S. in 2025 that we did in the full year of '24. I think this is the best estimate that those 3 panels now are really helping. In addition to that, we have reshuffled the team. We have dedicated sales rep for QIAstat in every territory in the U.S. So that helps. So in '25, we are going to exceed our target for instruments for the U.S., and the growth is very solid. So I'm very confident. On QuantiFERON, I keep the same approach together with the team. We always believe that competition would come one day to this market. And this is why for the last 10 years, Doug, we have prepared for that. Even when there was no names or no precise dates, we are prepared. This is why we built that automation partner with DiaSorin, but not only with DiaSorin with also Tecan and Hamilton. This is why we consistently improve the technology itself. We are now at the fourth generation of QuantiFERON. And this is why also we continue to focus on what is still today the main competition, which is skin test. I remind everybody once again that we still have to convert more than 50 million skin tests in the world. And if you just take the U.S., it's around probably 15 -- a bit more than 15 millions of skin tests that we need to cover. And then we are prepared -- we are prepared. And last thing I would say that makes me very optimistic for QuantiFERON, Doug, is that despite those good results, despite the fact that we continue to grow at double digits, we continue to prepare the future. I started to speak about this in our Q2 earnings. Expect in the coming weeks and months to see announcements improving the workflow of QuantiFERON, the ease of use, and we are also working on further enhancements of the test. So there is no complacency in our approach. We are #1, but we know that we need to defend this disposition, and we are ready. We are ready commercially, we are ready also from a product standpoint. Douglas Schenkel: Thierry, I don't know if you could still hear me, but if you can, I just want to thank you for those answers and more importantly, for all the great work you've done over the years, you've really done a great job through a tough period in the industry, bringing a new level of discipline to the company. So I really appreciate that. And thanks for everything. We look forward to seeing you in a few weeks. Thierry Bernard: This is very humbling. Thank you. Operator: We'll take our next question from Casey Woodring with JPMorgan. Casey Woodring: Great. Maybe just to start on academic and government. Maybe just walk through if you can quantify what the shutdown impact is on the quarter. I know that you're assuming those shutdowns for the entirety of the quarter in 4Q. And then some of your peers have talked about European academic and government spend improving in 3Q and taking a bit more optimistic stance there on the forward outlook. So just elaborate on what you're seeing in academic and government maybe between regions? Thierry Bernard: Yes. Thanks for the question, Casey. I mean, obviously, the new events since we had a quarterly release is that we are in a shutdown in the U.S. And it's fair to acknowledge as well that nobody, and believe me I ask many other CEOs, you probably know that I'm still chairing our industry association in the U.S., and nobody knows when he's going to stop. So we took a conservative assumption, which is, okay, we are going to be in the shutdown probably until the end of the year. If it stops before, we might see an improvement of our target so far, but let's take cautious and realistic approach. So obviously, the shutdown has an impact on our sales because it impacts, obviously, an already constrained environment in academia and research, where we know that people were very cautious to spend on capital expenses, but some time on consumables. I believe that QIAGEN is able to mitigate that impact for some reason. First of all, because while we are not immune, obviously, to it, but I believe that we sell product of very high value for this academia and research labs. So it's very difficult to basically not use our product. Second, we do not sell huge price tag instruments, for example. So our solutions are, first, very important. Second, it's not a big, big budget, but we see an impact. This is an impact on sales of consumables on a daily basis, and this is an impact also on sales of instruments. But overall, I think it's under control. It's fully factored in our current guidance. And I remind you, Casey, in that environment, unlike many competitors or peers, we have maintained our guidance for the year, top line. And we have also improved our guidance from a profitability standpoint. I think this is a testament to the strength of the company. Casey Woodring: Understood. And would just reiterate what Doug said, Thierry. Thierry Bernard: This is very nice of you. I appreciate that. Thank you. Operator: We will take our next question from Aisyah Noor with Morgan Stanley. Aisyah Noor: My one is on tariffs. So thank you for the guide of 90 bps impact on the margin. Are you able to be a bit more explicit about the dollar value of these tariffs, whether these are gross or net of mitigation efforts and whether we can annualize this impact for 2026? Thierry Bernard: Thank you, Roland, would you like to take this one? Roland Sackers: Yes, sure. No, again, I think we were -- the 90 bps this year is, of course, the net impact. And I think what we said going forward is we have ongoing mitigation. So we do not necessarily expect an increase for next year's mitigations more or less kicking in particular also early next year. So we do not -- with the knowledge as of today, and unfortunately, that is an area where one tweet can change a lot. And -- but with all the information we're having right now, we do not expect that it becomes a larger impact for us. Aisyah Noor: Okay. If I could follow up on that, on the pricing dynamics. These tariff surcharges that you're placing on your products, we're hearing from some of your peers that there could some resistance to the surcharges that are being passed through and potentially resulting in some delay or push out of demand into the next quarter. Just curious is this something you're seeing? Or are you comfortable that these surcharges are passing through? Thierry Bernard: Well, I think we can take this question both of us. I can tell you I've been for something like more than 20 years now, unfortunately, on the field. It is always a negotiation when you want to price -- to pass the price increase, Aisyah, always a negotiation. Customers, when you are selling value, are understanding this because let's not forget that QIAGEN invest 10% of our sales in R&D, they see that. So the surcharge of -- coming from tariffs, it's not a price increase, it's a surcharge that we communicated to customers. It's not an easy discussion, but we explained, we explained the reason and we explained that we need to share the burden as well. And it has generated results in our quarter as well. So never easy. We do not see customers postponing decision for this. It is a discussion. We are always pragmatic, obviously, because we respect customers, but we are also insisting that we need to pass them. I think, Roland, you wanted to add something also to that. Roland Sackers: No, I think, you covered it very well, Thierry. Yes, at the end of the day, again, it depends. It is nothing what we do. Again, we clearly look on where we have pricing power, in which region, which product, what are the contracts? For us, more important is that, I would say, again, if you look at the financial results of this year, that we balance it out quite well. We were able to increase EPS 1 more time. Now we are $0.10 up. If you look on the overall margin expansion for QIAGEN, again, I just want to remind everybody, I know I'll show that you know it quite well. '23, we ended the fiscal year with an adjusted EBIT margin of 26.9. '24, we ended the year with an adjusted EBIT margin of 28.7. For this year, again, if you do the forecast, CER, we end with an EBIT margin of 30%. So we have now in less than 24 months, an EBIT margin improvement of 310 basis points. I think that speaks for itself how we're able to manage it, including clearly headwinds like U.S. tariffs. Operator: We'll take our next question from Patrick Donnelly with Citi. Patrick Donnelly: Thierry, my congrats as well on a great run. Can you just talk about your high level, the moving pieces we should be thinking about for '26. Obviously, the 4Q exit rate has a little bit of the shutdown in it. So just trying to think about high level the approach into '26, both on revenue maybe for you, Thierry. And then Roland, I know you touched on the margin there. Anything high level we should be thinking about as we head into next year. Thierry Bernard: Yes. We'll ask Roland to start with the overall picture, and I will come back on the revenue as well. Roland? Roland Sackers: Yes. I think, again, talking about the margins, let me kick it up also on Q4. As I just said, we are probably ending the year with a margin CER-wise of 30% for the fourth quarter also, while it's clearly a more challenging quarter in terms of the U.S. shutdown, we still expect also a constant exchange-wise, an EBIT margin of 29.5%, so still quite high. Yes, we have a bit more currency impact, negative impact in that quarter. But nevertheless, I would say, still quite strong. And I think that also makes us confident for next year. So for me, it's very clear that we also expect an underlying margin improvement, not only for '26. And I know that you're all expecting us that we will update the margin for '28, and we're going to do so and you will see a significant increase there. But of course, I don't do that today. The one thing, of course, I want you to have in mind is why we will have an underlying margin improvement next year. It's quite obvious that as we just talked about, tariffs is, to a certain extent, still some headwind. And of course, the [ Argos ] acquisition is also to a certain extent, a headwind. Nevertheless, we will more or less go into the year similar to what we did this year. And I do think we had a good one this year so far. Thierry Bernard: And to complete that, Patrick, thanks for the comments. And the way we see it with the team is quite simple. Two years ago, Patrick, we took a commitment to the market, which was very simple. 7% sales growth CAGR, 31% EBIT margin, as Roland highlighted, of $2 billion of revenues coming from our pillars of growth. The obsession of management, the priority and the focus is regardless of the market environment, we deliver on this. And what I mean by this is that it is clear that since our last Capital Market Day, sales are becoming more difficult. You see this with our competitors. You have seen most of our competitors or peers downgrading their outlook or expanding the range of potential growth. So what we believe is that if the situation doesn't improve in 2006 -- and '26, we are positioned to go probably around 5%, slightly above everything, including with the acquisition of Parse. If the situation doesn't improve -- if the situation improve, because also of our organic portfolio, but also the input from Parse, we could be between 5% and 7% of growth. This is not a guidance call. Let's make it clear. I'm giving you -- we are giving you with Roland some flavors. Obviously, we monitor the situation. But what is important is that if you look at what this management is going to do, and it's not just Thierry, it's all the team, is that regardless of the environment and complexity, we do smart move with our cash generation and balance sheet to improve our portfolio of products, Genoox, Parse and we take actions also to continue to improve our profitability. In other words, I would also say that we will position QIAGEN again, regardless of the environment to deliver on the expectation on the market from an EPS standpoint in 2026. Operator: We will take our next question from Luke Sergott with Barclays. Luke Sergott: Can you talk about just from the Parse acquisition plans that you guys or investments that you guys are -- that you would need to take either on the automation side or anything that you can leverage on your existing portfolio here to add scale or make it more user-friendly across a broader customer base? Thierry Bernard: Thanks. I mean it's already extremely user-friendly. And this is why -- imagine this is still a young company, more than 3,000 customers worldwide. It's a significant and humbling performance, I think. Second, you know that one of the differentiation is that it's completely instrument-free. So it makes the ease of use extremely customer-friendly. Third, there is something that we didn't go into details today that Parse has built, which I find also interesting is giga lab capacity to address, especially higher throughput, higher volume customer demand. So I see a lot of interesting synergies, immediate portfolio synergies. Someone selling Sample tech at QIAGEN can sell also Parse tomorrow. And I would say a lot of people from Parse can immediately sell also and leverage our Sample tech portfolio, our QDI solution as well. Second, there is another natural. By definition, we are much more a global company than Parse. So we can immediately obviously expand the geographic footprint. And so it's in our business case to continue to support this portfolio with R&D investment and the 2 teams are now going to work together as well to see what more synergy from a development standpoint, can we put to make sure that we ensure the continuum of solutions from Sample tech, but also QDI and also our sequencing chemistry. And all this linked with AI. Let's not forget that a good driver also from that acquisition is that we take another dimension with AI in our portfolio. Luke Sergott: Okay. That's helpful. And then I guess from a QIAcuity perspective, you talked about the consumables up double digits. Can you just break out what you're seeing there for across the biopharma side? Like how much of your QIAcuity piece is actually being sold into that market versus the A&G market? And then a follow-up on just what you're seeing from a competitive dynamic versus especially the new offerings from the droplet technologies? Thierry Bernard: So once again, I mean, as usual, we deeply, I'm sorry, respect our competition. What we see is that our direct competition is basically presenting numbers that are not really comparing to our performance. We are still double digit that we continue to invest. I said during the call that it's a significant number of new application in academia and research every year that we are making available for our customers. You know that the solution is also now available for clinical customer is what we call QIAcuity Diagnostic. And we see a very good also -- performance from our companion diagnostic. So from direct customers, usage such as biopharma, QC controlled by pharma is boosting way over double digit and pharma customers are becoming a significant now a segment of customers, and they are very interesting. Why? Because, first of all, their throughput -- their volume of consumable is higher than any other segment and they are very demanding customers. Second, the portfolio of companion diagnostic, digital PCR based is even surprising to us in full transparency. It's growing very fast. And I remind you this positions QIAGEN very well because we are the only company at this moment able to offer to biotech and pharma companies companion diagnostic solutions that are PCR-based, NGS-based or digital PCR based. So we are confident. Double digit, its a good performance. We are a bit impacted by this low capital expense environment. So we feel it in our number of placements. But once again, what are we talking about? We are still placing above 100 systems per quarter, and this is good for the future of digital PCR because those placements are going to generate, obviously, consumables. Operator: We will take our final question from Jan Koch with Deutsche Bank. Jan Koch: My first question is on the announced acquisition of Parse. Could you elaborate on the gross and margin -- EBIT margin profile of the business? If I have done the math correctly, it looks like you don't assume any kind of EBIT contribution from this asset in 2026. And could you also share the specific milestones that are required to trigger the additional $55 million payment? And then my second question is on the Sample tech business. Obviously, very encouraging to see that business returning to growth in Q3. But did you benefit from any one-offs in the quarter? And what kind of growth do you expect in Q4 in view of the government shutdown? Thierry Bernard: Very good. Thanks for the question. I will ask Roland to take the financial on Parse from a contribution to our financials, and then I will address the Sample tech question. Roland? Roland Sackers: Yes. I do think, again, what we announced is as you've seen that we expect a dilution of about $0.04 for '26, while we expect revenues of about $40 million. So if you do the math, you really can see it has an EBIT dilution, of course, also for that year. And -- but nevertheless, we do expect it becomes accretive in '28. It is a significant growth opportunity again, the revenue growth rate is quite exciting. So yes, it is dilutive EBIT margin wise for next year, and it's something what we have to eat, and we were clearly trying this underlying to compensate and maybe even to overcompensate for that. But I would expect on the mid-term, there is a nice equation coming up as this business has healthy gross margins for QIAGEN and therefore, the revenue growth rate is going to help. Thierry Bernard: Thank you, Roland. And for Sample tech, there is no one-off in Q3. And I think -- I hope that you will be able to attend our deep dive on the 21st because there, we will go into details showing you, I hope, and demonstrating that we are perfectly executing on our strategy. And what is the strategy? For the last 4 years, we have really, really invested into further automation. QIAcube became QIAcube Connect. EZ1 became EZ2. QIAsymphony Connect is currently being installed. And in the first semester of '26, you will have 2 new instruments with QIAmini and QIAsprint Connect. So automation is the way to go. Second is investing into very high added value application. The first that comes to my mind, obviously, is liquid biopsy. This is not a number that we publish a lot. But do you know that Sample tech liquid biopsy by QIAGEN is growing way over double digit. And when I say double digit, I'm not talking the 10 marks, way over that. And this is where we need to invest. And third is investing into technologies of the future, the demonstration is Parse. So there is no time off. I expect that for the full year 2025 and especially because of the shutdown, we will be basically overall flattish for the year, but I continue to confirm our ambition to grow in the '28 objective because those instruments are going to help. And they are perfectly factored in the ambitions that we gave you back in New York 2 years ago, which is roughly 3% growth rate and reaching $750 million revenues. John Gilardi: Okay. Thierry and Roland, thank you very much. And with that, I'd like to close this conference call. And again, thank you for your participation. If you have any questions or comments, please don't hesitate to reach out to us. Thank you. Operator: Ladies and gentlemen, this concludes the conference call. Thank you for joining, and have a pleasant day. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Investor Relations Officer, Tom Morabito. Please go ahead. Thomas Morabito: Thank you, operator, and welcome to the BlueLinx Third Quarter 2025 Earnings Call. Joining me on today's call is Shyam Reddy, our Chief Executive Officer; and Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our third quarter news release and Form 10-Q were issued yesterday after the close of the market, along with our webcast presentation, and these items are available in the Investors section of our website, bluelinxco.com. We encourage you to follow along with the detailed information on the slides during the webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measures can be found in the appendix of our presentation. Now I'll turn it over to Shyam. Shyam Reddy: Thanks, Tom, and good morning, everyone. Although soft market conditions are pressuring our margins, we are pleased with our overall sales growth efforts, our acquisition of a high-end specialty products distributor and our Portland greenfield expansion. I am especially proud of the team's efforts to grow our EWP volumes by low double digit percentages and our outdoor living product category by low-single digits during a challenging quarter. On to our Q3 performance. Our third quarter results were highlighted by an increase in sales as we continued to positively execute on our product and channel strategies to grow through challenging market conditions. Net sales and volumes improved for specialty products as overall pricing for this business continued to improve, while our product and channel strategies drove volume gains. Structural products also saw year-over-year pricing improvements for the overall business, which were offset by slight volume declines this quarter. When you adjust for the duty-related matter that Kelly will discuss later, our specialty product gross margins were relatively good at 17% in a tougher-than-expected quarter. Importantly, we announced the exciting acquisition of Disdero Lumber Company, a specialty products distributor. Operating since 1953 and based just south of Portland, Oregon, Disdero is a value-added distributor focusing on premium and higher-margin specialty wood products. I will offer some additional details on this transaction in a moment. We're continuing to create demand for our products through builder pull-through programs and value-add services, along with dedicated efforts focused on national accounts and multifamily opportunities. This strengthens our value proposition for customers and suppliers, helps us deepen our market presence and supports our product and channel expansion strategies. We believe that our strategy, when coupled with our strong balance sheet and liquidity position, provides resilience while positioning us well for better-than-market long-term success. Market-driven price deflation for specialty products continues to stabilize with pricing flat for the third quarter versus being down high-single digits this time last year. We were able to offset the relatively neutral pricing impact in Q3 with volume growth in engineered wood products and outdoor living products, in particular, as our channel and product strategies continue to generate positive momentum to grow sales and gain share in these product categories despite housing starts being down year-over-year through August. Our focused efforts are causing large national builders to convert from other well-known EWP brands to our high-quality onCENTER brand, which is a terrific win for our customers as we accelerate our demand creation efforts for their and our benefit. We're also supporting build-to-rent projects with our targeted builder pull-through programmatic efforts, a segment of the housing market that we believe will continue to gain momentum in light of housing affordability issues. Pricing for the overall structural products business was up slightly this quarter, which partially offset the impact of volume declines. Strategically, we are maintaining our commitment to expanding our 5 main specialty product categories: engineered wood, siding, millwork, industrial and outdoor living across all customer segments. Although our mix shift strategy remains unchanged, we are prioritizing strategic channel growth when making decisions about new product launches and working capital investments. We are also continuing our efforts to expand our multifamily business, our builder pull-through efforts and our national accounts business, all areas where we are seeing positive results. We expect to see solid rebounds in the multifamily segment, which efficiently addresses housing demand and affordability over the long run. Recent housing data shows year-over-year improvement, supporting our strategy for long-term growth in this channel. Our multifamily focus is creating demand for our products in tough single-family market conditions, though these sales often involve longer inventory turnover and direct sales, which have lower gross margins. This channel also provides a smoother path for product conversions to the brands we carry, such as our onCENTER engineered wood products and Allura fiber cement siding. Our digital transformation work remains on schedule with Phase 1 set to be completed this year. We have strengthened our master data foundation. We have converted more than 2/3 of our markets to our new Oracle Transportation Management system, and we have successfully processed e-commerce transactions in our pilot market. Our learnings from Phase 1 will inform future investments in our digital transformation journey. We're also advancing our AI work to improving efficiency and boosting productivity. We've gone from piloting AI with a group of BlueLinx associates to providing most of our associates with the ability to build agents via the Microsoft platform to streamline their work and to help improve their productivity. We believe our technology modernization will help us stand out and accelerate profitable sales growth and operational excellence. In addition, M&A and greenfields remain important elements of our profitable sales growth strategy, so we continue to explore and evaluate opportunities in both areas in order to expand our geographic reach and to support our specialty product sales growth initiatives. We are now coming up on 1 year since we announced our Portland, Oregon greenfield, which continues to perform very well. Last quarter, we significantly expanded our product offerings and doubled our warehouse space in that location due to better-than-expected demand. Along these lines, and as we announced on Monday, we are very excited about the acquisition of Disdero Lumber Company, a specialty products distributor. Disdero focuses on higher-margin premium specialty wood products, which are used primarily in the construction of high-end custom homes and decks as well as upscale multifamily residential projects. With customers in nearly all 50 states, we are looking forward to growing this business, not only as part of our Western expansion, but also by distributing Disdero products out of several BlueLinx locations across our footprint. We also plan to offer many of our core specialty products to Disdero's existing customers. The acquisition directly addresses several of our key strategies, such as shifting our product mix increasingly toward higher-margin specialty products, supporting growth in the multifamily channel and to expanding our business in the Western United States. We are also pleased that the highly experienced Disdero team will be staying on with BlueLinx. Combining Disdero with BlueLinx's long-standing customer and supplier relationships, nationwide scale and overall financial strength should result in a significant expansion of this successful business. Now turning to our third quarter results. We generated net sales of $749 million and adjusted EBITDA of $22.4 million for a 3.0% adjusted EBITDA margin. Adjusted net income was $3.7 million or $0.45 per share. Specialty products continued to account for approximately 70% of net sales and over 80% of gross profit for Q3. Specialty product net sales increased slightly year-over-year due to strong volumes in engineered wood products and outdoor living products. Unfortunately, price deflation in EWP partially offset the benefits of our net sales and volume increases in this category. Gross margins for specialty product sales came in at 16.6%, which, as reported, was below our expected range and due in part to a duty-related adjustment that Kelly will discuss in a moment. Excluding that duty-related adjustment, our gross margins would have been 17%. Our commitment to business excellence ensures solid gross margins even in challenging markets. By leveraging our diverse customer base, broad geographic reach, product assortment, multifamily and builder pull-through capabilities and large scale, we can deliver greater value to our customers and suppliers and remain well positioned for long-term success. It is important to note that while industry-driven specialty products price deflation in certain categories continues to adversely impact our top line and our cost of goods sold, the price declines overall continued to improve and were flat in Q3 compared to prices being down high-single digits this time last year. We are optimistic that specialty pricing volatility will continue to stabilize. Despite our success, higher profitable sales growth may be adversely impacted by tariffs, high mortgage rates and general economic uncertainty, which I will briefly discuss in a minute. Structural product revenues decreased slightly year-over-year, largely due to price declines in panels, combined with modest volume declines in both lumber and panels. These volume declines were due to continued challenging market conditions. For the quarter, industry average lumber prices were up 6%, while panel prices were down 14% year-over-year. We once again leveraged our disciplined approach to inventory management and our centers of business excellence to effectively manage margins in our structural product categories. Our financial position remains strong, and our significant liquidity gave us the flexibility to return capital to shareholders by repurchasing $2.7 million of shares in Q3. Combined with our new $50 million share repurchase authorization announced last quarter, our total current availability is $58.7 million. Now let's turn to our perspective on the broader housing and building products market. As you all know, the housing market continues to be soft, which is impacting the building materials and distribution sector. Broadly speaking, housing affordability, elevated mortgage rates, short-term interest rates, construction labor availability, inflation, consumer confidence and other factors continue to affect the housing and repair and remodel markets. The uncertainty being generated by government policies and the adverse impact of the macroeconomic environment on building materials should be short term in nature as the long-term fundamentals of housing are strong enough to drive demand when the market recovers. Currently, the U.S. is 4 million homes short on supply, which is clearly positive for the building products sector. And with the average age of a home at 40-plus years old, it's clear that homeowners will need to make improvements to their existing homes or buy new homes, which will drive greater repair and remodel activity. August total housing starts, which is the latest data available due to the government shutdown, were down nearly 6% year-over-year, and single-family housing starts were down nearly 12% from August 2024. Builders' confidence and consumer sentiment levels are also down significantly compared to this time last year. By comparison, multifamily housing starts were actually much higher on a year-over-year basis, serving as a catalyst for our strategy. Although the total starts are down, our product and channel strategies are leading to gains in a contracting market due to sales growth tied to success with our product expansion, builder pull-through, multifamily and national accounts efforts. While interest rates have been improving and thus helping with the affordability issue, consumer sentiment being down over 20% year-over-year remains a real concern. During the quarter, I spent a great deal of time meeting with customers and suppliers in markets all across the country, and the general tone continues to be one of near-term uncertainty, coupled with longer-term optimism. As we have said before, several sources have estimated that more than 1.5 million homes need to be built every year for the next 10 years to meet the anticipated housing demand, and that may be a conservative number. Repair and remodel spending continues to be soft due to low existing home sales. Despite this softness, our strategic focus on national accounts is enabling us to grow this segment of pro business at scale. As housing activity increases, we believe the investments we're making today will accelerate our growth efforts in the repair and remodel pro business when it recovers. Despite difficult market conditions and uncertain government policies, we believe the market will improve in the back half of next year if interest rates continue to decline and housing starts and repair and remodel activity improve as a result. Regardless, we will continue to emphasize our product and channel growth strategies and, in particular, our builder pull-through, multifamily, national accounts and product expansion efforts to grow in an otherwise challenging market. Our enterprise-wide product and channel strategies position us well for long-term success as they are designed to fully leverage our scale to drive profitable sales growth, not only in challenging markets like the one we're currently in, but more so when the housing market recovers. In summary, although our Q3 results were solid given challenging market conditions, we are most proud of our continued success executing our strategic initiatives as evidenced by our specialty product expansion efforts, multifamily channel growth, national accounts growth, capital allocation initiatives, Portland greenfield expansion and the Disdero specialty products distributor acquisition. We look forward to finishing the year on a high note and to setting ourselves up for success in 2026. I want to express my appreciation to all BlueLinx associates for their ongoing commitment to our customers, suppliers and one another. Our teams remain focused on driving profitable growth in both specialty and structural products sales, ensuring we are prepared for long-term success even as we navigate current market challenges. Now I'll turn it over to Kelly, who will provide more details on our financial results and on our capital structure. Christopher Wall: Thanks, Shyam, and good morning, everyone. Before I review the consolidated results for the third quarter, I'd like to offer a few more details on the Disdero acquisition. We purchased the company for $96 million. The acquisition was funded with cash on hand, and we expect it to be immediately accretive to adjusted EBITDA and adjusted diluted earnings per share. When adjusting for the net present value of expected tax benefits related to the acquisition of approximately $8 million, the net transaction value is approximately $88 million. Pro forma for the funding of the acquisition, our net leverage remains within our previously stated targeted range and our available liquidity remains strong at approximately $680 million between cash on hand and the unfunded revolving credit facility. For the last 12 months ended September, Disdero generated just over $100 million in net sales. Pro forma, after expected cost synergies and including the tax benefit, the purchase price was approximately 7x EBITDA. I would like to reiterate Shyam's thoughts that we are very excited about purchasing a specialty products distributor that fits squarely within the M&A component of our capital allocation strategy and believe it will significantly benefit both our customers and suppliers as we offer the Disdero products across the existing BlueLinx branch network and continue expanding in the Western part of the U.S. We are also excited about the talented and experienced group at Disdero that is joining the BlueLinx team. Turning now to our third quarter results. Overall, our specialty products business delivered solid volume growth in a challenging macro environment, while structural products volumes were lower year-over-year. Net sales were $749 million, up slightly year-over-year. Total gross profit was $108 million and gross margin was 14.4%, down from 16.8% in the prior period. Our results for specialty products reflects an adjustment for import duty-related matters incurred in prior periods. During the third quarter of 2025, the adjustments resulted in an increase to cost of products sold of $2.2 million. Excluding this item, total gross margin would have been 14.7%. SG&A was $89 million, down $3 million from last year's third quarter. This decrease was mainly due to lower incentive compensation expense in the current period related to our year-to-date financial performance, partially offset by increased sales and logistics expenses driven by our strategy to grow sales in the multifamily channel and expenses associated with our digital transformation initiatives. Given the challenging demand environment, we continue to focus on rigorous expense management and opportunities to further operational efficiency. Net income was $1.7 million or $0.20 per share, and adjusted net income was $3.7 million or $0.45 per diluted share. We had an income tax benefit for the third quarter of $300,000 due in part to deductions related to stock-based compensation. For the fourth quarter, we anticipate our tax rate to be between 27% and 31%. Adjusted EBITDA was $22.4 million or 3% of net sales and includes the unfavorable duty-related matter. Not including this adjustment, adjusted EBITDA would have been $24.6 million or 3.3% of net sales. Turning now to third quarter results for specialty products. Net sales for specialty products were $525 million, up 1% year-over-year. This increase was driven by volume increases in engineered wood and outdoor living, partially offset by price declines in EWP and other categories. As Shyam mentioned, given current market conditions, we are optimistic that specialty pricing volatility will continue to subside in the coming quarters. Gross profit from specialty product sales was $87 million, down 13% year-over-year. Specialty gross margin was 16.6%, down from last year's 19.4%, primarily due to price deflation in certain product categories as well as the duty-related adjustments of $2.2 million. Not including these duty-related items in the current and prior year third quarter, specialty products gross margins would have been 17% and 18.7%, respectively. Through the first 4 weeks of the current fourth quarter, specialty product gross margin was in the range of 17% to 18% with daily sales volumes down low-single digits from the third quarter of 2025 and flat with the fourth quarter of 2024. Now moving on to structural products. Net sales were $223 million for structural products, down 2% compared to the prior year period. This decrease was primarily due to lower panel pricing and lower volumes for both lumber and panels when compared to last year. Gross profit from structural products was $21 million, a decrease of 17% year-over-year, and structural gross margin was 9.3%, down from 11% in the same period last year. In the third quarter of 2025, average lumber prices were about $409 per thousand board feet and panel prices were about $443 per thousand square feet, a 6% increase and a 14% decrease, respectively, compared to the average in the third quarter of last year. Sequentially, comparing the third quarter of 2025 with the second quarter of 2025, both lumber and panel prices were down about 9%. Through the first 4 weeks of the current fourth quarter, structural products gross margin was in the range of 8% to 9%, with daily sales volumes up low-single digits versus the third quarter of 2025 and down mid-single digits compared to the fourth quarter of 2024. Turning now to our balance sheet. Our liquidity remains very strong. At the end of the quarter, cash on hand was $429 million, an increase of $43 million from Q2, largely due to improvements we drove in working capital and, in particular, our inventory balances. When considering our cash on hand and undrawn revolver capacity of $347 million, available liquidity was approximately $777 million at the end of the quarter. Total debt, excluding our real property financing leases, was $380 million, and net debt was a negative $49 million. Our net leverage ratio was a negative 0.5x adjusted EBITDA, given our positive net cash position, and we have no material outstanding debt maturities until 2029. Additionally, given the strength of our balance sheet and continued strong liquidity, we remain well positioned to support our strategic initiatives. These strategic initiatives include continued growth in the multifamily channel, demand pull-through efforts to benefit our customers, continued specialty product expansion, our digital transformation efforts and other organic and inorganic growth initiatives. Now moving on to working capital and free cash flow. During the third quarter, we generated operating cash flow of $59 million and free cash flow of $53 million, primarily due to lower CapEx and effective working capital management, particularly as it relates to driving our inventory levels lower to be in line with the current demand environment. Turning now to capital allocation. During the quarter, we incurred $6.4 million of CapEx, primarily related to our digital transformation investments, normal replacement of aging components within our fleet and the typical maintenance and investment in our branches. For the remainder of 2025, we plan to manage our CapEx in a manner that reflects current market conditions and allows us to maintain a strong balance sheet. Our remaining capital investments will focus on facility improvements, further replacement of trucks and trailers and the technology improvements previously discussed. Also during the third quarter, we repurchased $2.7 million of stock, and we had $58.7 million remaining at the end of the quarter from our previous $100 million share repurchase authorization, combined with our more recent $50 million authorization. Year-to-date, this brings our total share repurchases to $38.1 million. Our guiding principles for capital allocation remain consistent with prior quarters. We intend to maintain a strong balance sheet, which enables us to invest in our business through economic cycles, expand our geographic footprint and pursue a disciplined greenfield and M&A strategy as demonstrated by our acquisition of Disdero and opportunistically returning capital to shareholders through share repurchases. We also plan to maintain a long-term net leverage ratio of 2x or less. Overall, we reported solid third quarter results in light of current market conditions, and we were pleased to have driven higher volumes in EWP and outdoor living within specialty products and delivered slightly improved pricing for structural products. And in addition, our strong balance sheet and liquidity enable us to execute our strategy and support our long-term success. Operator, we will now take questions. Operator: [Operator Instructions] Your first question comes from Greg Palm with Craig-Hallum Capital Group. Danny Eggerichs: This is Danny Eggerichs on for Greg today. Maybe just digging into the Disdero acquisition a little bit more and how that came to be. Looking at the kind of acquisition multiple, the 7x post synergy, quite a bit higher than what your stock trades at. So maybe just rationalize that purchase price here versus buying back your own stock. How this going to be? What it brings to the table? And what makes you excited and willing to pay a bit more of a premium for Disdero? Christopher Wall: Yes. So Danny, it's Kelly. Shyam will hit on what we see in terms of the excitement around Disdero going forward. But what I would point out is that this transaction is clearly in the specialty products space. The gross profit margins are in the high 20s. And then we see an opportunity not only on the cost synergy side of about $1 million, but we've got $1 million to $3 million of cost synergies that we –- or, excuse me, revenue synergies that we see over time as we roll their products out across certain of our branches. So the fact that this is a higher-margin business that fits well within our strategy to grow specialty products and then the upside potential that we see in this business going forward is what helped us ultimately be comfortable with the purchase price we paid. Danny Eggerichs: Yes. Okay. And is that kind of consistent with some of your M&A strategy going forward? You're fine with paying those kind of multiples as long as it brings some of these characteristics to the table? Or how should we think about it moving forward? Christopher Wall: Yes. So yes. I mean, if you recall, when we developed the M&A strategy, the idea was, okay, let's get more focused on what's going to support the overall strategy of the business in order to leverage -- expand upon our scale. So first and foremost, geographic expansion. Some deals that would support that would obviously be inherently -- they would inherently minimize disintermediation or consolidation-related risk or integration-related risk. Secondly, when you look at the specialty mix shift, we started going after primarily specialty products distributors, and Disdero fits right in that. Their specialty product offering is very much two-step distribution friendly, has high stickiness with customers and supports high-end builders and high-end repair and remodel projects through our customer base. What we -- what this multiple does not take into account is -- are the commercial synergies that we expect to generate over time. We took a very conservative approach on our expression of the pro forma multiple post expense synergies. But once we start taking full advantage of the BlueLinx network in order to expand the Disdero business, that in and of itself will help accelerate our mix shift while also making the purchase price we paid for this business a pretty fair deal. And to your question around -- look, as you shift the specialty mix, the multiple expansion associated with that over time makes sense for this business in the long run. So we will continue to look at specialty-oriented businesses given the long-term benefits we'll generate. Danny Eggerichs: Okay. Got it. I appreciate that color. Maybe on SG&A. We saw some good operating leverage this quarter with OpEx taking a step down. So maybe how should we think about that moving forward? I know you mentioned there was some lower incentive comp, but there's still some ongoing expense management. And how should we think about it relative to the levels we saw in Q3? Christopher Wall: Yes. I'd say that the levels in Q3 as a percentage of sales are lower than what we would expect going forward. We have continued investment in some of our initiatives around multifamily as well as our digital transformation efforts. With those and just kind of a continued flow-through of increased kind of merit costs and other things through the course of the year, we expect that SG&A as a percentage of sales will be slightly elevated year-over-year, year-end '25 versus year-end '24. And then we continue to take actions that are impacting the current quarter that will have some benefit into 2026. Operator: The next question comes from Zack Pacheco with Loop Capital. Zack Pacheco: Maybe to start, just any more color you guys can provide on how specialty volumes trended throughout the quarter. Curious if you saw any deceleration in demand as the quarter progressed given single-family