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Operator: Good day, and welcome to the Altria Group 2025 Third Quarter and 9 Months Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir. Mac Livingston: Thanks, Angela. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's third quarter and first 9 months business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy. William Gifford: Thanks, Mac. Good morning, and thank you for joining us. Altria continued to build significant momentum in the third quarter with exciting progress across our businesses. For the third quarter, we delivered strong financial performance growing adjusted diluted earnings per share by 3.6%, and we continue to make meaningful progress across our smoke-free portfolio and toward our long-term adjacency goals. on! held steady in a highly competitive environment, and Helix announced plans to launch on! PLUS its innovative next-generation oral product. Horizon also made important regulatory filings for a joint venture and heated tobacco products. Looking at our long-term adjacent growth opportunities, we announced a collaboration with KT&G to explore opportunities in international innovative smoke-free products and U.S. non-nicotine products. And importantly, we continue to demonstrate our commitment to returning value to our shareholders. In August, we announced our 60th dividend increase in 56 years and yesterday, our Board authorized an expansion of our share repurchase program. My remarks this morning will focus on results from on! and the launch of on! PLUS, updates on our heated tobacco and e-vapor portfolio, the state of the regulatory environment and our strategic relationship with KT&G. I'll then turn it over to Sal, who will provide further details on our business results, 2025 outlook and our continued commitment to providing significant cash returns to shareholders. Let's begin with on! and the nicotine pouch category. Oral nicotine pouches continue to be the primary driver of the estimated 14.5% increase in oral tobacco industry volume over the past 6 months. In the third quarter, nicotine pouches grew to 55.7 share points an increase of 11.1 share points year-over-year. Competitor promotional activity was highly elevated during the third quarter, particularly during September driving incremental growth for nicotine pouches. We continue to monitor how this elevated promotional activity influences longer-term brand adoption. Despite this competitive landscape, Helix was steady in the third quarter, growing on reported shipment volume to over 42 million cans, representing an increase of nearly 1% versus the prior year. For the first 9 months, Helix grew on! reported shipment volume to over 133 million cans, representing an increase of approximately 15% versus the prior year. While third quarter shipment volumes for on! were influenced by trade inventory dynamics driven by promotional activity in the category we remain encouraged by the steady consumer demand reflected in our estimated retail takeaway. In fact, on! retail share of the total oral tobacco category was 8.7% for the third quarter and first 9 months, demonstrating stability for the quarter and an increase of 0.8 share points for the first 9 months. on!'s retail price increased by approximately 1.5% in the third quarter versus the prior year. In contrast to the balance of the nicotine pouch category, where average retail prices for the category declined 7% nationally and more than 70% in 1 major retail chain. A clear reflection of the intense promotional activity during the quarter. Yet, Helix's year-over-year results continue to be a meaningful contributor to the oral tobacco products segment adjusted OCI stability and adjusted OCI margin expansion in the third quarter. Helix is positioning itself for long-term sustainable success. Helix recently launched on! PLUS in Florida, North Carolina and Texas, and we are encouraged by the recent actions from the FDA that signal progress toward a more efficient and transparent authorization process for nicotine pouches, which I'll discuss later in my remarks. on! PLUS launched with 3 flavors and 3 nicotine strengths, which we believe are complementary to the current on! portfolio. We believe on! PLUS is a premium and differentiated product that we expect to appeal to both adults who dip and competitive nicotine pouch consumers. on! PLUS uniquely delivers on 3 desirable attributes for pouch consumers. Comfort, nicotine delivery and flavor satisfaction. In recent research, we compared on! PLUS MINT against several leading competitive brands. While a small sample size on! PLUS outperformed all competitive brands in the sample. on! PLUS achieved the highest purchase intent score driven by the comfort of the pouch. In addition, innovation and consumer preferences remain at the forefront of Helix strategy. Helix continues to build a pipeline of new on! PLUS flavors and looks forward to bringing them to the U.S. market. In heated tobacco, Horizon completed a key milestone on its path to bring Ploom to the U.S. In August, Horizon filed a combined PMTA and MRTPA with the FDA for Ploom and Marlboro heated tobacco sticks. We believe the science and evidence supporting Horizon's applications are compelling and present a strong case for FDA authorizations. Our teams are working diligently on Ploom's go-to-market plans and we look forward to engaging smokers with this innovative product. Moving to our e-vapor business and NJOY. We believe we have completed the product design of a modified NJOY ACE solution that addresses all 4 disputed patents. Our teams are evaluating the potential pathways to bring the modified ACE product to market. During the third quarter, both NJOY and JUUL initiated new litigation against one another. JUUL initiated litigation in federal court and before the ITC against NJOY, asserting claims of patent infringement based on sales of NJOY DAILY and on any other products NJOY may be developing that would infringe JUUL's patents. We do not expect a final determination from the ITC before early 2027 and intend to vigorously defend our positions in this litigation. In addition, NJOY initiated litigation against JUUL in Federal Court and before the ITC are certain claims of patent infringement based on the sale of certain JUUL products. As we assess our path forward with ACE and work diligently on our innovative product pipeline in e-vapor, the market remains saturated with flavored disposable e-vapor products, the majority of which we believe have evaded the regulatory process. At the end of the third quarter, we estimate the e-vapor category included approximately 21 million vapors, up nearly 2 million versus a year ago. During the same period, disposable vapors increased by an estimated 2.4 million to nearly 15 million. We believe that flavored disposable e-vapor products continue to represent over 60% of the category. This remains a significant issue, but we are encouraged by the recent enforcement actions and constructive regulatory dialogue that signal progress. For some time, we have advocated for stronger enforcement against the listed products as well as for an acceleration in FDA market authorizations for smoke-free products. During the third quarter, we observed notable enforcement efforts targeting the listed products and welcomed positive plans from the FDA regarding the pace of authorizations within the nicotine -- oral nicotine pouch category. On the enforcement front, we continue to see elevated engagement and action from federal agencies and government officials. These actions included coordinated raids executed by the federal multi-agency task force across the U.S., resulting in the seizure of hundreds of thousands of illicit vapor products from retailers and wholesalers and the potential for further legal action. Ongoing seizures of illicit products, including seizure by HHS and U.S. Customs and Border Protection of more than 4 million units of illicit vapor products with an estimated retail value over $86 million, the largest seizure of this kind and a targeted nationwide operation led by the Drug Enforcement Administration focused on illicit activity at vape shops. These federal actions alongside efforts at the state and local level are signs of progress. However, we believe sustained and coordinated enforcement is necessary to materially impact the state of the market. We remain steadfast in our commitment to supporting a well-functioning regulatory system. It is critical to unlock the full potential of tobacco harm reduction. These ongoing enforcement efforts are essential to provide adult consumers with access to regulated products that are supported by science and are aligned with public health goals. Beyond enforcement, we have been advocating for the FDA to accelerate product authorizations and establish a responsible marketplace for smoke-free products. Regulatory speed and clarity are also essential to delivering innovative options that meet adult consumer preferences and advanced harm reduction. In September, the FDA launched a pilot program to streamline PMTA reviews for oral nicotine pouches and Helix was notified by the FDA that applications for on! PLUS are included in the program. We're encouraged by this development from the