demand fundamentals continuing to soften during the back half of the year? Christopher Wall: Yes. I think on the specialty volume side, we saw some -- a slight kind of increase led by our EWP product, engineered wood product. And so yes, we've seen that decelerate some in Q4, but we had a good quarter kind of year-over-year in Q3 on the volume side. Shyam Reddy: Yes. So just to highlight that a little bit more. So clearly, there's a seasonal decline as you come into the Q4 cycle because you're coming off season. But if you look at EWP broadly speaking and also outdoor living products, those were 2 specific areas where we were up year-over-year on volumes. And even though we were down on pricing year-over-year, it was still tempered at mid-single digits. So if you look at our double –- low-double digit volume growth in EWP and single digit volume growth on outdoor living products as the market contracted in Q3 as we look at housing starts through August, it's a pretty remarkable story. Like if you look at our structural volumes, for example, they actually track the housing start decline. Yet on the EWP front, we were -- we went against that trend, which I think shows the merit of the various strategies we've employed to grow our private label business and otherwise grow the channel with respect to some of these strategic focus areas with builder pull-through programs, multifamily, also national accounts as well. Zack Pacheco: Okay. That makes sense. Yes. And then maybe just more generally speaking, what you guys are seeing from the regional and independent builders, again, assuming they continue to trail the large publics, given they're more sensitive to higher rates. But I guess on that, just any internal initiatives or thoughts on how to increase share with the large publics. Shyam Reddy: Yes. I mean, look, we have -- one of the ways -- one of the reasons we know we're gaining share or winning on the EWP front, in particular, is we've developed programs with large publics as well as regional builders. And in head-to-head match-ups, we're preserving existing business and winning new programs. And then if you think about that in the context of our overall pricing only being down kind of mid-single digits, which we believe is better than what we've seen publicly and what we're hearing privately relative to our competitor set shows that we are doing -- we're continuing to progress our efforts with these builders. So although they are contracting to some degree, we are actually performing very competitively and picking up more of that overall wallet across multiple regions with some regions being higher than others. So for example, in the South, we've been fairly successful. In some regions like the Northeast, you have a much lower big builder or regional builder presence or more custom homebuilders. But again, given the economics up there, that market is actually doing well because custom homebuilders are still doing well. Operator: The next question comes from Reuben Garner with Benchmark. Reuben Garner: So if I'm understanding it correctly on a kind of a clean basis, the specialty gross margin was 17% in the third quarter. You're seeing a little bit higher than that to start the fourth quarter. What exactly is driving that uptick? I think -- and correct me if I'm wrong, but at least in recent history, the fourth quarter tends to have a lower gross margin profile in specialty than the third. Is there anything kind of unique that happened in the third quarter or to start the fourth that's driving that dynamic? Christopher Wall: Yes. I think in the fourth -- or in the third quarter, we saw rebate and kind of deviation activity a bit lower than prior periods as well. And what we're seeing in Q4 is that at more normal levels going forward, right? So that uptick in Q4 is just as we are ending the year, right, and we're kind of recognizing those benefits to our cost of products on the rebate side, it's helping us get back in line with our -- the levels that we saw through the course of the year, we're trending towards. Shyam Reddy: Yes. And just from a strategic perspective, as we continue to try and differentiate ourselves from our competitors, we are really leaning into value-add services, whether they be much faster turns on EWP plans and takeoff services in order to drive sales of our own products and get greater stickiness with builders so we can pull our products to our customers and help generate business for them. Obviously, on the multifamily side, too, from some of the value-add services we're providing, that's helping us grow. And so ultimately, all things being equal, the goal for us is to demonstrate the value and then get paid for the value because in the long run, that's obviously better for our customers as they grow their businesses more profitably. Reuben Garner: Okay. And then kind of a bigger picture question. There's definitely been some movement in both probably some of your customers and suppliers, whether it's consolidation or just different ownership. Have you seen or do you see any opportunities, whether it's picking up new brands on one side or working with customers differently as they kind of evolve their businesses. Just curious if you're seeing any impact yet or what the likelihood is that, that comes in the months ahead? Shyam Reddy: Yes, absolutely. I do think that some of the consolidation you're seeing in the marketplace, especially with respect to suppliers, could open up some new opportunities for us. At the same time with customers, I mean, we're the value-add services we're providing, let's take multifamily, for example, many of our smaller customers and medium-sized customers, they don't have multifamily capabilities, whereas we do. I mean we've made investments across the network on top of what we've done at corporate to really drive demand for our products through their business because we will not break channel, but we will -- we are determined to help our customers succeed. And to the extent we can leverage our -- the investments we make at scale to do that, the better off everybody else is. So I think that -- and by the way, that multifamily channel also allows us to take advantage of some of the disruption you're referring to, whether it be on the customer side from a consolidation perspective or on the supplier side from a brand perspective. Reuben Garner: Okay. I'm going to sneak a couple more in, if I can. Your inventory is pretty consistent with a year ago in terms of what percentage of revenue it is. There's been some talk of destocking across various categories within building products as things kind of softened throughout the year. How are you guys thinking about it? Have you been kind of staying consistent? Is there any categories, whether it's outdoor living or commodity or any others where you're staying invested because you believe that there's a recovery around the quarter? Can you just talk about your thoughts there? Shyam Reddy: Yes. Generally speaking, we are trying to adapt and adjust to the market. I mean we have a very strong philosophy here of not taking positions, no matter the category. I mean we are -- we have very strong -- I mean, we're constantly working with the business to make sure we have optimal inventory levels. Obviously, heading into the summer, the spring/summer seasonal upside of normal building products and housing. I think we all built inventory to expecting more business than actually materialize, and that was -- I mean that's everybody, right? And so over the course of the summer heading into the fall, we have been very disciplined around our inventory management and taking into account what we had planned for. So we will not -- there is no build it and they will come. I mean I think we have a very smart strategic approach that's very disciplined around both specialty and structural inventory management. Reuben Garner: Okay. Last one for me. Engineered Wood Products. have you seen the sequential price pressure there yet? Shyam Reddy: Yes. Well, it's stabilized, right? It's definitely stabilizing. And again, as we -- some of the things we're trying to do in order to demonstrate our value, right, is quicker turnaround times on EWP plan designs, for example. We're doing some other value-add services with key customers to help them for us to be a more powerful extension of their business. So there are a number of things we're doing to not only get on the front end of that stabilization of price, but also get paid on the margins for incremental value we provide that others don't. But yes, a long-winded way of saying, yes, it's stabilized, continue to see stabilization. Reuben Garner: Great, thanks. Thank you and good luck through year-end. Congrats on the acquisition. Shyam Reddy: Thank you. Christopher Wall: Thank you. Operator: The next question comes from Adi Madan with D.A. Davidson. Aditya Madan: Maybe first off with -- you kind of hit on this earlier, but what specifically drove down specialty gross margin sequentially on an adjusted basis? And specifically, what like go-forward impacts or have about this segment to end the year and into 2026? Christopher Wall: Yes. We saw across primarily on the specialty side, just a net higher cost of products sold. The duty-related item we called out and we've also seen in terms of some of our rebate activity and a lower benefit in the quarter than prior periods. Again, we've addressed that and expect and are seeing that at a more normalized level in the first 4 weeks of the current quarter. And again, are experiencing margins in that 17% to 18% range currently and expect to achieve that in Q4 as well. Aditya Madan: Okay. Got it. And maybe about the run rate SG&A on a go-forward basis? And are there any structural cost reductions underway that might have been baked into the 3Q numbers? Christopher Wall: Yes. So no structural changes kind of baked into the Q3 numbers. We are taking some actions in Q4 that we expect to see benefits from that, some in Q4, but also mostly on an annualized basis next year. As a percentage of sales, as we go into 2026, I think for the full year, we expect some slight pressure kind of increasing that, but we're in the tune of kind of somewhere between 0 and 25 basis points. Aditya Madan: Okay. Yes, that sounds good. And maybe lastly about capital allocation after the Disdero deal, are you more inclined towards share buybacks at these levels? Shyam Reddy: So we're going to continue to be opportunistic as we look at buying back shares. When we look at the acquisition of Disdero combined with last quarter's activity, that was about $100 million of capital that we put to work. So we'll be disciplined going forward. The level of activity may be lower here as we end this year and go into next year. But we continue to see the share repurchases as a key way for us to continue to return free cash flow back to our investors to the extent we're not putting it to work elsewhere. Aditya Madan: Perfect. Sounds good. Good luck to end the year guys. Shyam Reddy: Thank you. Operator: This concludes the question-and-answer session. I'll turn the call to Tom for closing remarks. Thomas Morabito: Thanks, Sarah. Thank you again for joining us today, and we look forward to speaking with you in late February as we share our fourth quarter and full year 2025 results. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Hello, and welcome to Equitable Holdings, Inc. Third Quarter Earnings Call. Please note that this call is being recorded. [Operator Instructions] I'd now like to hand the call over to Erik Bass, Head of Investor Relations. You may now go ahead, please. Erik Bass: Thank you. Good morning, and welcome to Equitable Holdings Third Quarter 2025 Earnings Call. Materials for today's call can be found on our website at ir.equitableholdings.com. Before we begin, I would like to note that some of the information we present today is forward-looking and subject to certain SEC rules and regulations regarding disclosure. Our results may differ materially from those expressed in or indicated by such forward-looking statements. Please refer to the safe harbor language on Slide 2 of our presentation for additional information. Joining me on today's call are Mark Pearson, President and Chief Executive Officer of Equitable Holdings; Robin Raju, our Chief Financial Officer; Nick Lane, President of Equitable Financial; Seth Bernstein, AllianceBernstein's President and Chief Executive Officer; and Tom Simone, AllianceBernstein's Chief Financial Officer. During this call, we will be discussing certain financial measures that are not based on generally accepted accounting principles, also known as non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and related definitions may be found in the Investor Relations portion of our website and in our earnings release, slide presentation and financial supplement. I will now turn the call over to Mark. Mark Pearson: Good morning, and thank you for joining today's call. Equitable Holdings delivered solid third quarter results marked by continued organic growth momentum and increased earnings power across our businesses. We also allocated $1.5 billion of capital to drive shareholder value and future growth, successfully redeploy a large portion of the proceeds from our individual life reinsurance transaction with RGA. This includes approximately $200 million of investments to help accelerate growth in Asset and Wealth Management. Looking forward, our integrated business model positions us well to be a long-term winner in retirement, asset management and wealth management, and we remain confident in achieving each of our 2027 financial targets. On Slide 3, I'll provide a few highlights from the third quarter. Non-GAAP operating earnings were $455 million or $1.48 per share, down 6% year-over-year on a per share basis. Adjusting for notable items, non-GAAP operating EPS was $1.67, which is up 2% compared to the prior year. As expected, earnings rebounded from the first half of the year, helped by growth in each of our core businesses and the completion of the life reinsurance transaction. I'm also pleased that we saw only small impacts from our annual assumption review, validating our conservative approach to assumption setting. We ended the quarter with record assets under management of $1.1 trillion, up 4% sequentially, which bodes well for future growth in earnings. We will also see additional benefits from management actions to enhance yields in our investment portfolio and drive productivity savings. Organic growth momentum remains strong, supported by our flywheel business model. Our retirement businesses generated $1.1 billion of net flows during the quarter, driven by continued growth in RILA sales. As a reminder, flows tend to be lower in the third quarter due to seasonality in the K-12 teachers business, and we did not have any material institutional flows in the period. Wealth Management had another strong quarter with $2.2 billion of advisory net inflows, a 12% annualized growth rate. Adviser productivity increased 8% year-over-year. Turning to Asset Management. AB reported total net outflows of $2.3 billion, which includes $4 billion of low-fee assets transferred to RGA as part of the life reinsurance transaction. Excluding this, AB had net inflows of $1.7 billion, driven by the private wealth and institutional channels. Private markets assets increased 17% year-over-year to $80 billion and are on track to achieve AB's $90 billion to $100 billion target by 2027. Moving to capital deployment. We used $1.5 billion to drive shareholder value and make investments for future growth. During the quarter, we returned $757 million to shareholders, including $676 million of share repurchases. We completed most of our planned $500 million of incremental buybacks and expect our full year payout ratio to be at the upper end of our 60% to 70% target range. We also reduced outstanding debt by $500 million to manage our leverage ratio and give us more capital flexibility moving forward. Finally, we announced 2 strategic transactions that help scale our Wealth Management and AB Private Markets businesses. We are acquiring Stifel Independent Advisors, which has over 110 advisors and $9 billion of advisory assets. In addition, we are allocating $100 million to support AB's investment in FCA Re, an Asia-focused sidecar established by Fortitude Re and Carlyle. AB will become a key investment partner for Fortitude and initially manage $1.5 billion of private credit assets for FCA Re. I will discuss these transactions in more details in a minute, but they both offer attractive IRRs and are consistent with our strategy to scale adjacent businesses. Turning to Slide 4. We highlight our strategy to drive growth and create shareholder value. We are focused on 3 core growth businesses: Retirement, Asset Management and Wealth Management that have synergies and provide flywheel benefits. Participating in all 3 of these businesses allows us to capture the full retirement value chain. There are 4 key pillars to our strategy: number one, defend and grow our retirement and asset management businesses; secondly, scale our high-growth and high multiple wealth management and private markets businesses. Third, seed future growth by investing in high potential opportunities like annuities and 401(k) plans and emerging asset management markets. And finally, be a force for good and deliver on our mission to help our clients secure their financial well-being so they can live long and fulfilling lives. On the next 2 slides, I will provide a deeper dive into our strategy for scaling adjacent businesses. First, I will focus on our Wealth Management business, which is a key growth driver for the company. Having affiliated distribution also provides a significant competitive advantage for Equitable's retirement businesses. Wealth Management has strong growth momentum with $6.2 billion of year-to-date advisory net inflows. Adviser productivity is up 8% year-over-year and 24% since 2022. Earnings are on track to reach $200 million in 2025, 2 years ahead of plan. We are also allocating capital to enhance the strong organic growth momentum. We have increased our investment in experienced adviser recruiting, bringing in over $1.1 billion of recruited assets over the past 12 months. Earlier this year, we hired a new Head of Business Development to build out our platform, and we have a strong pipeline and expect to ramp up recruited AUA over time. As I mentioned earlier, we also recently announced the acquisition of Stifel Independent Advisors, which has over 110 advisors and $9 billion of AUM. Stifel's advisors have similar characteristics to Equitable's advisors, creating a nice cultural fit. There are also meaningful operational synergies. We expect the transaction to close in the first half of 2026 and forecast it to add about $10 million to Wealth Management earnings in 2027. This is a good example of the type of bolt-on acquisition we will look at to help scale our Wealth Management business at a reasonable cost. Looking forward, assuming normal markets, we forecast Wealth Management earnings to continue growing at a double-digit rate, driven by asset growth and further advisory productivity improvement. In addition, margins should expand over time as the business scales. I would also note that our business does not have significant exposure to lower short-term interest rates. Cash sweep income has accounted for only 15% of the segment's year-to-date earnings and 100 basis points of Fed rate cuts would reduce annual earnings by only about circa $15 million. Turning to Slide 6. I want to highlight some examples of how Equitable is deploying capital to support growth at AB. Having access to Equitable's balance sheet is a competitive advantage for AB relative to most traditional asset managers and the investments we make yield flywheel benefits across EQH. Our investments come in 3 primary forms: number one, allocations from Equitable's general account portfolio, which can be used to seed capital to launch new strategies or permanent capital to scale existing offerings. To date, we have deployed over $17 billion of our $20 billion commitment to AB's private markets platform. Number two, in addition, we support team lift-outs that bring new capabilities to AB. For example, in the past year, AB added private ABS and residential mortgage teams to expand its private markets offering, and Equitable was able to provide them with immediate capital to invest. Number three, finally, we help finance M&A or strategic investments, either by providing cash or issuing AB units. We did this with the acquisition of CarVal in 2022 and more recently with the investments in the Ruby Re and FCA Re sidecars. These sidecar investments highlight some of the unique synergies between AB and Equitable. AB leveraged Equitable's insurance expertise in the due diligence process, and both firms benefit from developing a strategic partnership with the sponsor. These investments also provide Equitable with exposure to new insurance markets such as pension risk transfer and Asia. AB has been able to leverage these investments to help deliver strong growth in private markets and third-party insurance, 2 key strategic focus areas for the company. Private markets AUM has grown at a 12% CAGR since 2022 and is on track to meet or exceed the $90 billion to $100 billion target by 2027. Third-party insurance general account AUM is up 36% since 2021, and AB has added 6 new mandates year-to-date. Stepping back, the recent actions we've taken to support the growth of AB and Wealth Management are good examples of us executing on our strategy and leveraging our unique flywheel benefits. I will now turn the call over to Robin to go through our financial results in more detail. Robin Raju: Thanks, Mark. Turning to Slide 7. I will provide some more detail on our third quarter results. On a consolidated basis, non-GAAP operating earnings were $455 million or $1.48 per share. We reported a GAAP net loss of $1.3 billion, primarily driven by a onetime impact from asset transfers at the closing of our individual life reinsurance transaction. There is an offsetting adjustment to AOCI. We had a few notable items in the quarter. First was a $36 million adjustment for July mortality experience, most of which was covered under our reinsurance agreement with RGA. The transaction had an effective date of April 1, so it covers claims in July. However, the reinsurance benefit is not reflected under U.S. GAAP as we did not close the transaction until July 31. Accordingly, there is a difference between our GAAP results and our cash results. Going forward, we expect to see significantly less volatility in our Life results, which are now reported in Corporate and Other. We also had $24 million of onetime expenses in Corporate and other. Finally, we had a $4 million benefit in Wealth Management from a reserve release, which reflects better emerging experience on the loans we've made to recruit experienced advisors. Our annual assumption review had a $1 million positive net impact on operating earnings. As Mark mentioned earlier, this validates our conservative approach to assumption setting. Adjusting for these items, non-GAAP operating earnings per share was $1.67, up 2% year-over-year. Total assets under management and administration rose 7% year-over-year to $1.1 trillion, which bodes well for future earnings growth. In addition, we'll see further benefits from expense initiatives that will contribute to the bottom line over time. Adjusted book value per share ex AOCI and with AB at market value was $33.59. In our view, this is more meaningful than reported book value per share, which reflects our AB holding at book value. On this basis, our adjusted debt-to-capital ratio was 24.5%. On Slide 8, I'll provide some more details on our segment level earnings drivers. Starting with Retirement. Earnings declined from the third quarter 2024, but increased 9% sequentially after adjusting for notable items in both periods. Net interest margin, or NIM, was down year-over-year due to a lower level of market value adjustment gains and some spread compression as our pre-2020 RILA block runs off, but it did increase 4% sequentially. As discussed last quarter, we do not assume any benefit from MBAs going forward, and we expect spread pressure from the older RILA block to be de minimis by mid-2026. NIM should continue to increase from the third quarter level, driven by growth in general account assets. We also saw fee-based revenues increase 4% from the second quarter due to strong equity markets. Separate account balances ended the quarter 4% higher, which bodes well for further growth in fee revenues in the fourth quarter. Growth in revenues was partially offset by higher DAC amortization, which reflects growth in the block and increased surrenders. This quarter is a good baseline for amortization moving forward, and we expect it to increase by approximately $4 million per quarter. Moving to Asset Management. AB delivered a strong quarter with earnings up 39% year-over-year. This includes the benefit of increasing our ownership from 62% to 69%. Fee revenue increased 6% sequentially, driven by favorable markets and a higher base fee rate. The adjusted margin improved 290 basis points year-over-year to 34.2% and is expected to come in above the 33% target for the full year. AUM ended the third quarter at a record $860 billion, which should support future growth in base fees, and we now project full year performance fees of $130 million to $155 million, up from our prior forecast of $110 million to $130 million. Turning to Wealth Management. We delivered strong earnings and net flows. Earnings increased 12% year-over-year, excluding the reserve release and 12% annualized organic growth compares very favorably with peers. We expect segment earnings to continue growing at a double-digit rate moving forward. Finally, results in Corporate and Other were negatively affected by the notable items I mentioned earlier and adverse mortality throughout the quarter. We expect to see much more muted impact from mortality in future periods as we get the full benefit of the life reinsurance transaction. We will also see incremental benefits from our expense efficiency initiatives. Our alternatives portfolio generated an 8% annualized return in the quarter, consistent with our 8% to 12% long-term expectation. This exceeded our guidance of a 6% return due to a gain on a strategic investment. We expect returns at the low end of our 8% to 12% target range again in the fourth quarter. Lastly, the consolidated tax rate for the quarter was 17%, below our normal expectation of 20% due to some favorable items. We now expect the full year consolidated tax rate to be in the high teens. Looking to 2026, we still expect the full year overall company tax rate to go back to 20%. Putting it all together, we see good momentum heading into the fourth quarter and remain focused on controlling what we can control to drive higher earnings in the future. Turning to Slide 9. I'll highlight Equitable's capital management program. During the quarter, we returned $757 million to shareholders, including $676 million of share repurchases. We completed most of the planned $500 million of incremental buybacks in the third quarter. For the full year, we expect our payout ratio, excluding the onetime buyback to be at the higher end of our 60% to 70% guidance range. Over the past 4 quarters, we have reduced our share count by approximately 8%, helping to drive growth in earnings per share. We ended the quarter with $800 million of cash at the holding company, above our $500 million minimum target. During the quarter, Holdings received $1.6 billion in subsidiary dividends, including $1.3 billion from our Arizona insurance entity. We used this to fund the capital return to shareholders, tender for $500 million of debt and redeem the remaining $165 million of our Series B preferreds. In the fourth quarter, we expect to take an additional dividend from our Arizona subsidiary and we'll also receive distributions from our Asset and Wealth Management businesses. For the full year, we expect total cash upstream to the holding company to be $2.6 billion to $2.7 billion. This includes $1.6 billion to $1.7 billion of organic cash generation in 2025, in line with our guidance. In addition, we will upstream $1 billion of proceeds from the life reinsurance transaction. Importantly, over 50% of our organic cash generation is coming from Asset and Wealth Management businesses, highlighting our diversified business model. We will provide additional guidance on our 2026 cash flow outlook early next year and remain on track to achieve the $2 billion of annual cash generation by 2027. I will now turn the call back over to Mark. Mark Pearson: Thanks, Robin. Equitable has healthy organic growth momentum and higher assets under management are driving increased earnings power across our retirement, Asset Management and Wealth Management businesses. I'm also pleased with the progress we've made in redeploying the $2 billion of proceeds from the life reinsurance transaction to drive shareholder value and make strategic growth investments to scale our Wealth Management and AB private markets businesses. Looking forward, we expect EPS growth to accelerate and remain confident in achieving our 2027 financial targets. We will now open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Suneet Kamath of Jefferies. Suneet Kamath: I wanted to start with private credit. And if we take a step back, we have some people outside the insurance industry pointing fingers at the insurance industry, some folks within the industry saying we're fine. So I wanted to get your perspectives on 2 things. One, what your view of the environment is? And I guess the bigger question is, as you start to add private credit assets, can you talk about the process that you go through with CarVal, just to understand what the requirements and criteria are, whether you want to talk about ratings or who rates the securities? Just want to get some color on the background there. Robin Raju: Sure. Suneet, thanks for the question. I think on the broader environment and CarVal sets on the line, so I'll let him touch that. But let me talk quickly about how we think about it at Equitable Holdings. We do think private credit and broader credit is a good asset class for clients and investors at Equitable and AllianceBernstein and we want to make sure we're compensated for the risk we take. For Equitable's general account specifically, this is a business in insurance that we have sticky liabilities and where you want to take some liquidity risk. And as a result, private credit is an attractive asset class that matches well with our liabilities. We invest in investment-grade assets, and we pick up in a liquidity premium as a result. Specifically on the ratings, as I know this has come up in some of the calls, about 90% of our fixed maturity portfolio is rated by at least 1 of the big 3 rating agencies. We have 8% at DBRS or Kroll and 2% is NAIC only. We only have $200 million that's rated by Egan-Jones, and that's really within our middle market lending portfolio. So that's about less than 20 basis points of our total portfolio. Just importantly, Ratings is an output, but we don't rely on ratings. What we rely on at Equitable Holdings is the underwriting capability within our general account team and at AllianceBernstein. And that's really the benefit of our flywheel here is we have direct access of underwriting. And so we need to get comfortable first with the underwriting of the portfolio that we're being compensated for any risk that there is and then you would get the rating. So the overall portfolio, the general account, it's about 98% investment grade and A2 rating, but it's -- that's the output of this good underwriting that takes place between Equitable and AllianceBernstein. And we continue to view even in this environment, private credit as an attractive asset class. But both private and public credit for the general account does come with risk. That's our role. We want to take good risk and make sure that our shareholders are being compensated for it, and we feel comfortable where we are today for the general account at Equitable. Maybe I'll pass to Seth, so he could talk about AB, broader credit and CarVal as well. Seth Bernstein: Okay. Thank you. And Suneet, let me just make the broader statement, which is as we look at our private credit businesses, of which CarVal is one of several, our overall investment performance, including recent results, has been as expected or better. We've seen pretty strong results across the board, certainly recovering, particularly in commercial real estate. But I would say generally that given the amount of money that's moved into private credit, we've certainly seen some reduction in strength of the covenant structures, and it's clear that people are reaching for risks in what has been a very strong demand market. That being said, we stay very close to home in the risks we underwrite, whether at CarVal or our middle market lending business. And those processes are bottoms-up due diligence intensive and highly negotiated structures. which to date have protected us pretty well. We've been pretty prudent at stepping aside where we think the terms and the structure or the management team are not giving us the visibility that we would think is essential for us to take a favorable decision in that regard. So yes, there are signs of exuberance. And obviously, there have been indications of fraud, at least in 2 cases that are out there. But we think we're well protected and we're comfortable with the positions we have, both in the general account of Equitable, but also more broadly for our third-party clients. Suneet Kamath: Okay. My second question is on the RILA market. And I know about half of your sales are somewhat protected given Equitable Advisors and some of the P&C companies that you sell through. But I wanted to focus on the other half and where I think there's probably more competition. And I just wanted you to talk to maybe 2 things. One, how are you differentiated in that other half? And then second, are you seeing anything in terms of terms and conditions that start to make you a little bit worried about aggressive features, things that we saw in the kind of the mid-2000s. Just want to make sure that doesn't kind of creep up on us. Nicholas Lane: Great. Thanks, Suneet. This is Nick. As you highlighted, first, we do see continued strong demand for RILAs across the space, driven by the demographics and this macro uncertainty, and that resonates across all channels. As Mark highlighted, overall RILA sales were up 7%, another record high for us. in the quarter. We think our flywheel gives us a sustainable durable edge in 3 ways across the different markets. One, we generate attractive yields through AB. The second, as you highlighted, which is we have our privileged distribution through Equitable Advisors, but we have a track record as a pioneer, having been the first to launch this product over a decade ago and continue to deliver on the value proposition, consistent stories and the relationships with over 15,000 advisors in the third-party space. And then finally, we have the scale given our wholesaler footprint, our #1 position. When we look at how we are continuing to evolve in the market, we have a successful track record of innovation that's really anchored both from the insights we get from Equitable Advisors that we translate on consumer need to other markets as well as anchoring our products in our economic that ensures we deliver attractive returns. So our focus has been on prudent innovation relative to both within the segments in RILA's, we were the first to launch dual direction. These are new segments that tap into different needs as well as new versions that open up new markets. For example, in August, we launched our SCS Premier product, which allows consumers to pay a fee for a higher cap, which is fitting a new need that others aren't looking at. So I would say, going forward, we believe we're in a privileged position to capture a disproportionate share of the value being created in this fast-growing market. Operator: Your next question comes from the line of Tom Gallagher of Evercore ISI. Thomas Gallagher: First question, Robin, beyond the $35 million onetime adjustment for mortality, you mentioned underlying mortality experience was also unfavorable. Can you comment on how much below your expectation kind of underlying mortality experience was in the quarter and why you're confident that should normalize going forward? I think you said you expect less volatility. Was it -- maybe a little more color on what drove it this quarter and why you're comfortable that should normalize? Robin Raju: Sure. Thanks, Tom. So we did call out about $36 million or $0.12 per share as a notable item for July mortality experience. And this is to reflect economic benefit from the reinsurance transaction that was not reflected in the GAAP results. Mortality was a bit elevated in August and September and broader across the whole quarter, we saw higher severity in the quarter as it relates to mortality. But our retained experience, which is net after the benefit of the RGA transaction was only about $10 million worse than expected for the months of August and September. So while it did weigh on earnings for Corporate and Other, the impact was relatively modest, underscoring the benefit of the reinsurance transaction. So we don't expect it to be highly volatile like it was previously going forward that we have RGA in place. Thomas Gallagher: Okay. That seems fairly modest. Seth, follow-up question is just about capital. And I heard your comment about you have a $500 million HoldCo target. You have $800 million currently. I guess, historically, you ran with this like giant buffer at the holding company, $2 billion plus. And now -- but now things have changed. I think you've significantly improved cash flow outside of the insurance entities. Is $800 million a good kind of level? I know you have a $500 million target, but should we be thinking about in normal course, you're going to run with some buffer on top of that? Is $800 million reasonable to think about as a base case? And then also, how much is left from the RGA deal? Is it around $300 million that you would have in addition to normal cash flow? Robin Raju: Sure, Tom. So on cash flows, look, our cash flow position is very robust. If you recall back, going back when we IPO-ed, only 17% of the cash flows were coming from asset and wealth businesses, and now it's over 50%. And that's reflective of our distinct strategy in growing our asset and wealth businesses as we capture bigger share in the overall flywheel that we have at Equitable Holdings. For the HoldCo, we want to target $500 million. Yes, that time to always have a little bit more, but not substantially just to manage volatility within results. So I wouldn't think that we -- I wouldn't take away that we have a higher target than the $500 million. But yes, sure, we're always going to have a little bit more as we want to manage any cash flows that are needs, whether it's for interest expense or timing of upstreams from the holding company as well. As it relates from -- for the RGA transaction, we're happy that we completed and closed the transaction effective July 31. Reminder, $2 billion in total value. We use that value and that shift to really move our business away from long-dated, highly volatile life business to faster-growing businesses in Asset and wealth. You saw that in this quarter as well. So we invested about $800 million to increase our stake in AllianceBernstein from 62% to 69%. We had $500 million of incremental share buybacks on top of our 60% to 70%. That's going to be helpful for go-forward EPS growth. We also reduced our debt position by $500 million. And in this quarter, we invested approximately $200 million to scale our wealth management business a bit more with the Stifel acquisition. That's about 110 advisors, $9 billion of AUM, AUA. So that's good for our growth in our Wealth Management business going forward and continue to invest in sidecars to grow AB's private credit business. So that's the $2 billion of proceeds right there. There's about $300 million of left that we said we will deploy, and that will be deployed in due time, either in growth investments or additional share buybacks depending on where we are in the market. Operator: Your next question comes from the line of Ryan Krueger of KBW. Ryan Krueger: I think you called out $10 million of unfavorable mortality in August and September that impacted the Corporate segment. Was there anything else that would you consider somewhat unusual this quarter when you -- I think you called -- you showed kind of a $98 million loss. It sounds like there was a $10 million mortality impact. Anything else you would point out that maybe caused that to be worse than you'd normally expect? Robin Raju: Nothing else I would call out. But look, at Corporate and Other, there's always a little bit of a noise. And we will provide earnings guidance for Corporate and Other next quarter as we discuss our 2026 outlook. But you should expect the quarterly loss to be smaller than the $100 million per quarter that we had guided to prior to the resegmentation. Ryan Krueger: Okay. Got it. And then can you go into the sidecar strategy a little bit more in terms of investing in terms of AD investing in third-party sidecars? You've done a few things now. Do you see this as something you'll continue to do beyond what you've already done? Or is that most of what you think you'll do? Seth Bernstein: Well, why don't I start? This is Seth Bernstein. We have done 2 that we've announced. We are talking with others, and there's ultimately a limit on what we would be willing to do here depending on the opportunities. But we're quite mindful of the overall risk we're prepared to take on the balance sheet with respect to insurance risk. And again, we do this in partnership with Equitable, utilizing their extensive underwriting capabilities, which we don't have here in-house as well as outside consultants that we use to evaluate the opportunities. So this is going to be, I think, a continuing attribute of private credit markets, given insurers, particularly life insurers' desire to access capital to continue to expand their businesses and do so in the most cost-effective way. It has proven to be a pretty attractive way for us to deploy and develop -- deploy new assets and develop new client relationships. But ultimately, there is a limit on the amount we're prepared to do. And perhaps, Robin, I don't know if you have a perspective from the Equitable perspective level. Robin Raju: Well, from an EQH perspective, sidecars fit quite well into the flywheel. We can underwrite insurance liabilities and AB can invest in private credit. Just to double-click a little bit, where we've invested so far, if you look at the RGA sidecar Ruby Re, we're getting into an asset-intensive sidecar, PRT liabilities. Those are liabilities that Equitable is not directly in, but can help underwrite the AB team and AB can invest and leverage their private credit capabilities. And then if you look at the FCA sidecar, well, that's now an international market, Asia-based liabilities. we can help underwrite and again, leveraging AB's private credit capabilities. So as we look at these opportunities, we want to make sure the equity stands by itself that it delivers good risk-adjusted IRRs. And then also it builds on the capabilities that we have at AllianceBernstein to grow our private markets business, which is now $80 billion and well on track to the $90 billion to $100 billion that we laid out at Investor Day. So we like the sidecar strategy. It leverages the flywheel, and we'll do more of them if we see that they fit the needs between Equitable and AB. Operator: Your next question comes from the line of Joel Hurwitz of Dowling. Joel Hurwitz: In retirement, the DAC amortization jumped $10 million quarter-over-quarter. Robin, you mentioned, I think, in your prepared remarks that surrenders was a driver. But I guess are surrenders getting worse than expectations? Because I thought that was the driver of the jump a year ago. Robin Raju: Yes, that's right. Some -- well, 2 things driving higher DAC amortization that I mentioned, higher growth in sales, which obviously we capitalize and have to amortize and then some higher surrenders that we have in place, and that's what I mentioned on the call as well. Nick, you could provide some color on it as well. Nicholas Lane: Yes. So just on overall flows, as a reminder, our Retirement segment now encompasses both our Individual Retirement as well as our Group Retirement business lines. So breaking that down, first, within Individual Retirement, we achieved $1.4 billion of net flows, driven by $3.9 billion of RILA sales. In the last 9 out of the last 10 quarters, we've had record sales, so we continue to see momentum. Next, as was sort of highlighted in the previous remarks, this was partially offset by our expected seasonal outflows in group retirement, which is comprised of our tax-exempt institutional and our corporate business. In tax exempt, this is our teachers business. We experienced modest outflows consistent with seasonal expectations given that teachers paused contributions during the summer months. As a reminder, this is where we have our 1,200 advisors that work with close to 900,000 educators and school districts on supplemental retirement plans. We would expect this line to continue to achieve single-digit growth with strong ROAs and be positive for the year. Institutional, we didn't have any material flows in the third quarter. However, we've gathered over $800 million in assets year-to-date. And then finally, in our corporate business, this is our legacy 401(k) lower margin that's sort of been in structural runoff. We would remind you that 20% of the outflows are for retirement distributions and the remainder, we're capturing 50% given our flywheel model through Equitable advisors. So looking forward in the retirement business, we expect to continue to generate strong flows supporting the future growth of our earnings and cash flow. Robin Raju: And where we did -- where we did see surrenders, the actual rate -- surrender rate didn't increase. It was more the benefit of higher markets, so higher account values overall. So the surrender rate itself was okay. Joel Hurwitz: Got it. That's helpful. And then, Nick, just following up on I guess, institutional, any expectations for Q4? And maybe can you comment on expectations for the sales of the fixed annuity product that you launched? Nicholas Lane: Sure. We continue to be bullish on the untapped potential for long-term growth in the institutional market. Just to frame, it's an $8 trillion defined contribution market with a potential addressable market for in-plan annuities probably between $400 billion and $600 billion longer term. Still in the early innings. We have the policy support, that's the regulatory tailwinds through the SECURE Act. We have the products. We have the partnerships now with the target date funds and the record keepers. So we're really now on that fourth step of engaging plan sponsors. We're encouraged by the momentum, having gathered over $800 million since we launched the BlackRock partnership last year and believe that going forward, we're in a strong position with a first-mover advantage. This is both our expertise in the product design as well as our partnership network with AB. AB has been in this space for over a decade. And BlackRock -- this is allowing us to build a track record that we think the fast followers are going to look at when they start to adopt these solutions. Specifically, for the next quarter, we don't expect material sales. We get visibility about 30 to 60 days prior to transfer, but there is a strong pipeline for 2026. Operator: Your next question comes from the line of Alex Scott of Barclays. Taylor Scott: I just wanted to make sure I had it clear on sort of the movement in HoldCo liquidity. It sounded like there's still some cash being taken up. So just wanted to see if you could walk us through like what does that look like on more of a pro forma basis for what you're expecting in 4Q? And if the higher sort of incremental share repurchases are more complete at this point? And how would you stack up like the set of priorities for potentially deploying more? Robin Raju: Sure. So we ended the quarter at $800 million at the HoldCo. We put a chart on Page -- Slide 9 of the deck that highlights the walk from last quarter to this quarter. It included the subsidiary dividends, the capital return, the debt tender, the preferreds and some interest expense. In the fourth quarter, you should expect that we'll continue to get upstreams from both the Arizona insurance entity and also AB, our wealth management business and the asset management contracts that we have. that should total around $700 million. And then we'll have capital return as well in the quarter and interest expense on top of that as well. So we should end the quarter probably above $1 billion in HoldCo cash as well. And then going forward, as we think of next year, we'll give guidance on our cash flows next year. But obviously, we're committed to the 60% to 70% payout ratio, and we want to continue to find attractive bolt-on opportunities to fuel growth in the business as well, similar to like what you saw this quarter. Taylor Scott: Got it. That's helpful. And in Wealth Management, as I think about some of the other peer companies out there that have built up their wealth management groups, I think Team LIFT has been a big part of it. Can you talk about that as part of your strategy? Is that something that you're deploying capital towards and using to build it up over time? I guess it would be a little more organically. Nicholas Lane: Sure. First, as we hire, we're excited by the Stifel transaction. These are high-quality advisors that are a strong cultural fit. And we see the opportunity for them to continue to accelerate the growth of their practices on our platform. As Mark highlighted, with 110 advisors, $9 billion of AUA, this is a good example of the bolt-on acquisitions where we're deploying capital to augment our strong organic growth as we continue to build scale. Looking forward, we see continued momentum in our underlying organic growth drivers. We're one of the few in the industry that continues to bring in new advisors or new talents into the industry, which allows us to be disciplined in our experienced hire efforts. So we think we're well positioned to meet this growing demand for advice and are very encouraged with the momentum that we have. Operator: Your next question comes from the line of Jimmy Bhullar of JPMorgan. Jamminder Bhullar: First, I just had a quick follow-up question for Nick around your comments on competition in the RILA market. I'm not sure I missed what you said, but I realize you guys have a unique distribution and obviously scale in the product line as well. But the market is a lot more crowded than it was a few years ago, and some of your competitors have alluded to an increase in competition. So what is it that you're seeing competitors do in the market? And are you seeing any that are offering maybe overly generous terms and conditions? Or is it just that there are more companies and it gets harder to sell as a result? Nicholas Lane: Yes. So obviously, as you mentioned, the competitive landscape has changed since we pioneered the product a decade ago with the majority of carriers now having launched the product. We're very mindful of competitive trends on pricing. Usually, new entrants offer a teaser rate and they revert back because it's not sustainable. We remain focused on profitable growth. As the market leader with a durable edge, we're continuing to benefit from that growing pie as more advisors and consumers become familiar with the value of buffered annuities as an asset class in their portfolio. I'd highlight over the last 3 years, our RILA sales have almost doubled, and we've produced record sales in 9 of the last 10 quarters. So we continue to focus on, I would say, innovation anchored in our economic model, and you'll see us delivering, I would say, sustainable growth within that market. Jamminder Bhullar: And then just maybe on Individual Life. Obviously, your exposure going forward to the block is going to decline given the reinsurance contract. But if you think about the underlying policies, margins have deteriorated over time, and they've been especially weak the last few years. And do you view that as more of an aberration and just normal volatility in the business? Or is there something about the type of policies or terms in the block that are -- that have been pressuring results in recent years that might be more sustainable? Robin Raju: Sure. So when we think about the Individual Life business, let's just take a high level where we're focused is on Equitable Advisors. And the reason being is we don't find the third-party businesses being attractive. And a lot of the volatility we see from the results was a function of third-party sales pre-global financial crisis that had very high face amounts and had a low ROE on it. And that's why we did the RGA transaction. It take a 5% ROE business and reinvest it in higher growth businesses for Equitable to drive our strategy going forward. We are perfectly economically reserved. We manage the business on an economic basis. So the reserves are all good. It's there is some noise in the GAAP accounting with volatility. And part of the reason we did the RGA transaction was to reduce that volatility going forward. But we don't see anything else other than volatility at this time. They are older age policies, high face amounts. So if someone dies, if they don't die this year, it's likely they're going to die soon, and then you're going to see that volatility come in. So as a result, we feel good of where we set our reserves economically, and we feel very good about the RGA transaction because this helps accelerate our strategy into these faster-growing businesses. Operator: Your next question comes from the line of Elyse Greenspan of Wells Fargo. Elyse Greenspan: My first question is on the $300 million, I guess, the capital left from the RGA deal, right, that you just haven't fully earmarked. How do we think about you guys balancing using that right for M&A versus buyback? And will you just, I guess, make the decision if it goes to incremental buyback once you kind of get through what you've already outlined as the extra buyback? Robin Raju: Sure. So I just think of the $300 million, I mean, we're not going to be tracking it going forward. It's going to be returned in normal course of business as part of our 60% to 70% payout ratio. So if you see us at the high end of the payout ratio, it may be because of some of the $300 million, but I wouldn't anchor on the $300 million so much as we have excess capital in the system, so we can do both. We can return capital to shareholders and do bolt-on acquisitions, invest in sidecars to fuel growth for our business going forward. We want to drive earnings growth in the business, and we want to drive EPS accretion. So we have the ability to do both because of our unique business model. Operator: And then you guys had last said you were in the middle of that 12% to 15% EPS CAGR. That's where you thought you would be, right, with the financial plan. Is that still where we sit today post Q3? Robin Raju: Yes, we still feel comfortable with the 12% to 15% in the middle of the range as part of our 2027 target. We feel comfortable with all of our 2027 targets, to be frank, the $2 billion of cash flows, we can see the visibility on that. We're in the $1.6 billion to $1.7 billion this year. That will go up next year, and we're on track for the $2 billion. You can see since our Investor Day, we're well on track to the high end of the payout ratio of 60% to 70%, where we were below on the EPS growth. If you normalize as of last quarter, we showed we're at 11%. We'll continue to hold ourselves accountable, and we see the benefit of record AUM at $1.1 trillion, organic growth coming in through all of our businesses, expense initiatives, investment initiatives, all will come through to support the 12% to 15% growth going forward in addition to the additional buybacks, which help reduce our share count. So we feel quite comfortable with the 12% to 15% target. Operator: Your next question comes from the line of Jack Matten of BMO Capital Markets. Francis Matten: Just one on your -- the spread lending business. Just wondering if you can talk a little bit more about the growth opportunities there. How big do you think that business can be for Equitable? And any thoughts on current market conditions? Robin Raju: Sure. So we launched this FABN business specifically in 2020. We issued about $4.5 billion so far year-to-date, and it's about $10 billion in total. We have a lot of capacity to continue to grow that business. This business directly benefits again from the flywheel as we can benefit the strength of Equitable and having a strong rating, borrow at a low cost of funds and take that and invest it at attractive risk-adjusted yields at AllianceBernstein. So it's really a function of the flywheel. And the FABN business is just a secondary benefit of the growth in our RILA business, as Nick spoke about earlier. As our general account continues to grow, our RILA sales continue to grow, attract more customers, it gives us more capacity to do FABN as long as the returns are there. So we'll continue to be a benchmark issuer in the market, but it's a function of our overall growth strategy that helps drive our ability to have FABN. Francis Matten: Got it. And then just a follow-up on your Bermuda entity. I know you executed a large transaction earlier this year, but just wondering if there's any thoughts or any update on your thoughts around further transactions, whether it's in-force flow reinsurance or down the line maybe third-party deals? And kind of over what time frame do you expect to do more with that entity? Robin Raju: Yes. We're really excited to have our Bermuda entity set up and also very thankful for the people in our Bermuda company that are help operating that as we have people on island at this time as well. And we'll continue to grow our presence there over the next few years. The Bermuda business, we did our inaugural in-force transaction this year on our group side. We -- it's a lever in our toolkit for capital management. We can use it for flow reinsurance, which is something we'll look at for 2026. And then post 2027, we'll look at to see if we can leverage it for further growth, whether it be third-party or broader markets to help our growth profile overall. So I think it's a good framework. It's an economic framework. We like the regulatory regime in Bermuda. It's very close to our economic framework that we manage internally. So it's going to help us sustain cash flows on a go-forward basis as well. So we're happy to have Bermuda, and we're going to leverage it as part of our toolkit. Operator: Your next question comes from the line of Tracy Benguigui of Wolfe Research. Tracy Benguigui: Very basic question. So when AB partnered with RGA to create the Ruby Re, I was thinking that makes sense since RGA doesn't have real asset management capabilities. But turning to FCA Re, Fortitude Re has asset management capabilities with Carlyle. And on the Fortitude Re press release, they said the vehicle should add $10 billion of fee earnings AUM to Carlyle. So could you add some color on how AB won that mandate for private alternative management and where essentially that is outsourced? And what is the related AUM? Seth Bernstein: Let me try and answer that. This is Seth Bernstein. We want it because we have an existing relationship with Fortitude and know one another pretty well. And they approached us as they were looking for raising capital for this particular vehicle. And we were prepared to, just given the quality of the insurance risk they were taking, the market, particularly attractive market for us given our broader reach within Asia and our desire to grow our insurance activities in that region. And the result is that we believe for the amount of money we put in, we will raise, I think, about $1.5 billion of incremental private alternatives to manage for them in areas that are complementary, I believe, to what Carlyle already does for them. Tracy Benguigui: Okay. Awesome. And then when you did the Ruby Re deal and the enhanced relationship with RGA, do you see this relationship with Fortitude Re maybe enhancing future risk transfer deal with that partner? Seth Bernstein: I'm sorry, can you ask the question again? Tracy Benguigui: Okay. So when you created the Ruby Re deal with RGA, that enhanced your relationship with RGA. And I'm just curious, given this deal with Fortitude Re as you're looking to optimize your blocks, right now, you still have New York legacy VA. And I'm wondering if perhaps this could enhance your relationship with Fortitude Re. Seth Bernstein: I'll hand it over to Robin to answer that. Robin Raju: Yes. Sure, Tracy. We look at these on a stand-alone basis. We don't have any other -- we've done the big block deals at Equitable. We did the legacy VA transaction. We did the largest life reinsurance transaction in the industry. At this point in time, we're looking to grow the different business lines, and we look at sidecars as a way to grow AB's private credit business while getting good returns on the equity that we invest. So I wouldn't read into our sidecar investments leading to future reinsurance deals with any partner. If we're going to do reinsurance, we'd obviously look at all the partners in the different industry and get the best returns for shareholders. Operator: Thank you. We have reached the end of our Q&A session and the end of our session for today. Thank you so much for attending today's call. You may now disconnect. Goodbye.
Operator: Good day, ladies and gentlemen, and welcome to LivaNova plc Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President of Investor Relations. Please go ahead. Unknown Executive: Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the third quarter of 2025. Joining me on today's call are Vladimir Makatsaria, our Chief Executive Officer and member of the Board of Directors; Alex Shvartsburg, our Chief Financial Officer; Ahmet Tezel, our Chief Innovation Officer; and Zach Glazier, Director of Investor Relations. Before we begin, I would like to remind you that the discussions during this call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC, including today's press release that is available on our website. We do not undertake to update any forward-looking statements. Also, the discussions will include certain non-GAAP financial measures with respect to our performance, including, but not limited to, revenue results, which will be stated on a constant currency and organic basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website. We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool. You can find the presentation and press release in the Investors section of our website under News, Events and Presentations at investor.livanova.com. With that, I'll turn the call over to Vlad. Vladimir Makatsaria: Thank you, Briana, and thank you, everyone, for joining us today. Welcome to LivaNova's conference call for the third quarter of 2025. In the quarter, LivaNova delivered 13% organic revenue growth versus the prior year, driven by continued momentum in the cardiopulmonary business and solid epilepsy performance across all regions. The ability to sustain strong organic growth, expand margins and drive strong cash generation reflects the durable market leadership positions of our core businesses. The consistent results also speak to the strength of our execution and the productivity improvements we've embedded across the organization. These results also highlight LivaNova's unique ability to drive near-term performance while reinvesting in the core, advancing the obstructive sleep apnea program and maintaining upside optionality in difficult-to-treat depression. Together, these actions are aligned with our strategic priorities and position LivaNova well for the future. We recently internally launched a new strategic framework alongside the unveiling of a refreshed logo and visual identity, which you may have noticed in today's earnings materials. This new strategic framework and branding reflect LivaNova's direction, momentum and continued focus on growth and innovation. We look forward to discussing these strategic priorities, how we plan to build on our strong foundation and how we will shape the future of LivaNova in more detail at our Investor Day next week on November 12. Now turning to segment results. For the Cardiopulmonary segment, revenue was $203 million in the quarter, an increase of 16% versus the third quarter of 2024. Heart-lung machine revenue grew over 20% versus the prior year period, driven by sequential acceleration in Essenz placements and sustained favorable price premiums. This includes a significant majority of Essenz placements in developed markets in the quarter. In August, we initiated the commercial launch of Essenz in China, which is our second largest HLM market after the U.S. We've received positive early feedback from hospitals and clinicians, and we're pleased with the launch thus far. Given the length of the sales cycles for Essenz, we expect the rollout to be a more meaningful growth driver in 2026. Cardiopulmonary consumables revenue grew in the mid-teens, driven by market share gains, procedure growth and price. Strong demand for Oxygenator continues to outpace the market's ability to supply. While our manufacturing capacity expansion plans are progressing well and remain on track, third-party component supply is a limiting factor for even more rapid expansion. Our team remains focused on working with suppliers to meet the production needs. We now expect cardiopulmonary revenue to grow 12.5% to 13.5% for the full year 2025, up from 12% to 13% previously. This forecast assumes continued HLM growth and increased penetration in existing markets. We still expect Essenz to represent approximately 60% of annual HLM unit placements in 2025, up from 40% in 2024. This forecast also reflects robust market and share growth for consumables. Turning to epilepsy. Revenue increased 6% versus the third quarter of 2024, with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased a combined 12% versus the prior year period, while the U.S. epilepsy revenue increased 5% year-over-year. These results reflect strong commercial execution globally. During the quarter, we initiated commercial rollout activities to drive awareness of the CORE-VNS data among the epilepsy clinical community worldwide. While we're still in the early stages of commercial activities, initial feedback from the clinical community is encouraging. Building clinical evidence is a key component of our strategy in epilepsy and the CORE-VNS data is expected to further strengthen our foundation and support future commercial and educational efforts. For the full year 2025, we now expect epilepsy revenue growth of 5% to 6%, up from 4.5% to 5.5% previously. This forecast incorporates mid-single-digit growth in the U.S. and assumes the Europe and Rest of World regions will grow at combined low double digits for the year. This is consistent with prior guidance, although at the higher end of respective ranges. We continue to see momentum in the global epilepsy business across volume, price and mix. In summary, due to the strong growth we saw in the quarter and continued momentum across all growth drivers, we are raising our overall organic revenue growth outlook by 50 basis points to between 9.5% and 10.5%. We continue to make progress on the obstructive sleep apnea and difficult-to-treat depression programs, and we look forward to providing updates at our Investor Day next week. With that, I'll turn the call over to Alex. Alex Shvartsburg: Thanks, Vlad. During my portion of the call, I'll share a brief recap of the third quarter results and provide commentary on our updated full year 2025 guidance, which reflects strong performance year-to-date and improving business outlook. Turning to results. Revenue in the quarter was $358 million, an increase of 11% on a constant currency basis and 13% on an organic basis versus the prior year. As a reminder, we took a $7 million provision for the Italian payback measure in the second quarter of 2024. Because of recent legislative developments, the company reduced its reserve for the payback matter by $3.8 million during the third quarter of 2025. Excluding these adjustments, organic growth was 11%. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $5 million or 1%. Adjusted gross margin as a percent of net revenue was 69%, generally in line with 70% in the third quarter of 2024. This year-over-year decrease was driven by unfavorable currency changes, product mix, incremental investments related to oxygenator capacity expansion and tariff impacts. This was partially offset by favorable pricing across segments and geographies. Adjusted SG&A expense for the third quarter was $123 million compared to $112 million in the third quarter of 2024. SG&A as a percent of net revenue was 34%, generally in line with 35% in the third quarter of 2024. The year-over-year decline as a percent of net revenue was driven by fixed cost leverage. Adjusted R&D expense in the third quarter was $45 million compared to $47 million in the third quarter of 2024. R&D as a percent of net revenue was 13%, down from 15% in the third quarter of 2024. The year-over-year decrease was driven by cost optimization of the DTD program as we pursue CMS coverage. Adjusted operating income was $80 million compared to $64 million in the third quarter of 2024. Adjusted operating income margin was 23% compared to 20% in the third quarter of 2024. This increase was primarily driven by higher revenue, fixed cost leverage and optimization of DTD program spend. Adjusted effective tax rate in the quarter was 22%, principally in line with the third quarter of 2024. Adjusted diluted earnings per share was $1.11 compared to $0.90 in the third quarter of 2024. The increase was primarily driven by adjusted operating income growth. We continue to make progress in generating cash. Our cash balance at September 30 was $646 million, up from $429 million at year-end 2024. This increase reflects improvements in operating cash flows and the release of $295 million of restricted cash following the SNIA litigation guarantee termination. Total debt at September 30 was $434 million compared to $628 million at year-end 2024. The reduction in total debt was a result of the $200 million early repayment of the term facilities. Adjusted free cash flow in the first 9 months of 2025 was $130 million, up from $101 million in the prior year period. The year-over-year increase was primarily driven by stronger operating results and disciplined working capital management. Capital spend in the first 9 months of 2025 was $49 million compared to $37 million in the prior year period. The year-over-year increase was driven by IT investments and cardiopulmonary capacity expansion initiatives. Now turning to our updated 2025 guidance. As Vlad mentioned, based on performance to date, we're increasing full year 2025 revenue, adjusted earnings per share and adjusted free cash flow guidance. We now forecast 2025 revenue growth between 8.5% and 9.5% on a constant currency basis and between 9.5% and 10.5% on an organic basis. We continue to expect the impact of foreign currency to be a tailwind of approximately 1%. We continue to forecast a full year adjusted effective tax rate of approximately 23%, which represents an increase of 200 basis points versus 2024. To reflect stronger operational performance, we now project adjusted diluted earnings per share in the range of $3.80 to $3.90 with adjusted diluted weighted average shares outstanding to be approximately 55 million for the full year. This higher range is primarily driven by increased revenue expectations and productivity improvements. This $0.10 increase continues to reflect an investment in the Essenz printed circuit board conversion, as we discussed last quarter, which is expected to increase cost of goods in the fourth quarter. As a reminder, the printed circuit board investment will support future advanced Essenz software updates. Adjusted free cash flow is now expected to be in the range of $160 million to $180 million, which is $20 million higher compared to our prior guide due to higher net income expectations and working capital improvements as well as lower capital spend. For the year, capital expenditures are now expected to be approximately $80 million, down from $95 million previously due to the cadence of capital projects. I'd also like to call out that the guidance ranges shared today incorporate our best estimate of the potential impact of currently applicable tariffs. As previously discussed, we have a tariff mitigation plan in place that includes both a holistic assessment of our supply chain as well as potential pricing actions. Based on the assessment, LivaNova remains well positioned to manage the impact of tariffs. Consistent with our prior guidance, we estimate a tariff net impact of less than $5 million on adjusted operating income for the full year. The 2025 guidance range shared today fully incorporates the impact from currently applicable tariffs. We acknowledge this is a dynamic environment, and we continue to monitor it closely. In summary, we had another quarter of strong performance marked by double-digit organic revenue growth, which drove 250 basis points of operating margin expansion. This translates into a 23% increase in adjusted diluted earnings per share and a 32% improvement in adjusted free cash flow. These results also underscore the impact of disciplined execution and productivity across the organization. Our updated 2025 guidance reflects the strength of our businesses and continued investment in the core and innovation pipeline. With that, I'll turn the call back over to Vlad. Vladimir Makatsaria: Thank you, Alex. In closing, LivaNova delivered another quarter of strong performance, underscoring the durability of the core cardiopulmonary and epilepsy businesses as a strong foundation for the company. Our results this quarter also reflect disciplined execution, enhanced productivity and operational excellence. In the third quarter, we continued to expand margins and generate cash while still investing in innovation priorities. At the same time, we continue to leverage our neuromodulation expertise to progress the obstructive sleep apnea and difficult-to-treat depression programs. These initiatives represent significant opportunities to address large patient populations with unmet needs. They position LivaNova for expansion into additional attractive markets where we have a clear right to win and can drive durable long-term growth. With a strong team and clear strategic priorities, we are confident in our ability to sustain momentum and create lasting value for patients, customers and shareholders. We look forward to sharing our vision for the next chapter of LivaNova and the strategic priorities that will drive long-term growth and value creation in greater detail at our Investor Day next week on November 12. With that, we're ready to open the call for questions. Operator: [Operator Instructions] First question comes from Michael Polark with Wolfe Research. Michael Polark: I'm going to start in the release on just the fourth quarter and what's implied there. If I do the simple math on EPS, I'm getting $0.80 flat year-on-year. It just looks extremely conservative relative to the performance year-to-date. It implies gross margin down -- operating margin down a lot sequentially year-on-year. And so Alex or Vlad, I'm hopeful you can walk us through a little more precisely like puts and takes in the fourth quarter, anything that you're bracing for in this guide that the Street might have been under considering. I heard about the PCBA conversion. Maybe that's a big piece of the answer. It could be tariffs as well. But any further context on the fourth quarter implied earnings outlook, I would appreciate. Alex Shvartsburg: Mike, it's Alex. Yes, you're absolutely right. The printed circuit board investment that we're making is indeed happening in the fourth quarter. In my prepared remarks, I referred to a $0.10 impact. That's what the key driver [ is of kind of ] the softer Q4. And if you recall, we talked about the investment in PCBA as a -- it's a platform for us to continue to drive strategic revenue in the future with software and service. So that's -- it was a planned investment. We kind of foreshadowed it last quarter, and it is indeed happening in Q4. Michael Polark: I'll ask a follow-up on oxygenators. Obviously, the cardiopulmonary performance impressive again. On the consumables side, I heard 2 things, just good volumes, good share take, good price. I heard good progress on your internal capacity expansions, but I heard caution again on kind of third-party component supply. So can you unpack for us a little more on the internal capacity investments, remind us how much you're adding there and when these projects are expected to complete on the third-party supply front, have things gotten tighter Q-over-Q, about the same Q-over-Q? And what's the path from your perspective for that piece to relieve as you roll into '26? Vladimir Makatsaria: Yes. Thanks, Mike, for the question. It's indeed gaining share in oxygenators has been and will continue to be one of our key growth drivers. We have very strong momentum over the last 24 months in terms of share gains, and that is supported by our ability to continue manufacturing -- expanding our manufacturing. So last year, if you recall, we've increased our capacity by around 10%. This year, again, our capacity expansion is close to 15%. However, our actual output for the full year will be below 10%. And that gap is driven by deficit in third-party component supplies. We're working very closely with a group of our suppliers to make sure that we continue to improve that situation and do our best to close the year strong. Now for the next year, we are actually adding another manufacturing line within LivaNova. It's been an ongoing investment and projects that we have been driving. So that will allow us to have a step change in our own manufacturing capacity. And obviously, we're working closely with all the suppliers to make sure that they continue to grow and expand their capacity as well. Operator: We now turn to Adam Maeder with Piper Sandler. Adam Maeder: Congrats on a nice quarter. Two for me. The first one is on the Q4 implied guidance. Mike just asked about bottom line, but maybe I'll ask about the top line. I think the implied Q4 revenue growth suggests a growth deceleration. And when I look at the prior year comp, it looks easier. So maybe just square that for us. Is it largely conservatism? Or are there some other considerations that we should be aware of in the top line outlook for Q4? Alex Shvartsburg: Adam, Look, our revenue guide for Q4 is prudent. The biggest item I would call out is the Q4 comps related to the HLM, right? We had a really big quarter last year. And so just kind of the compounding effect is causing this deceleration, if you will. But look, we're continuing to perform well and really pleased with an 8% growth for Q4. So I think we're in pretty good shape. Adam Maeder: Okay. I appreciate the color there, Alex. And just for the second question, HLM, Q3, I think, marked your first quarter with Essenz in China. That's your second largest end market. And it looks like we did see Rest of World growth pick up a little bit. Can you just help us better understand the expectations for launch in the Chinese market? I heard more of an impact in '26, but if you could just kind of flush that out for us a little bit more in terms of cadence of rollout? And then just remind us the current installed base there and the opportunity for China, that would be helpful as well. Vladimir Makatsaria: Yes. So thank you for this question as well. So we launched -- we had a commercial launch in China in August. It's about 6 months before the kind of the internal target date. And that's a really good sign for us from the Chinese market, both from the clinicians, but also from regulators that means there's a high demand for this product. So far, the feedback from the clinical and the hospital community has been very strong, very good on the launch. The selling cycle on the equipment is relatively long, obviously, than the disposables. And so that's why I kind of made a comment that we expect the majority of growth impact starting in 2026. So if you recall what we've always said, we -- last year, 40% of our worldwide placements were Essenz. This year, 60% of all HLMs placed globally will be Essenz. And then next year, 80% of all HLMs placed around the world will be Essenz. And China will be the main contributor to that upside from 60% to 80%. And then during the Investor Day next week, which I hope you can attend, we will unpack a little bit more the opportunity in China and specifically what we expect from launch. Operator: We now turn to Matt Taylor with Jefferies. Matthew Taylor: Nice to see the neuro growth stabilizing here. I was wondering if you could just, at a high level, talk about the trajectory into next year for that business given we will start to see some of the roll-off of the COVID implant headwinds and you have these other helpers, including the new reimbursement for replacements and the DRE data. Could we see a pickup in that growth next year? Vladimir Makatsaria: Yes. So thank you for the question. So I'll make it compartmentalize a little bit. There will be 2 occasions that we will share in more detail our longer-term projections on epilepsy as well as expectations for '26. So again, November 12 is our Investor Day, and then we will guide early in the year for 2026. But a little bit of flavor on what we're starting to see in terms of results. I think 2 things. One is strong execution globally. So we continue to just improve our level of commercial execution, and that pays off with consistent results across the world. Number two, we had CORE-VNS study results out. That's the largest to date real-world evidence study. And we're starting to deploy the results of the study to the clinical community and starting to get very positive results. And so maybe after I finish, I'll ask Ahmet just to say a few points about that. And then to your point on -- we're very pleased on the reimbursement improvement that is anticipated as of January 1 with the shift from Level 4 to Level 5 on the end of service units. And that obviously improves economic viability of -- over the lifetime of VNS patients for the providers. And so that clearly is an important growth driver for us moving forward. And we'll continue to work on market access and improved reimbursement also for the NPIs. So maybe, Ahmet, if you can comment a little bit on the CORE-VNS. Ahmet Tezel: Sure. As Vlad stated, this was the largest study to date with VNS with 800 patients. And because it was large, it allowed us to do subgroup analysis because we had large sample sizes. And the outcomes kind of further validated the early and sustained reductions in seizure frequency across multiple seizure types, including the most severe and disabling seizures. For example, I'll just give you one data point. At 36 months, the analysis showed that the median seizure reduction was 80% for focal onset seizures. So we're still, as Vlad stated, in the middle of rolling the data out, but we're getting very, very strong feedback from physicians about the strength of the data. Matthew Taylor: Got you. Maybe I just ask one follow-up. I know you probably want to comment on the pipeline next week. But I did want to get an update on the process for depression. I think last quarter, you said it could be about a year before we see a decision. Is it now 6 to 9 months? Or is there anything new on timing or your confidence in getting coverage there? Vladimir Makatsaria: So in terms of the process, yes, the fundamentals have not changed for us with regards to the time line. So we submitted our draft application. CMS has given us some questions. We view that as a positive part of the process. We answered their questions and then the government went to shutdown. So right now, because of that, there's a pause. As soon as the government opens, we will go back with the process. And the next step is to do our formal application. Now from that point on, there is no strict time lines. But as a reference, and it's just a reference, Medtronic just complete the renal denervation. And for them, the process took 11 months in total from the time of the formal application to having the reimbursement completed. So we are also hoping that the process for us will be within that kind of time frame of 1 year. So nothing has really changed for us. The only thing is this kind of a temporary pause with the government shutdown. Operator: We now turn to Anthony Petrone with Mizuho. Anthony Petrone: Congrats here on the quarter. Maybe one quick one on Essenz and then a high-level question. Just maybe a little bit on the contribution from the China launch in the quarter and how that product cycle in China, Essenz specifically will sort of evolve here over the next 12 months? And then I'll have a quick high-level follow-up. Alex Shvartsburg: Anthony, in terms of China, for the quarter. We actually saw some early indications of kind of positive reception. We had some orders come into Q3. I think there was kind of the mad rush ahead of the Golden Week to get these orders in by certain distributors and hospitals. But it's still early on in the game. And as Vlad said, we're going to see most of the impact next year from that launch. Anthony Petrone: And then maybe just high level, as we head in Analyst Day, when you think about managing the top line growth algorithm with just your priorities at EBITDA, obviously, 2 new initiatives here, depression and sleep. Maybe just a little bit of a preview on how the company is prioritizing top line growth over EBITDA margin expansion and earnings. And congrats again, and look forward to seeing everyone next week. Alex Shvartsburg: Look, we don't want to preempt discussion today for Investor Day. We'll -- next week, we'll connect the dots between our current execution and our financial ambitions for the long-range plan. So again, kind of looking forward to sharing the details of our long-term strategy and financial objectives next week on November 12. Vladimir Makatsaria: And Anthony, I look forward to seeing you next week, and thank you for taking the time to join us. Operator: We now turn to David Rescott with Baird. David Rescott: Congrats on the quarter here. I wanted to follow up on some of the comments around this investment behind the CORE-VNS trial. More curious about how internally you're expecting to gauge what the benefits of that investment can be and over what period? I know there's some elevated reimbursement on the end of service potentially being a benefit for new centers opening up or maybe new centers adopting this therapy. I'm not sure there's been an update on the NPI reimbursement. But is this something that you'll see on the ground level as it relates to exploring new implants to just more centers onboarding VNS therapy? How are you thinking about gauging kind of the success of what CORE-VNS showed in the financials, I guess, of the company? Vladimir Makatsaria: So David, and very important question. Thank you for asking it. Look, I think this is -- if you look at 1/3 roughly of epilepsy population have resistant to drugs. And then it takes 10 to 15 years to get from the diagnosis of being a DRE patient to actually getting or seeking for treatment. And if you look at the kind of across various clinical specialties, treatment of drug-resistant epilepsy patients has one of the lowest penetrations. And there are a number of barriers or if you flip the drivers that will contribute to improvement of that penetration. And you mentioned the 2 of them. One is reimbursement and making sure that hospitals also have financial economic benefit from those procedures. And we made a major step on that in terms of Level 4 to Level 5. And like I said, we'll continue to work on Level 6 for the NPIs as well. The other kind of clinical strategic direction is in the innovation area is how do we make sure that we continue to create products and procedures that are less invasive and more clinically effective. And ultimately, that is the goal of innovation, minimally invasive, more clinically effective. And what CORE-VNS study shows is that with relatively less invasive procedures like VNS, we are starting to see really strong long-term results. And that is an important data point for the clinical community to drive penetration of the procedure. And so I'll turn it to Ahmet a little bit to talk more from a scientific point of view. Ahmet Tezel: Yes. In terms of the investment, in terms of the data investment, the investment is mostly done. So from this point on, we're talking publications, advisory boards and things like that, that are not substantial investments from an investment standpoint. I'll add 2 comments to what Vlad said. One, the data show that the earlier you start VNS therapy, the better clinical outcomes are. So I think that's an important learning of the study that we are going to ensure that our physician base understands. So that could kind of accelerate a little bit of utilization because earlier is the better. And as Vlad talked about it, we're investing a lot in simplifying the workflow. And we also show with the CORE data that dosing and titration and getting that right is really, really important. So anything we can do to make the workflow easier and faster helps the end outcome. So I think those will be the 2 key points I will make. Earlier utilization of VNS is really important and impactful according to the CORE data and dosing and titration is really impactful. So we're investing a lot in making that a lot easier for our physicians and patients. Vladimir Makatsaria: And David, I'm going to keep promoting our Investor Day because I think it will be important to kind of take a look at a holistic strategy on how we continue to grow epilepsy. And this is obviously an important leg of that strategy. So I hope to see you there, and we will unpack a little bit more in terms of our holistic approach to driving durable growth in the epilepsy business. David Rescott: Okay. That's helpful. Two, I guess, kind of clarification questions on some prior comments. First on the China rollout contribution in 2026. I heard you talk about the shift from the 60% to 80%. Is China the way or the reason that you get to the 80%? Or is potentially China an upside to getting to 80%? And then on the oxygenator manufacturing capacity, I heard that new manufacturing line next year, that will be a step change, I think you said on the impact. Just curious if you can qualify or quantify what your definition of step change is, and we'll see the team at the Analyst Day next week. Vladimir Makatsaria: Yes. So I'll start maybe with the second one. So we expect the new line to be -- to go live in the second half of the year. So that's when we will start seeing acceleration beyond just ongoing improvements within the current network. And the step change, so we won't guide specifically to our exact capacity increase, but it will be beyond what we have done historically on an annual basis. So that's the first one. And then -- so that's the second one, sorry. On the first one, so China is a big driver. Remember, there are 2 drivers on the growth of HLM. The first one is this kind of percent improvement of placement penetration, call it, during the year. So we're going from 60% to 80% next year. And yes, China will be the major contributor to that upgrade. The second one, and if you look over the last few quarters, and this is where the biggest upside came from in terms of our growth, same in quarter 3 is with the fact that we are able to maintain very strong price premium on Essenz versus S5. And -- and that ability to preserve price premium is actually a very strong indicator of value proposition of Essenz to the clinical community. And so one of our targets and using your point, could that be an upside is to make sure that we continue to preserve price premium as we roll out Essenz across the world. Operator: We now turn to Mike Matson with Needham. Michael Matson: So just a few on the oxygenator business. So are there any signs of your competitors trying to expand their production? And then what's your confidence that the demand remains as strong as it's been, particularly the, I guess, procedural-driven component of that? And then if the growth were to slow -- or demand were to slow down, is there any -- as you've added this capacity, would that pressure your margins or anything like that? Or is it easy enough to kind of turn it off if you see things slow down? Vladimir Makatsaria: So very good question. So I'll start with the second part of it. So the way we're building our additional capacity is in a very financial disciplined manner. So fluctuations in the demand within a certain range are not going to impact negatively [ our kind of this ] type of investment, and we won't see any negative pressure on the financials. On the first part of the question, so we have now, over the last 2 years have seen the momentum of share gains. And we believe that we are now -- we've gained share from low 30s to very high 30s now in terms of percent share in a very mature market like oxygenator, you rarely see that. And we attribute that not to a disruption in the market with competitors, but the fact that we have not seen any investment and innovation or capacity increase from Medtronic and Terumo. And obviously, from getting there, we saw exit from this part of the -- from this segment of the market. So we continue to gain share. Our first step is to continue gaining share through improved supply. And the second step will be to launch new generation oxygenator. We're going to talk about the clinical value that it brings during the Investor Day. So we see share gain in oxygenator as not just a short-term blip, but it's a long-term strategy, and we have execution plan behind that. And then to the market growth, look, we are learning more and more about what drives the procedure growth, and it's multidimensional. Part