FDA, and we are actively engaging with the FDA on these product applications. While the pilot only applies to certain nicotine pouches, we hope it signals broader FDA efforts to increase the speed of regulatory decisions across all smoke-free platforms. As we pursue the smoke-free opportunity within the U.S., we remain committed to our long-term adjacent growth goals. In September, we took another step forward when we announced a new collaboration with KT&G. First, we are jointly exploring opportunities to grow global demand for nicotine pouch products, including the potential expansion of the on! portfolio into select international markets. As part of our initial steps in international modern oral, we entered into an agreement with KT&G to acquire an ownership interest in Another Snus Factory, the manufacturer of the LOOP Nicotine Pouch brand. LOOP is currently available in a range of strengths with unique flavors. Our research shows that complex flavors are driving growth for modern oral in international markets and we are pleased to add our investment in ASF to complement our portfolio of on!, on! PLUS and FUMI to effectively compete across all modern oral product segments. Second, our collaboration includes the exploration of opportunities in U.S. non-nicotine, specifically in the energy and wellness space with KT&G's Korea Ginseng Corporation, leveraging their product expertise and our commercial capabilities. In addition, as part of our relationship with KT&G, we're exploring ways to improve operational efficiency in traditional tobacco with the potential benefits for both companies in our respective home regions. We believe this collaboration further supports our enterprise goals and may strengthen our capabilities relevant to international nicotine products. We're excited about our new relationship with KT&G and look forward to providing updates on our joint efforts. In summary, Altria continued to build momentum in the third quarter. Our core tobacco businesses remained resilient. We advanced our smoke-free portfolio, and we opened new pathways for long-term adjacent growth in international modern oral and U.S. non-nicotine innovation. These efforts support the commitment to our vision and enterprise goals. I'm confident in our strategy, energized by the opportunities ahead and thankful for our team's continued dedication to delivering long-term shareholder value. I'll now turn it over to Sal to provide more detail on the business environment and our results. Salvatore Mancuso: Thanks, Billy. Altria delivered strong third quarter and first 9 months financial performance. Adjusted diluted earnings per share increased 3.6% in the third quarter and by 5.9% for the first 9 months. In the smokeable products segment, adjusted operating company's income grew by 0.7% to nearly $3 billion in the third quarter and by 2.5% to $8.4 billion for the first 9 months. Adjusted OCI margins expanded to 64.4% for the third quarter and first 9 months, representing impressive margin growth of 1.3 percentage points and 2.7 percentage points, respectively. Smokeable products segment reported domestic cigarette volumes declined by 8.2% in the third quarter and 10.6% for the first 9 months. When adjusted for trade inventory movements and calendar differences, the segment's domestic cigarette volumes for the third quarter declined by an estimated 9%, slightly above the estimated 8% volume declines at the industry level. For the first 9 months, when adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes declined by an estimated 10.5% and by 8.5% at the industry level. PM USA continues to execute on its strategy of maximizing profitability over the long term. While maintaining its focus on Marlboro and the premium segment, PM USA recognizes the opportunity to compete within the discount segment, guided by data-driven strategies. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category. In the third quarter, Marlboro expanded its share of the premium segment by 0.3% to 59.6% versus the prior year and by 0.1% sequentially. At the same time, PM USA continued to strategically invest behind Basic, appealing to a price-sensitive cohort of adult smokers within the discount segment. Many adult smokers continue to face discretionary spending pressures resulting from a variety of macroeconomic headwinds, including the compounding effects of inflation. Leveraging PM USA's data analytics and robust RGM tools, Basic grew 0.9 share point sequentially and 1.4 share points year-over-year for the third quarter. The discount segment of the industry expanded by 2.4 share points year-over-year with Basic capturing over half of that growth. Importantly, our data show that most of Basic share gains came from adult smokers already within the discount segment, with limited impact on Marlboro. As a result of the combined efforts across the PM USA portfolio of brands, cigarette retail share increased sequentially for the second consecutive quarter to 45.4%, growing 0.3 share points in the third quarter. Cigars also continued to be a meaningful contributor to our smokeable products segment results. For the third quarter and the 9 months, Middleton reported shipment volume increased 2% and 1.1%, respectively, as Middleton outperformed in the large mass cigar industry. Let's turn now to the Oral Tobacco Products segment. In the third quarter, adjusted OCI declined by less than 1%. Over the same period, the segment saw improved profitability through impressive adjusted OCI margin expansion of 2.4 percentage points to 69.2%. For the first 9 months, adjusted OCI increased by 3.3%, with adjusted OCI margin expansion of 1.8 percentage points to 69%. Helix's year-over-year performance was a meaningful contributor to the stability of adjusted OCI in the third quarter and to the adjusted OCI growth for the first 9 months. Total segment reported shipment volume decreased 9.6% for the third quarter and 5.2% for the first 9 months. As growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that third quarter and first 9 months, oral tobacco products segment volumes declined by an estimated 5.5% and 3.5%, respectively. Oral Tobacco Products segment retail share was 31.1% for the third quarter and 32.9% for the first 9 months. In the highly profitable moist smokeless tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results. We recorded $157 million of adjusted equity earnings in the third quarter, up 9% and versus the prior year. As Billy mentioned, our businesses performed well in a dynamic environment during the first 9 months of the year, and we effectively maintained the strength of our core tobacco businesses while investing toward our vision. As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.37 to $5.45, representing a growth rate of 3.5% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate in the fourth quarter as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers and will continue to closely monitor their purchasing behaviors. Our strong financial performance for the first 9 months enabled us to return nearly $6 billion to our shareholders, including $5.2 billion in dividends and $712 million in share repurchases. We remain committed to providing significant cash returns to our shareholders. as demonstrated by our recent dividend increase and share repurchase announcement. In August, our Board increased our regular quarterly dividend by 3.9% to $1.06 per share, marking our 60th dividend increase in 56 years. This milestone underscores our legacy of delivering consistent shareholder value and highlights the resilience of our businesses through decades of change. And today, we announced that our Board authorized the expansion of our existing share repurchase program from $1 billion to $2 billion, which now expires on December 31 and 2026. Lastly, our balance sheet remains strong. Our debt-to-EBITDA ratio as of September 30 was 2x in line with our target of approximately 2x. With that, we'll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period. Operator: [Operator Instructions]. We will take questions from the investment community first. Our first question comes from Matt Smith with Stifel. Matthew Smith: Sal, you raised the low end of the guidance again, which is nice to see here, but the fourth quarter implies a deceleration in the earnings growth. You called out lapping the share repurchase and the MSA legal fee expiration. Are there any other key puts and takes as we think about the fourth quarter and more importantly, the path to growing smokeable OCI again? Salvatore Mancuso: Thank you, Matt. No, as you mentioned, we did talk about the share repurchase and the MSA legal funnel. I'll also say we continue to monitor consumer spending, the marketplace remains dynamic. So I would really focus on that, but we feel really good about the ability to narrow guidance by raising the bottom. We're very pleased with the first 9-month financial performance. And then smokable profitability, again, we feel really good about PM USA's performance, their ability to expand margins for Marlboro remains strong within the premium segment. So we feel really good about the smokable business and happy to be able to provide the guidance. Matthew Smith: And as a follow-up, you called out the underlying