of it is that we're just as a society, getting older and getting more open heart surgeries. Number two is emerging markets where open heart procedure penetration is lower and has more runway for growth. Those markets are becoming bigger part of the pie. And so that kind of contributes positively to overall growth. And then finally, we believe that there was a kind of lack of diagnosis during COVID, and that resulted in more advanced heart disease for patients after COVID. So that potentially will go -- that part of the market growth will potentially go away. And then finally, on the valve procedures, we see a more robust growth on valve procedures as kind of TAVI growth kind of momentum is flattening. Alex Shvartsburg: And Mike, I would just add the fact that the market is continuing to be a very robust market. We're still operating in a back order situation. So the demand is outpacing the market's ability to supply, right? So we're building capacity to address the demand that we're seeing. And as Vlad said, we're going to do this in a financially disciplined manner. And we need to build this capacity also in light of the fact that we're going to ultimately start converting to our next-generation oxygenator. So there needs to be that transition point. David Rescott: Yes. Okay. That makes sense, especially with the new oxygenator coming. So -- and then just one quickly on the HLM side. With the PCB upgrade, how involved are the sales reps going to be in terms of managing that with the customers? And is this something that could potentially distract them from selling HLMs and oxygenators in the fourth quarter? Vladimir Makatsaria: No. Yes, it's a good point. No, it's a service organization that will execute the upgrade. And then there will be no disruption for sales organization. Operator: We now turn to John McAulay with Stifel. John McAulay: Just wanted to go back to the free cash flow we saw in the quarter. So conversion rates above 90% on a last 12-month basis, near $200 million in total. Just want to get a better sense. I know SNIA is still ongoing here. But is there anything that we can attribute maybe in the future to greater M&A capacity or other in terms of investments in the business that you're getting with this stronger free cash flow generation on the overall strategy? Alex Shvartsburg: John, thanks for your question. Look, we -- if you look at our cash position, very well positioned to address the SNIA payment. And I appreciate you calling out the fact that we're -- our cash generation has improved. Yes, obviously, it gives us -- putting SNIA behind this ultimately gives us the flexibility to deploy our capital against strategic initiatives and M&A is one of those tools that we will look to. So I think it's important for us to continue to focus on improving our cash generation. That is -- that's the lifeline for any company to be successful is to drive cash flow. John McAulay: Great. That's helpful. And a follow-up on the epilepsy business. You talked a lot about the CORE-VNS study so far and how that's contributing. Also just wanted to get a sense of what's going on the ground in terms of the team's commercial presence, the reps, CC teams. Just all these initiatives that you've put in place, how are they working to drive greater overall market penetration? And just what inning do you think we are in, in terms of seeing this number steadily increase? Alex Shvartsburg: John, look, so the epilepsy business, really pleased with our performance in the quarter and year-to-date. The commercial teams have executed extremely well, particularly coming out of the field safety notice situation that we had in the quarter. So we're starting to catch up in terms of deferred procedures that we saw. And it's a multifaceted approach to driving penetration in the marketplace. As a market leader, we're obviously focused on driving data generation, clinical evidence to support the therapy, the health economic reimbursement improvements are going to help us. This is -- it's part of our overall strategy to drive growth. And again, we keep pitching Investor Day, but we'll unpack a lot of that next week when we talk about our long-range strategy. Operator: We now turn to Matt Miksic with Barclays. Matthew Miksic: So congrats on the quarter and on the momentum here. I just wanted to follow up on one aspect of the sort of next, call it, next set of drivers, indications, which I'm sure you'll get into next week on DTD and OSA. If you could sort of give a sense of where -- how those -- what those investments look like, 2 very different to me anyway, opportunities and very different set of investments and different challenges facing each. Maybe if you were to think about the P&L and the profile [ of the ] when and how do we see, say, DTD phasing into your intermediate and long-term growth? And at a high level, when and how do we see OSA potentially phasing into intermediate and long-term growth. Understanding, of course, you don't really want to get into everything now. Alex Shvartsburg: Yes. Matt, thanks for the question. And it's a really good lead into the Investor Day. I think we will spend majority of our time talking about our plans to launch OSA and then our progress with depression. So both from the strategy point of view, the value proposition point of view, but also potential financial impact. All of this will be unpacked on November 12. Matthew Miksic: Okay. Fair enough. And then just maybe in this next quarter, understanding that you're already investing a fair amount of spend into these programs. You called out the sort of the circuit board investments and some of the other businesses you're ramping up [ PVA ] in the fourth quarter. Can you quantify what you're -- if you're picking up the investment in Q4 at all from current levels or maybe just a level check on sort of what the quarterly spend looks like and how that's progressing in advance of the bigger plan you'll unveil next week. Vladimir Makatsaria: Matt, thanks for your question. Look, Q4 is always -- we always see an uptick in spend. It's our kind of the biggest quarter in terms of our OpEx, both SG&A and R&D. So that's all factored into the full year guide. Matthew Miksic: Understood. But no color, you sort of safe to say you're sort of maintaining spending levels in those 2 programs or no significant change from Q3 to Q4. Is that fair? Or do you see a step-up that's not consistent with, as you point out, sort of the seasonal step-up in OpEx? Vladimir Makatsaria: No, it's pretty consistent. There's no step-up in investments. And I think I'm trying to read into what you're alluding to, as Ahmet said, given the time lines for both DTD and OSA, there are no incremental investments in Q4 related to those programs. Operator: And our final question today comes from David Roman with Goldman Sachs. Unknown Analyst: This is Jamie on for David. I hate to belabor the 4Q guidance question. But as we think about last year, a similar dynamic unfolded. You provided Q4 guidance that many of us perceived as conservative given the year-to-date trends and all modeled ahead of your guidance. And then you ended up doing sort of exactly what you said you would do, and that created a lot of volatility early in 2025. How do you consider these dynamics in constructing the outlook for 4Q? Alex Shvartsburg: Jamie, look, we guide to a specific set of numbers for, obviously, full year is 1 quarter remaining. We're not expecting anyone to model kind of ahead of the numbers that we're calling. So I would just say, look, we're pleased with our results year-to-date, and our guide reflects kind of the balance to go in Q4. So I'd encourage you to adjust your models accordingly. Unknown Analyst: Okay. And I know you'll get into 2026 more next week. But if we lay out some of the headwinds, which would be incremental interest expense from eventual payment of SNIA, annualization of tariffs, investment in OSA against some of the tailwinds, the China Essenz launch, PCBA upgrade completion, capacity for oxygenators, how do the headwinds and tailwinds balance each other going into next year? Vladimir Makatsaria: Look, we're in the planning process at this stage, and there's many puts and takes at this point in time. I can talk to as many headwinds as tailwinds. So I would say we'll talk about our 2026 guidance in February. Operator: This concludes our Q&A. I'll now hand back to Vladimir Makatsaria for any final remarks. Vladimir Makatsaria: Okay. Well, thank you so much, and thank you, everyone, for joining us on this call today. And on behalf of all of us, we really appreciate your support and interest in LivaNova, and I hope to see you at our Investor Day on November 12. Thank you, and have a great day. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the ACM Research Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I'd like to turn the call over to Steven Pelayo, Managing Director of the Blueshirt Group. Stephen, please go ahead. Unknown Executive: Good day, everyone. Thank you for joining us to discuss third quarter 2025 results, which we released before the U.S. market opened today. The release is available on our website as well as from Newswire services. There is also a supplemental slide deck posted to the Investors section of our website that we will reference during our prepared remarks. On the call with me today are our CEO, Dr. David Wang; our CFO, Mark McKechnie; and Lisa Feng, our CFO of our operating subsidiary, ACM Shanghai. Before we continue, please turn to Slide 2. Let me remind you that the remarks made during this call may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent ACM's current judgment for the future. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Those risks are described under Risk Factors and elsewhere in ACM's filings with the Securities and Exchange Commission. Please do not place undue reliance on these forward-looking statements, which reflect ACM's opinions only as of the date of this call. ACM is not obliged to update you on any revisions to these forward-looking statements. Certain financial results that we provide on this call will be on a non-GAAP basis, which excludes stock-based compensation and unrealized gains and losses on short-term investments. For our GAAP results and reconciliation between GAAP and non-GAAP amounts, you should refer to our earnings release, which is posted on the IR section of our website and on Slide 13. Also, unless otherwise noted, the following figures refer to the third quarter of 2025 and comparisons are with the third quarter of 2024. With that, I will now turn the call over to David Wang. David? David Wang: Thanks, Steven. Hello, everyone, and welcome to ACM's third quarter earnings conference call. I'm very pleased to report another strong quarter for ACM. Revenue grew 32% year-over-year to a new quarterly record, reflecting broader demand across our innovation product portfolio. Across industry, AI and data center investment are accelerating semiconductor and wafer fab equipment spending. AI is also demanding new innovations, many of which have yet to be developed. We believe these trends are driving the market toward us. ASM strategy remains focused on building a multiproduct portfolio of world-class tools that expand our service market and play a critical role in enabling the next generation of chip making. Our differentiated technology continue to raise the performance bar across both front-end and advanced packaging applications. For example, in advanced packaging, we are seeing strong global customer engagement in our proprietary horizontal plating technology for panel-level packaging, and we plan to ship our first system in the fourth quarter. In cleaning, our high-temperature SPM platform is reaching industry-leading performance as our proprietary nodule design achieving performance at 19 nanoparticle sites down to single-digit particle counts. We believe this will lead to higher product yield for our customers. Further, with no need to clean out chamber, the tool requires significantly lower maintenance. This is truly world-class tool, and our team has a road map to even lower particle size down to 70 nano, 50 nano and 30 nano to support the next few generation technology nodes. In Track, we shipped our first KrF high-throughput Track platform this quarter, further broadening our reach into lithography adjacent applications, which demonstrate ACM's ability to grow into new product categories. Together with innovations such as nitrogen bubbling, cleaning and etchers and high-temperature furnace discussed last quarter, this advancement reflects ACM commitment to continuous innovation and the tangible performance improvement we have delivered to customers. In September, our ACM Shanghai subsidiary completed its second capital raising on STAR Market, raising net proceeds approximately $623 million. ACM has the technology, the customers, the capacity and global reach and now additional capital to pursue our mission to become a key supplier to major global semiconductor producers. These funds strengthen our balance sheet and will be used for additional investment in our Lingang mini-line and to expand our global production capacity. We also plan to accelerate our R&D investment. This will advance our existing cleaning and electroplating tool for next-generation process. It will also speed up the development for our new product categories, including furnace, PECVD, Track and panel-level packaging tools. And we're also investing in new products that we have not announced yet. ACM is committed to world-class product for both China and global customers. Our tools enable next-generation devices architecture and help solve our customer complex process challenging across front and back-end applications. We have a world-class technology and a strong IP position. Customers around the world come to us for our technology rather for low price. We believe this is the right combination to grow our business and maintain our gross margin targets. We feel that ACM is now an inflection point in which innovation will win the game and drive a significant shift in the market share. Now on to our business results. Please turn to Slide 3. For the third quarter of 2025, we delivered revenue of $269 million, up 32% year-over-year. Shipments were $263 million, up 1% year-over-year. Gross margin was 42.1%. This was at the low end of our target due in part to product mix, inventory provision and other adjustments. There's no change to our target model range of 42% to 48%. We ended the quarter with net cash, USD 811 million versus $206 million last quarter and $259 million at the year-end of 2024. Now I will provide detail on product. Please turn to Slide 4. Revenue from single-wafer cleaning, Tahoe and semi-critical cleaning tool grew 13% and represent 68% of total revenue. We believe our top bottom cleaning portfolio is world-class and put us in a strong position to gain additional share both in China to expand to global markets. The 13% year-over-year growth was mainly from our traditional cleaning product. The contribution from our newer cleaning line, including single-wafer SPM, Tahoe and semi-critical CO2 is still fairly small. We expect this new platform, especially SPM to contribute more revenue in 2026 and beyond. We estimate an incremental opportunity of more than $1 billion for those new cleaning products from the Mainland China market alone. We remain confident in our target for 60% market share in China market, and we expect higher growth rates for cleaning next year and beyond. Revenue from ECP, furnace and other technology grew 73% and represent 22% of total revenue. We had a record revenue quarter for ECP front-end tool, which represent about 60% of the mix for this group. This group, including our MAP, MAP+, ECP 3D and ECP G3 product, all of which grew from last year, ECP back-end tools were about 40% of the mix for the quarter. Revenue from furnace was small for the quarter and year-to-date. That said, we are making good technical progress across a range of customers and multiple product offering. This including our ultra-high temperature new furnace, which operates at more than 1,250 degrees C, our LPCVD oxidation and ALD for both thermal and plasma. We continue to focus on qualification at the key customers, and we anticipate incremental revenue contribution from furnace in 2026. And as I noted earlier, we are seeing very strong interest in our panel level plating tool for advanced packaging from both China and global customers. We will ship our first panel level packaging tool in Q4. Revenue for advanced packaging, which excludes ECP, but including service and spell was up 231% and represent 10% of revenue. About 2/3 of this group for this quarter is small tools for advanced packaging. This including coder, developer, etcher, steeper and wafer-level packaging tool that run around $50,000 to $1 million each. We had a good contribution this quarter from a handful of different customers. Although we include plating product for advanced packaging in the ECP group and the combination is very powerful, it appear -- it provides ACM with valuable insight into the challenges of next-generation packaging as AI drives industry towards 2.5D and 3D integration, stacking die with through silicon via TSV and integrated memory and logic in a single packaging. We also shipped advanced packaging tool in Q3 to 2 new customers in the U.S., and we expect the installation and then true acceptance in the next couple of quarters. We are making good progress with our new Track and PECVD platforms. I already mentioned the shipment of our first KrF Track tool. We believe our high throughput design position this platform to compete effectively with the incremental supplier. Our proprietary PECVD platform with 3 trucks per chamber gives the flexibility to support a wide range of processes with the same hardware. We feel good about our positioning as the team continues to work through the technical detail with a few tools in our Lingang mini-lab running wafer test and the EVA tools planned to ship in the near term. To close on product, ACM's culture of innovation continue to deliver industrial-leading performance across the broader portfolio. Customer engagement is deepening as the chip makers look for partner that can enable their next-generation processes. Please turn to Slide 6. global WFE demand continues to be fueled by investment in AI and data center infrastructure, particularly in advanced logic and memory, while China market, in our view, remains stable. Last quarter, we increased our long-term revenue target to $4 billion, supported by an estimated USD 2.5 billion contribution from China and $1.5 billion from global markets. Next, let me provide an update on our production facility. First is Lingang. Please turn to Slide 8. Our new Lingang production and R&D center is now fully up and running. The site's first building is already in volume production, while the secondary providing additional room for future expansion. Together, the 2 building can support up to $3 billion in annual output, positioning ACM to meet growing customer demand and support our long-term growth plans. We plan to allocate part of the proceeds from ACM Shanghai's second capital raising to expand our mini-line at Lingang to strengthen our process development capability and enable on-site customer evaluation on the fab-like condition. This will accelerate product validation, shorten development cycle and enhance collaboration with the key customer as we're expanding our portfolio of next-generation tools. Turning to our Oregon site. Please turn to Slide 9. This facility will allow customers to test wafer locally on ACM tool and will serve as our initial base for production and technology development in the United States. Our global customers are encouraging by our commitment, which we believe will help them to choose ACM as a key supplier to scale production. Now I will provide our outlook for the full year 2025. Please turn to Slide 10. We have narrowed our 2025 revenue outlook to a range of USD 875 million to $925 million versus prior range of $850 million to $950 million. This implies 15% year-over-year growth at the midpoint. We made a greater progress with several major product lines this year, including single-wafer SPM, Tahoe panel-level plating, furnace, Track, PECVD. We believe this new product providing a solid foundation for multiple major new product cycle for the continued growth in the coming years. Now let me turn the call over to our CFO, Mark, who will review details of our third quarter results. Mark, please? Mark McKechnie: Thank you, David, and good day, everyone. Please turn to Slide 11. Unless I note otherwise, I will refer to non-GAAP financial measures, which exclude stock-based compensation, unrealized gain/loss on short-term investments. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. Unless otherwise noted, the following figures refer to the third quarter of 2025 and comparisons are with the third quarter of 2024. I'll now provide financial highlights. Revenue was $269.2 million, up 32%. Total shipments were $263.1 million, up 28% sequentially and up 0.7% year-over-year. Gross margin was 42.1% versus 51.6%. This is the low end of our target model. Adding color to David's earlier remarks, we attribute this to 2 key factors. First, product mix. Our Q3 sales included a high number of smaller front-end tools, which had forced margins, and that contributed about 200 basis points of the headwind to the gross margin. Second, we had a higher level of inventory provisions and other adjustments, which hit our COGS for the quarter contributed about 300 basis points negative impact. I want to reiterate, there is no change to our target model of 42% to 48%. ACM is fully committed to developing world-class tools that enable our customers to scale production of leading-edge semiconductor devices. We believe this creates a healthy pricing environment for our tools, which combined with an efficient cost structure results in good profitability. Operating expenses were $76.9 million, up 56.3%. R&D was 14% of sales, sales and marketing was 7.7% of sales and G&A was 6.9% of sales. For 2025, we continue to plan for R&D in the 14% to 16% range, sales and marketing in the 8% range and G&A in the 6% range. Operating income was $36.5 million, down 34.9%. Operating margin was 13.6% versus 27.5%. Income tax expense was $2.9 million versus $4 million. For 2025, we now expect our effective tax range in the 7% to 8% range. Net income attributable to ACM Research was $24.8 million versus $42.4 million. Net income per diluted share was $0.36 versus $0.63. Our non-GAAP net income excluded $7.6 million in stock-based compensation expense for the third quarter and $18.7 million in unrealized gain on short-term investments. I remind the analysts that as a result of the second capital raise of $632 million net by our subsidiary, ACM, our ACM's ownership in ACM Shanghai is now 74.6% versus 81.1% at the end of last quarter. I will now review selected balance sheet and cash flow items. Cash and cash equivalents, restricted cash and time deposits were $1.1 billion at the end of the third quarter versus $483.9 million at the end of the second quarter. Net cash, which excludes the short-term and long-term debt was $811 million or about $12 per share versus $205.8 million at the end of the second quarter. Total inventory net was $676.4 million versus $648.3 million at the end of the second quarter. Raw materials were $326.2 million, up $40.6 million quarter-over-quarter. We made additional strategic purchases to support production plans and to mitigate any potential supply chain risk. Work in progress was $59.5 million, down $1.2 million quarter-on-quarter. Finished goods inventory was $290.7 million, down $11.3 million quarter-over-quarter. Finished goods inventory primarily consists of first tools under evaluation at our customer sites, along with finished goods located at ACM's facilities. Cash flow used by operations was $4.6 million for the third quarter and $44.4 million year-to-date. Capital expenditures were $43.2 million. For the full year, we expect to spend about $60 million to $70 million in capital expenditures. That concludes our prepared remarks. Let's open the call for any questions that you may have. Operator, please open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Suji Desilva from ROTH Capital. Sujeeva De Silva: David and Mark, congrats on the progress here. Can you talk about the shipments and the growth there? Are there any factors, puts and takes in terms of what we should expect in terms of your visibility in the next 4 quarters? David Wang: Yes. shipment, we see there are some customers asking for delay for maybe the Q1 next year. And also the certain parts were shortage, right? We cannot fully complete the order as a manufacturer final testing. But those products probably will still get into the Q1 shipment, and we're still expecting next year's shipments still continue to grow. Sujeeva De Silva: These part shortages, David, how long do you expect that to persist? Is that a multi-quarter effect? Or is that short term? David Wang: It's not really. I think there are certain parts we're using right now and we kind of replaced some parts. We're kind of -- and they're looking for a new supplier. And those things has been qualified in their customer process. And so those parts qualify finish, then we can use more of the, I want to say, domestic made in China parts. So that's probably a portion of the fact there. Mark McKechnie: Yes, one other thing I'd add to the shipments for the quarter and even for the year, we talked about this before, but some of the newer products that we would be shipping that David talked about in his prepared remarks, some of those probably a little more fell indeed is going to fall into next year versus this year. Sujeeva De Silva: Okay. Helps Mark. And then my final question is on the panel tools. Can you talk about the opportunity as you ramp maybe into the HBM memory or AI memory opportunity, how much that can grow as a percent of revenues and how quickly that can ramp? David Wang: Well, okay. So panel packaging, right? Sujit? Sujeeva De Silva: Yes. David Wang: Okay. Well, and the panel has been real hard, right, in this year, especially a major customer in Taiwan real promoting the panel business. We believe panel is a way to solving the large area AI chip, right, packaging with HBM together. So all the wafer level is a lot of, I call the area. So with the efficiency of the using the area. So panel packaging, one key is plating technology, right? I should say a lot of people in the copper plating for panel is a vertical style. And we are probably the first one to propose the horizontal and cover plating for the panel, which also we got the 3D Insight award, Innovation Technology award from USA. We believe we really have a good solution and they can play their panel uniformly and there will be a fill requirement of all this either 310x310 or 515x510. By the way, we're going to ship one of the panel plating tool in the fourth quarter. And also, we're engaging with multiple customers for the panel packaging business in Taiwan and U.S. and also in China -- Mainland China. Operator: And our next question comes from the line of Charles Shi from Needham & Company. Yu Shi: A couple of questions here. The first one, a follow-up to Suji's question on shipment. So it sounds like it's more of a customer push out and partly due to parts shortage. And it sounds like the implied message seems like it's not a reflection of the end market demand. But I wonder, can you kind of quantify a little bit what's the expectation for Q4 shipment? And maybe on a full year basis as well, it looks like the shipment probably is going to be down this year. This is probably the first time in many years, your shipment is down on a full year basis. Mark McKechnie: David, do you want to take that? Or you want me to start on that? David Wang: Go ahead, Mark. Mark McKechnie: Yes. Charles, so I think your read is good. We're not really making a call on the end markets here. It's hard to say company-specific versus end market. But yes, in terms of our shipments, the Q4 will probably be down from Q3. So you could have -- the full year would be down year-on-year. And that is different than what we had expected. I think I would point out that shipments were pretty heavy last year, as we know. And some of the reasons that we talked about for the deferment of shipments, we should start seeing those pick back up in the first half of next year. I think David in his prepared remarks talked about an inflection point where we're still shipping a lot of our current products and a lot of newer products we expect to really start kicking in and contributing more next year, the SPM, the furnace and this panel level packaging product line. David Wang: Yes, actually, including we're probably shipping a few PECVD tool, and we see that will be definitely contributing revenue in the next year. So I think it's kind of -- we're in the time of inflection point, right, and the new product come out. And also, we're expecting some new cleaning tool come out too contributing on the -- our shipment and revenue, especially as I mentioned, this proprietary design and SPM special nozzle which a very excellent result, which is -- we think we'll continue to gain a lot of market share for SPM process. Yu Shi: Got it. I do have a question a little bit later around the innovation, some of the comments you made, David, around, I mean, also proprietary design, et cetera. Before that, maybe a question on the 300 bps impact from inventory write-down. Mark, it wasn't clear to me what's the reason for writing down, if my math is right, around $8 million-ish of the COGS of the inventory. And may I ask if the write-down is related to inventory you have at your own facility or this is about some of the write-down of the evaluation tools at your customer sites? And if the latter, what's the reason for that? Mark McKechnie: Yes. No, thanks for the question, Charles, on that. So inventory, you always have a pretty thorough process internally to kind of value the inventory on your books. And so a big piece of it is related to the aging of some of our raw materials. And it's interesting, we think that -- and so it's just kind of a formula you apply to the age profile of your raw materials. And on the other side, there were some finished goods that we took a write-down on. And these were -- I think these were mostly at our own internal. I see these were tools that I'm pretty sure were -- that we had internally. And so we're not really disclosing it internal versus end customers. Yes. Yu Shi: Great. So maybe my last question. I think you spoke -- we probably have discussed about this along the same line before, but you talked a lot about innovation, but develop better products than your global competitors win market share. But I think what I am hearing is the domestic customers are probably more looking for simply matching the global baseline, like matching what the global tools they already have given restrictions, given self-sufficiency, all kinds of reasons. At this point of time, like trying to do a lot of product innovation, do you think you may be missing out some near-term opportunities? I understand you said that you're going to win in the long term, but do you think that you're going to -- I mean, because your tool, even though it's performing better, maybe will perform differently from their global baseline, your customers' global baseline. Could you -- could that cost you some business in the near term? David Wang: Yes. Actually, we are winning a short time. In other words, I give this example, this high-temper SPM process, right? And with our special proprietary design, we can really control all the high-temperature SPM splash out of the chamber and also the vapor into that environment. So therefore, we control the environment very well. That's why I said our 19 nanoparticle down to a single-digit number, between less than 5. So we are better than even top-tier player today in the SPM process. Also, because of the control environment, we think about even 70 nano, 50 nano, even 30 nano, we can control better. So answer your question is, yes, there's a certain domestic player going there or there's other first tier -- I mean, tool vendor still set in China, but I said, we're in the best performance. And also, we think that either customer in China or outside China, they still desire the best performance, right? As go to small geometry, those 19-nano, 70-nanoparticle will matter the yield loss. So that's why we think that we really gain our market -- help us gain market share, both in China and also outside China. We still strongly believe our innovation product has been heavily patent in China also in global semiconductor country area. We have confidence, nobody will copy our proprietary technology or patented technology. So that's why we have the confidence to maintain our -- continue to increase our market share, maintain our gross margin. And I still think AI driving a lot of innovation and the customer desire new technology. Those customers maybe prefer more technology other than low price, right? So that's really, I think, a strong point. And also, I want to say a lot of our existing products cannot meet customer future requirements. So that's another reason we have confidence on our tool. Operator: [Operator Instructions] Our next question comes from the line of Mark Miller from The Benchmark Company. Mark Miller: I was just wondering if you can give us some color on what you expect for MOCVD next year and also give us an update on what's going on with SK Hynix. David Wang: Okay. Well, actually, maybe, Miller -- Mark, I want to make sure this -- we're not going to make MOCVD, we'll make a PECVD. Okay. So anyway, PECVD has been big -- a lot of market size. We developed the PECVD almost from 5 years ago, right? And we're choosing, again, innovation approach. And we're differentiated from a major player in the PECVD, 2 big players now. And for example, like a chamber has 3 trucks, right? Other people have 4 or either 2. So we believe 3 truck in 1 chamber can do their -- almost all the process. And therefore, customer buying platform, we can do almost every PECVD process, right? And for other reasons, we also have a lot of control chamber, power supply, or other differentiation come here. So we believe our PECVD will be -- we're shipping probably 2 this quarter or continue shipping more next quarter. And we'll see that the PECVD is getting into the market and also expecting those PECVD will be generator revenue next year. And also, we have a really high expectation and those PECVD not only service in China, we're expecting to go Korea and also the global market. Mark Miller: If you can comment, please, on Hynix and any developments there? David Wang: Hynix is our customer, right? It's a long, long customer, and we're engaged with a multi tool, cleaning, obviously, and also other products. We're still thinking Hynix is real innovator, leading customer, and we'll continue to engage with them on multiproduct right now. And as I said again, a lot of new stuff were developed right now, and they are very interested, right? And because they're also leading all the HBM everything, right, even the DRAM field. So they are designed more of advanced technology. Also, we have a Korean team and the Shanghai team together. So it's working very well. And a lot of our technology actually was invented and developed in Korea, too. So that's really fitting their requirement locally manufactured, locally R&D. So we still see a lot of potential we can provide good technology to our customer in Korea. Mark Miller: So is your panel packaging tool is that of interest to Hynix? David Wang: Yes, not only packaging, right? Also, you talk about front end too. right? And in all level of the engagement and including -- we talk about our furnace, PECVD, Track and other even product in development. Mark Miller: What about your cleaning tools? Have you been able to penetrate Hynix with the cleaning tools, Tahoe and SAPS? David Wang: Well, we have a SAAPS tool has been sold many tool, right, in Hynix already. And now obviously, we have new cleaning tool engaged with them. And one is our probably end bubbling tool and which really take care probably more than 5 layer of 3D NAND and all this one of the major applications, we think will be contributing to their customers in the future 3D NAND technology. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Steven Pelayo for any further remarks. Unknown Executive: Great. Thank you. Before we conclude, I just want to give everyone a quick reminder on our upcoming investor conferences. On November 19, we'll present at the 14th Annual ROTH Technology Conference in New York City. On December 3, we will present at the UBS Global Technology and AI Conference in Scottsdale, Arizona. On December 16, we will present at the 14th Annual New York City Summit in New York City. And then on January 15, we will join the 28th Annual Needham Growth Conference virtually for our presentation and one-on-one meetings. Attendance at the conferences are by invitation only. For interested investors, please contact your respective sales representative to register and schedule one-on-one meetings with management. This concludes the call. You may now disconnect. Take care. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Britt Jensen: Hello, everyone, and welcome to this conference call presenting our Q4 and full year results from 2024, '25 for Ambu. My name is Britt Meelby Jensen. I'm the CEO of Ambu. And with me today, I have Henrik Skak Bender, our Chief Financial Officer. So let's get going. So we'll start with the highlights from the year that we just exited. And overall, we delivered a very strong organic revenue growth of 13.1% and if we look at our endoscopy business, that grew for the year, 15.4%. This underscores the continued momentum and potential of moving patients from using reusable endoscopes to single-use endoscopes. If we look at our margins, we delivered a margin of 13.0% for the year, and this is impacted positively by our operational leverage where we continue to drive scale and be more efficient. And then on the other side, we also -- given we are a growth company as the most important, we are, as we have previously communicated, continuing to invest in commercial resources and scale in order to continue to deliver that growth. At the same time, we had 2 external factors, and Henrik will come back to that in terms of FX and tariffs that had a negative impact on the results. What we also launched in this quarter was October 1, where we held our Capital Markets Day. We launched our next-era strategy, a strong testament to the progress we have made over the last couple of years, and I'll come back to talk a bit about that as well. In connection with this, we both extended, and we increased our long-term guidance towards '29, '30 and what we are delivering also that Henrik will present for our short-term guidance is in line with these ambitions. So if we dive into the specific results for the year, starting with the overview here, the 13.1% organic revenue growth for the quarter Q4, we delivered 10% and if we take a step back, this is well in line with what we said a year ago when we were up here that we were expecting to have higher growth in the first half of the year than the second half of the year, which is also what we have delivered. If we look at the split, and I'm going to comment on this shortly, we had almost 10% growth in anesthesia and patient monitoring 9.9% and then the 15.4% in our endoscopy solution business. Both of these being lower in Q4 compared to the full year, again, as expected. Then our EBIT margin before special items landed at 13.0%, and we ended up with a cash flow of DKK 407 million positive for the year. Let's look at the endoscopy solutions revenue, starting with the respiratory organic revenue growth where we saw, as we have also communicated throughout the quarter, a solid double-digit growth in this segment of 11.4% and then slightly lower 8.8% for Q4. Again, this is as expected, and it's related to the timing of order in particular, in the rest of world, and nothing that we expect is going to continue where if we look ahead for this segment, we believe that the coming years will be continuing to be solid double-digit growth in this segment, very much driven by the breadth that we have in our endoscopy solutions. And what has been driving the growth this year has very much been our bronchoscopy solutions, and that is continuing to drive our revenue growth in the coming period together with also starting to see increasing revenue from our newly launched video laryngoscope solution SureSight. If we then look at the rest of our portfolio, and this is the segments that we refer to as urology, ENT and GI. Here we also had a higher organic revenue for the year of almost 20%, 19.6%. And then in the quarter, slightly softer. And although we normally do not comment on these different areas, and this is very different therapy areas that we are covering in this group. I think it's fair to also explain a little bit this quarter to say that in Q4, in particular, we saw a significantly lower growth in ENT than we saw in urology and GI. Let me come back to that because this is well in line with our strategy of key focus on urology and respiratory as our 2 key segments. If we look at urology specific, we have now not only our aScope 4 Cysto, but we also have our aScope 5 Cysto. We have our aScope Uretero, which -- the 2 latter are contributing still with a fairly limited part of the overall urology revenue, but that is something that when we look ahead, we expect to continue to see good momentum on our aScope 4 Cysto but where we also would gradually see these solutions driving an increasing share of growth. And I think it's important here to pause and take a step back and say, if we look at the overall momentum that we see when we launch new solutions in the market and when we take a couple of years back, looking at our aScope 5 Broncho. It's very clear that it takes some quarters at the launch curve, and we have talked about this a number of times, is not steep as you will see in other areas, but it's relatively more flat, but then it will also continue to grow quarter-over-quarter for many years. As we have shown that we see still the primarily primary driver of the overall revenue in endoscopy is coming from solutions that have been on the market for quite some years. So this also makes us comfortable when we look at this segment that there's good momentum as we move into this year and the coming years in terms of generating growth in this specific business area. If we then look at anesthesia and patient monitoring, 9.9% for the full year. There's no doubt that this has been an extraordinary year. The revenue growth has been driven by price increases, which was also, as we had communicated, leading to a couple of quarters of very high growth. And then the growth in our last quarter of 6.4% reflects the good balance of where we actually see a lot of growth coming from volume growth and also some growth still coming from price increases. This is purely driven by the fact that we have growth in the market and that we are able to deliver on the demand from our customers. We have not launched any new solutions in this area. We have not added commercial resources. So it's basically our existing people driving the growth and also fueled by very strong customer loyalty and the acceptance and appreciation of our solutions. If we then take a look at our -- if we then take a look at our strategy and what we launched because a month ago, we launched a very strong ambition when we look ahead to achieve global endoscopy leadership. So this is basically on the back of a couple of very successful years with our ZOOM IN strategy where we were successful at a fairly high pace of doing the turnaround of Ambu and then looking ahead as a strong growth company based on the solutions, the market potential, we feel very comfortable of having an ambition of global endoscopy leadership, building on the momentum that we see in the market and acceptance of single-use endoscopy solutions. So our strategy includes some strategic choices that we have made and also a couple of strategic things. And then -- and let me briefly do a recap of those starting with the strategic choices. What we communicated in relation to our strategy is that there are 2 key areas that are our primary focus areas as we look ahead. And this is our respiratory business formerly known as pulmonology, but now also expanded as we also had strong airways management solutions, and then we have urology. Then when we look at our ENT, we still see some strong potential to continue to grow in ENT, although our portfolio is slimmer in this area, we are investing in new innovation to also meet a growing need for single-use endoscopy in this area. Then when we look at GI, we have a long-term ambition of unlocking gastroenterology, which is a very realistic ambition as we see it because there are some of the same dynamics and the same needs in this segment as we see in other segments, but we also acknowledge that this is something that will take time. And we are investing more limited right now, in particular, when it comes to the commercial side. But we do believe that we are the ones that will eventually lead the transition to single use in this segment. All of this is then combined in our EndoIntelligence, where we are continuing to advance the software, the AI solutions that supports our endoscopes and where we have the benefit of having 1 software platform for all our endoscopes combined as the only player in the field. Last but not least, we are also confirming that anesthesia and patient monitoring remains meaningful for our company. And we continue also in this area to grow. But here, we are more focused on the profitable growth, meaning that we are investing less, and we are expecting more scale, as you have seen in the recent results from the past year. If we then look at the strategic focus themes, let me recap this. We have 4 specific areas where we believe that we can continue to make a difference. The first one is very important around customer centricity making sure that we continue to focus on our clinicians but also expand that focus to the health systems where our broad endoscopy portfolio can play a role. And then we see opportunities here to accelerate our adoption of single-use as well also as creating more evidence both on the clinical solutions, health economic and not least sustainability which is also playing an increasing role for our customers. Innovation remains at the heart of what we do at Ambu. And we also believe that we can deploy new technology either in-house or through an increased focus on partnerships to simply be able to be on the forefront of delivering new endoscopy solutions that plays a real role and makes a real improvement for our customers. Then to succeed with both our growth, but also with our margin improvement, it's super high on our radar to continue to build a scalable, profitable platform. We continue to see a number of efficiencies that we can leverage over the coming years, which is part of the plan that we are fully executing and that we have slightly extended. And then last but not least, the most important in Ambu to deliver on our strategy to deliver on our plan is our people and the culture that we have built and that we really cater for in Ambu and this is where we see great opportunities to continue to fuel this culture of growth and of empowerment because we have a lot of highly motivated and highly capable colleagues all around the world. So this is, in a nutshell, our strategy. And let me talk a bit about the growth because -- and where we see our growth coming from. And instead of looking at the market size, which is huge, let's look at the growth in the single-use market because this is actually what matters. And there are a couple of important points here when we look at the market. Overall, if we start on the right side here, we expect that the single-use endoscopy market is continuing to grow with over 20% CAGR, at least in the period until 2029 to '30. If we look at where this comes from, there's the underlying endoscopy procedure growth, which is roughly around 5% which is very much driven by both the aging population, increasing chronic diseases and also an increasing trend towards minimal invasive procedures. But then there is the big transition from being -- from using reusable endoscopes to single-use endoscopes, where we see that growing at least around 15% on an annual basis. And this growth we see coming from both solutions that are already on the market, most of these solutions from Ambu and then also new solutions that are in development right now. But we do see a continued conversion where customers have agreed in many of the subsegments that we are in -- that single-use endoscopy is the solution to a lot of the challenges that they have in the hospitals. And this is something that they also see as a standard of care as we move ahead. We did a survey among customers earlier this year and among potential customers as well, where they said that in respiratory, urology and ENT, where we did the survey. The clinicians said that roughly 70% of their procedures can be done with a single-use endoscope. And we are far from that today. So that also explains the great potential. And let's look a little bit at what is driving this conversion to single use. And there are 4 main things that are the drivers. One is the higher efficiency that we see in the hospitals. So there's more and more evidence out there that customers can actually treat, or hospitals and clinics can treat many more patients when they use a single use endoscope. Because they don't have to wait for a scope being available or the reprocessing that needs to be done. And this one is super meaningful in the hospitals today where resources is a constraint. Then there are better economics. If you do the full budget model -- budget impact model from the hospitals, it's very clear that it comes out more economic viable to use single-use in most cases. We have the strong clinical performance where the quality of the single-use scopes have reached, in many segments, at a level where it is very strong and comparable to single-use and on some aspects, even better. And then we have sustainability, which, in particular, in Europe, and we are seeing also the trend in pockets of the U.S. where sustainability really plays a role in the choices of the hospitals. So if we have to take a step back and say what is really the potential of Ambu and how do we see it, it's basically a very attractive market that we are playing in. And we are, as market leaders, leading the structural shift to single-use solutions. We have the broadest single-use endoscopy and also a very strong proprietary platform to deliver this growth and the largest commercial footprint in single-use. Our solutions and our innovation is very focused on meeting and solving the problems that we see with the customers so they can treat more patients with better outcomes. We have a setup which is already very competitive and scalable when it comes to cost, and this is something that we are continuing to fuel by ongoing initiatives that we have -- and this is basically what brings us to a very clear path of solid double-digit organic revenue growth longer term and also a margin expansion towards 2030 that Henrik will come back to. So before I hand over to Henrik, let me just briefly talk about the EndoIntelligence where we have received a couple of questions. And basically, we are not sharing all the full programs that we have in development. But what I can say is that EndoIntelligence is building on the hardware platform that we have, where we are also working on a next-generation supported by the software that we are really continuing to improve across all endoscopy solution areas and then AI-enabled applications. So we are basically able to support the doctors, both in being more efficient before they do the procedures with the patients, during the procedures, enabling much better diagnostic support than they have been able to so far and then also after the procedure where there typically is an increasing level of documentation being done where we can support. So this basically also means that with us being present in respiratory, urology, ENT and GI with a strong offering when it comes to our endoscopes here exemplified by our respiratory solution, adding on then additional solutions that also plays a role in helping our customers such as the video laryngoscope that we launched. We have our VivaSight One Lung Ventilation as well as our Broncho Sampler Set, we are basically becoming a company that can help the full procedure that they do with the patients in terms of endoscopy, and this is the way that we are moving forward. And then we have the benefit of the portfolio when we are engaging with the health systems where it's very meaningful that they can go into a room and actually plug any endoscope in and then do a procedure, so they can also leverage the full hardware platform and the software that we have with our solutions. So with that, I'm -- I will pause, and I will hand over to Henrik and come back in the Q&A. But just by saying that we feel super confident around our new ZOOM AHEAD strategy, we are very excited about the potential that we have, and we feel we are very well positioned to also strongly differentiate ourselves in solving our customer needs better than anyone else. And this is also where with a high market growth in single use, transitioning from reusable, we are strongly positioned for high growth as we look ahead into the future. So with that, Henrik, over to you. Henrik Bender: Thank you, Britt. And like Britt ended, I also wanted to start before I get into financials by saying we stand here today on the back of what we feel are really solid results for '24, '25 with a lot of progress on our strategic initiatives. And we also stand here today super confident, as Britt just said, and with a high level of excitement with what we have ahead, with what we launched at the Capital Markets Day guided by now our ZOOM AHEAD strategy. And I'll also come back to that and talk a little bit about our long-term targets in connection with that. But starts with, of course, with viewing first our '24, '25 financial results. Starting with growth, we had an overall growth for the year, organic growth of 13.1%, impacted by FX, both for the full year, but in particular, for the last 2 quarters. So the full year reported growth landed at 12%. For quarter 4, specifically, we had an organic growth of 10%, as Britt also presented before. Adjusted for the FX impact that in reported currency landed at 5.7% and just illustrates how impactful the depreciation of the U.S. dollar DKK currently have been on our numbers in quarter 4. In terms of business, we had a strong growth still endoscopy, though lower than the previous quarters at 12.4% and still a solid growth also in our anesthesia and patient monitoring business with 6.4% growth, bringing the total growth across the year to 15.4% for endoscopy and 9.9% for anesthesia and patient monitoring. Very satisfactory results and in alignment with our long-term guidance and also with the ambition we set out exactly a year ago when we set the guidance. In terms of the geographical split, we continue to see very solid growth in North America and Europe, less growth in Q4 for rest of world, mainly due to timing of orders, but consistently across all of the areas, strong growth. And of course, our North American growth was in reported currency, particularly impacted by the U.S. dollar DKK depreciation. So overall, a good growth momentum and a growth momentum we also see continuing in now to '25, '26. Something that I'll come back to when I talk about the guidance for '25, '26. Then turning to margin. We also landed the year on a very solid foot, we feel, in terms of our Q4 but also in terms of the full year. For the full year, '24, '25, we landed at a EBIT margin of 13.0% for quarter 4 alone at 10%. Importantly to note, for quarter 4, as also communicated in our Q4 statement, we were impacted negatively by FX and also by tariff costs. And adjusting for that, we actually landed our Q4 and have corresponded to 13.4%, fully in line with our EBITDA margin expansion plan. As also communicated on our Q3 statement, the FX impacts are temporary. We are initially impacted by the U.S. dollar depreciation, but they will, over time, be compensated then by also lower costs. But it takes quarters to really see that offsetting effect and with a continuation of the U.S. dollar DKK depreciation, it did net-net impact us negatively for quarter 4. For tariffs, I will also come back to it later. We have seen an increased tariff regime globally but specifically for our manufacturing coming from outside of North America that has impacted us in quarter 4 and will also impact us in '25, '26, but we remain very confident that with the plans we have in place already, we can mitigate a lot of this impact. It takes time to implement, like we've said from the start, depending on the initiatives, 6, 9, 12 months. So there will be a gradual phasing. And therefore, right now here in Q4, we did see a negative impact, which in part will continue into Q1 and Q2 and Q3, particularly for '25, '26. Then looking more in detail on the margin and breaking up to gross margin first, and then secondary our OpEx costs. Gross margin continued a strong development, which we've been on now for 16 consecutive quarters almost with an increase versus last year of almost a full percentage point, landing the full year gross margin at 60.2%. This, despite the negative impact from FX, is something we are very satisfied with, substantiates our ability to grow the higher gross margin business in endoscopy solutions and also drive price increases particularly in anesthesia and patient monitoring. In addition to this, it's also illustrating how we've continuously managed to drive efficiencies in our manufacturing footprint with better utilization of our factories, but also better throughput. So a really good result and a good continuation also towards our long-term ambition. In terms of OpEx, there was an increase in OpEx in quarter 4, one, because we continued with the investments and Britt -- as Britt also said in her opening, investing in commercial resources. But two, in particular, also because we did see effects from tariffs, which are reported under sales and distribution costs, which made the OpEx costs go up in absolute terms. That being said, we continue to see further potential for operating leverage and continue to be committed and confident on the long-term margin expansion journey where OpEx will be the main driver of our further leverage. If we then turn to cash flow, we landed the cash flow within expectations of the updated guidance for full year cash flow of around DKK 400 million with for quarter 4 specifically DKK 130 million, landing the full year at DKK 407 million. This is a continuation of the efforts of driving strong cash conversion. And despite the negative impact from FX on EBITDA, in particular, a continued positive momentum on also how we manage our net working capital while still making sure that we have enough safety in our supply chain and also in our inventories locally to manage customer demands where needed. So overall, a really good result. If we then break down into some of the components of cash flow, as said, EBITDA had a drop in quarter 4, mainly driven by FX. Secondary on our CapEx, we did see a slight increase, mainly due to certain timing of investments in R&D. And last but not least, we did continue to see a slight decline in our net working capital as also guided in the last quarter, particularly managing our inventory, but also our accounts receivable in a slightly more tight manner, while still making sure that we have enough buffer in our inventory and supply chain to manage customer demands. In addition to that, we are, as part of our annual report, also proposing a further cash distribution, a process we started more explicitly last year with an updated dividend policy and one that we are now extending and expanding. This concretely will consist of: one, a dividend of proposed DKK 110 million, which will be finally decided at our AGM in December and secondary, a share buyback program of a total value of DKK 150 million. We intend to start the share buyback program after the AGM and executed in full before the end of the financial year with an expectation of canceling the shares when timely needed. We do this, one, because we believe that this is the right thing to do under our dividend policy and with a continued strong balance sheet. And now because we have a negative net interest-bearing debt, we also feel it's timely to increase the cash distribution. That said, it still leaves plenty of room for us to still have high ambitions on our M&A agenda, something that we certainly still do despite a slightly higher cash distribution than previous years. With that, let me look more specifically now at the '25, '26 outlook. We are guiding for '25, '26, a growth of 10% to 13% organic growth for the year in alignment with our ZOOM AHEAD strategy. More specifically, we are guiding for endoscopy solutions, a growth of more than 15% in part with accelerated growth in respiratory and secondary by continued growth momentum in urology and GI and we have come off to a good start on both dimensions. For anesthesia and patient monitoring, we're expecting mid-single-digit growth which is in the higher end of our long-term guidance and again, an illustration, as Britt described earlier, of the continued solid momentum both on volume and on price increases within anesthesia and patient monitoring. With the growth composition of our '24, '25 financial year, we are expecting that the total growth will be more back-end loaded, and we are expecting with very high comparables for quarter 1 that we will have a lower growth in quarter 1, perhaps even just below double digit. But it doesn't change that our full year guidance for the year is 10% to 13%, and we feel very confident with the start we already see right now. Turning to EBIT margin. We are, for the full year, guiding 12% to 14%, including an impact -- expected impact from tariffs, negative impact of 2 percentage points which means that adjusted for this, we would have been guiding 14% to 16%, exactly on the path of our EBIT margin expansion. Why do we see this impact from tariffs? Well, we do because despite our ability to mitigate tariffs, there is a timing of implementation of between 6, 9 or 12 months, depending on the initiative. And that does mean that in particular, in the early part of '25, '26 financial year, we will see higher tariff costs that will gradually decline across the year. And we're expecting tariffs to have much lower impact when we turn forward towards '26, '27 and further on, something that I'll also come back to later. That also means that with slightly lower growth -- organic growth momentum for the start of the year and a higher tariff impact that our EBIT margin will also be back-end loaded for the financial year '25, '26. Last but not least, we are also in continuation with our ambitions from the ZOOM AHEAD strategy, guiding a cash conversion of around 40%, a continuation of our ability to drive efficient growth, make sure that we still invest in the business, while we manage our net working capital in an appropriate way. And with that, let me look a little bit further ahead and come back to some of the direction setting we also gave at our Capital Markets Day as part of ZOOM AHEAD on EBIT margin more explicitly. We are, as you see on the left side on the slide, in a good position to manage the tariff situation as we've increased our manufacturing footprint in North America with our manufacturing site in Noblesville in U.S. and Juarez in Mexico substantially during the past years, with particular expanding our production in Mexico. This leaves us good flexibility to manage that, more and more of our products sold in U.S. will be produced at these 2 sites, which are completely tariff exempted. Mexico included under the USMCA tariff agreement or trade agreement. That means that with further transfers towards our Mexico factory, which we are ramping up further, we do, as I explained just before, see negative impact from tariffs of around 2 percentage points for the financial year '25, '26. But we see this gradually decline and be very, very minimal when we get beyond '26, '27, which also means that despite a lower guidance for the next year at 12% to 14%, we are very confident still on our ability to deliver around 20% EBIT margin by '27, '28 as we continue the operational leverage on OpEx in particular, and we implement the mitigation actions on tariffs. And that brings me to my closure reminding us of the targets we communicated as part of ZOOM AHEAD. We feel super confident, very excited, as Britt said, on the journey ahead, confident on the potential for the high-growth in endoscopy solutions, particularly within respiratory and urology, but also in ENT and GI with a much more clear path for how to deliver on this and a very strong market demand for more and more single-use solutions. We see an increased potential also in anesthesia and patient monitoring with a strong customer loyalty, strong product portfolio and a continued solid volume development at a 3% to 5% growth, meaning that our full combined organic growth ambition CAGR for the period is 11% to 13%. In addition to the target on delivering approximately 20% EBIT margin by '27, '28, as also communicated at the ZOOM AHEAD, we also lifted the EBIT margin guidance to plus 20% by '29, '30 and across the period, an average of more than 40% cash conversion. We feel these extended and increased targets is an important part of our ZOOM AHEAD strategy and really underlines the great confidence and high excitement we feel about the future for Ambu and for single-use in particular. With that, I thank you for your attention, and I hand it to the operator for questions. Operator: [Operator Instructions] And the first question comes from Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: I have 3 questions. First, on respiratory, you see a sequential decline in growth despite the easy comparables you have from last year. Could you maybe just elaborate what makes you confident that you can see growth accelerate in the coming financial year? And then on the other endoscopy business, it sounds like it's -- the lower growth we saw here in Q4, is that related to urology and the competitive situation we've previously discussed at Q2? So I just wondered if you could elaborate a bit what caused the growth to drop to as low as 16% and essentially what needs to happen to get back on track to the 20% growth you previously talked about for that specific segment and whether that's still the ambition. And then lastly, I think you indicated that in terms of the top line growth, that would obviously be sort of like slightly below the double-digit growth in Q1 due to tough comparables and because you have a back-end loaded year. So I just wondered if you could also provide a bit more information on sort of like how to expect or think about the EBIT margin in Q1 as well, whether that could go below the 10% EBIT margin here in Q4, especially considering that the tariffs are probably going to weigh a bit more. Britt Jensen: Thank you, Jesper, for good questions. Let me comment on the first 2 on growth, and then I'll hand over to Henrik to also comment on the Q1 and your EBIT question. So first, on respiratory, I think if we take a step back, we have had discussions and questions over the last 1 to 2 years, whether this was a segment where we would see double-digit growth. And I think this is what we feel very confident around. And also, as Henrik also commented on, when we look ahead, we actually think that we are quite solid in the double-digit range. Having said that, we do see fluctuations and now we are landing on 11.6% for the year, but we do also -- we do have quarter-over-quarter some specific orders that are timed and that where we are not able to fully control or we deliver, said in other words, we deliver when the customers have the demand. So this is why we went slightly below on the 8.8%. So we -- when we look into the pipeline that we have of orders and into the year, we feel quite confident around the solid -- the strong momentum and the solid double-digit growth that, that will continue. We are entering now not only the flu season, but I think with the portfolio that we have of continued strong aScope 5 Broncho sales combined with the aScope 4 and then with our SureSight solution, having received a very strong feedback and initial positive -- being positive received by the customers, we actually do look at a segment where we see continued very solid growth for the coming -- for this year and the years after. So this is how we look at this segment. Then the other segment, which is, of course, a little more difficult to look at the number because it is, I mean, GI, which is growing nicely, but from a low base. And then we have urology being the biggest part of that segment and then ENT. I think when we look at urology, we -- I mean, we still -- with the new solutions that we have delivered where our ureteroscope, as an example, is off to a good start. But given the nature of these procedures, this is something that is -- that has slightly longer sales cycles, as I mentioned, which we often see. But overall, when we look at this segment, I mean, we do feel quite comfortable around the -- being around the 20% range, which we have also seen in the previous quarter, which is why I commented on ENT specific because that's a segment where we have basically our rhinolaryngoscope, which has been on the market for 7 years now that is continuing to drive the growth in this segment. And while we expect that growth to continue, we see a slowing down of that growth, which basically, in particular, in Q4 impacted the total growth in this area quite a lot. So this is also why we wanted to single that out to be transparent and also to make sure that we aligned around the prospect for urology and the current performance. So overall, we do think that this is a segment where we continue to see good growth. And the 2 segments combined, we feel quite comfortable that we should deliver above 15% total endoscopy growth in the year that we have just started. And as Henrik said, we are off to a good start with October. So we don't have concerns that this will not be the case. Henrik Bender: Exactly. And building on that on growth -- on your question on growth for Q1 and my indication on where we expect to land and related to that EBIT margin. On growth, I just want to particularly underline that if you look at the quarter 1 for last year, we had a solid high endoscopy growth, but an exceptionally high A&PM growth. So in terms of the composition by the businesses, it's particularly in A&PM, where you will likely see very low growth because obviously, there, you're up against exceptionally high comparables. If you then translate that into EBIT margin, as I also said on my guidance, therefore, we will see lower growth. We will likely also see higher tariffs with what we are observing right now with the current tariff regimes. And therefore, those 2 combined means that we will also see a lower EBIT margin. I'm not going to guide exactly on what number that is, but it's mainly to say, if you look at our guidance and if you look at how the EBIT margin will look quarter 1 across quarter 2, 3 and 4, then quarter 1 will likely be the lowest quarter of the 4. Operator: And the next question comes from Thyra Lee from UBS. Thyra Lee: I've got 3, if I could, please. So the first is, I'm just wondering what is driving that delta to the lower end on that 10% to 13% revenue guide versus that midterm guide of 11% to 13% that you provided at the CMD last month? It would be really useful if you could speak to the moving parts that result in the lower end here. Really, I'm just wondering if there's anything new or different that we missed since we last heard from you. And then second question is just thinking about the run rate into Q1. You gave some soft guidance, but are you expecting any margin improvement in Q1 from the 10% in Q4 that you gave this quarter? And then lastly, obviously, you're a growth story, but I'll round up with margins. Could you just confirm that the 12% to 14% on the adjusted EBIT margin includes all possible mitigating actions that you can take? So aside from shifting production to Mexico, what other actions are being taken? And you gave us a good chart in that -- in the presentation. Could you just confirm that the impact of tariffs pretty much goes to 0 over the course of 3 years and that you still feel good about that kind of 20% margin by '28? Britt Jensen: Thank you for good questions. Let me take the first one, and then I'll let you, Henrik, comment on the second and third. So basically, as you rightly say, we guided on our long-term guidance of 11% to 13% when we look at -- as a CAGR for the coming 5 years. And we feel quite comfortable that we can deliver on that. Then you can say has not -- why are we then guiding 10% to 13%? I think I want to reemphasize and make it very clear. There's nothing new that makes us see the market, the world, the potential anyway different than we saw around 1 month ago. But again, this is a 5-year guidance, and we believe our guidance of 10% to 13% is a prudent guidance and that is a guidance that is even should we land on the lower end of this, which is not any speculation that I have right now, but then we should still be very well aligned to deliver on our long-term guidance. So we do feel still quite optimistic and quite confident around the potential that we see and also that our guidance is well aligned with our plans for 11% to 13% growth -- CAGR long term. Henrik Bender: And with that, to your margin questions, Thyra, also thank you for those. If we start with the run rate EBIT margin from now Q4 going into Q1 '25, '26, I think the clear answer is, yes, we see actually continued strong margin expansion excluding FX and tariff effects. And I think that is the big caveat we have to give today. I think learning from now Q3 and Q4, actually, the biggest negative impact on EBIT margin has been FX. And therefore, exactly where that Q1 will land depends on exactly those 2 dimensions, tariff and FX. With what we see right now, we feel very confident that taking those aside, we are on a continued margin expansion plan, both on gross margin and on OpEx ratio. If you then look at a 3-year period and you asked, will the tariff go pretty much to 0 by '24 -- '27, '28? I think what I want to remind us all that I think the days where tariffs disappear completely are likely not just around the corner. So we will have a smaller margin -- marginal impact from tariffs, but it will be very, very small. And that is really why I would say not that tariffs will disappear, but that we will manage them and stay within the long-term guidance we gave already back in ZOOM IN and the one we reiterated now with ZOOM AHEAD being by '27, '28, our EBIT margin target remains around 20%, subject to certain changes if there are opportunities along the way. That still stands, and we don't see the current tariff regime in the world impacting that because we can mitigate that between now and '27, '28. Thyra Lee: Okay. Very clear. And if I could -- you just missed that, aside from shifting the production to Mexico, are there any other mitigating factors that are being taken at the moment? Henrik Bender: So happy to cover that also. Thank you. I think besides moving production, which is the bigger impact, of course, we're looking at pricing mechanisms for certain products. We are looking at what are other mitigating actions we can take. The reason why we point out the production transfer is because that is by far the single biggest initiative that will impact and mitigate the tariff cost. Britt Jensen: Yes. And I think we cannot be fully transparent on all the different things that we are looking at. But we have -- we are well in progress in implementing a number of things that should also put us in a good position in relation to tariffs. Operator: The next question comes from Tobias Berg Nissen from Danske Bank. Tobias Nissen: I have a couple of questions, if I may. Just so you just concluded a solid CMD here a month ago, but it will come in a little bit softer here in Q4 and also with the EBIT margin at the low end of the guidance here coming in at least 13%. This can suggest you kind of have limited visibility here in the short term also with these more lumpy sales and with FX and tariff headwind higher also than what we had expected. Why should we trust you when you come out with this reiterated midterm guidance, but also your longer-term guidance on the margins? That would be my first question. And then just looking at tariffs and FX, it seems like the market is at least like not that good at calculating this. How should we model this over the next coming quarters? I hear you saying that the highest impact here in H1, but how do you see it also because you have like DKK 50 million here in Q4, 30 million FX, DKK 20 million from tariffs, but also like DKK 30 million in Q3, that's only FX, right? So if you can put some more clarity on that, that could help the modeling, would be great. And also, if you could provide more details on the time line and measures you're taking to mitigate some of these tariff costs, especially with the ramp of the Mexico's plant. And if you have baked in any like one-off like cost items related to this in the guidance for next year. I know you're not guiding any special items, but any color could be great. And then just on the ENT side, another follow-up. The slower growth, is this related to higher competition? I know you mentioned [indiscernible], that the product is now 7 years old, and I know you have a HD version in your pipeline. Is the HD launch what is needed to drive this up to prior growth rates? Britt Jensen: Yes. Thank you, Tobias. And I'll comment on your last question and let Henrik handle 1 and 2. But maybe also just a small comment. So I mean, clearly, as you say, we -- I mean, we were very confident in our future growth and in our strategy when we were at the Capital Markets Day. And I have to say we -- I mean, at that time, we obviously also knew and the Q4 results coming in around that time. And we were also actually very confident that these were in line with our own expectations for the year. And in terms of also some of the choices that we had made when it came to continuing to invest in growth as well. So overall, we -- I mean, we are equally confident when we look ahead at the great potential and our ability to also deliver solid growth. So I just want to make that super clear. Then in terms of ENT, I think you should look at this as -- I mean, as an area where there's actually still limited competition. And even we have a solution that is 7 years old. So it's not built on the latest technology that we use in some of the other solutions that will come with our next-generation rhinolaryngoscope. But our effort in terms of having, in many countries, some of the same commercial resources focusing on urology and ENT basically means that there's -- and in line with our strategy that we have launched with a stronger focus on urology, I think it's fair to assume that it's probably more driven and again, not to read too much into a softer quarter because we do see the fluctuations. But it's more to do with our internal commercial focus than competition because we do see still very limited competition in the ENT space. And we're also still quite confident around the growth that we see in this segment. But we are looking also at how is it we balance our resources in -- across the different segments. And we also do, again, see some structural or temporary fluctuations that drive this, such as timing of orders we talk about, which also is why we look more at the underlying trend and the details below that in terms of new customers and the existing customers buying more. So I think we remain confident about this segment. But again, that's where we are. Henrik Bender: Exactly. And then going back to your questions on CMD linked to now our quarter 4 and FX and tariff models. I think I will start out by saying, Tobias, 2 things. So why trust us? Well, we would say what we communicated at the CMD is in line with what we're also communicating today. And then you can argue, is it softer or as expected, as Britt also said, for Q4? I think we've been quite clear on both how FX impacted us. We spent quite a bit of time on that in Q3 and also that tariffs will have a negative impact, though temporary and then go away. And this is exactly what we are reiterating today. So I think that is my main argument that the story has not changed at all. And actually, if you look at the graph we also illustrated, it's exactly the same pathway. Obviously, at the CMD, we did not discuss guidance for '25, '26 because we had not closed Q4, and it was not the time to do that. I think secondly, of course, we always take feedback for how we can be more explicit. And one of the feedbacks we have taken from the community on the call here now, for example, is to be more explicit on FX and tariffs. And therefore, you will see across the quarters of the past financial year, which is a practice we will continue. We've been much more explicit about quantifying the FX impact and the tariff impact now also here with quarter 4 in a DKK million amount because that enables us to have this discussion on where are we actually with and without FX and tariffs. The last thing I will say on that is that -- that I think on tariff is obviously something that moves by the day but now is starting to fall into a slightly more stable regime, even though I think the past now 8, 9 months have shown stability is not exactly how to describe the situation. I think on FX, I would just call out again that, that is the biggest single impact across the last 2 quarters. And I think you all on the call know how much the U.S. dollar DKK has fluctuated. And remind you, if you go back a year ago versus today, it is a quite significant depreciation that very few, including all of the banks on the call, were not forecasting. So I think there, we are at the mercy of the FX market like you. And we follow the market. We have a natural hedge. But as part of -- as we communicated in Q4, there is a time lag in between, it impacts our top line and our gross margin and therefore, EBIT margin and when you actually see the counter offsetting effect coming, particularly through COGS with our international manufacturing footprint. Specifically, therefore, how should you model? And are there any specific one-offs you should think about for '25, '26? On FX, I'll put that aside. I mean, that follows the answer I just gave. On tariffs, we are not expecting any specific one-offs related to this. I think as a practice, we operate and manage the mitigation actions within the running business, partly because we were already on the journey of ramping up in Mexico and partly because we think that is the right thing to do. So unlike other companies, we will not start reporting bigger one-offs because we don't think that is relevant given it is a temporary situation. I think secondly, in terms of how you then model, I think my best input would be to now with the added specificity that we are giving in the quarterly updates with a more explicit FX, DKK million and tariff amount. That with that, hopefully, we can better adapt that also into your models in the right way because clearly, there was a difference here on Q4 with what was in consensus and where we landed, particularly on these external factors. Operator: And the next question comes from Martin Brenoe from Nordea. Martin Brenoe: Highly appreciate also that you are giving this detailed view, and you doubled down on your CMD strategy, much appreciated. I guess where the share price is today is reflecting maybe that we've seen management being bullish and confident on Ambu before and have also seen the analysis of how big the market is. And if you just take some of that market and penetrate that, then everything is going to be good. So maybe I think to provide a bit of confidence to the outsiders here, how do you foresee Ambu accelerate back if you look at it from a more bottom-up perspective? So you say ENT will remain a drag most likely. It will not be something that will reaccelerate. So can you maybe be a bit more clear on which drivers you see for the growth from a bottom-up perspective? And I'll let you decide how to do that. That will be the first question from my side. Britt Jensen: Yes. Thank you, Martin, and actually a very good and relevant question. Let me answer that, and then, Henrik, you can supplement. So if we take -- I mean, you're right that if we look at the market, I mean, it's huge, and we can say that out of the total market, it's only 3% to 4% penetrated. When we also look at -- I mean, the last many years, we were the first to enter this market with a single-use endoscope. And we have basically, I mean, as market leaders built this market. And then we have seen some competition come in, in the last couple of years. But what I will say is I think there's a couple of things that makes me very -- I mean, very confident. I mean one thing is that it does take time to build a market. It does take time to change habits in -- among physicians, in particular, in some areas more than others. And I do think if we look at it and maybe start with -- or if we look at it overall, you could say, I feel much more confident and I actually do feel that we are much more derisked right now compared to when I stood here 2, 3 years ago. Because back then and for many years, it was pulmonology, as we call it at the time, that was basically driving the growth where right now, we stand on, you could say, essentially 4 solid legs where we have actually proven that we have solutions that meet the customer needs, not only in respiratory, where we have expanded the portfolio, but also in urology, ENT and GI, where we are today very niche focused mainly with our gastroscope. So that actually makes me confident. And in particular, then looking at the potential and if we start with respiratory, we basically went in and delivered on the need of very simple procedures. And then we gradually expanded and with our aScope 5 Broncho also we were able to meet the needs of the very advanced procedures. And some of this has to do with the customers getting used to our solutions, but a lot of it also has to do with our ability to innovate and drive superior solutions also at an affordable price. And that is where our innovation effort continues and our scale continues to play a key role, not least also because technology is playing with us in making higher quality image cameras, sensors, as an example, available at much lower cost. So that basically means that we are also able to meet the needs at the customers at prices that are attractive to them. So that's where when we look at the momentum that we see in respiratory with our bronchoscope that -- I mean -- and the continued expansion into more and more complex procedures, continuing the trajectory that we see now in the markets where we are established, mainly in U.S. and Europe, that I'm confident that we are actually on to this momentum that is continuing. And the fact that customers even themselves says that we can use it for 70% of the procedures makes me actually quite confident because normally, customers will say a lower number than they actually end up using. Then if we talk about urology, I mean, we have been able to -- in cystoscopy, which is very much around bladder cancer screenings, we have been able to build a solid presence with our cystoscopes that basically with our first generation works for what they need. And this is then where we have also leveraged technology to bring a high-definition scope out expanding with the PCNL indication. So that can also be used in the field of kidney stone management. And then we have entered the whole kidney stone management space with our ureteroscope, which is a market where, as you know well, it's the first time, we are not the first to enter that market because there is actually a demand for single-use scopes coming from a slightly different angle in terms of the reusable breaking a lot, and they spend a lot of cost on repairing. And here, we have a solid scope that can then fit into our portfolio and some of the development that we make in innovation on the platform, on the software with -- latest EndoIntelligence actually helps us there. So we do also in urology, with our expanded portfolio, see a good momentum. And this is also why with our strategy, those 2 areas are the key ones. And we are also looking at how is it then we can consolidate even further and potentially add more solutions that helps address some of the needs that we are solving, which will come on top. And then ENT, it's a little more slim. It's still an area that -- and that's in line with our strategy where we see that we can continue to grow and meet more needs, and that's what we will do there. And then combined, you can say as more of the treatment is moving outside hospitals, that's also where -- I mean, the need for solutions like ours is just increasing. So that's really why we are quite confident that we have gotten to a meaningful penetration where there is acceptance that this is, I mean, a solid standard of care. So that's really why we are looking at the potential with great confidence. And then on the side, and I will not spend too much time on this, but just to say if we then take GI, it's very clear, and I've been out with a lot of GI physicians that a lot of procedures are done outside the GI suite. There's a lot of the similar needs that we are actually solving in the other segments. We don't have right now the solutions at an affordable price to be able to go large scale into this segment, but the technology is there to my earlier point. So this is also an area where we should, of course, be the ones entering this. And that's something that comes on top of some of what we talk about here at a completely different magnitude that we are not getting carried away here, but we are solid making progress and making sure that we also don't risk the company or don't risk too much, but still also deliver on our potential in a step-by-step approach. Henrik Bender: So if I can round off, and I know we already gave a lot of details, Martin. I would say, ironically, on your question, we stand here more confident than ever based on 2 main things: the feedback from customers and the fact that what is needed to deliver, on what Britt took us through now, is fully within, to a very, very large extent, our own control. So I think our advice back would probably be to say Q4 might have been a slightly different composition than you expected. If you look at the guidance for the year to come, it's fully in line with what we communicated at Capital Markets Day and the potential we see in all of the areas for all of the products with the feedback from the customers is exactly the same. Martin Brenoe: This sounds really good. I have 2 quick follow-up. One is I love good feedback. I also appreciate it myself. But unfortunately, you cannot put it on the P&L. So wondering when we should start to see that the good feedback starts to translate into sales. What's -- and you don't have to say what you expect for this for your products in terms of SureSight and Uretero, but maybe in terms of what the historical run rate has been for previous launches. And then just finally on margin, it's going to be a bit back -- or back-end loaded year on the margin side as well. For the past 7 years, the margin has been the softest actually in Q4. So just wondering what gives you confidence in Q4, the latter part of the year being the strongest margin all of a sudden. That would also be nice. Britt Jensen: And I'll briefly -- and I'll make it brief on the revenue. I think we have talked -- and I think, again, we appreciate feedback to Henrik's point, but we have tried to also explain our -- the whole selling process and the sales cycles. And when we bring new solutions out, how we also -- how we do the evaluations before the sale. But maybe I'll just jump to the conclusion and say, as we have seen with previous product launches where we have put an effort behind like the aScope 5 Broncho, I mean, this has come gradually. And it's -- I mean, when you build the momentum and get the solutions in, we will see a steady strong growth. And then that growth is building up and coming for many years ahead. So we are, of course, continuing this year on our new solutions, being SureSight, being our ureteroscope, a continued good momentum. And yes, and I think that's as specific as I can be. But I think it is promising for the coming years that we'll see that gradual improvement. Henrik Bender: And on margin, Martin, I think 2 things. One, you're right on the historical pattern, particularly, I would say, for the last 3, 4 years. The main answer is the -- are the external factors, particularly tariffs, which will gradually decline across the quarters with our implementation of the mitigation actions. So that is by far the biggest driver of why we feel confident that the EBIT margin will increase across the year. The second thing is more timing of our internal investments where we've had now for the couple of -- past couple of years, a certain timing where a lot of -- majority of those investments often end up at the end of the financial year. The composition will be a little bit different this year. So it's really things that are right now relatively clear line of sight to how we think it will impact our P&L. Operator: And the next question comes from Anchal Verma from JPMorgan. Anchal Verma: I have 3, please. Just again, touching on the phasing for next year. You have pointed to back-end loaded here, and we've kind of discussed that. But just trying to understand, is it all down to comps at the top line? Is that the key driver of the back-end loaded year? And on margins, you've touched -- similarly, you touched on FX, tariffs and some investments being more front-end loaded. Are these key elements that we need to be aware of in terms of