cigarette industry rate of decline moderating on a sequential basis. Billy, I know you provide the 12-month bridge that shows the macroeconomic factor. But with -- sometimes that 12-month bridge can not move as much on a quarter-to-quarter basis. So when we think about the moderation that we saw sequentially, can you talk about the drivers that you think are leading to that? William Gifford: Yes. Thanks for the question, Matt. I think when you step back and look at it, you're right, the 12-month doesn't move quite as quickly. I think what you're seeing in the marketplace -- and look, our consumer is still under pressure. Again, they don't need improvement. They just need consistency. And we've seen a bit of consistency around gas prices, inflation, things of that nature, and we'll see how that continues through the year. And I think we're starting to see some of the -- and I talked about it in my remarks, some of the stepped-up enforcement in e-vapor, it puts consumers back at play. We would love to be able to keep them in the smokeless category, but when enforcement happens, it certainly puts them at play and they consider other nicotine categories. Operator: And we'll take our next question from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: All right. I guess I have a question first on the nicotine pouch category. The competitive environment has really intensified. So could you touch on what you're seeing and whether I guess you've been happy with the performance and positioning of on! considering the moderating growth. And then could you talk about some of your initiatives that you're implementing, I guess, to maybe turn the performance around. I guess I'm kind of wondering, do you feel that you need to step up promotional spend. And then finally, could you maybe share early feedback on the rollout of on! PLUS and I guess, assuming it's positive, should we assume you'll roll out that brand nationally. William Gifford: Yes, thanks for the question, Bonnie. You're right. The competitive environment significantly stepped. I mean when we try to dimensionalize it on! was moving up, call it, 1.5% at retail from a price perspective. while the entire category was down 7% on a national basis, but as much as 70% in a major retail. So it was a significant shift in promotional spending by competitors. We had that early on with the on! in the marketplace when we launched, and we've talked about how we're bringing the revenue growth management tools over to the category. So we're extremely pleased with the performance where we were moving up in retail price and the category was moving down significantly. I know people get hung up on some of the shipment volume. I think the encouraging aspect that we see is on the retail takeaway volume. And when you look at that, that's the true demand by the consumer, and that was steady even in that highly competitive environment. Much too early on on! PLUS to really mention, we are certainly excited about the differentiation that product has and research, and we're excited to be able to bring that to market and expand it when it's appropriate. Bonnie Herzog: All right. And then I just wanted to also ask about your KT&G partnership, it was recently expanded and you touched on this, but just hoping for a little more color on the operational efficiencies you see, especially as it relates to opportunities to maybe take advantage of the double duty drawback. Also, could you give us a little more color on I guess, opportunities for alternative revenue streams as well as further expansion internationally given this partnership? William Gifford: Yes. Thanks, Bonnie. And you touched on 2 of the 3. We really see it as 3-pronged. Certainly, the modern oral initiative, being able to expand on! and on! PLUS in international markets is something that we'll be exploring. Rounding out our portfolio with the inclusion of LOOP into that, so we feel like that completes the portfolio, and we look forward to continuing discussions with them on how to think about expanding internationally into other markets. The second point is certainly the non-nicotine opportunities. And I tried to highlight a little bit where we would explore working with them. They have certainly the product expertise in the Korean red ginseng and we would look to work with them based on our commercial distribution strength in the U.S. of what are the opportunities there and certainly, we'll share more when it's appropriate. And the third was the operational efficiencies. And what we saw there was it was the ability to adapt our manufacturing center for cigarettes for items that are specific to international markets, whether that be pack size or trace and tracking and things of that nature. It certainly, to your point, allows us to take advantage of duty drawback. That's a benefit of it. But it also opens up the door for us to think about international opportunities in the future. Operator: [Operator Instructions]. We'll go next to Eric Serotta with Morgan Stanley. Eric Serotta: Billy, starting on on! PLUS, I realize it's very early days, but you did mention it as premium positioning. Could you talk a bit about the price point as you launch in the 3 states where you did a realizing only a matter of weeks or less. But how are you thinking about the relative price point of on! PLUS relative to on! and relative to competitors, which I realize are moving target at the moment. And then Sal, controllable costs and smokables were up pretty significantly year-on-year, I realize they were down in a year ago. So there was perhaps a comparison issue. But how are you thinking about controllable costs going forward? Or is there any additional color you could talk about in the quarter? And the smokeable OCI growth was relatively muted at less than 1%. Was that really the controllable cost, or are there other factors that you'd point to that constrain the OCI growth in the quarter? William Gifford: Yes. Thanks, Eric. So I'll kick this off and then Sal can follow up with the question for him. I think when you think about on! PLUS, we certainly see that as a premium-priced product because of the differentiation and the satisfaction we think it brings in the experience to the consumer. In our research, the consumers choose that as the top product in there from a total experience standpoint, and we think it can demand the premium price at retail. Certainly, in any introduction, you have introductory price promotions. We know as soon as we get it in consumers' hands, they experience that differentiation that I'm trying to highlight to you. And so we'll certainly have introductory price promotions as we look to expand when appropriate. Salvatore Mancuso: As far as controllable costs go, I guess I'd start by saying that I would not look at controllable costs quarter-by-quarter. I think -- I really believe you need to look at the cost over the long term exactly for the reasons you highlighted in the question. There are some comparison issues. Costs are not linear. There's timing within a quarter. So you touched on that in the question. I think you are right to point that out. As far as controllable costs going forward, I'm going to be careful not to kind of lean into future guidance and things like that. But I would tell you how we think about costs. Obviously, in a declining category like smokeable and cigarettes in particular, cost management is an important part of the growth algorithm along with pricing. We do manage our overall costs. Obviously, we've shared with you the Optimize and Accelerate program that, that program is not just about effective cost management and cost reductions. It's also about better performance and speed to market. And we are taking those cost savings and reinvesting that in our future. I'll also share that we spend a lot of time continuing to hone our data analytics in our revenue growth management tools, and that has been extremely helpful. And while it manifests itself as price realization in the P&L, I look at that as productivity because we are better able to use promotional investments to support our brands and PM USA and data analytics team continue to do a terrific job of using data analytics and those RGM tools extremely effectively. So we're very happy about that. And then OCI for smokeable, I really would look at that over a longer term, again, not a particular quarter smokable is up 2.5% on a year-to-date basis. Very pleased with its performance, especially when you see the strength of Marlboro within the premium segment. Operator: We'll go next to Faham Baig with UBS. Mirza Faham Baig: A couple from me as well. Firstly, if I could come back on the duty drawbacks. If we take a bigger look at the at the picture. Altria is likely to make around $3 million in federal excise tax payments this year. Should this be the amount that we think about the potential benefit from the duty drawbacks. And is this likely to be the sort of key engine that drives group EPS growth to high single digits over the next couple of years to meet the mid-single-digit EPS CAGR to 2028. So that's the first question. The second one, going back to the pilot program that the FDA is running. Does this or could this impact your decision to go ahead with the national launch on