phasing? And then the second one -- and apologies to fish a bit more on the long-term targets. On the margin guide of 22% by 2028, which you have reiterated this morning, how should we think of that bridge from 12% to 14%, let's assume 14% that from this year to 20% in the next 2 years? And what will actually be the drivers and that's despite the tariffs and FX headwinds, which we expect to continue? And then the last one is on FX. Are you able to quantify the FX impact assumption we should assume for the top line and margins for this year if current rates continue? Maybe putting it another way, from our math, we get around a low single-digit headwind to sales and margins. Is that fair? Henrik Bender: I couldn't exactly hear what you said, the last part of the question, but I think I got the gist of it, Anchal. So let me try to go through it from your second question first and then phasing and then FX. So I think I just want to reiterate on long term, as I heard your question on the impact of tariffs and the, you can say, journey towards the particular around 20% by '27, '28. I think in all honesty, back to the point that tariff costs are temporary with the mitigation plans that we're implementing. The more relevant number to look at in terms of the EBIT margin expansion for the year we're now entering '25, '26 is actually 14% to 16% because that is excluding the bigger impact from tariffs. And if you use that number, we will be exactly on the line also of consensus with what the EBIT margin expansion plan would have been without the current tariff situation. And with us being able to mitigate them, as I answered earlier in my presentation, we really see that the underlying operational initiatives we are taking, they are bearing fruit, and we're exactly on that journey still that we communicated at the CMD and a year ago in a similar meeting like this. So that is why we feel confident that is really because if you take the tariffs aside, we are really exactly on that journey. And that is also why we've been so explicit in our communication around it. If you then look at the phasing for the financial year that we're now in, revenue, it is mainly/purely comparables that drives this back-end loaded factor. As I said before, we see a solid start of the year and on endoscopy, the growing factors, as Britt said earlier, there are still effects from new products. Obviously, they are also building across the year, which means that we will see an uptick across the year, we expect at least from the impact from these new products, even though still smaller, it is growing. The second thing is really on A&PM. If you look at how A&PM grew quarter-by-quarter in '24, '25 and you look particularly how much A&PM grew in quarter 1 on '24, '25, this is where you see particularly high comp challenge that we're up against now with our quarter 1 sales here for '25, '26. And that brings me lastly to FX. I think now for the last 2 quarters, we've been more or less explicit on exactly the DKK million impact from FX. Obviously, we are impacted by a mix of the U.S. dollar depreciation and then partly some of our currencies in which we produce and source, the Chinese renminbi, the ringgit in Malaysia and the Mexican pesos, how they correlate with the U.S. dollar. As we described in the quarter 3, there is a time lag effect whereby when we are impacted by top line immediately and when we then see the cost of the production then going down typically of up to 3 months. And that's really also what we're seeing. So to answer the question, I believe you asked then what have we assumed for '25, '26. As you see in our outlook assumptions, you see there also what exactly are the FX assumptions we've made in terms of what will be the average FX rate across the financial year '25, '26. And these are what substantiate the guidance of the 12% to 14% EBIT margin. Anchal Verma: That's very helpful. Could we perhaps -- just on the long-term targets, could there be a scenario where you could amend your long-term targets on more of an underlying basis? I think that, yes, we'll get to the 20% margin by 2028, but this is on an underlying basis, excluding the effects of tariffs and FX. Could that be a potential scenario where we get to? Henrik Bender: I don't see that. We guide EBIT margin, including FX. And fundamentally, as I said before, even though tariff will not fully go to 0 back to one of the earlier questions, we believe that with the size of the company we are becoming, the impact that will still be left is something we can manage and still deliver on the target. Operator: The next question comes from Yiwei Zhou from SEB. Yiwei Zhou: I have 2 left here. Firstly, a question on the growth for the other endoscopy solutions. I mean the quarterly growth rates are getting more lumpy if you mean that the growth should accelerate, and you still expect to deliver the 20% -- around 20% growth. I was wondering in your guidance, was there any large order pipeline embedded here in your expectation? Britt Jensen: Yes. So I think the quarter -- I mean, so what we guide on the quarter. So the long-term guidance that we have is that we expect our endoscopy solutions to grow between 15% and 20%. And what we are saying specifically for this year is over 15%. So that's -- I mean, that's the range that we see. So just to specify -- you talked specifically the 20% for the other segment. Sorry. Sorry, Yiwei. Yes. So I think we -- I mean, we overall, again, believe that we have continued solid momentum. We don't guide specifically on this segment. I should just say we guide on the overall. But I think -- I mean -- and when we guide on the overall, we feel quite comfortable around the 15-plus percent. And then I also do believe, and that's also why we wanted to single this out. I mean, urology being the big -- I mean, we see very solid continuing growth. It's the biggest part of this segment, and it's also growing at a good pace. So overall, we feel quite confident. I will not comment again on the specific 20%, but we do feel confident that we should continue to see solid growth in the -- in this everything but respiratory. And then when we combine both of them that, that should still leave us with solid endoscopy growth as we look ahead. Yiwei Zhou: Yes. But my question was what is your visibility here for '25, '26? I was wondering if you have any large order pipeline embedded in your expectation. Britt Jensen: No. I think in this segment, I mean, we have a lot of customers. And then again, we do have large customers, NHS being one where we don't see these big large orders coming in. That is more spread out, of course, still big customers having bigger orders, but we don't see any specific big order coming in. This is basically driven by solid underlying growth in terms of customers transitioning from reusable to single-use and being at very different adoption levels, some at 100% specifically on the cystoscope and others at lower levels that are then gradually increasing. So the potential we have is coming from continuing, obviously, bringing new customers on board, but also continuing to increase the penetration of single-use of our scopes with existing customers. Henrik Bender: And to build on that, the confidence you said here is based on when we look at the pattern of new customers converted just in the last few quarters and the expectations of what the running volume should be on those, we feel very confident. And that's also what we see now in the early start of this financial year that, that continued conversion, that Britt is talking about, will drive us towards the growth levels that we are indicating. So we are not dependent on any major single bulky orders to deliver on this guidance. Yiwei Zhou: Okay. That was clear. And my second question, it has actually been asked but I want to try it again. I'm still a bit surprised that you see 1% downside to your long-term growth target this year. I mean it was only 1 month ago, you said 11% to 13%. Now it's 10% to 13% for this year. I mean if I understand correctly, this will be the year where you see a full year sales contribution from the new products like ureteroscope or video laryngoscope, where the growth acceleration should be higher in the beginning. But now you are talking about 1% downside. Could you elaborate here what is the risk you're seeing for this year? Britt Jensen: Yes. So I mean, I think -- and thank you also for -- I mean, for how you put it because I think the way we looked at this was, I mean, that, again, we are fully behind. And when we set the long-term target of 11% to 13% CAGR over 5 years, we actually do feel, I mean, very comfortable around that. And then when we are to look at this year and what we have in the pipeline, we are also actually quite confident around the year that we have and what we are able to deliver. But we do see a 3 percentage point margin in the world that we live in where there's a lot of things happening. So that's basically what is driving us towards what we believe is the right guidance for this year, which is 10% to 13% on an overall level. But it doesn't -- it's not -- as I said before, it's not that we are more cautious than we were a month ago and that we -- or that we see anything that has changed. And I -- so this is, I mean, in full honesty and transparency how we have thought about it as we laid out our guidance for next year of 10% to 13%. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Britt Meelby Jensen for any closing remarks. Britt Jensen: Thank you very much, and thanks to everyone for good questions on this call today. We look forward to our continued interactions, and I wish everyone a great day. Thank you.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Hudson Pacific Properties Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead. Laura Campbell: Good morning, everyone. Thanks for joining us. With me on the call today are Victor Coleman, CEO and Chairman; Mark Lammas, President; Harout Diramerian, CFO; and Art Suazo, EVP of Leasing. This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website, along with an audio webcast of this call for replay. Some of the information we'll share on the call today is forward-looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss industry and market trends, Mark will provide an update on our office and studio operations and development, and Harout will review our financial results and 2025 outlook. Thereafter, we'll be happy to take your questions. Victor? Victor Coleman: Thanks, Laura. Good morning, everyone, and thank you for joining us today. I'm pleased to report another solid quarter of execution for Hudson Pacific in regards to our strategic priorities. We're on track for our strongest office leasing year since 2019, having locked in another quarter of signed leases north of 500,000 square feet, bringing year-to-date leasing to 1.7 million square feet. With significantly lower expirations in 2026, our office occupancy is squarely at an inflection point as we achieved positive absorption in the third quarter. We're seeing clear evidence of a recovery taking hold in the West Coast office, particularly as we benefit from the continued expansion of AI and technology companies in our markets. And on the studio side, even as the broader production environments remain challenging, demand for well-located best-in-class assets, such as our Hollywood Studios, enabled us to drive sequential occupancy improvement in the third quarter. From a capital structure perspective, we've significantly strengthened our financial foundation. On the heels of our office portfolio CMBS financing and significant equity raise in the first half of the year, we successfully refinanced our 1918 8th Street Seattle office asset and amended and extended our credit facility, bringing total capital markets activity year-to-date to well in excess of $2 billion. With $1 billion of liquidity, 100% of debt fixed or capped and no maturities until the third quarter next year, we are now in a position of strength to capitalize on ample embedded growth opportunities, or say it otherwise, leasing, leasing and then more leasing. Looking at broader market dynamics, ongoing transformation across our West Coast markets reinforces our strategic positioning, U.S. venture capital investment remained strong in the third quarter, with year-to-date deal value already tracking about 15% above full year 2024 levels. This marks one of the strongest funding environments since the 2021 peak, with AI accounting for nearly 2/3 of the U.S. deal value year-to-date and the San Francisco Bay Area capturing more than half, reaffirming the region's leadership in innovation and capital formation. These trends underscore growing optimism, which in turn sets a constructive backdrop for the industry's driving markets as well as the need for West Coast office space heading into 2026. In San Francisco and the Peninsula, leasing accelerated sharply in the third quarter, led by tech and AI tenants such as Roblox, while Silicon Valley recorded its fourth consecutive quarter of declining vacancy as demand from AI, software and hardware firms expanded. In Seattle, AI investments surpassed $1.5 billion to date, contributing to the first decline in availability in nearly 4 years. These are encouraging indicators that venture-backed tenants are once again growing, hiring and leasing space in the very markets where Hudson Pacific is most deeply embedded. Over 80% of the third quarter leasing activity occurred at our Bay Area assets, including 100,000-plus square foot AI tenant at Page Mill Center in Palo Alto, exactly the type of growth-oriented tenant that validates our market thesis. Our portfolio stands poised to capture the resurgence in demand as AI companies scale operations and require more substantial teams. Turning to our studios. While Los Angeles shoot days declined 30% in the third quarter relative to last year, we remain confident in our long-term prospects with California's recently expanded and extended film and television tax credit already creating strong momentum. Since July, the program is allocated to 74 new productions compared to only 18 the same period last year. These include 18 television series and 10 feature films expected to shoot in Los Angeles, with tax credits recipients required to begin filming within 180 days of allocation. While it's difficult to predict future show counts, this represents a sizable pipeline, especially when compared to the 80 to 85 production filming in Los Angeles on average over the last several quarters. We feel our Los Angeles studios and services are well positioned to capture our share of future demand. Regarding acquisitions. In the third quarter, we acquired our partner's 45% interest in our Hill7 office property in Seattle, in consideration for which we assume the partner's $45.5 million share of the joint venture's debt and receive $1.4 million of cash on hand. This acquisition gives us multiple paths to unlock value at a Class A, well-located property like Hill7 by proactively restructuring the existing loan and ultimately growing occupancy and cash flow as the Seattle market recovers. We have seen a notable increase in inquiries, tours and proposals for available space at Hill7, and we remain committed to operating a best-in-class portfolio in Seattle over the long term. Our approach to asset sales remains disciplined and strategic. We're under no pressure to transact and will move only when it clearly enhances shareholder value. When we see compelling pricing, particularly for non-core properties or those requiring significant reinvestment, we'll look to recycle that capital into our highest conviction assets and markets. It's a selective purposeful approach that positions Hudson Pacific to capitalize on the recovery gaining momentum across our West Coast footprint. And with that, I'm going to turn the call over to Mark to discuss our office and studio operations and updates for our development pipeline. Mark Lammas: Thank you, Victor. I'll walk through our third quarter office leasing performance, which demonstrates the strong execution and market momentum Victor highlighted. We executed 75 office leases totaling 515,000 square feet during the quarter, 67% of which were new deals, underscoring our continued success in attracting new tenants to our high-quality assets. Our in-service office portfolio ended the quarter at 75.9% occupied, up 80 basis points sequentially and 76.5% leased, up 30 basis points sequentially, representing steady progress in our leasing efforts. GAAP rents were 6.3% lower compared to prior levels, while cash rents were 10% lower. This primarily reflects 40,000 square feet across 6 smaller leases in Palo Alto, rolling from peak market pre-pandemic rents to still healthy close to $80 per square foot triple net rents. Importantly, we're seeing clear signs of rental rate stabilization across the Peninsula and Silicon Valley with improving tenant demand and space absorption, positioning us well for future rent growth. While our 2026 expirations are about 3% below market, quarterly rent spreads always reflect a snapshot of backfill leases expired over the last 12 months. As we saw this quarter, geography, tenant size and other factors influence these results. Our various leading indicators of future strong quarterly leasing activity continued to show positive momentum. Touring at our assets accelerated significantly in the third quarter, comprising 2.1 million square feet of unique requirements, up nearly 20% sequentially and 60% year-over-year. This reflects growing demand across our markets, 2/3 of which is technology related and 1/3 is specifically AI. Our leasing pipeline of deals and leases proposals or LOIs stands at 2.2 million square feet with nearly 600,000 square feet in advanced stages. We're now seeing on average 20,000 square foot requirements for tours, while within our pipeline, average requirements are approaching 25,000 square feet, underscoring that companies are becoming more confident about their growth trajectories and space needs. Hudson Pacific's lease expiration profile is now very favorable, allowing our team to focus more on occupancy growth opportunities rather than simply defensive renewals. We only have 140,000 square feet of remaining 2025 expirations, all less than 20,000 square feet, and we're in leases or negotiations to address close to half of that footage. Looking forward to 2026, we have 1 million square feet expiring, representing approximately 8% of our in-service portfolio. That's about 40% less square footage expiring than our average annual expirations over the last 4 years. Given our strong leasing momentum, we're already in leases or active negotiations on approximately 50% of 2026 expirations, which is ahead of our historical pace. Notably, we have 75% coverage on our 4 expirations exceeding 50,000 square feet. With only 30% of our in-service portfolio subject to pre-pandemic leases and 75% of our availabilities in quality assets and Bay Area markets leading the West Coast recovery, we are poised to grow occupancy and cash flow. Turning to our studio operations. We continue to make strides in positioning our business optimally for the current environment while preserving upside potential as a production recovery takes hold. On a trailing 12-month basis, our in-service studio stages were 65.8% leased, representing a 220 basis point sequential increase, driven primarily by additional occupancy at Sunset Las Palmas and, to a lesser extent, Sunset Glenoaks. Our Quixote Studios were 48.3% leased on a trailing 12-month basis, representing a sequential increase of 90 basis points. We are now seeing the benefits of our cost-savings initiatives. And in the third quarter, despite sequentially lower revenue, studio NOI adjusted for onetime expenses increased by $4 million sequentially, finishing in positive territory for the first time in more than a year. This represents yet another step forward in alignment with our overarching goal of positioning our studio business and Quixote in particular, to operate profitably in any market environment. On the development front, Sunset Pier 94 Studios, Manhattan's first purpose built studio is on time and budget for a year-end delivery and first quarter grand opening. As we approach completion, we have strong interest from multiple high-quality productions looking to lease significant portions of the facility for 6 months to a year with a potential to renew for additional term thereafter. The quality and location of Sunset Pier 94 is unmatched, and we expect demand to further accelerate as we approach completion. In the third quarter, we received entitlements to redevelop our 10900-10950 Washington office property in Culver City into a mixed-use project with approximately 500 residential units and ground floor retail. With housing and short supply, 10900-10950 offers a premier multifamily location where the demand in rents achievable make for an extremely compelling development site. We are evaluating our options to maximize value, which could include bringing in a partner to develop the site with Hudson Pacific contributing the land or selling outright. We look forward to providing additional updates on this unique value-creation opportunity in the coming quarters. And with that, I'll turn the call over to Harout for our financial results, capital structure and outlook. Harout Diramerian: Thanks, Mark. I'll take everyone through our third quarter financial results, which reflect solid operational execution amid our ongoing focus on leasing. Total revenues for the quarter were $186.6 million compared to $200.4 million in the prior year, primarily resulting from asset sales and lower occupancy as we continue working through our lease-up process. G&A expenses improved substantially to $13.7 million compared to $90.5 million in the prior year, representing a 30% reduction. This savings reflects the successful implementation of various organizational efficiency measures and underscores our commitment to rightsizing our cost structure while maintaining operational excellence. We generated FFO, excluding specified items in the third quarter, of $16.7 million or $0.04 per diluted share compared to $14.3 million or $0.10 per diluted share in the prior year. The year-over-year 17% increase resulted from improved G&A, interest expense and studio NOI, partially offset by lower office NOI. Note that third quarter FFO per diluted share reflects the share count increase following our second quarter common equity offering. Specified items in the third quarter totaled $2 million or $0.00 per diluted share and primarily consisted of onetime expenses associated with cost-saving initiatives and financing activities. In the prior year period, specified items were $7.5 million or $0.02 per diluted share. Our third quarter same-store cash NOI was $89.3 million compared to $100 million in the prior year, mostly due to lower office occupancy. As Victor highlighted, we significantly strengthened our balance sheet and capital structure. In the third quarter, our activities included the $285 million refinancing of 1918 Eighth, which underscores our ability to access the debt markets on favorable terms for assets with our high-quality portfolio. We also amended and extended our credit facility, which provides us with $795.3 million of capacity through the end of next year and $462 million through the end of 2029, with continued strong participation from our core banking group. Our liquidity position is strong at $1 billion, comprised of $190.4 million of unrestricted cash and cash equivalents and $795.3 million of undrawn credit facility capacity. We have another $15.9 million at HPPs share of undrawn capacity under the Sunset Pier 94 construction loan. 100% of our debt is fixed or capped, providing for predictable debt service costs that support our financial planning and cash flow management. Looking ahead, our next debt maturity isn't until the loan secured by our Hollywood Media Portfolio owned jointly with Blackstone matures in the third quarter of 2026. In anticipation, we continue to focus on operational enhancements at those assets and have a plan in place with Blackstone to approach the refinancing in the first quarter of next year with the goal of maximizing our financial flexibility. Turning to outlook. For the fourth quarter, we anticipate FFO of $0.01 to $0.05 per diluted share. To bridge from our third quarter FFO of $0.04 per diluted share, we expect lower studio NOI due to typical seasonality, we do not expect fourth quarter average show counts to reflect the benefit of tax incentives as productions receiving allocations have up to 6 months to begin filming. We also anticipate slightly elevated G&A in line with our full year G&A expense assumptions, which remains unchanged from last quarter. Lower stage occupancy and potential ongoing challenges required the Sunset Glenoaks joint venture to reconsider the risks associated with the underlying project financing and treatment of the venture as consolidated for accounting purposes. Based on these considerations, Sunset Glenoaks has been deconsolidated, leading to the following adjustments to our full year outlook assumptions, lower interest expense, lower FFO from unconsolidated joint ventures and higher FFO attributable to noncontrolling interests. Our full year same-store cash NOI growth assumption also remains unchanged from last quarter. As always, our outlook excludes the impact of potential dispositions, acquisitions, financings and/or capital markets activity during the remainder of the year. And now I'll turn the call back over to Victor for closing remarks. Victor Coleman: Thanks, Harout. As we wrap up today's call, I want to emphasize that Hudson Pacific is uniquely positioned at the intersection of the AI-driven technology expansion, the West Coast office market recovery and the return of a more robust studio demand. Our strategic focus and high-quality assets in innovation hubs is already paying dividends with our strongest leasing year since 2019 and positive absorption inflection point. While our strengthened balance sheet, $1 billion of liquidity, 100% fixed debt and no maturities until Q3 '26, provides the financial flexibility to capitalize on embedded growth opportunities. The momentum we're seeing from record AI investment to expanding venture capital activity reinforces our conviction that were in the early stages of a meaningful recovery and Hudson Pacific is ready to capture this opportunity. Now we'll be happy to take questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Alexander Goldfarb with Piper Sandler & Co. Victor Coleman: Alex, you there? Operator, let's go to the next question, please? Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Can you hear me? Victor Coleman: Yes, we can, Ron. Ronald Kamdem: Okay. Great. Just a couple of quick ones from me. Just starting I would love -- I see the leasing coming through. I love sort of an update on just high level where you think occupancy trends over the next sort of 12, 24, 36 months? And if you could tie in sort of any high-level commentary on the implication for same-store NOI, that would be great as well. Mark Lammas: Yes. Thanks, Ronald. We indicated in our prepared remarks where our expirations are, right, with 140,000 the fourth quarter, about 1 million next year on 67% of the activity just this quarter is all new leasing, and we've got 50% coverage on next year's expirations ahead of where we would typically be at this point. So all indications are, we are heading into positive net absorption territory and hopefully picking up steam, right, because at [ 500-plus thousand ] per quarter for quite some sequential quarters now, we're going to be outpacing those expirations by quite a bit. So trending in the right direction, not going to get too specific here about exact percentages on where we're going to land either year-end or heading into next year, but I think reasonable to expect that you're going to see -- and you saw it this quarter, you're going to see more positive net absorption. On the NOI -- same-store NOI, I think those are obviously correlated. You're seeing a little bit of a lag. We -- third quarter average same-store office occupancy dipped a little bit, right? We sequentially went down from like 73.3% to 72.8%. The -- and in comparison to last year, you're really -- you're comparing yourself to higher occupancy in that previous year, right, in the higher 70s with some pretty high rent paying tenants, not the least of which were Uber at 1455. We had Amazon and Met Park North. We had Picture Shop at 6040. Those were the main contributors to the prior year NOI that are no longer flowing through the number. In the same way that office occupancy is trending up. So we finished actually higher sequentially at 75.9%, so higher even than the average occupancy. The average occupancy flowing through the same store is also going to go up. While we need to get somewhere, I think, north of 76% because in fourth quarter, we were 76.3% average occupancy in the same store. So somewhere higher than that, plus the studios need to come -- either be stable or improve a bit, and then you're going to start to see that -- you're going to see same-store NOI start to move in a positive direction. Ronald Kamdem: Really helpful. And if I could just ask a follow-up on the studio. I think we've been talking about sort of the recovery path and trying to understand the shape. It sounds like you are seeing more activity, but just in terms of like what are the key sort of milestones and data points that we should be looking for to get a sense that this is -- the recovery is really getting going in a way that's favorable? Victor Coleman: So a couple of points on that. I mean, listen, the content spend is still constant and going up. I think you will see some pretty impressive numbers with the [ Skydance Paramount ] purchase. At the end of the day now, their new content spend is sort of rivaling the numbers that Netflix is, which is in excess of $20 billion a year. So those numbers are going to obviously, permeate in. And specific to California, as we sort of mentioned in our prepared remarks, with the new tax credits in place and the number of productions that have to commence within the first 6 months of approval, you're going to see that number just organically grow. And I think we're going to be able to capitalize on that in the production side, not just from the OpCo side, but the PropCo side as well, which we're already seeing in our Hollywood assets, which we've seen that we've picked up occupancy there to almost 100%. We only have 2 stages vacant now. And that is also a leading indicator in the production that we're seeing in the activity right now. Early on, it's very attractive, as Mark mentioned in his remarks over Pier 94. So it's trending that way. I think that the effectiveness of the credits are doing what they should be doing. We still have some work to go, though. Operator: Your next question comes from the line of Dylan Burzinski with Green Street. Dylan Burzinski: I think I don't know if it was Victor or Mark that mentioned how rents are sort of stabilizing across Silicon Valley and the Peninsula. Just sort of curious how rents are sort of trending across the rest of the portfolio. If you can provide comments as it relates to San Francisco, given the strong depth of AI demand there as well versus what you're seeing in Los Angeles and Seattle, that would be helpful. Victor Coleman: Yes, I'll let Art jump in. Arthur Suazo: Yes, I'll jump in right now. Yes, so they've been holding steady pretty much across the portfolio. We're even seeing improvement in some of the submarkets, specifically in San Francisco, with the tech demand so high and AI growth so apparent. We're seeing the growth really in the North and South Financial District, more than the other submarkets at this point, but we're really starting to see the growth in other submarkets as well. Seattle is holding pretty firm. And again, we can talk about the growth of tech and AI there that's going to cause the rates to increase over the next several quarters. But I think for now, it's really standing path. And in L.A., this building that we're in 11601, which is our headquarters building, we're seeing a tremendous increase in rental rate growth. We don't have any leasing on the west side of L.A. And so that's really our only look into the rental rates. Dylan Burzinski: And then, Victor, you mentioned obviously not having the need to sell anything, given where the balance sheet is at and the capital raise you guys did last quarter. But I'm just sort of curious, I think in the past, you guys have talked about just bringing non-core assets to market and just doing a normal process of capital recycling. So just given what seems to be an improving backdrop, obviously, on the fundamentals front, potentially leading to an improvement in the capital market side of things. Just do you guys still have continued desire to bring assets to market that you guys sort of no longer deem a fit within the context of your guys' go-forward portfolio? Victor Coleman: Yes. Dylan, listen, as the market continues to stabilize, we're going to make further progress on our occupancy, as you're seeing it right as we speak. And of course, I think we're all very pleasantly surprised with the activity specifically in the Valley and how strong it has been. And as you saw by the prepared remarks that Mark said, I mean, our average tenant size is going up, and that's leading us to having the ability to evaluate some of the assets that we can now look to sell in the marketplace at numbers that could be much higher than they were, let's say, 12 or 18 months ago. So that's always going to be some place that we're going to reflect into and see what the opportunity is to capitalize on some form of external growth and disposing of assets. So we've got a list of a few assets that are there. As I said in my remarks, we're not planning on selling some assets, but there will be assets that will be sold. We're just not going to identify them until at the end of the day, it's going to be a number that we're going to probably look at that's going to be a combination of assets that we could have sold in the past and now we're going to try to sell them going forward. And I think those opportunities are going to come fast and furious, specifically in the Valley because everybody is focused on the city right now. And I think now the Valley is also opportunistic. Operator: Your next question comes from the line of Blaine Heck with Wells Fargo Securities. Blaine Heck: Victor, we've been talking about the influx of demand in San Francisco from AI for several quarters now. And clearly, you guys have benefited as evidenced by the ex AI lease. But we've also more recently seen some layoffs coming through that could be attributed to AI displacement. So I guess my question is, do you see any of your submarkets or tenant industry as more susceptible to that potential negative trend as we look ahead? Victor Coleman: So Blaine, listen, of course, everybody is focused on AI. But if you look at the leases that we're signing, they are tech and tech-related leases, but we've signed a lot of fire-related tenants. And the expansion of those tenants, I think, is evident currently today. There is obviously a backdrop of what's the initial impact on labor for AI going forward. But what we're seeing right now, it's not impacting the core businesses that are signing, which is legal firms, insurance firms, which you would think would be impacted. They still are signing leases and taking space that is on a positive basis. A lot of education is coming to the marketplace at the same time, don't underestimate that. I think the financial institutions have yet to really show up on -- specifically in San Francisco, the way they had in the past. So they're less active, and that would be more of an impact. And clearly, you're hearing and seeing a lot of the financial institutions shipping employees to secondary tier markets where they can have lower cost of rents and the likes of that. And so I think we're finding that the impact is not as great immediately. One true sign, though, and Art can get into some statistics which is, I think, very, very unique to this past quarter's data that we've seen is now we're seeing a drop in sublease dramatically impacted in some instances in throughout all of our markets, but really in the Peninsula and in the city. The sublease space is coming back to the tenants because they realize they want that space now for future growth. Arthur Suazo: Yes. Victor, I was going to say to your point, it's AI and tech really grabbing the headlines everywhere because it's a sexy thing to say. But it's not a 90-10 situation, Blaine. It's really 55% of our pipeline is tech and half of that is AI. This 45% of our pipeline is fire sector, professional service firms, education that we're availing ourselves up as well. Blaine Heck: Great. That's really helpful color. Just switching gears with respect to Quixote. You guys have done a good job of improving efficiencies in that business. Can you just give us an update on how much more you can cut on the cost side or whether that effort has kind of run its course at this point? And any color on your ultimate plans for that business would be helpful. Victor Coleman: Yes. Listen, I think we're making some headway, as you said, we've got more to go. We've got some things in plan. Obviously, I'm not going to disclose the exact numbers and the time line, but it's in the works right now. We're on the precipice of breaking even. That's been the objective for first quarter of '26, and we're getting there along the way and comfortable that I think that we'll achieve that. From that point on, we'll have to look at where the market is, where the show counts are, what's the absorption from our market share from the OpCo side and then see what's the next phase in that business. We've always said we're going to be reacting to where the future of this business is going to go. We've come through what we would call is the 100-year storm. And hopefully, we're coming out of it and may be better off than we think. We're not optimistic yet, but we're at least seeing the positive signs. Mark, do you want to comment? Mark Lammas: No. Yes, I think you summed it up. I would just say, Blaine, in our prior call, we mentioned a cost saving of approximately $23 million per annum -- pro forma $23 million to $24 million. And if you look at our most recent results, it bears that out perfectly. Last year, in the third quarter, we had $25 million -- nearly $25 million of expenses for Quixote. In this quarter, adjusted for those onetime items, we're at $19 million. And so if you run the run rate on that, you'll see it supports the annual savings target that we had mentioned, which I think is, for us, a nice confirmation that our cost savings is coming through. Operator: Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Victor Coleman: Rich, you there? Richard Anderson: Excuse me, sorry. Okay, I'm on, I'm now I think. Victor Coleman: I thought you were with Alex. Richard Anderson: Yes, I know. I did say I buy rating on the Zoom execution here. I like it a lot, except for the fact that I don't know how to unmute myself. So I was looking at the leasing stats sequentially, and I was trying to do this quickly while you were talking, but when was the last time in the office space that leasing sequentially went up both from an occupancy perspective and a lease percentage perspective because it wasn't in 2024, and it wasn't at least in a lot of 2023. That's as far as I got before I asked the question. I'm just curious how substantial you see that sequential move, albeit small, is that something that's sort of signaling to you part of this bottoming that you're hoping to see? Victor Coleman: Well, as Mark sort of checking the stats because I don't think it was -- I think the last time it was probably in '22, but he's going to look, but he probably doesn't have it. But I can tell you, we did say on our last call, I think somebody had asked the question, where is the bottom? And I think I commented that we were at it. And so that sequential move, yes, it's -- listen, it's positive. We're nowhere near satisfied to where it's going to be. As you know, the indications as we said, between what we have in our pipeline and deals that are out to be negotiated, both on the 50% of the deals that we have for next year that we're already in negotiations on and new leasing, we're moving on that track. But I don't really know what that number is, Mark? Mark Lammas: I mean there may have been a blip in there somewhere, but it's got to be 2, if not more than 2 years since we've had a sequential positive quarter, both on leasing and occupancy. We bottomed out, as Victor said, essentially 2 quarters ago, we were at 75.1, and then we sequentially did another 75.1 in occupancy and of course, we're 80 basis points higher than that this quarter. So you can easily discern that bottoming and then sequential improvement, but that's been a long time in the making. It's -- we can get it to you, Rich, but it's got to be over 2 years since we've had that. Richard Anderson: Okay. Great. Second question for me. Understanding you got a lot going on besides AI, but I'm curious about the kind of the shared knitting of an AI-oriented lease. Are companies maybe taking less lease term or maybe different types of assets, maybe not high rise, but more low-rise, suburban, just not making an overcommitment yet to AI in terms of the space -- the type of space and the commitment they're making time-wise. I'm wondering if it's different with AI than it is for your other more conventional office tenants. Victor Coleman: I think the only thing that -- and Art is going to jump in and tell you about the stats around it. But the only thing that's different is they're looking for growth, right? They're much more growth-oriented. If they want 100,000 feet today, they want a line of sight for another 50,000 or 100,000 tomorrow. And that is obviously going to be correlated to high-quality buildings with some potential role that they can absorb when tenants move out or vacancy in place. And that's been consistent throughout. But I think that theme has also been always with tech. They want the ability to grow, but also they want the ability to have their own security and safety amongst their employees. They're spending a ton of money on personnel. They want to make sure that the environment is conducive to their people and not other companies. And there's been a big negotiation now, which we hadn't seen until early on in the tech years where the competitive landscape of other tenants going in the same building, they refuse to have similar tenants in similar working class or proprietary information being in their buildings. Arthur Suazo: Yes. Victor hit the nail on the head. It's really about path to growth, being able to control their growth, being able to control their security. There's talk about high-rise versus low-rise. I don't -- they're looking for quality Class A or trophy assets with growth top of mind. No question about that. They also are looking more for kind of richly amenitized space. That's a big driver for the AI users. And which is another reason they're looking at second-generation really high-quality second-generation space, a, to cut cost, and b, to move in quicker. So those are really the key items. Richard Anderson: Okay. And then if I sneak on one quick one. On the tax credits for studios, obviously, an improvement. But do you think it's enough versus other areas of the world in terms of trying to move production elsewhere outside of LA? Do you think that enough has been done or do you think it needs to be something even more substantial to keep production in California? Victor Coleman: Listen, I never think it's enough. This is a captured business that I think the leaders, both on the statewide in city and county-wide took for granted for a very long time and realized now that they have to be competitive. I do believe that there is going to be more changes that are just more than beyond just tax credits, both above the line and below the line. And the below line is really important for the unions right now and they're focusing on that. There is other things that we have talked about, and we're seeing implemented like fees, license fees, filming fees, ease of production. Right now, it is beating the markets that really took a lot of infrastructure away from us, like the Georgias and the New Mexicos and the New Orleans of the world. But at the end of the day, you can always do more, and we've been pushing very hard with the -- all the entities, both on the federal and the state side, film commissions and the city and the mayor and the governor to help enhance this. And it's clearly evident that they recognize they need to do more. We just hope it's going to be enough and quickly. Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler & Co. Alexander Goldfarb: Victor, I'm unmuting, new challenge with this new technology. Victor Coleman: Are you talking, Alex? Can I hear you? Sorry, Alex, you there? Alexander Goldfarb: Yes. I feel like a dinosaur. My kids would have fun, call me a fud. So 2 questions here, Art, just going to Northern California specifically, we hear a lot of talk that more of the AI and more of the growth is in San Francisco, but your overall comments suggest that the Peninsula is picking up with activity. So can you just give a sense of the dynamic between what the leasing is like in San Francisco itself and then how the leasing is going in the Peninsula? And if it's big tech in the Peninsula or if you're starting to see a lot of the smaller start-ups and other smaller tenants active in the Peninsula? Arthur Suazo: Sure. A couple of quarters ago, I mean, the talk was it was chiefly -- 2, 3 quarters ago, chiefly it was the big AI users in the city. And then I would say over the last 1.5 quarters, we've really started to see the migration of some of these larger users who are taking 200,000, 300,000 feet in the city, now taking 50,000, 100,000, 150,000 square feet down across the Valley and the Peninsula. So it's really -- I think it's really evened out in terms of growth. And obviously, in the Valley we see more of kind of the early-stage tenants -- incubator stage tenants that are growing into 5,000, 10,000, 15,000 feet, which will become the next 25,000, 50,000 square foot tenant. So we're really seeing brisk activity across all of Northern California at this point. Alexander Goldfarb: Okay. And then Victor, just going back to the entertainment and the tax credits. By your comments on the 180-day sort of shot clock, if you will, it sounds like we really shouldn't expect a material pickup until the back half of next year. I realized Harout's not giving guidance yet, but just from sort of getting our expectations in line for how the studio ramp would go, it sounds like it's really a back half next year based on that 180-day shot clock. Is that fair? Or you think it could be sooner? Victor Coleman: Listen, I never want to go earlier on comments, especially if you're giving me a lifeline to go longer. But I think the 180 sort of takes us to the second quarter of next year. And you're not going to see it right now. Obviously, we're in November and December is obviously the quietest month of the year for production. So by the time they start filming, it should be really effective for the second quarter. And then clearly, going forward, there will be another launch of shows that are approved. I believe it's November 19, so you're going to see that. And then you take that 180 from that time line is really gets you almost till May. So at the end of the day, yes, you're going to see the second half of the year for sure, but I do think you'll have an impact after the first quarter. Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: It was pretty simple. I just got an unmute request, so I think I clicked it, but this is great. I think this format is pretty cool. So I like that you did it. Just -- maybe just going back to the core office side, you talked a lot about fire AI. I'm just wondering, bigger picture, like as your strategy evolves to grow from the bottom with so much vacancy in other peer buildings and just the markets, like how do you gain share consistently? Are there pockets where you're saying we're giving up on price incentives? Are there like specific buildings that you're looking at and saying like, "Hey, we need different strategies." Like I'm just trying to figure out, like in this environment as you bottom, but to grow from the bottom, just how competitive is it? What are your peers doing? Is it just a price war? Victor Coleman: Yes, Vikram, I think that's a great sort of astute point, is it really just pricing to the bottom. And we don't see that for 75% of our portfolio. Because that part of the portfolio is Class A. There's a demand there. We've seen us compete with maybe 1 or 2 other projects. It's not a list of 10 that we're competing with, and we're getting more than our fair share. And it looks like going forward, we're going to continue to get much more than our fair share given what we've seen on the pipeline going forward. But I would say we've talked about this in the past. There is 20% or so of our portfolio, we have assets that are going to fight the fight with other assets in the marketplace. And hopefully, we'll get more than our fair share, but we're willing to take our fair share at the end of the day. And whatever it takes to go out and lease those assets, we're not going to turn anything down. No, we're not giving it away by no means because the market is going to dictate that across the board. But at the end of the day, I think it's safe to say that we will be much more further ahead given where, as you can see with all the statistics that have come to market, the lack of development that is coming to the marketplace, there is 0 in all 3 of our major markets, which is the Bay Area, the Pacific Northwest and here in Los Angeles. So those marketplaces have 0 new development. So organically, as you see the demands continue to drive in fire and other related businesses that are outside of tech and AI, those buildings will lease. Arthur Suazo: And Vikram, if I can add to what Victor said, regarding the assets that you're referring to, the type of asset you're referring to, if I could add kind of a tactical piece to this thing that gives us a competitive edge is we have -- in those assets, we have over 300,000 feet, closer to 350,000 square feet of ready-built spaces for these tenants that are in great condition and move-in ready condition that really have carried the day for us. And it allows -- especially now allows tenants to move in a lot quicker. And so that's been the difference maker in those assets that you're referring to. Vikram Malhotra: Okay. And then just on the studio side. So like if I take the 3 big segments, your long lease, long duration lease stages, ones that are shorter in the Quixote business. Just assuming Quixote doesn't come back for a while, for whatever reason, it's more variable. Can you remind us of the stickiness of the other 2 businesses, what's the variability there? Like how should we think about sort of from here on a downside scenario? Victor Coleman: Well, if you look at the Sunset portfolio, virtually with the exception of Glenoaks right now, it's almost 100% leased. And the stickiness is those longer-term leases take us until almost '31 for the most part. I mean there are a couple of shows that go through 2026 and '27, but the lion's share goes through '31 with our Netflix leases, which is almost uniformly that way. Clearly, the show by show, the ones we have currently have right now have all gotten picked up for the next seasons. So we're feeling good about that stickiness for those shows. And that's the directional force of what we're seeing. We're looking right now at 40%. Tenant it's taking 40% of our Pier 94 asset, which is a show that will go at least a couple of seasons. And so that, I think, is sort of the future of where this industry is going and the competitive landscape at the end of the day, it's going to be a show by show versus a long-term lease. On the Quixote side, we have the same thing. We have some sticky shows right now, and we have some vacancies. Operator: Your next question comes from the line of Tom Catherwood with BTIG. William Catherwood: Great. You guys hear me? Victor Coleman: Yes, we can. William Catherwood: Perfect. Perfect. So I wanted to go back to Alex's question on demand in the Peninsula. And Art, I think last quarter, you mentioned discussions with 4 tenants looking for something like 100,000-plus square feet each in San Jose. Can you provide an update on those and your kind of overall leasing expectations in that market? Arthur Suazo: Yes. Sure, Tom. Those -- we did talk about there were 4 tenants across the Valley and the Peninsula, one of which we executed on and the other 3 are still in process. We're starting to see more demand in the kind of 50,000 square foot range at the airport, which I think was going to carry the day. And our team there has got demand drivers kind of in hand relative to those deals. William Catherwood: So is your expectation that we could see an acceleration in leases executed in that airport market in the near term? Arthur Suazo: Yes, we're definitely going to start to see an acceleration of that, and we've already started to see that in the Peninsula as well. Victor Coleman: I think we've been pleasantly surprised with the size increase of tenants in the Peninsula in the last 6 months. And the line of sight for future tenants, including the 3 that we're referring to, there's many behind them in that sort of 40,000 to 80,000 foot range that are in the marketplace. William Catherwood: Great. Perfect. And then second one for me, going up to Seattle on Hill7 specifically, what's the leasing outlook for that building? And how much did the need for incremental leasing CapEx play into the buyout of your partner's position? Arthur Suazo: I'll talk about the activity at Hill7. And currently, we're in negotiation with 3 multi-floor tenants, totaling about 139,000 square feet, and there are various stages, but it would address nearly all of the existing vacancy. Victor Coleman: Yes. And in terms of the economics around that, listen, it's -- we look at it as an opportunity. We have an allowance that is already in place for TIs to a certain amount of the leasing that Art's referring to. So it won't be coming out of pocket. It's already allocated to the building. And we just think that the asset with the quality space that's in place right now, it's going to need very little TIs. The build-out is very, very impressive, and that's why the demand is there. This would be an asset that we would have to reposition, but fortunately, we don't. And so I think the opportunities with the tenants that we're looking at is really like a plug and play. And we're optimistic that we're going to get some of those deals done relatively quickly. William Catherwood: And so again, that sounds very positive, Victor. Great to hear that. But that being the case, then what drove the buyout of the tenant? Was it concerned -- it can't be refinancing concerns that debt doesn't come up until '28. What was the kind of catalyst that brought that to a head at this point in time? Harout Diramerian: No, it's a good question. It is putting in capital in the future, and we're better positioned for that and we see a bigger upside than our partner did. And so that's -- you're exactly right, it's exactly that. Victor Coleman: And this is not new for the partner to exit. They've done this with other -- specifically other REIT partners, they've just walked away from assets. Operator: Your next question comes from the line of Jana Galan with Bank of America. Jana Galan: Just a quick one on the office leasing this quarter. It looks like the average lease term came down for both new and renewal leases. Were there any large one-offs influencing this? Or are AI firms just prone to shorter lease term? And as this segment increases in your portfolio, how should we think about kind of the TIs, leasing commissions and maybe faster lease commencements? Mark Lammas: Yes. The tenant -- the large tenant we signed a deal on in Palo Alto was really what underlied the sequential downtick, if you will, in term. I mean just in terms of overall economics leasing is holding up well. I mean you may have noticed that net effectives came down a bit sequentially, but they stayed in the same range of where they landed now for quite some time. Where if you look at net effectives on a trailing 12-month basis relative to pre-pandemic, we're approximately 10% off, which has kind of been -- that towards the upper end of the range of where we've been for quite some time now. I still think things are trending back towards closer to pre-pandemic net effectives. It's just we had this quarter a little bit of a dip. On other economic fronts, rates are holding fine. TIs, you'll notice ticked up a little bit. Again, same lease associated with that. I think where we'll see the benefit in terms of that TI spend is that, that was first-generation space. We completely repositioned that asset, taking it offline. So the spend sort of correlates with the condition of that space to get that tenant move in. And I think we'll see a benefit from that when we renew that tenant, we'll get a sort of more bang for our buck, if you will. But in terms of overall TIs, if you look at TIs per annum for the -- on a trailing 12-month basis, they're actually 14% lower than pre-pandemic trailing TIs per annum. So again, a good sign that lease economics are holding. Operator: Your next question comes from the line of Lauren McNichol with Citigroup Global Markets. Victor Coleman: Lauren, are you there? Operator: [Operator Instructions] Victor Coleman: All right. We'll come back to Lauren. Let's move on to John. Operator: Your next question comes from the line of John Kim with BMO Capital Markets. John Kim: I wanted your thoughts on Mayor Mamdani. No, I'm just joking. There was a Mayor race with a socialist front runner similar to what we had in New York. But I was wondering if you believe that has impacted leasing decisions or any economic decisions in Seattle over the last couple of months? Victor Coleman: Listen, I'm getting live updates, John, right now as we speak. And as of the last -- there's going to be a poll drop, I think, at 11 a.m. this morning. But I think if it was a 54-46 in favor of Bruce. And so -- and it looks like it's -- the City Council is going to be [ 6 3 ] still as a firm hold. I think we're going to see -- it was an amazingly low turnout. I think historically low turn out in Seattle. So we're going to see what the impact is at the end of the day. Clearly, you know where our position is on that. At the end of the day, Seattle, the shift on this potentially could be impactful only because not based on the politics, just based on the background of the potential new mayor, if she gets elected, I mean she has no background in terms of running any governmental agency or any history of that. And so I think the process in Seattle could be slowed, but let's hope that Bruce gets in, and we'll know that in the next couple of days. John Kim: Fingers crossed. Okay. Second question is on your economic and leased occupancy, they both trended in the right direction this quarter. But it seems like you've walked back from the target that you mentioned last quarter of high 70s, low 80s by year-end. I was wondering if that was still on the table. And as part of that, if there's any update on 1455 Market since that seems to be a pretty big needle mover? Victor Coleman: So I'll start on that because it was -- I think if you recall, I said, leased -- I specifically said leased, and I said some time by year-end or first quarter, and I know you like to hold us to specific correlated numbers. The trajectory is there. Whether it gets there by December 31 or it gets there by March 1, it's there. And so I wouldn't worry about is this immediate and impactful on a moment in time. And so specific to 1455, negotiations are moving along at the pace that we are very happy with. But it is a city entity, and the process will take time. But I believe our team is extremely confident that, that deal will get done in a matter of time. That being said, as you heard by our prepared remarks and by what you've seen with our pipeline, we're very comfortable with our renewability for the remainder of '25 and all of '26 and the percentages around that, and the new tenant absorption and the activity around that, we're very comfortable with that as well. Mark, do you want to jump in? Mark Lammas: No, I think you summed it up. John Kim: 1455? Mark Lammas: Yes, that's what I said, I was talking about the city. That's what I was referring. Operator: Your final question comes from the line of Lauren McNichol with Citigroup Global Markets. Seth Bergey: This is Seth Bergey. Is the line unmuted? Victor Coleman: Yes, you are. You kicked Laura out... Seth Bergey: No, she's here with me. I guess my first question is on the 4Q guide, $0.01 to $0.05. At this point in November, kind of what gets you to the low and high end of the range? Harout Diramerian: Seth, it's Harout. It's -- I think we -- in my prepared remarks, I mentioned that the driver at this point is really around the studio business. It is slower activity in the fourth quarter. So if that were to tick up, I think that puts us in the higher end of the range. And if that were to tick down, it would put us in the lower end of the range. That's really the biggest driver at this point of the year. Seth Bergey: Okay. And then I guess just on that, how should we think about the recovery, the shape of the recovery? I think you mentioned some seasonality in the fourth quarter. And then they have 6 months. So is that kind of a 6 months kind of where you would expect to kind of see the pickup? Or would you kind of expect to see like a steady increase until that time period? Mark Lammas: Yes. That's about -- that's the right time frame. The new -- the enhanced credit went into effect in July. There was a round of awards right out of the gate, roughly, I don't know, 20-something awards. More recently, there were another, I don't know, 40-plus awards for a total of 74. They -- we think, and our numbers are pretty good on this, that roughly 15% of that is currently in production. So there is squarely a lag between the amount of shows that have been awarded and those that are under production. So we -- that should hit within that 180-day time frame from the 2 different awards starting in July. Seth Bergey: Okay. Great. And if I could ask just one more. I believe on the last call, you kind of mentioned there are some pickup in tour activity Washington 1000 and some space requirements that you were kind of engaged with there. Could you just kind of give us an update on that activity? Arthur Suazo: Sure, Seth. You're absolutely right. But this tour activity we talked about last quarter has increased even more based on the demand drivers -- the positive demand drivers we're seeing in Seattle. Tour activity increased 171,000 square feet quarter-over-quarter, which is to say it went from 200,000 feet to 371,000 square feet. We're currently in some form of negotiation with 4 tenants with requirements of 50,000 square feet or more. And 2 of them are in later stages. So we feel really good about that. And as the competitive landscape continues to improve in Seattle, we feel that we're even better positioned now than we ever have been. Operator: There are no further questions at this time. I will now turn the call back to Victor Coleman, Chief Executive Officer and Chairman, for closing remarks. Victor Coleman: Thank you again for participating in our third quarter call. We look forward to giving you updates as we go. We'll speak to you after the New Year, hopefully. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's Quarterly Earnings Call. Today's call is being recorded. [Operator Instructions] I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Stuart McElhinney: Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, our CIO; and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings which can be found in the Investor Relations section of our website. [Operator Instructions] I will now turn the call over to Jordan. Jordan Kaplan: Good morning, and thank you for joining us. Office leasing during the third quarter was obviously not what we had hoped. While July was strong with over 300,000 square feet leased, our typical August slowdown in new leasing was deeper than usual and lasted into September. Fortunately, renewals did better with tenant retention above our 70% long-term average. . Fourth quarter office leasing is off to a good start, but we're now hesitant to be encouraging until we complete the quarter. We've seen that multifamily growth rates have slowed in other parts of the country and other markets in L.A. County, but we're not seeing that in our portfolio. Our multifamily same-store cash NOI increased almost 7% compared to the prior year. Same-property cash NOI for the whole portfolio was up 3.5%, with office benefiting from higher property tax refunds. We expect property tax refunds to be impactful for the foreseeable future, though the timing remains unpredictable. Our 2 multifamily development projects in Brentwood and Westwood will add over 1,000 premium units to our portfolio. In addition, recent changes to state municipal law allow us to build more multifamily units at a number of our existing locations. For example, we can now build a new 500-unit residential tower at the corner of Wilshire and Barrington in Brentwood. During the third quarter, we refinanced almost $1.2 billion of debt at very competitive rates. We are also actively working on a number of off-market office opportunities with full engagement from our joint venture partners. I will now turn the call over to Kevin. Kevin Crummy: Thanks, Jordan, and good morning. At 10900 Wilshire and Westwood, we are finalizing plans for converting the existing office tower to apartments and building a new ground-up apartment building. Construction should begin in 2026. At The Landmark Residences in Brentwood, construction is in full swing. When we finish the project, it will meaningfully add to our in-service residential portfolio. Finally, we continue to make good progress leasing at Studio Plaza in Burbank. During the quarter, we completed 3 financing transactions that extend our debt maturities at very competitive fixed interest rates. As we mentioned in our last call, in July, we refinanced a $200 million office term loan that was scheduled to mature in September 2026. The new nonrecourse interest-only term loan matures in July 2032, with interest effectively fixed at 5.6% through July 2030. In August, we closed a package of new residential term loans. The new secured nonrecourse interest-only loans total approximately $941.5 million, bear interest at a fixed rate of 4.8% and mature in September 2030. They replaced loans aggregating $930 million that were scheduled to mature in 2027 and 2029. We also repaid the debt that encumbered The Landmark Residences and added that property to our pool of unencumbered assets. We continue to work on refinancing our next loan maturities, now scheduled for late 2026, and to look for attractive acquisitions. With that, I will turn the call over to Stuart. Stuart McElhinney: Thanks, Kevin. Good morning, everyone. During the third quarter, we signed 215 office leases, covering 840,000 square feet in our in-service portfolio. This included roughly 200,000 square feet of new leases, which reflects the slowdown in the latter half of the quarter that Jordan mentioned. Office rental rates and concessions are steady. Looking ahead, our remaining office expirations in 2026 and 2027 are below our historical averages. The overall straight-line value of new leases we signed in the quarter increased by 1.8%, with cash spreads down 11.4%. At an average of only $5.63 per square foot per year, our office leasing costs during the third quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio continues to enjoy strong demand and remained essentially fully leased. With that, I'll turn the call over to Peter to discuss our results. Peter Seymour: Thanks, Stuart. Good morning, everyone. Compared to the third quarter of 2024, revenue was flat at $251 million. FFO decreased to $0.34 per share, and AFFO decreased to $52 million with increased interest expense outpacing higher contribution from operations. Same-property cash NOI increased 3.5%, reflecting a strong 6.8% increase from multifamily and a healthy 2.6% increase from office. As Jordan mentioned, we continue to receive significant property tax refunds whose timing varies unpredictably from quarter-to-quarter. Excluding property tax refunds, our office same-property cash NOI growth would have been essentially flat. At approximately 4.3% of revenue, our G&A remains low. Turning to guidance. We still expect our 2025 net income per common share diluted to be between $0.07 and $0.11, and our FFO per fully diluted share to be between $1.43 and $1.47. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions. Operator: [Operator Instructions] The first question comes from Nick Yulico with Scotiabank. Nicholas Yulico: I guess starting off with leasing. If we go back to last quarter in the call, you guys had some optimism on the leasing pipeline, you still had your occupancy guidance intact and then this quarter didn't play out as expected. I'm just hoping to get a little bit more detail on sort of what exactly did not materialize in the new leasing plan? There were certain markets, buildings, anything you could just sort of quantify a little bit more on that? Jordan Kaplan: I would -- I don't -- do not have a great answer. I can't point to an industry, I can't point to a market, I can't point to a building. There was a slowdown. We actually still did a number of deals over 10,000 feet. All of that worked, it just slowed down. And if you ask the question, where are we now? Think -- it seems like the slowdown is temporary, and it looks like we're off on this quarter to a good start, but I don't want to make any predictions because we were so surprised by July. From July to August, we were like, "Oh, this is going to be a great quarter." Then you had August and September, just kind of fell off or actually like later part of August. And maybe it will be timing, I'm not sure. Nicholas Yulico: Okay. And I guess second question, Jordan, is you're a larger shareholder in the stock, I'm sure you're not happy with how the stock is done and some of that has to do with leasing and performance there. But are you starting to think about other alternatives? You mentioned some acquisitions, but I guess I'm wondering do you think about trying to prune the portfolio? Do you think about stock buybacks? Are there other opportunities to do something sort of pivot here a little bit in terms of a strategy to sort of improve the stock performance outside of just the leasing focus that needs to be addressed? Jordan Kaplan: I would say that -- well, first of all, I still feel very good about both our office and residential portfolios. We're growing our residential portfolio, and we're working on growing our office portfolio. I think the markets will be good. I actually think both of them will come back at a good clip. And when I look at kind of more macro things. So there's obviously some stuff that's been in the way. I'd say locally, the only real thing that's been in the way has been politics. I think politics are kind of starting to move back into the right direction. And then there's been some national stuff, but I know some other markets are recovering. I'll still say: We have very good tenants, we have high renewal rates. I like our prospects in office. I'm working on buying more office, as Kevin said. And we gave you a sense of how much more aggressive we're becoming on developing residential and our residential is performing extremely well. So more on the development side, we are moving on a number of things. There's a ton that we can do here in L.A. as a result of these changes in laws. And I'm going to tell you, I still feel good about our office portfolio. I get it, the last quarter was more upsetting to me than anybody, but we're trying to continue -- we're continuing to do our best. Operator: The next question comes from Steve Sakwa with Evercore ISI. Steve Sakwa: Stuart, you provided a little bit of comment on kind of the tax refunds and Peter did as well. But I'm just trying to make sure when we look at kind of the third quarter office expenses, is that $74 million kind of a good run rate? Or are there some kind of onetime true-up payments that sort of hit in the quarter that benefited Q3, but won't carry forward into Q4 and beyond? Peter Seymour: Steve, it's Peter. Yes, I mean, whenever we have tax refunds, it's going to -- you're going to see it in the expense line. And as we said, it's -- we expect to continue to get property tax refunds, and we expect those to be impactful. It's just hard for us to predict quarter-to-quarter, year-to-year what the numbers are going to be. Steve Sakwa: No, I understand that, but is the $74 million kind of like the new base with which you grow from? Or were there like past refunds that were kind of onetime in nature that the run rate is higher than that? Peter Seymour: It's kind of hard to pull it all apart, but there's a little bit of both. There's some of it that's onetime and there's some of it that you reset for a period of time. Jordan Kaplan: I mean I don't think we have guidance for you on expenses for the next few years, but I can tell you this, Steve: We have been receiving rolling tax refunds for quite a while, and I think they are going to keep rolling forward because we -- they're just very slow, the money comes in very slow. We don't recognize the money until we receive it. I mean, but it's been coming in, and I think it's going to keep coming in, when I look at the amount we have in front of them. Steve Sakwa: Okay. And then maybe, Jordan, just going back to kind of leasing broadly, I mean, I did see that UCLA downsized kind of their footprint with you in the third quarter. But just any comments kind of around the industries that did lease in kind of the third quarter, maybe were you positively surprised that activity? And were there any industries that just are still kind of stuck and maybe underperforming your expectations? Jordan Kaplan: I would say -- and I'm glad you reminded me of that. I was going to say the one area where I'm seeing weak -- it's not a lot of it in our portfolio with the exception of UCLA, but where we see weakness is government. Government is definitely having everything. They're having trouble bringing people back in, they're having budgetary problems, they're shrink -- they got it all going on. Most of our other sectors seem to be okay. And every time we like get bonked, I'm always like, "Oh, great, UCLA got you." But I will also tell you, I think UCLA is going to bring people back. So it's hard to know where they're going to end up. They could end up being our growth engine going forward in terms of new leasing because they have been shrinking for a while and they really need to bring people back in, in a more robust way. So I don't want to beat on them too much. They really are only -- they rely on the government, both the federal government and the state government. They're obviously part of the state government. I know the government has beaten the daylights out of downtown. So -- anyways, that's the only industry I can give you some feel for. Operator: Next question comes from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Thank you for keeping your conference call old school, not going the high-tech route, so I appreciate that. Jordan, your stock is trading at a 9 implied. I understand the enthusiasm for apartment development. It's been something long in the making over the past few decades, and it's great to see you guys be able to take advantage. You also mentioned potential more acquisitions. But from a funding perspective, you can't really issue equity, that makes no sense. You're always hesitant to sell assets to gin up additional cash. So with everything that's on your plate and where the stock is, how would you think about funding new acquisitions if you have demands on your capital for the development projects? Jordan Kaplan: Well, as I mentioned, we have extremely good engagement from our joint venture platform. You're right, we're not issuing stock. But historically, we have not issued stock to make acquisitions regardless of where the stock price was. We do have positive cash flow coming out of the company. We -- so we're generating cash flow, we're using it to do a number of things. We have a lot of ability to do financing. I mean, I know we don't mention it that often, but huge -- we're all nonrecourse first-trustee debt. And a huge portion of our portfolio doesn't have any loans on it. And so we can actually use that to use financing. We can use our free cash flow to invest alongside our joint venture partners. To date, most of what we've done is use some of our free cash flow and invested alongside our joint venture partners. And we've used some of our free cash flow to power the 2 development or at least -- yes, the 2 development projects we have, although one of them has a lot of joint venture partners in it, so it's not taking much. Alexander Goldfarb: Okay. But your point is that between the demands from -- to fund the current development pipeline, there's still excess cash that you're generating to fund JV acquisitions? Jordan Kaplan: That's a 100% true. Alexander Goldfarb: Okay. Second question is just playing off of that. Again, given where the stock is trading and you guys haven't been huge issuers over time, why would the joint venture partners not be interested with you guys in just maybe taking the company private? I mean the public markets haven't rewarded what you guys have achieved, you certainly have a lot of growth ahead of you, but it would seem like an opportune moment to arbitrage the difference. Jordan Kaplan: Well, we -- I mean, yes, they ask that a lot. I don't think it's a very good time to go private vis-à-vis my shareholders, of which I'm one, and a lot of us are because I think the stock is super undervalued, and I want to do a good job for the shareholders. But yes, I mean, you're right, they all lead with that. Alexander Goldfarb: No, I'm just saying you guys -- I mean there's a lot of good stuff that you guys are doing, but it's not reflected in the stock. Jordan Kaplan: Yes, I know it's not. And that's a point in time. The stock kind of moves around vis-a-vis what's going on. And most of the time I'm wrong. It should be up, it's down. It's just like things slow down and it's up. But I think over the long haul, we're going to have a great opportunity to do a good job for our shareholders. I don't want to like crawl out with my tail between my legs. I want to do a good job for them. Operator: The next question comes from Blaine Heck with Wells Fargo. Blaine Heck: Great. Jordan, I appreciate the commentary. Can you just talk a little bit more about the size of the opportunity set within your portfolio to potentially do more office to residential conversions or ground-up residential development? And maybe where in the time line of getting the required permitting or zoning you are? Is the opportunity you mentioned in prepared remarks something that you think could be shovel-ready in 2026? And are there any others that you think could be started in the next couple of years? Jordan Kaplan: There are a number of extremely great locations that we now feel we can build meaningful additional resi. And Ken and I have been talking a lot about it. I mean his -- and I've said to you guys historically, really, the gating issue for us is like kind of growing our ability to do more projects, and we're talking about that. The early stages of that, we are already doing. So we are working on like planning and looking at some of these sites, talking to architects about what can we do here, working on a lot of that. I mean if you ask me, do we have a lot of sites that could be ready to go at the end of '26? We probably do, but we ourselves have to finish building the stuff we're building to do a good job. And so we're kind of, I would say, we're tightening up that line of projects and getting them more than theoretically ready, but how fast will we roll them out, that's a little harder to answer. Blaine Heck: Okay. Great. And just a follow-up. Similarly on the acquisition side, do you think you're close to closing on any other interesting opportunities? And maybe how have your return requirements evolved along with the changes in your cost of capital? Jordan Kaplan: I believe we'll make some meaningful acquisitions in a reasonable time line. I'm extremely confident of that. What was the second part of your question? You want to know how my return metrics... Blaine Heck: Just how your targeted yields return requirements... Jordan Kaplan: I mean our return metrics are kind of best-in-class, but consistent with the world of returns that we live in right now. But we don't want to lose best-in-class deals and that's the stuff that seems to work the best for us and in terms of where we like to operate, which, I've said before, is in the top quartile of our portfolio. I think that's more achievable now than ever. I'm telling you right now, I'm really confident that, that will happen. I think that as a result of that, we're not going to miss any of those. It's going to be -- the return metrics are better than they were in 2019, but I don't know if there'll be all the way to where you guys want them for us, I think we'll feel very good about them. Operator: The next question comes from Seth Bergey with Citi. Nicholas Joseph: It's Nick Joseph here with Seth. Maybe just following up on the transaction market. Are you feeling that there's more competition as you're bidding for assets? How are you seeing kind of the competition landscape changing? Jordan Kaplan: I think that we're a little bit like [indiscernible] going to sound, there are so many markers that remind me of when Ken and I got into this business. So when we -- in the early '90s, we did a lot of buying -- all through the '90s, we did a lot of buying. And I remember looking at that time, at where -- like how much was broker transactions, how much was off market, getting people to come to us. And I'm seeing that shift again, a lot more off-market, I mean like an amazingly higher percentage of off-market. We know you'll do it and close, which is great. It's great -- it's kind of a payback for decades of building that reputation. So that has given me confidence. We're seeing like real deals, and we are running at them and stuff that I've wanted for a long time. Nicholas Joseph: And then just on -- a couple of questions have been on kind of the discount and ways to close it. And I understand where -- obviously, you're not happy where the stock price is and see a path to closing that discount. But is that -- you had mentioned kind of the LPs maybe having some interest. Is -- has that been a broader Board discussion or is that more just kind of your opinion on where the opportunity is to close that gap right now? Jordan Kaplan: I didn't give that as an opportunity to close the gap. I said I wouldn't want to do that now. The stock price is too low. That's not doing a good job. I'm saying -- all I was saying is, of course, they ask me about it all the time. But why would I go with an incredibly low point in the stock and say, "Oh, now I'm going to go --" I mean you guys are looking at me like I'm an idiot. I believe the office and resi has huge upside, why wouldn't we deliver to our existing shareholders. Operator: The next question comes from John Kim with BMO Capital Markets. John Kim: I wanted to ask a 2-part question on leasing. Jordan, you mentioned October, it seems like it picked up. I'm wondering what you attribute that to? And secondly, is there anything that you can do to stimulate demand? We're seeing here in New York a lot of landlords really stepping up on amenities. And I know your portfolio doesn't really have the same footprint to do that, but I was wondering if any amenities would resonate in your market? Jordan Kaplan: Where some amenities make a difference, we have done that kind of thing. We've been pretty successful in projects where we have a lot of leasing and making a deal with a gym or something like that, a commercial gym to be their high-end gyms and that becomes an amenity of the project, and obviously, we make money on those deals. But our portfolio is in very amenity-rich areas. And I'm not just talking about like access to high-end housing, I'm talking about restaurants, the whole 9 yards. So we don't have like a ton of additional demand like that on that front. In terms of stepping up demand, we are -- nobody is better than us, like getting out there and getting access to every deal that's out there and pushing and trying to get them done. I mean if you looked at the various tiers of our portfolio and the outreach and the aggression of showings and trying to turn those into -- every step of the way you go, we have an incredibly aggressive platform. Yes, so I would -- that -- I have a lot of confidence in that. That's why you hear me saying I have a lot -- I got it that the pace of real estate and the recovery of the office portfolio is not consistent with the quarter-to-quarter analysis, and certainly, we had a quarter that didn't look great. But when I look at what's happening in general and our platform and its outreach and what's out there and what we're going after, I go, "No, I still feel good about this." I'm confident we'll get there. I have to -- we just have to stay focused and keep playing hard, and we will. And I think we're going to do a great job for everybody. John Kim: Okay. And then my second question was on Barrington Landmark. Any update on the litigation progress? If you think we'll get some news on that in the next year-or-so? And you added a new development site there this quarter. Do you expect that to get off the ground before Landmark Residences? Jordan Kaplan: We wouldn't build that before we have Landmark Residences built -- leased because they'll just compete directly with it. We already have 700 units there. So we would do all the work to get it ready, which is a good thing to do, and we're already doing that to marry it to the project. . But as I said, we have to like play through what we're building right now, but it's probably also smart for us to do all the kind of -- some of the other work on many other sites, that's one site, but on a number of the other sites to go like this is kind of getting more and more ready to go with all that we need to know that when we do want to get to it, we can get right to it. And that's the early stuff that Ken and I have talked about doing and are doing, and we are doing it. John Kim: And then litigation? Jordan Kaplan: The litigation, they're like training mountains of documents. I mean, obviously, we feel very good about it. But nothing like that is ever very fast, and it's certainly not going -- I mean the metabolism of the courts is extremely slow, like it's slow as a sloth. So just assume that's what we're dealing with. Operator: Next question comes from Jana Galan with Bank of America. Jana Galan: When you talk about the slowdown experienced in August and September, was that more that touring and top of funnel activity slowed or the activity was there and then the decision-making just kind of got paused? And when you think about the improvement in October, is it more just a normal month or is it seeing that kind of delayed activity from the summer coming now into the fourth quarter? Jordan Kaplan: I think it was probably a slowdown in like decision-making to close. And in terms of this quarter, I'm so nervous to make projections. I would like to have the proof in the pudding. Let us just deliver the answers. And I told you, things -- I mean, if you're looking at it, what's the problem? I mean, so let's just see closing and all the rest of it. Let's see how we do this quarter. Jana Galan: Great. And then just curious if you could kind of talk about the decision or the strategy to refinance the multifamily properties early and to unencumber The Landmark Residences? Jordan Kaplan: Well, I would say Fannie Mae was a great partner there. They allowed us -- they left their loan intact and allowed us to really like basically empty the buildings, there's not a ton -- they're pro-housing, they want -- when they knew that we were going to build back and do the housing, they're pro-housing bunch, so they're like, "We don't want to get in the way of housing." I said it would be hard on me. We could probably handle it, but it'd be hard on me if you told me I had to repay your loan at this exact moment, right? Once we had made it into the construction, they were saying, "Okay, well, we'll let you roll forward on that." That's great. I can't tell you how much I appreciate that because that makes a huge difference to adding this housing. And -- but I also said, "When I see a good opportunity to get you back out of that because I know it's like -- it's whatever, it's an item on your list, we'll take it." And as those other resi deals have just matured and the cash flow just keeps increasing, we saw an opportunity to extend everything out at very good pricing, very good spread. And we certainly had the room to, at that point, delever Barrington, take all the leverage off. So it didn't have to be on their watchlist. It's a great point with your lender when you can do something for them, and we did it. Operator: Next question comes from Rich Anderson with Cantor Fitzgerald. Richard Anderson: Perhaps a tough question to answer, but is there anything about the coming Olympics economic activity, you as a landlord of office and multifamily in the area that you see as an opportunity short term, long term, given what typically happens in front of and after an Olympic event. Anything you're thinking about at all or is it just nonevent for -- from the standpoint of Douglas Emmett. Jordan Kaplan: There is one big primary thing, which is that the council member for that for [indiscernible] has a strong interest in making a lot of really positive changes. So UCLA is the Olympic athletic village, so all of the athletes stay in the dorms at UCLA and then their area is going to be that Westwood Village area. And she's really leaning into like every type of funding, everything they can put together to get that area like really nice and showing well to the world, and she's come to a couple of large owners, of which obviously we're one of them, and said, "I want you to kind of lean into all this with us." And we said we would, and we've joined her. In a very similar way that Santa Monica came to us, and they're doing something similar, not necessarily for the Olympics, but here in this downtown area, and we've joined them, too. And so I think if you're asking specifically about the Olympics, I think it's going to leave that area much better off. And we see that the city and county and even state and all the rest want to show well there in that village. And those improvements to the village where we're a large owner in terms of like making more of like walking areas of streets, making the retail work, pushing the transportation to the outside. She focused on all those things. And I think they're going to get a bunch of them done. She wants to get it done. Richard Anderson: Okay. Great. Not so bad question after all. And then the second question, you mentioned progress at Studio Plaza. Can you put a finer point on that in terms of anything around leasing activity, where you're at? I know you're hesitant typically do not get too specific, but I'm wondering if you could share anything about progress there. Jordan Kaplan: Well, I think the big comments around Studio Plaza is, number one, I had a lot of fear there of reading the entertainment industry and what's going on. But we're doing tons of entertainment deals there, and it's leasing. And we're getting all sizes of tenants and some little larger multi-floor, we're getting single floor, we're getting all of it. We got to close them, of course. A number of closed already, some -- I think we're already -- some are already paying. Well, we finished a project, the project shows incredibly well. And so like I would just say my blood pressure went down on it now that I'm seeing it perform. So that's the main thing. And I have a lot of confidence there will be -- will finally -- well, it was great. It was great to own it. It was leased for 30 years to a mix of tenants. But ever since Warner Brothers took it over, it was just always a subject. And now it's going to be like a good robustly multi-office project that will take kind of the risk profile of those large single tenants off our plate, and it's just not something we enjoy, and it's getting done. So I'm pretty happy about it, actually. And the redo of the building is a stunner. That's one also that has like a lot of amenities that an earlier question asked me about, got it set up with like great outdoor amenities, indoor amenities, the whole thing. Richard Anderson: Yes. So when do you think you're kind of sort of done getting that back leased, do you have a time line in mind? Jordan Kaplan: Yes. But if I give a time line, I'll blow it. So I don't want to do that. Operator: The next question comes from Upal Rana with KeyBanc Capital Markets. Upal Rana: Great. Jordan, you mentioned doing more acquisitions. And I wanted to get your thoughts on the Beverly Hills office market. Some assets have traded there recently, including one of your peers buying Maple Plaza. So I just want to get your thoughts there. And maybe if you tell us if you were part of the bidding there as well? Jordan Kaplan: Well, I saw the stuff they sold, and I saw what they bought and what I have for them is applause. I mean that was a great trade to move out of that other stuff and into that, I'm like well done. And I love the Beverly Hills market. I think it's a great market. Upal Rana: Okay. Great. And then could you talk about any of the larger tenants coming back to the market? You mentioned in the past that you're seeing an increase there, but just curious what your thoughts are today? Jordan Kaplan: Stuart, go ahead. Do you want to answer? Stuart McElhinney: Yes. I mean we have -- we saw, again, very typical good, healthy leasing over 10,000 feet in Q3. So that was good to see. It was a year, I think, more than a year ago now that we were really seeing that category underperform, and it's been pretty healthy last couple of quarters. Operator: [Operator Instructions] The next question comes from Dylan Burzinski with Green Street. Dylan Burzinski: Just a quick one for me. You mentioned the amount of acquisition opportunities that you guys are looking at on the office side. I guess presumably these are mostly sort of value-add type deals where Douglas Emmett can bring them into their operating platform and execute lease-up. But I guess how do you guys weigh that with the existing portfolio level of vacancy that you guys have in the office portfolio today? Jordan Kaplan: So you saw us do a value-add deal, and maybe that's why you're saying that because we took that when we bought that 220,000 foot building with the development site and we're converting it. My main guiding principle is buy the best stuff that's in the market and keep control over the best stuff in the market because I still believe in the markets. So the best stuff could have some vacancy, it could not have vacancy. But if you go, what's my -- the #1 criteria, it's not value-add, not value-add, whatever. It's -- we want to buy the best buildings in the markets that we think are long term great investments that have great supply constraints and a great kind of natural tenant base and amenities and good access to like high-end housing, all the stuff that seems like pablum that we put in the front of our original like S-11, but really has what's guided us. Operator: This concludes our question-and-answer session. I would like to turn the conference back to Jordan Kaplan for any closing remarks. Jordan Kaplan: Well, thank you for joining us, and we look forward to meeting with a number of you individually soon. Bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to Sempra's Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Louise Bick. Please go ahead. Louise Bick: Good morning, and welcome to Sempra's Third Quarter 2025 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer; Karen Sedgwick, Executive Vice President and Chief Financial Officer; Justin Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure; Caroline Winn, Executive Vice President of Sempra; Allen Nye, Chief Executive Officer of Oncor; and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We'll also encourage you to review our 10-Q for the quarter ended September 30, 2025. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, November 5, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to Slide 4, and let me hand the call over to Jeff. Jeffery Martin: Thank you all for joining us today. Before discussing today's financial results, I want to spend a moment reviewing how we've positioned our portfolio to deliver significant value to our owners through the end of the decade. Today, our company is situated at the intersection of several important secular trends, including the ongoing electrification of America's energy systems, AI deployment and the growing need to deliver energy safely and reliably. In order to capitalize on these trends, we've worked closely with our Board of Directors to update our corporate strategy to focus on lower risk and higher value transmission and distribution investments, growing our position as a leader in large economic markets, shifting our capital allocation to fund the growing needs of our U.S. utilities and doing so with a sharp focus on Texas, which is a market that we believe offers the best long-term value proposition for our owners. Next, let me turn to our financial results. Earlier this morning, we reported third quarter 2025 adjusted EPS of $1.11, which compares favorably with the prior period's results of $0.89. Also, with the strength of our year-to-date results, we're affirming full year 2025 adjusted EPS guidance range of $4.30 to $4.70 while also affirming our 2026 EPS guidance range of $4.80 to $5.30. And finally, we're affirming our projected long-term EPS growth rate as shown on this slide. Please turn to the next slide, where I'll provide an update on our 2025 value creation initiatives. You'll recall that earlier this year, we announced a company-wide campaign focused on 5 initiatives to create value for owners. First, we set a goal of investing approximately $13 billion this year with the vast majority being allocated to our U.S. utilities. Through the first 3 quarters, I'm pleased to report that we've successfully deployed nearly $9 billion of capital and remain on track to meet or exceed our year-end goal of $13 billion. Moreover, at Sempra Texas, we're benefiting from improving returns, primarily attributable to increased capital efficiency at Oncor, which is associated with the newly implemented unified tracker mechanism. Moving to the second initiative. We're pleased with our recent announcement to sell a 45% stake in Sempra Infrastructure Partners for $10 billion. We view that transaction as a major catalyst in unlocking Sempra Infrastructure's franchise value while also benefiting Sempra in numerous ways, including: number one, improving our business growth profile as the mix of regulated earnings significantly increases; number two, unlocking reinvestment capital for our U.S. utilities; number three, adding an average of $0.20 to EPS accretion over the 5-year period starting in 2027; and number four, fortifying our balance sheet, deconsolidating Sempra Infrastructure Partners' debt and paving the way for improved credit metrics. In parallel, the ongoing sales process for Ecogas continues to generate a lot of interest from a number of prospective buyers, and we're expecting to receive final bids before the end of the year. Both transactions are expected to close by the middle of 2026. The last initiative shown here at the bottom of the slide is aimed at improving community safety and driving operational excellence across the organization. This includes efforts to improve the regulatory environment with a view toward reducing enterprise risk. A great example is California SB 254, which strengthened the long-term stability of the state's wildfire fund while also improving claims liquidity. The key takeaway on this slide is that progress on these initiatives is translated into improved financial and operational results, and I cannot be more proud of our employees who have embraced our commitment to both modernize and scale our organization, improve our cost structure and better serve all of Sempra's stakeholders. Please turn to the next slide where Karen will walk through business updates. Karen Sedgwick: Thanks, Jeff. At Sempra, California, SB 254 was enacted, which is a significant derisking event for the California electric utilities. Jeff mentioned it earlier that the bill calls for an even split of funding between the California IOUs and their customers with no upfront contributions. Importantly, SDG&E share of the various contributions is a modest 4.3% for what amounts to just under $13 million per year through 2045, with additional future contingent contributions being required only if needed. Continuation account also strengthens the cap on reimbursement in the event of a finding of imprudence. It's also important to note that any contributions made by IOU shareholders to the continuation account may be also counted as prepaid credits against potential reimbursement amounts in the future. Taken together, we believe these measures, which are outlined on Slide 15 in the appendix, significantly strengthened the financial safeguards for electric utilities, an important achievement for all of California. As we approach year-end, we're tracking several regulatory matters in California that we hope to wrap up, including Track 2 of the GRC, the T06 proceeding at FERC and the CPUC's cost of capital proceeding. Moving to Sempra Infrastructure. We previously announced a definitive sales agreement that's expected to reduce our ownership percentage to 25% will be accretive to EPS forecast and credit. And following the close of the transaction, we expect to maintain a solid cushion above our FFO to debt thresholds. Among other benefits, a lower equity stake will also improve our regulated earnings mix, while allowing Sempra to deconsolidate Sempra Infrastructure's debt from our GAAP financials. In our LNG business, Port Arthur LNG Phase 1 continues to make notable headway with Train 1 expected to reach COD in 2027. We're on schedule and on budget with over 1/3 of piping installation complete on Train 1. Recently, we also completed the Tank A Roof Air Raise, which is another important milestone for the project. Earlier in the quarter, you'll recall that we also reached FID at Port Arthur Phase 2 and issued a full notice to proceed under our fixed-price EPC contract with Bechtel. This is important because it gives us the opportunity to leverage continuous construction at the site and reduce project risk. To date, we placed all high-value orders for long lead plant equipment and also completed the project's first permanent piles for Tank C and Train 3. I'll also add that the value proposition of Sempra Infrastructure's LNG franchise continues to grow. As the European Council recently backed the EU's proposal to end deliveries of pipeline gas and LNG from Russia by the end of 2027. Moving to ECA LNG Phase 1. The project is over 95% complete and pre-commissioning activities are ongoing. Certain systems have moved into the commissioning phase, and we're currently working on repairing an auxiliary turbine designed to increase efficiency. Based on progress at the site, we continue to expect first LNG production in the spring 2026 with commissioning cargoes expected to commence thereafter. At Cimarron Wind construction continues to advance with the overall project being approximately 95% complete. And just last week, Cimarron achieved initial synchronization of approximately 1/3 of the turbines that are now online and operational. And importantly, the project remains on target to achieve COD in the first half of 2026. Finally, at Sempra Texas. Oncor's base rate review continues to make considerable progress. In September, a settlement on interim rates was approved that allows Oncor to apply the final approved rates back to January 1, 2026, if the case is not finalized by that date. And through October, Oncor has evaluated interpreter arguments, submitted rebuttal testimony and is actively engaged in settlement discussions with all parties. Next, the procedural schedule calls for a hearing on the merits to begin the week of November 17. With completion of the base rate review and an updated 2024 test year, together with the opportunity to improve capital efficiency with the UTM, Oncor will be better positioned to support customer growth across its service territory. And at the end of September, we continue to see strong growth in Oncor's core markets. Oncor's active LC and IQ has increased over 10% from the prior quarter. Further, premise count increased by 16,000 and Oncor also built, rebuilt or upgraded nearly 660 circuit miles of T&D lines during the quarter. As customer growth continues to accelerate, in the transmission expansion plans advance, Oncor anticipates a substantial increase to its 2026 to 2030 capital plan. Please turn to the next slide. Turning to the Texas 765 transmission expansion. We believe this remains a key growth driver that's underappreciated by the market. ERCOT estimates $32 billion to $35 billion to complete the full build-out. And as a reminder, we estimate Oncor's portion of these projects will surpass 50% of the total investment with Permian projects expected to come online by the end of 2030 and non-Permian projects being completed in the 2030 to 2034 time frame. As a result, Oncor is now forecasting an increase of over 30% to its projected 2026 to 2030 capital plan. And though we're still early in our fall planning process, Oncor continues to see substantial upside opportunities to its updated base plan forecast. That's why at Sempra, we're prioritizing the Texas market within our portfolio and assuming a constructive rate case outcome you should expect us to allocate a significantly greater share of investment capital to Sempra Texas in our roll forward plan. Please turn to the next slide, where I'll review the third quarter financial results. Earlier today, Sempra reported third quarter 2025 GAAP earnings of $77 million or $0.12 per share. This compares to third quarter 2024 GAAP earnings of $638 million or $1 per share. Note that third quarter 2025 GAAP earnings include a $514 million tax expense related to classifying Sempra Infrastructure Partners as held for sale, which is nonrecurring in nature. On an adjusted basis, we're pleased with our strong year-to-date execution, as third quarter 2025 earnings were $728 million or $1.11 per share. This compares favorably to our third quarter 2024 adjusted earnings of $566 million or $0.89 per share. We believe this sets us up well for the remainder of the year as well as next year where we're anticipating strong year-over-year growth from the midpoint of our 2025 guidance. We're continuing to expect several regulatory decisions in the next several months and don't want to get ahead of the CPUC. Ultimately, the resolution of these matters will be helpful in determining where our full year financial results come in. Please turn to the next slide. Variances in the third quarter 2025 adjusted earnings as compared to the same period last year can be summarized as follows: At Sempra, California, we had $76 million primarily from higher income tax benefits, partially offset by higher net interest expense. This included $32 million associated with the election to accelerate deductions for self-developed software expenses authorized under OB3 as well as return to provision impacts and timing of flow-through tax benefits in the quarter. We're also pleased that Sempra California had $47 million from higher CPUC based operating margin, net of operating expenses, partially offset by lower cost of capital. Turning to Sempra Texas. We had $45 million of higher equity earnings from higher invested capital, Oncor system resiliency plan and unified tracker mechanism, partially offset by higher operating and interest expenses. At Sempra Infrastructure, we had $26 million, primarily from higher asset optimization, partially offset by lower transportation results, lower tax benefits and others. At the parent, the $32 million decrease is primarily due to higher net interest expense, lower investment gains and others, partially offset by higher income tax benefits from OB3. Please turn to the next slide. To conclude our prepared remarks, we continue to execute on our 2025 value creation initiatives and also have delivered solid third quarter and year-to-date financial results. Further, the Sempra Infrastructure Partners transaction is a significant positive catalyst for our company and reinforces our mission of building America's leading utility growth business. To accomplish that, we're targeting strong rate base growth in Texas and California with a view towards posting improved and more durable earnings and cash flows in the future. And as we've indicated, we think there are significant incremental capital investment opportunities to do just that over both the near and long term, which is why we feel confident in announcing that Oncor's roll forward capital plan is expected to increase by at least 30% over its current $36 billion base capital plan. Looking forward, we expect to officially announce Sempra's 2026 to 2030 capital plan on our fourth quarter call in February, subject to the completion of Oncor's pending base rate review. Thank you for joining us, and I'd now like to open up the line for your questions. Operator: [Operator Instructions] And our first question will come from Nick Campanella from Barclays. Nicholas Campanella: So look, you've done a lot to derisk the balance sheet with the transaction that you announced 5 weeks ago. Obviously, you're talking about this higher CapEx outlook at Oncor. Just with the proceeds that are kind of coming in on a staggered basis, '26 and '27, just how are you kind of viewing balance sheet capacity for this increase? And is it fair to say there should be no equity through '27? Or just how are you kind of thinking about that? Jeffery Martin: Yes. Thank you, Nick. Let me take the equity question first, and then I'll pass it over to Karen to give more color on the balance sheet. But I would just start on the equity side and just say we're in great shape on this front, right? As you indicated, the proceeds from the SI transaction are expected to eliminate 100% of the common equity that was previously in the 2025 to 2029 financing plan. It also sets us up well as we look to roll the plan forward to 2030, which we expect to discuss in February. But with the proceeds that you talked about being staggered and coming into us in 2026 and 2027, I think one of the key takeaways is we're in a great position to fortify our balance sheet, which Karen will talk about momentarily. We have more work to be done this fall, but Karen and I are committed to maintaining a strong balance sheet to efficiently fund growth. And as we have in the past, Nick, we'll use all the tools we have available to grow the business in a thoughtful way. Now let me turn to the balance sheet briefly. One of the things our management team does from time to time is we spend time discussing how we create a competitive advantage in every market cycle. And in today's market cycle, one of the things that we've identified with our Board of Directors is the importance of maintaining balance sheet strength, and that was a central part of the thesis that was behind the SI transaction and why we're taking a series of steps over the next 12 months to fortress our balance sheet to support the strong growth in our utilities. That is one of the key takeaways today. We're seeing remarkable growth in our utilities, particularly in Texas, and we expect that not just to end Nick in 2030, but to extend well into the middle part of the next decade. And that's why privilege and the balance sheet is so important. And with that, Karen, perhaps she could talk about how you're thinking about next steps. Karen Sedgwick: Sure. Thanks, Nick. Yes, I think you're looking about it as correct, Nick. We've been working closely with the rating agencies. They're giving us time to complete the SI transaction. And as we update our 5-year plan, we'll look to incorporate the benefits of that transaction. So as a reminder, we expect to get EPS accretion there, deconsolidate SI's debt and improvements to our overall credit. And I'll remind you that we expect to receive improved credit profiles from each of the agencies. So this includes improving our view of our risk profile, our business risk and improved downgrade thresholds. So as I mentioned in our prepared remarks, that we plan to build a solid cushion on our balance sheet, and we'll provide more specifics when we roll out the financial plan next year. But in the interim, we feel really good about where we are and the strategy we've laid out. Jeffery Martin: Thank you, Karen. Nicholas Campanella: And then maybe just switching gears to Texas. Just I see the schedule here going through April '26. Hearings are about 1.5 weeks out. Just since we're past testimonies now, is settlement less likely? Is this something that you're kind of still actively working towards? Can you talk to that quickly? Jeffery Martin: Sure. Allen and his team are doing a great job. I think, for the overall audience, I'd refer everyone to Slide 13 for the procedural references that Nick is referring to. And Allen, perhaps it might be best if you would just briefly talk about where you're at in the proceeding and what you think the next steps are. E. Nye: Yes. Thanks, Jeff. Where we are, I think, is accurately portrayed on Slide 13, as you all both mentioned, interveners and staff both filed their testimony now. Staff testimony didn't get us all the way to where we need to be, but we thought it was very constructive. We did file our rebuttal last Friday. We continue to engage in settlement discussions with the parties. And we will continue to engage in settlement discussions with the parties. At the same time, we've got a hearing set for the first -- for November 17, the week of, and we're preparing to go to hearing that week, if necessary. We're really confident in the strength of our case. I'll remind you that we do have an order on interim rates, which becomes effective January 1, 2026. So we'll continue to talk. We'll continue to see what we can get done on the settlement front. And if we're successful, we'll obviously let everyone know. And if we have to go to hearing, we'll be ready to go. We expect an order, as you said, at the second quarter '26. Jeffery Martin: Thank you, Allen. Appreciate it, Nick. Operator: Our next question will come from Jude Jordan from Wells Fargo. Shahriar Pourreza: This is actually Shar on for Jude. Jeffery Martin: Hey, Shar. Congratulations on the new assignment. Shahriar Pourreza: Appreciate it. Appreciate the support there. Just real quick on the SIP transaction. Can -- I guess, where do we stand on the leakage there? I mean, I know, obviously, you've got accretion numbers. You're looking at sort of a tax-efficient way to do this. I think you're still assuming around 20%. So what's the status there, I guess? Jeffery Martin: Yes. I think that that's a good number. We're still looking at that. Obviously, there's some complexity there given the assets we have in Mexico, the international implications, both state and federal, but 20% is still a good number for you to guide yourself to. Shahriar Pourreza: Okay. Perfect, Jeff. And then just, I guess, the 30% increase, just curious what's included in there? How much of that is awarded 765 kV versus base system needs increasing? And how does that increase kind of stack up against that $12 billion of prior upsides you called out in 4Q? So just any visibility there would be great. Jeffery Martin: Sure. Shar, I really appreciate this question because I think it's been one where there's been a lot of ambiguity and a lot of questions we've taken as part of the call. We tried to discuss this in our prepared remarks, but let me go through and provide a couple of reminders, I think, that will be helpful to the listening audience. When Oncor rolled out through 2025 to 2029 capital plan last February, we indicated a base plan of $36 billion, and you're exactly right, there was a defined set of upsides there of about $12 billion. With the updates we've had over the last several months, both from ERCOT as well as the PUCT on the 765 kV transmission expansion and early indications within the fall planning process, Oncor is very comfortable increasing their expectations for the base capital plan to increase by about 30%. And here's the key distinction. That's primarily being driven by the state's acceleration of the Permian plan that now needs to be completed early. It has to be done now, Shar, by 2030. The other key thing to note is that Oncor also has line of sight to additional upside. You remember the upside was previously about $12 billion we're now targeting something that's substantially similar. So Shar, when you put that together, the base plan increase and expected upside, Oncor will have a $55 billion to $60 billion capital opportunity through 2030. And I might just add for context that in our 2025 to 2029 plan for Sempra, we currently sit at $56 billion. So if you just take the midpoint of that expectation, the roll forward base plan and upside is bigger than Sempra's current 5-year plan. So the key takeaway from this call is, yes, we've had great financial results, I feel great about 2025 and the pull-through in the 2026. But we've made a commitment to back Texas, right? And to do that, with our Board of Directors, we launched a capital recycling program because we wanted to load our balance sheet, so we were in a position to officially fund the growth we're seeing in the future. And I think Allen and his team have come forward with some very solid numbers, and we look forward to giving you more specifics on that in February. Operator: Our next question will come from David Arcaro from Morgan Stanley. David Arcaro: Well, I guess I was curious now on the as you look at that Oncor load growth pipeline continues to chuck a lot and grow quarter-by-quarter. I guess I was just wondering if you could characterize. Like what is the maximum amount of new load that you could connect, if we're thinking about kind of the 2030 time frame? Are you full on data center activity? I mean how much could that actually increase as you look at the pipeline in order to feather it in or weave it in to even further enhance the load growth from here? Jeffery Martin: Yes. Let me do a couple of things here, and I'll provide some color, Allen, and I'll pass it to you to kind of walk through kind of summing up the numbers. But let me just start with what we've discussed in the past, David. We've indicated that the state of Texas has a coincident peak of about 86 gigawatts, okay? That's a historical record. Today, Oncor system peaks at about 31 gigawatts. And on the last quarterly call, Oncor indicated that they had line of sight at least to approximately 39 gigawatts. So between now and the end of the decade, they are very comfortable that they're going to double their load. What's interesting about the CapEx increase that they're now forecasting, it's really less about that, it's more about the acceleration of the transmission plan. So the key takeaway is you don't need to associate Oncor's growth as it's been announced today, with what might or might not happen relative to load growth. It is principally being driven by the state's desire to accelerate supporting the oil and gas industry and getting an expanded transmission grid in place in the western part of Texas. Now that being said, the team has done a great job of tracking what those new opportunities are. And the way to think about your question as Allen goes through it is what we're going to talk about in terms of potential load growth and how much to your language can be feathered onto the system, it's really driving our growing confidence in this story continuing well into the middle part of the next decade. So with that, Allen, maybe you could kind of talk about the different buckets of where you see growth are. And really, to David's point, where this quarter-over-quarter growth is coming from? E. Nye: Yes. Thanks, Jeff. Thanks, David. Growth remains incredibly strong. I think you've heard that multiple times this morning from kind of this load growth on the transmission side, these large industrial commercial customers. I think as Karen said, we have over 600 active requests now, that's up 60% since the same time last year, third quarter over third quarter. 210 gigawatts of data now versus 186 last quarter, an increase of about 13% and 16 gigawatts of other non-data LC&I customers. What's different this time and what Jeff was alluding to is we typically go through a process with these customers where we come up with a high confidence load number. And I talked about this the last couple of quarters. But we've had, as Jeff said, around 39 gigawatts of what we call high confidence load and that's made up of, in the past, 9 gigawatts of signed FEAs or interconnection agreements and 29 gigawatts that we submit an officer letter to ERCOT if those customers meet kind of 6 criteria that we lay out for them. And -- but we don't sign those FEAs until studies are complete and ERCOT has approved the interconnection. In order to try and get more visibility into this massive queue that we're talking about, we've kind of done something different over the last few months. And that is in addition to doing just a typical FEA process, or interconnection agreement process, we've instituted what we call the interim FEA process. And the interim FEA process is not a full FEA, the studies aren't done, ERCOT has not approved the interconnection, but what these interim FEAs do is the customers collateralize them. They give us about $6.5 million when we sign these things. The customer also provides us additional information that allows us to then begin or proceed with the studies we need to do that ultimately need to be approved by ERCOT. Very, very strong uptake; very, very strong interest in this interim FEA process. To date, we've signed up about 19 gigawatts pursuant to this interim FEA process. And I can tell you that interest in signing these is very high. The number will change by the next time we talk about it. Now a couple of caveats. It's not clear how ERCOT will view these interim FEAs versus the FEAs themselves. And obviously, with the SB6 rule-makings going on, it may alter the criteria that we ultimately need to use for this process. But I can tell you that in addition to the numbers I've already told you, I think I mentioned on past calls that when I got this job, we had about $200 million of collateral that we were holding and that had moved up to about $2 billion as of last quarter related to these activities. As of now, that collateral that we hold is up around $2.7 billion. That gives you a general indication of the uptake on this new process that we're using. David Arcaro: Excellent. Yes, makes sense. And then pivoting maybe a little bit. With strong earnings this quarter and now year-to-date, curious if you could comment how that positions you in terms of achieving the 2025 guidance? And maybe as you look forward to 2026, are you seeing opportunities for expenses to be pulled forward or other initiatives to give you a head start on that 2026 earnings outlook? Jeffery Martin: Yes, David, thank you for that question. I mentioned this in my prepared remarks. I'm just so pleased with the work of our team, and we spent a lot of time trying to make sure that we've got a common set of business objectives across our 22,000 employees and that's certainly showing up in the strong financial performance we've seen thus far for the year. So for 2025, I'd mentioned, we're tracking several regulatory matters, and we're pleased to be running well ahead of our financial plan for the year. That's why earlier today, David, we were comfortable affirming our 2025 guidance. And I would also mention that we believe we can finish in the upper half of that range. Turning to 2026. We also affirmed that guidance. Obviously, it's going to be a stub year because we expect to close the SI transaction sometime between Q2 and Q3. But I would just mention, we're in the middle of our fall planning process right now and still tracking several key items. Obviously, the SI closing with KKR as well as the base rate review that Allen just updated you folks on a few minutes ago. So our goal at this point is to review both 2026 and 2027 guidance with The Street at our February call, together with rounding out our full year results for 2025. So I think the summary point here is I'm really excited about the progress we've made in 2025. We feel great about 2026, and we're excited to get back in front of folks in February and provide guidance for 2027. Operator: Our next question will come from Carly Davenport from Goldman Sachs. Carly Davenport: Maybe just on the transmission expansion in Texas that you've referenced. One of your peers came out this morning with plans to expand manufacturing for transformers and breakers. Just kind of curious what you're seeing from an equipment and supply chain standpoint and how you feel about execution on growing capital plan? Jeffery Martin: Yes. I mean I really want to give credit to Allen and his team here and Allen, I'll let you talk about it in a second. But going back to the pre-COVID days and being part of the boardroom, and seeing Allen layout kind of this 11-point plan for growing that business, the supply chain has been front and center. In fact, Carly, in September, we took the Sempra Board of Directors to Dallas. And the #1 issue we wanted to talk about was their ability to deliver on their growth plans and the strength of their supply chain. We also had the benefit, Carly, to have Governor Abbott kind of join the Sempra Board in a private 3-hour dinner, as we continue to due diligence the growth case in Texas. And one of the things we did was we took the entire Board on a field visit to their Midlothian supply center. And this is an Amazon-like supply center. Hopefully, we can start hosting some investors there in the future, but they have a hub-and-spoke model across North Texas and that Midlothian center, which is about 45 minutes from Downtown Dallas, really is a state-of-the-art 21st century digitally driven warehouse center that not only supports their supply chain across the 5-year plan, it is the center of their storm recovery system. So we came away from that incredibly impressed with the work that's gone into it. And now, Allen, maybe you can provide a little bit more detail around what you've done to feel good about delivering on your 5-year plan. E. Nye: Yes, thanks for the question, Carly. I think Jeff did a pretty good job describing it. We started about 8 years ago fortuitously redoing our supply chain, redoing our logistics, adding the Midlothian facility, expanding the number of vendors for each type of product that we need and that has paid incredible dividends for us moving forward. I've said on past earnings calls that we had with regards to the prior plan, our current plan, everything we need to accomplish that 5-year plan. Nothing about that has changed. Look, every day, you got to stay vigilant on it. Our people work very hard to stay very close to our vendors and our suppliers. You got to deal with challenges. It doesn't mean I have every piece of equipment in a laydown yard somewhere, but it means I've gotten in some way line of sight either a contract or a commitment or an agreement for everything we need. We'll stay vigilant all that. We'll keep working on it, but we're extremely confident. We made a commitment to the state to complete the Permian plant by 2030, and we have every intention of doing so, together with all the other activities we have on our system. Jeffery Martin: Allen, you did -- one of the things you guys did, which I thought was really helpful was how you went out in the marketplace, both in Asia and Europe to taking care of the 765 equipment well before it became something that crystallized for the state. Can you briefly update the audience on that? E. Nye: Yes, we did exactly what Jeff is talking about. I mean we've been very blessed in that our Board and our shareholders have given us authority in advance of actually approval of plans, of financial plans, 5-year plans and 1-year plans, to go out and make commitments in order to be in a position to actually execute and we did exactly what Jeff is talking about with regards to the 765 step plan. Carly Davenport: Great. Super helpful. And then maybe just shifting gears a bit on -- just on California, curious as sort of the Phase 2 process kicks off, how you sort of envision Sempra's involvement there and perhaps any perspective that you'd share on the potential -- what potential solutions could look like? Jeffery Martin: Sure. I would just start by saying that Sempra has been very engaged in Sacramento on trying to find ways to improve public policy to support public safety. I got to give a lot of credit, Carly, to Governor Newsom, he has been out front and kind of leading this effort. He's made it a priority. It goes well beyond just serving electric customers. It's about making sure that the state of California continues to take steps that are progressive and thoughtful to reduce risk from a public safety standpoint. We have Caroline Winn with us today. She heads up, you may recall, both San Diego Gas Electric and SoCalGas and she has been front and center on the next steps on the study bill. And perhaps Caroline, you could share your thoughts on the study bill. Caroline Winn: Yes, be happy to. Earlier this week, the utility submitted a series of abstracts. The way to think about the abstracts is their problem identification statements that really frame the issues and it will inform the white papers due next month. Maybe I'll just note 4 areas of focus. One, we believe a shared risk model through new cost-sharing approaches needs to be looked at. Number two, new insurance and funding structures. Number three, enhancing the process for paying claims quickly and fairly for wildfire victims and fourth, maintaining affordability and accountability. Now these abstracts will form the foundation of, as I mentioned, the joint white papers next month, December 12, and will help inform the comprehensive report prepared by the California Earthquake Authority next April. I think the key takeaway here is that we believe that wildfire resiliency must be a shared responsibility between utilities, insurers, government and communities, and we're constructive on the effort to identify new models that will address wildfire risk across the state for decades to come. Jeffery Martin: Thank you, Caroline. The only thing I would add, Carly, to is and I tell folks this, but California is the fourth largest economy in the world, right? This is the home of technology and innovation. And this is just really a leadership opportunity here at the state level. And I think from Sempra's perspective, we're prepared to roll our sleeves up and do our part. But we're comfortable that we'll find a way between now and the next legislative session to take the next step to continue to derisk the state. Operator: Our next question will come from Sophie Karp from KBCM. Sophie Karp: On California, I guess, as you continue to emphasize Texas more in your capital plan and you see a lot of growth there. Could there be a more decisive step to deemphasize California or maybe through some strategic options for your California utilities? Jeffery Martin: Well, look, I think -- and you're asking a great question. One of the things we've done with our Board of Directors is take a step back and say, where can we allocate capital over the next 5 years to create the most equity value, the most long-term value for our shareholders by 2030? And I think our analysis points to making sure that we load capital in areas where we have the best risk/reward. And right now, we think that's Texas. But look, these things change from time to time. One of the things we're working on in the Texas market. As you recall, they have a relatively thin equity layer compared to other jurisdictions. And California is actually a very good complement because it allows Oncor to have -- its principal shareholder have a strong balance sheet, which we think is important to support its growth. We continue to have the largest natural gas utility in the Western Hemisphere, is here in California and that tends to have a 23% or 24% FFO to debt quality. It's a very important for overall credit stack within Sempra. We're a leader in our electric business here in California. So we're going to be thoughtful about allocating capital to make sure we minimize bill impacts. We have found religion, and we're working very, very hard to take cost out of the system in California to make sure that as we grow the business, it minimizes impacts on customers. But look, we have a strong leadership position in the State of California and very few companies in the United States have the leadership position we have in Americas 2 biggest economies. So California will always be an important part of Sempra, but it's really a very nice complement from the diversity of the investments here and the credit quality matched up with what we're trying to grow in Texas. Operator: And we have time for one last question today. And our last question will come from Julien Dumoulin-Smith from Jefferies LLC. Julien Dumoulin-Smith: Saved the best for last. There we go. I appreciate it. Let me try to wrap this up. So a couple of questions here. First on Oncor, well kudos. If I heard you right, $55 billion to $60 billion, well in excess of 30%. What's your confidence on being able to earn the ROEs at that level, just given that cadence of spend is pretty historic? I get the recent legislation. And then related just coming back to where we started the call on equity needs. At what point do you start to think about equity as being part of this? Because I would suspect that we're going to talk about this in a renewed fashion, just given the magnitude that we're discussing here, if you don't mind. Jeffery Martin: Well, let's do a couple of things. I'm going to start with talking about the $55 billion to $60 billion. Just remember, that's the roll forward of the base capital plan of $36 billion, and we're going to increase that by about 30%, Julien, and you can do the back envelope that's between $10 billion and $11 billion. And we're expecting a comparable number that will remain there in the upside. The upside we talked about before is still there. It's a very similar number. And that's how I got to this potential capital deployment, which we think is a real opportunity, by the way, between $55 billion and $60 billion. We're very excited about it. And the great news was, as I indicated earlier, we planned for this, right? We led a capital recycling program to fortress our balance sheet so we can fund this thing efficiently. Turning to your second question, which was on the ROE topic. You recall that they currently have an authorized ROE of 9.7%. And Julien, they have been under-earning that for 2 principal reasons over the last several years. Number one, there was this regulatory lag. The majority of that is resolved as part of the unified tracker mechanism. You've heard us reference several times today, we're starting to see material improvement in capital efficiency. So part of that under earning is being taken away by the UTM. And then secondly, part of that under-earning is associated with having a 2021 test year. Obviously, when the base rate review is resolved, their new test year will be 2024. So the state because it has a backwards test year, you don't really expect them to earn at the 9.7% level. And certainly, they're not authorized to ever earn over that like we are in California. But I think you're going to see a material improvement when we resolve both of those matters. And that's one of the reasons Sempra has been more willing to aggressively fund this business as part of our long-term plan. And then I think if I could tackle your third implied question, which was on capital and balance sheet. Look, there's nothing wrong with issuing equity, right? If you're thoughtful about using all the tools in your toolbox, if you look at Sempra, you recall from prior presentations, we've raised $15 billion from equity sales at Sempra Infrastructure since 2021. We're not reticent to find the most cost-effective way to fund growth. And at the same time, Julien, the great secret at Sempra is since 2017, we've gone from about $14 billion of rate base to a number that's over $60 billion and we're going to drive that well over $90 billion or $100 billion by the end of the decade. We are growing a remarkable utility within Sempra. So we will use equity as we need it. But the great news is we took equity off the table in the prior plan. We're going to load the balance sheet. We're going to maintain cushion. And what we're going to expect to do is as we go forward in that plan depending upon how our capital rolls out, we would certainly issue equity if we thought it was necessary. But remember, we're going to compete that against all the other options we have inside of Sempra. And if you followed us for a long period of time, I think that's been our track record. Julien Dumoulin-Smith: That's excellent. And let me put a capper on this. I mean it's been a phenomenal year, Jeff, in terms of turnaround here. I mean, truly, the 7% to 9%, right? You put this all together. Clearly, this wasn't contemplated when you articulated that 7% to 9% earlier. How do you think about the various pieces that go into this, right? Clearly, there's a little bit of equity offset or some other permutation that will dilute the upside here. But what are the other puts and takes? Because otherwise, it seems pretty meaningful relative to what you said previously. Jeffery Martin: Yes. Well, you remember, I talked about that 7% to 9%. We didn't put it in writing at the time, but I said it orally on the February call or the Q4 call. I think one of the things we've discussed as a management team before this call, Julien, is we remain bullish on our growth prospects. And that's why we came out today and obviously reaffirmed the long-term growth rate. But I would also kind of highlight some of the points you're making in terms of puts and takes. Let's start with Oncor. I talked about seeing improved capital efficiency there, and that's having a positive impact on their returns. And obviously, we're going to increase our capital program. Go over to Sempra infrastructure. We've improved the runway, Julien, of their growth by basically taking FID on Port Arthur Phase 2. One of the things that Justin feels really great about is, he's got 5 or 6 very significant construction projects that give us great EBITDA growth through the end of the decade. And now with Port Arthur Phase 2, you've got great visibility into the early part of next decade. And then we've talked about, and Karen did a good job in her prepared remarks, talking about the KKR transaction. Obviously, we think it's going to be accretive to credit and EPS, while allowing us to deconsolidate debt at SI. And again, it goes back to balance sheet. We see our balance sheet as a strategic resource to grow this business in the future. So I think our takeaway would be: The team has done a great job, as you highlighted kindly, by the way, this year of stacking a series of positive catalysts in front of our company. And to your point, it really gives us more support for what we think is a great long-term outlook. Julien Dumoulin-Smith: Excellent. Well, maybe with that, we'll leave it. Very curious to see what you guys have to say. Take care all the best, and we'll talk to you sooner now. Jeffery Martin: Thanks a lot, Julien. Operator: Thank you. That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks. Jeffery Martin: Well, I'd like to just start by thanking everyone for joining us today. I know there were a number of competing calls this morning, so we appreciate everyone making the time to join us. I think it's a final point, many of you likely saw Oncor's recent 8-K announcing the retirement of Jim Greer. We want to make sure we take a moment and recognize his many years of service and major contributions to the growth and success of Oncor. In his role of COO, Jim Greer made a lasting mark on the State of Texas. I also think congratulations is in order for Ellen Buck, who will be succeeding Jim. Ellen is an absolutely outstanding leader, and we look forward to supporting her future success. And finally, I'd like to congratulate our friend, Don Clevenger, on a well-deserved promotion to Executive Vice President as he continues in his role of Oncor's CFO. If there are any follow-up items, please reach out to our IR team with your questions, and we look forward to seeing many of you at EEI in Florida next week. This concludes our call. Operator: Thank you for your participation. You may now disconnect.