on! PLUS, i.e., you may wait for the decision on this? Or you may take a decision irrespective of the program? And the second one on that is why do you think it's possible for the FDA to accelerate this process on nicotine pouches, but it's not possible to do so in vapor, which is arguably a much larger category and reviews there began much earlier. William Gifford: Yes. So quite a few things in that question. So if I don't touch on one, please follow up. I think when you think about the duty drawback, I wouldn't jump to a conclusion at this point in time. It's really about a relationship with international players. How do we think about producing cigarettes for international, some of the other benefits that we get certainly drawback is an additional benefit to that. When you think about the pilot program, I want to be clear that we want a functioning regulatory system. So we're going to always make our decisions based on what's the long-term best interest of the company with an eye towards what is best to get a functioning regulatory system. I think your question related to pouches versus vapor, I think from comments from them, but just the interpretation of it being called a pilot program, they wanted to start where it made sense to start, and that's in nicotine pouch. It's a fairly set category, even though we've seen some players maybe enter the marketplace illicitly. It gives them a way to thinking about the category in total and then differentiated products and what's different between individual products in the marketplace, which should speed up their review of that. I think when you think about vapor, the marketplace is a mess right now. And so I think the nature of a pilot program is to learn. They will learn manufacturers, including us, will learn. It's been a very collaborative process with constant engagement through the application review process, which is very different and very encouraging from the FDA we experienced under the previous administration. So I think once you have those learnings, we would hope and encourage the FDA to expand it to other categories. Mirza Faham Baig: I guess just a quick follow-up. Could you clarify that the EPS growth is suggested to accelerate to high single digits over the next couple of years in order to meet your mid-single-digit EPS CAGR. Is that still the ambition? William Gifford: Our ambition is the goal. We haven't changed our goals from an overall CAGR that we stated previously. And that's been our stated goal. So yes, that's the way I would think about how we're going to manage the business going forward. Operator: There appears to be no further questions at this time. I would now like to turn the call back over to Mac Livingston for any closing remarks. Mac Livingston: Thanks, everybody, for joining us today, and have a great day. Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
Operator: Greetings, and welcome to the Whitestone REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. David Mordy. Please go ahead. David Mordy: Good morning and thank you for joining Whitestone REIT's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and Chief Operating Officer; and Scott Hogan, Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, October 30, 2025. The company undertakes no obligation to update this information. Whitestone's earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published third quarter 2025 slides on our website yesterday afternoon, which highlight topics to be discussed today. I will now turn the call over to Dave Holeman, our Chief Executive Officer. David Holeman: Thanks, David. Good morning, and thanks again for joining our call. We've got a number of great things to discuss this quarter, so I'll start in with some highlights for the quarter and our overall achievements. We hit 94.2% occupancy this quarter, up 30 basis points from Q2. This is near record occupancy and given that the fourth quarter is typically our strongest leasing quarter, we're set up for a very strong finish to the year. We delivered 4.8% same-store net operating income growth for the quarter, again, fueled by increases across the spectrum of shop space leases, various tenant types in both Texas and Arizona. The quality of our portfolio continues to be recognized by third parties as Green Street has now increased our TAP score by 5 points since Green Street started scoring our portfolio 2.5 years ago. In that time, the 5-point increase leads the peer group and is a testament to the strength of our acquisitions, our operations and our recycling efforts, as well as the demographic trajectory of the area surrounding our properties. We extended and improved the terms of our credit facility, locking down one of the key variables for us to achieve our long-term 5% to 7% core FFO per share growth target. Scott will provide greater detail on our debt metrics in his remarks. We're near completion on redevelopment for La Mirada in Scottsdale. We're in full swing on our work at Lion Square in Houston, and we've kicked off redevelopment at Terravita in Scottsdale. We forecasted that redevelopment will add up to 1% to Whitestone's same-store NOI growth with a $20 million to $30 million capital spend over the next couple of years, and we're on track to have this initiative deliver in 2026. And our average base rent is now $25.59, an 8.2% increase over the third quarter last year and a 26% increase versus this quarter 4 years ago, translating to a 5.9% compound annual growth rate. Specific to this quarter, we delivered $0.26 in core FFO per share. As a reminder, we typically have a lift of a couple of cents in the fourth quarter versus the third quarter as a result of new lease commencements and percent of sales clauses that trigger as we close out the year. Straight-line leasing spreads were 19.3% for the quarter, our 14th consecutive quarter above 17% on leasing spreads. So those are the recent highlights. Let me go on now to talk a little about what we have planned ahead. Our path forward is clear: deliver on consistent earnings growth, deliver on the targets we've put in front of our investors and if you have any doubts about our ability to deliver these results and don't see the value of our differentiated business model, come talk to us, dig into our great results and come see our properties. We know many investors have asked themselves, why not Whitestone? How is this small cap delivering growth that's larger than many of our peers? Don't accept a quick inaccurate answer. We'll help you understand the building blocks underpinning our 5% to 7% core FFO growth target and we'll help you understand why our cash flows are very durable. Because our success is rooted in operations, we believe investors gain a tremendous amount by seeing our operations. We'll be at REIT World in Dallas this December, we'll be showing investors properties on Monday, December 8, and we'll have one-on-ones on Tuesday. We hope you'll be able to join us at this conference. As part of our ongoing asset recycling efforts, we disposed of one property this quarter, Sugar Park Plaza in Houston. Over the last 3 years, we have increased the NOI in this property by 22% by transforming the center into a grocery-anchored center and remerchandising the shop space and the time was right to sell and deploy the proceeds where we can create greater value over the coming years. This disposition brings our total acquisitions and dispositions over the past 3 years to approximately $150 million. I anticipate we'll have a couple more acquisitions very shortly and should have 1 to 2 dispositions to finish out the year. Our markets are continuing to show significant strength as Texas and Arizona's business-friendly environments and strong demographic trends continue to support demand. Our acquisition team continues to identify neighborhoods with upwardly mobile consumers where our leasing team can have the greatest impact applying our business model. And in closing, we remain steadfast in our belief that a company with a well-aligned forward-thinking team, a well-located portfolio with a concentration of high-value shop space properly anchored to the community can outperform the herd. I look forward to connecting with investors in the months ahead, and I look forward to being able to lay out our 2026 plan on the fourth quarter call. Christine? Christine C. Mastandrea: Good morning, everyone. On the leasing front, we had a strong quarter, and we're accelerating as we close in on year-end. We signed $29.1 million in total lease value with spreads on new leases at 22.5% and renewals at 18.6% for a combined 19.3% on a straight-line leasing spreads. Same-store NOI growth was 4.8% for the quarter, allowing us to raise the lower end of the same-store NOI growth target by 50 basis points. Foot traffic across the portfolio was up 4% versus the third quarter of 2024. That's a good indicator we've got in terms of the health of the consumer specific to our footprint and our locations. What we're seeing in terms of successful tenants right now are those that are successfully expanding on their offerings. For restaurants, delivery services have gone from a nice add to a critical component of the business. In addition, we continue to see an expansion of beauty, health, wellness, fitness and see the spend on overall health and mental wellness continues to increase. Understanding these avenues for the tenant success is critical for Whitestone to stand top as we curate our centers to the neighborhood needs. On the redevelopment front, we've completed the facade renovation at La Mirada, which puts us on track to finish this by year-end. And at Lion Square, the transformation of striking is about 75% complete. With the redevelopment at Lion Square, the grocery we brought in last year at Sun Wing will expand, creating value by making this grocery-anchored center the heart of Houston's Asia town. Now we're kicking off the facade work at Terravita, which we talked about on the second earnings call, bringing in the Pickler and ACE hardware. This will further accelerate the transformation of the center, which is experiencing dynamic growth as a result of TSMC's nearby semiconductor fabrication facility. We also generally move a couple of pads into action each year. This year, we created a pad at Lakeside in Dallas and brought in Central National Bank on that pad. We also signed a tenant for a pad at Scottsdale Commons. As a reminder, we purchased Scottsdale Commons in 2024, so the creation of the new pad represents a significant value creation pretty rapidly post acquisition. We anticipate bringing a couple of pads -- additional pads online in 2026 as well. We continue to see pickleball succeed as the demand with the younger demographic accelerates. We're looking at bringing pickleball on the roof of Boulevard, which is adding value to where we had no income stream for that square footage previously and welcome this as an opportunity to add value also for the office community in the area. On the last several calls, we've talked about the intentional design of our business model to benefit from change, both in terms of change allowing us to enhance our growth trajectory and change enabling us to ensure more durable cash flows, a key component of what we do proactively tracking and understanding consumer behavior and capitalizing on that knowledge, we will see change as the result of 3 primary forces. First, change is a result of generational shifts as the younger generations step up into new roles, both as consumers and business owners. Two, migratory change as consumers move to more business-friendly areas and take advantage of opportunities there, such as our markets and what we've seen over the last number of years. And number three, technological change as both consumers and businesses become more sophisticated in utilizing technology and as spending patterns shift accordingly. Both generational change and migratory change show up in the Esri data, heavily used by our acquisitions team and our leasing team. Migratory change is a bit slower moving, but also critically component for acquisition team to get it right. The Houston metro area has added nearly 2 million people over the last 15 years, while the Phoenix Metro area has added 1 million residents during that time as well. Ensuring we benefit from that phenomenal growth is very important in terms of Whitestone's success. All 3 types of change also impact the consumer data that we -- and traffic data that we follow and Pacer AI. This is critical for leasing, but is key in our underwriting process. Our assessment of the business' ability to meet the future consumer demands weighs heavily into our decisions to move forward on any lease we sign. For all of our leasing agents, our weekly leasing meetings provide an opportunity to discuss what changes we're seeing as they interact with their neighborhoods and the tools they're using to evaluate those changes around our centers. The biggest takeaway for investors here is that our ability to translate change into a higher same-store NOI growth starts with our assets and our business model, but also relies heavily on technology, but ultimately needs to be embedded in our culture and our processes to which Whitestone delivers our results. We delivered strong finishes in both 2023 and 2024, and the team here is pushing hard to take advantage of the year-end dynamics and close leases. And with that, I turn it over to Scott to cover the financials. J. Scott Hogan: Thank you, Christine. This morning, we reiterated our 2025 $1.03 to $1.07 core FFO per share guidance, improved our same-store NOI growth range to 3.5% to 4.5% and reiterated our long-term growth rates. On our leverage metrics, we're making steady progress, and I anticipate our fourth quarter annualized debt-to-EBITDAre ratio will be in the mid to high 6s. The most significant development this quarter on the financial side was our amended and extended credit facility. We accomplished everything we wanted to accomplish here in large part because of the actions we've taken over the last 3 years. We were able to expand our bank group and improve Whitestone's valuation cap rate to 6.75% because there was wide recognition that we are consistently delivering and we have steadily increased the value of our properties through our focused strategy and strong execution. We increased the size of the facility to put Whitestone on par with our size-based peers in terms of available revolver credit capacity, and we expect to continue our debt leverage improvement initiative over the coming quarters and years. We fixed an increased percentage of our overall debt, bringing the weighted average term on all of our debt to 4.3 years and the weighted average rate on our fixed debt to 4.8%. Most importantly, locking down our debt clears the runway for us to focus on executing our plan and delivering core FFO per share growth for shareholders. I will note that included in the quarter is approximately $800,000 of debt extinguishment costs related to our refinancing. We have adjusted for this amount in our core FFO. Our revenue for the quarter was up 6% and most importantly, the quality of revenue continues to strengthen as evidenced by our improvement in uncollectible accounts and downward revision to our full year bad debt guidance. Our total headcount is down 6% from a year ago, and we continue to focus on lowering G&A cost as we scale. As a reminder, our dividend is well covered with a healthy payout ratio, and we expect to grow the dividend in sync with earnings growth. And with that, I'll conclude my comments and open the line for questions. Operator: [Operator Instructions] And our first question will come from Mitch Garman with JMP Securities. Unknown Analyst: This is Jody on for Mitch. Just a few questions here. The first one being, so the rent expirations in 2026, the average rent is higher than average there. Should we expect similar leasing spreads as in recent quarter? I think it was 17% for the next year or so? David Holeman: Thanks, Jody. This is Dave. I'll start out, and Christine may want to add some granularity. But there's always mix when you look at the -- one of the things about our tenants are we have a highly diversified tenant base with 1,500 tenants. So, in any particular year, you do have some mix, but there's nothing unique about next year's rental rates. We continue to see really strong leasing demand, and there's no sign of any weakening in our leasing spreads. So great quarter this quarter. I think our -- I can't remember the number, but we've had many quarters over 17%. I think it's been about 3 years. And so I'll let Christine add anything she wants to add. Christine C. Mastandrea: We don't see anything distinguishing next year any different than this past year. We see -- we expect that we're going to continue to see the same rate of leasing spreads, if not more, continue because there's just such a demand for retail space. Unknown Analyst: Okay. That's very helpful. Secondly, could you give any more information on the change in occupancy? I think the larger centers increase in occupancy and the smaller ones, occupancy went down. So any more details there? David Holeman: It's the same thing that we've been doing in the past couple of years where we're taking some space back. And the purpose for that on the smaller spaces is we see the opportunity for higher revenue and stronger quality tenants that we want to bring in. We have been doing that for the last couple of years, and we continue to do so going forward. So there's been a number of small spaces that we've taken back, and we expect to put to work with a higher income stream based off of our leasing efforts. And then we did fill a couple of larger spaces this year. And much of that timing has to do with just city approvals and the timing that we can bring that revenue online. J. Scott Hogan: Hey, Jody, I might also just remind everyone that we report fully commenced occupancy. So I know many of our peers report leased and commenced Whitestone's 94.2% is tenants are in the space. And so continuing to see good trends in occupancy. I think we were up 30 basis points just over the second quarter. And I think as we said in our remarks, fourth quarter tends to be a very good time period for us. And so we're excited about finishing out the year strong. Unknown Analyst: Okay. And the last one for me here is if you all have any update on the Pillarstone JV? David Holeman: I'm glad to give an update, Jody. I will encourage everyone to we'll file our 10-Q shortly, and it has a very detailed description of the activities that have gone on. What I will say is, we're nearing the end. We've talked about -- we're in the collection phase of just collecting our funds from the partnership. The court recently -- there was recently a settlement agreement filed with the court, and we expect that to be approved. And with that, there would be a distribution of proceeds. But I encourage you -- very shortly, I encourage you to read the 10-Q because it gives all of the details. But the short answer is we have reached a settlement with the court. The court has to approve that settlement. And if it is done, then the proceeds are expected to be distributed by -- in December. Unknown Analyst: I'm looking forward to that and good luck the next quarter. Operator: Our next question comes from Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to ask you on your leverage comments, mid to high 6s in 4Q. It seems like it was 7.2% as of 3Q. So, just want to get some more color on assumptions driving leverage lower in this quarter. J. Scott Hogan: I'm sorry, Gaurav, it's Scott here. I didn't catch the whole question. Are you asking about the leverage ratios? Gaurav Mehta: Yes. I think you mentioned mid to high 6s expected in 4Q from 7.2% as of 3Q. So I just want to get some more color on the assumptions driving leverage lower. J. Scott Hogan: Sure. So, I think there's 2 pieces to the puzzle. We continue to improve the balance sheet, and we're focused on that and then operations continue to improve. The fourth quarter is, as Dave mentioned before, usually one of our -- is our strongest quarter normally. We have percent sales breakpoints that are hitting the fourth quarter. And so on an annualized basis, we do expect the fourth quarter to be in the mid to high 6% range on debt-to-EBITDAre. And then we think we'll continue to improve our balance sheet as we move forward. This year, there's been a little bit of timing in our recycling efforts. The acquisitions have gotten ahead of the dispositions, but we think we'll balance those out as we move forward. Gaurav Mehta: Okay. A follow-up on acquisitions and dispositions. I think in the prepared remarks, you said you're expecting some acquisitions shortly. And then you also mentioned a few more dispositions. So just in terms of timing, is that expected this quarter? J. Scott Hogan: Yes. We expect -- I think I said in my remarks, Gaurav, that we've got -- what we expect is a couple more acquisitions and 1 to 2 dispositions to finish out the year. So that would be expected to occur in the fourth quarter. I think what you'll see is consistent with what we've done in the past, looking at properties that fit Whitestone's model, continuing to upgrade the portfolio. I think we've got a chart in our investor deck that lays out what we've done where we've bought properties that have what we believe is much more upside in better areas and sold properties that we see less growth in the future. So just continuing what we're doing with a couple of those for the balance of the year. And as we've said, we're fairly well balancing the assets, acquisitions and dispositions at this point. Operator: [Operator Instructions] We'll go next to Craig Kucera with Lucid Capital Markets. Craig Kucera: Scott, you had a fairly large pickup in real estate tax accruals this quarter. Can you talk about your expectations for the year in regard to real estate tax? J. Scott Hogan: Sure. Yes. So, it's mainly Texas. Texas has a choppy real estate valuation process that we go through. So, we really go through a 3 or 4-step process to ultimately settle on what we're going to pay. And what we typically see is around July, what's called the ARB process happens, and we usually settle in on a little higher valuation, and then we continue to protest those, and we continue to litigate those. And ultimately, I think we feel confident that those will come down. We do pass through most of those costs to our tenants, but we work very hard to keep those low because it's a burden on the tenants. And some of those can take 2 to 3 years to get through the full litigation process. So, I think it's just a normal increase that you'd see in the third quarter, particularly in Texas. Craig Kucera: Okay. That's helpful. Just circling back to your commentary, Dave, on the acquisitions and dispositions. I think earlier this year, you were talking about maybe $40 million for the year. Has that number changed at all? Or is that still sort of the expectation of having $40 million of acquisitions and maybe $40 million on the disposition side? David Holeman: Craig, yes, I don't -- I think we -- like I said, in Page 10 of our deck, we've laid out, we've done 2 acquisitions this year. And as I said, I have a couple more. So, I would say probably we're going to be a little higher than those numbers on the acquisition and disposition side. So not significantly different. If you look back so far, we've done basically $150 million over the last 2.5, 3 years. I think that run rate is consistent with where we are today. But we are seeing some nice opportunities. I'm very pleased with the acquisition of San Clemente in Austin earlier this year, which is across from our Davenport property and provides us some really nice synergies between those 2 properties. We acquired Hulen in Fort Worth market earlier this year. I think a great acquisition for us and excited about a couple more that we should announce shortly. But no huge change here, just continuing to make sure we're working the portfolio. We're taking the steps we need to do to achieve our 5% to 7% long-term FFO growth. And so probably just a little bit more than the $40 million, but kind of a consistent pattern with what we've done over the last 3 years. Craig Kucera: Got it. And kind of changing gears here in the fourth quarter, I think you've got about 4% of your ABR expiring. Is that really just because you have a concentration of month-to-month leases or anything other going on there? David Holeman: Well, I think if you're looking at the number of leases, mostly just on the lease count, most of that is in our -- what we call the CUBEXEC product, which is a very small percentage of the portfolio, but it's a shared office space concept. And so it's a high number of leases that just tend to be either month-to-month or very short terms, and that's normal. I think if we looked at just what we'd consider to be in our wheelhouse of leases, the number is closer to 50 to 75 that are expiring in the fourth quarter, something like that, probably closer to 50%. So I think it's mainly just CUBEXEC leases expiring. J. Scott Hogan: It's actually very consistent with what we've always had. I mean if you look back to last fourth quarter, I think we're a little smaller. So super pleased with the opportunity to continue to have roll. One of the things that I think is a benefit for Whitestone is in this environment, we're rolling a greater percent of our leases than some of our peers. So obviously, with the positive marks we're having, we're pleased with that. But consistent with what we've had is about 20% of our leases rolling. If you look at the 4% of revenue, that translates very closely. David Holeman: I think on a square footage and ABR basis, it's actually lower than we were in this position last year, Craig. So... Craig Kucera: Okay. That's helpful. One more, just on Slide 10 on the investor presentation, appreciate the color, first of all, that's helpful. But just looking at it optically, it looks like you're acquiring properties with higher rents at higher cap rates and selling assets with lower rents and lower cap rates. So obviously, you're getting that positive cap rate arbitrage, which you've reported over the past few years. Is that just you executing your strategy? Or is that a focus more on more small shop space where you can charge higher rents? I just would be interested in your color on how you're doing that. J. Scott Hogan: I think it's largely our strategy and as I think if you look at the fundamental aspect of what we do, it's capital allocation. So just continuing to look at our portfolio. We do believe that right now, it's the right time to continue to upgrade a number of things, upgrading the tenant base, upgrading the properties to higher income levels to potentially higher ABRs. So, it is a focused strategy to ultimately buy properties that we think have greater growth going forward. And we're doing that probably in a little better areas and upgrading the portfolio. You've seen us move the ABR, you've seen us move kind of our consolidated TAP score. And then most importantly, if you look at the chart on 10, not only are we buying these properties at good rates, but Christine and her team are doing a fabulous job of stepping in day 1, looking at the merchandising mix, looking at ways we can drive NOI. So, we're buying it at more attractive cap rates, and then we're making very quick return increases as we move forward. Operator: We'll go next to Bill Chen with [ Rhizome Partners ]. Unknown Analyst: I was wondering if you have a update on Pillarstone in terms of timing and then if the dollar figures are still in that same range of, I believe, $50 to $70 that you have previously guided? David Holeman: Hey, Bill, Dave Holeman. Thanks for your question. I think I said earlier, and I'll remind folks, we're going to file our 10-Q very shortly, and there is a very detailed explanation in the 10-Q that goes through all the activities that have happened on Pillarstone. But just briefly, during the quarter, we received $13.6 million that was a payment of part of our proceeds due from Pillarstone. We have -- there has been a settlement reached with the court, the plan agent that would result in about another $40 million coming to Whitestone. That settlement needs to be approved by the court. There will be a hearing to do so in November. And then if all of that's approved is expected the distribution of approximately $40 million would be made in mid-December. There are -- obviously, there are -- we expect that to happen, but there are a number of steps to get there. So that's the update. We're very close to receiving what we believe is kind of the end of the joint venture, $13.6 million received in the quarter. And right now, we estimate another $40 million to come in, in December. Unknown Analyst: Got you. I appreciate that. And does your leverage ratios factor into those payments that you previously just -- that you mentioned on the call earlier today? J. Scott Hogan: Right now, the guidance for the fourth quarter does not include the impact of any gains or losses or the Pillarstone proceeds. So $40 million – if the $40 million Dave mentioned would probably be right around a half turn. Unknown Analyst: Okay. I appreciate that. And one last question, if I may. On the pass site developments, is the strategy going forward to hold them or to kind of sell them for the gain and redeploy the capital? David Holeman: Great question. I think that's an individual-by-individual pass site kind of that we go through. Obviously, we do think there's value in having an aggregation of the properties that all go together. But as you can see from what we've done in the last couple of years, we selectively sold a couple of pad sites that we thought the value was very attractive. So as we do these pad sites, one of the things we look at is structuring them in a way with a lease that is attractive to a buyer. And then so keeping that opportunity open to us. But it's really -- it's an individual kind of decision we go through. We look at the pad site. We look at where it is in the center. We look at potentially the pricing in the market. So, we're looking at a number of ways to do things that add value to shareholders. Operator: Moving on to John Massocca with B. Riley Securities. John Massocca: Apology, if I missed it earlier in the call. I know it's not really how you tend to think about the portfolio. But as we think about 4Q rents and maybe even beyond that, I mean, do you have a signed not open pipeline or a pipeline of things that are on, call it, a free rent period that could be kicking in here in the next 3 to 6 months? And if so, kind of what's the broad parameters of how big that number is? David Holeman: Yes. So, hey, John, Dave. So, as I mentioned earlier, we report occupancy as commenced occupancy. So the tenants have taken possession of the space. Some of our peers report, I think, a leased occupancy and then a signed not open. One of the fundamental aspects of our business model is smaller tenants, shorter leases, much more quick and nimble. So, we just don't have a substantial amount of leases that aren't commenced because we move quickly, we get those tenants in very quickly. So, I also think when people report signed not open, they're not reporting potential tenants that move out. So there's -- that signed not open gap always sits there. But Whitestone is at a solid 94%, over 94% fourth quarter moving forward. And we sign leases and we get them commenced very quickly. I think I answered your question, maybe… J. Scott Hogan: John, just the 3.5% to 4.5% same-store guidance that we've given for the year includes any kind of free rent or anything of that nature in it as well. John Massocca: So, I guess maybe just as we think about 4Q, which is historically a big leasing quarter, I mean, is that stuff that's in negotiation today? Or is that things that have been negotiated in 3Q, 2Q that are essentially just formalities to close in the quarter? David Holeman: It's both, John. I mean, leasing, there's complicated leases can take 6 months to negotiate to put in place and some are different. I mean it's across the board. So -- but traditionally, we've always tried to take back some space at the beginning of the year and which always kind of dips our occupancy a bit. And in that, we're moving towards either leasing activity well into the second and third that delivers on the fourth. And then sometimes the fourth, for whatever reason, people wanting to start their businesses up at the beginning of the year, just seems to always been a very productive quarter for us in the beginning -- and I think, again, you kind of see the trend has been the same in the last couple of years. We just expect it to keep being that way. J. Scott Hogan: Yes. And I think obviously, we're not just saying because it's been that way. We've got great visibility into the leases. We -- Christine and her team, every week, we look at the activity, we look at leases in place. So we feel good about where we are on the leasing side. And at this point in the year, there's substantial activity, we believe, to finish out in Q4. David Holeman: Yes. I haven't seen a downtick in leasing activity this year. Surprisingly, I thought there'd be a little bit of pullback, and it really has not been. John Massocca: Okay. And then on the kind of redevelopment or center enhancement CapEx you're putting in, is all of the kind of tailwind to same-store NOI or NOI you're expecting to see from that kind of hit in 2026? Or is there projects in place that are really more of a 2027 impact? And I guess, how big could that be compared to what you're going to complete this year or early next and therefore, have it be impacting the '26 numbers? David Holeman: It's -- boy, we've been stacking this evenly across the board over the number of the years just because the timing of lease rolls when we're able to put production into place. But I think we may see some of our larger projects come online on '27, but '26 is going to be similar to this past year as far as what we're able to achieve as far as putting pads into production, et cetera. And the same thing, we have a couple of projects that we expect to see an uplift from, I think as we talked about, Lion Square, Terravita, a number of these that they take about 6 months to 9 months to put in production and then you see the results the following year. So we continue -- that is part of the value add of our business that we find to be as far as whenever we purchase an asset, we look at doing that. Garden Oaks will probably be the next one to start up. And that's just how we do business, and that's how we're able to keep increasing and improving the value of the portfolio, the quality of the revenue and deliver to the bottom line. John Massocca: Okay. And then maybe kind of on a very short-term basis, as I think about the acquisitions and dispositions that are in the pipeline for the remainder of the year, should we expect kind of cap rates to roughly be aligned with what you've done historically on kind of both ends of those transactions? David Holeman: The general answer is yes. Nothing -- no substantial changes. I mean, we're working a program. The specific cap rates may be slightly different. But generally, we're seeing cap rates consistent with what we show on Slide 10 as far as the acquisition side. Most importantly to us is, obviously, the day 1 cap rate is important, but we're equally focused on the day 300 cap rate. What can we do, how can we move the rents. So it should be no substantial change in doing similar to what we've been doing. I think I said in my remarks, what we plan to do is execute and deliver, share with investors where we think we can add value and then do that. So you should see that on the acquisition disposition side throughout the rest of the year. Operator: This now concludes our question-and-answer session. I would like to turn the floor back to Dave Holeman for closing comments. David Holeman: Thank you. Thanks to everyone for joining our call. We're very pleased with the progress we're making. I think we've laid down another solid quarter and are excited about finishing out the year with a very strong year. I would love to interact with anyone that was going to be at REIT World in Dallas in December. We're going to be having a property tour and then obviously meeting one-on-one with investors. So if you'd like to do that, reach out to us. And thanks again for joining, and have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Greetings. Welcome to the Gannett Company Q3 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Esposito, Head of Investor Relations. You may begin. Matthew Esposito: Thank you. Good morning, everyone, and thank you for joining our call today to discuss Gannett's third quarter 2025 financial results. Presenting on today's call will be Mike Reed, Chairman and Chief Executive Officer; Trisha Gosser, Chief Financial Officer; and Kristin Roberts, President of Gannett Media. If you navigate to the Gannett website, you will find that we have posted an earnings supplement in addition to our earlier press release. We will be referencing it today on the call as it provides you with additional detail on this quarter's performance and our full year 2025 business outlook. Before we begin, please let me remind you that this call is being recorded. In addition, certain statements made during this call are or may be deemed to be forward-looking statements as defined under the U.S. federal securities laws, including those with respect to future results and events and are based upon current expectations. These statements involve risks and uncertainties that may cause actual results and events to differ materially from those discussed today. We encourage you to read the cautionary statement regarding forward-looking statements in the earnings supplement as well as the risk factors described in Gannett's filings made with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to publicly update or correct any of the forward-looking statements made during this call. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In addition, we will be discussing non-GAAP financial information during the call, including same-store revenues, free cash flow, total adjusted EBITDA, adjusted EBITDA margin and adjusted net income attributable to Gannett. You can find reconciliations of our non-GAAP measures to the most comparable U.S. GAAP measures in the earnings supplement. Lastly, I would like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any Gannett securities. The webcast and audio cast are copyrighted material of Gannett and may not be duplicated, reproduced or rebroadcasted without our prior written consent. With that, I would like to turn the call over to Mike Reed, Gannett's Chairman and CEO. Michael Reed: Thank you, Matt, and good morning, everyone. I'd like to start this morning by drawing your attention to some very notable highlights from the third quarter and subsequent to the quarter end. First, we accomplished a significant milestone within the quarter with our total debt falling below $1 billion for the first time since our merger in late 2019. And we are nearing another milestone with total digital revenues growing to 47% of total company revenues in the quarter, an all-time high, and we believe that we'll close in on 50% in the fourth quarter. Our $100 million cost program is now fully implemented. And as a result, we expect to start realizing the full benefit in Q4, and that is expected to drive significant year-over-year growth in adjusted EBITDA in the quarter. We had a few large digital clients shift spend from the third quarter to the fourth quarter, and those clients have begun their campaigns in October. While that influenced Q3 results, it positions us well for a strong fourth quarter. And finally, we were pleased with Judge Castell's partial summary judgment ruling earlier this week in our lawsuit against Google. The decision represents an important step forward as it establishes liability on certain claims. We remain encouraged by the continued legal progress addressing Google's monopolistic practices and are optimistic about what this means for both Gannett and the broader publishing industry. Turning to the business. We remain confident in our strategy, our execution and the sustained progress we are making toward our long-term growth objectives. Let me call out a few more important highlights from the third quarter. Our audience grew sequentially on what was already an extremely large base, and we delivered another quarter of year-over-year growth in digital advertising revenues. In our digital-only subscription business, digital-only ARPU reached a new high, and we saw digital-only subscription revenue improve in Q3 from Q2, movement in the right direction after our strategy shift this year. And our DMS business saw improved year-over-year trends in core platform revenue and average customer count, while core platform ARPU remained near all-time highs. Subsequent to the quarter end, we had a couple of nice developments on the licensing front. First, on October 8, we had the full launch of our Perplexity deal timed with the launch of their Comet browser. And we are very excited to announce this morning our new AI licensing deal with Microsoft. This new deal is timed with Microsoft to support the upcoming launch of its publisher content marketplace, which you'll hear more about later in the call. We are hopeful to keep building on our growing portfolio of AI licensing deals with the announcement of additional partnerships. Debt reduction continues to be a top priority for us. And for the first time since our merger in 2019, total debt fell below $1 billion, which marks a significant milestone in strengthening our balance sheet and reducing leverage. With regard to financial performance in the third quarter, it's important to note that revenue was influenced by several large customers shifting their spend from Q3 into Q4, the largest of which was Perplexity. Adjusted EBITDA was impacted in the quarter by approximately $7 million versus our expectations, driven by revenue moving into Q4 and incremental expenses, primarily a pull forward of expenses associated with our cost reduction actions, including medical and benefit-related costs tied to employee exits from the organization. While these factors created some noise in the quarter, most of our key fundamentals and metrics remain strong and the drivers we were most excited about for the second half of the year continue to hold, including the momentum across our audience in terms of growth and engagement, our diversified growing digital product portfolio as well as our $100 million cost reduction program. With these items in place, we expect to drive meaningful year-over-year adjusted EBITDA growth in Q4, along with solid growth in total digital revenues and free cash flow. Based on what we are seeing already in October, we expect to deliver a strong fourth quarter. Now let's discuss a few key operational highlights from the third quarter. Our digital strategy focuses on expanding our audience, deepening engagement and maximizing monetization across the customer journey. In Q3, we continued to drive one of the largest digital audiences in the media industry with 187 million average monthly unique visitors, which grew more than 3% compared to Q2. This significant scale, combined with our unique ability to stay closely aligned with our readers' preferences, drove another quarter of at least 1 billion page views per month domestically. As a result, digital advertising revenues recorded another quarter of year-over-year growth. And moving forward, we expect to accelerate this momentum into Q4 as several new advertising deals have now moved through the pipeline. Separately, the focus in 2025 on the quality of our digital subscriber acquisition strategy is showing positive results. Digital-only ARPU achieved a new high of $8.80 in the third quarter, up approximately 8% year-over-year. Q3 also returned to sequential growth over Q2 for digital-only subscription revenue. While it will take a few more quarters to return to volume growth, these wins show that our intentional actions are working. And moving forward, we will continue focusing on acquiring high-value subscribers in our core local markets, where we offer a differentiated product, trusted brand and create meaningful value for our customers as evidenced by the growth in digital-only ARPU. With the innovative work Kristin and her teams are doing to expand our content experiences and product portfolio, we believe we have a strong value proposition for our consumers and advertisers. And with that, I will turn the call over to Kristin to share more work underway to strengthen our media business. Kristin? Kristin Roberts: Thank you, Mike. Gannett Media continues to lead with purpose by providing essential content that informs, engages and entertains audiences across the country. By listening to our audience and leveraging data to understand how they interact with our platforms, we maintained our position as one of the nation's leading news and information providers among content creators. We also continue to keep our readers deeply engaged as we delivered another quarter with more than 1 billion page views per month across our network. As we enter the final months of the year, we recognize that sustaining audience growth and engagement requires an innovative approach. Video is undeniably the most critical format for our future as Americans increasingly turn to video platforms for their news and information. Thanks to the work our unified video team has done over the past year, we are well positioned to meet audiences where they are and deliver content in the format they prefer most. One of the areas where we have seen tremendous success with video is through our sports coverage and OneTEAM Sports. In the third quarter, we launched a comprehensive suite of sports hubs for the Big Ten, SEC and NFL that brings fans closer to the action through vertical video and story carousels that create an immersive mobile native experience. These hubs also feature real-time scores, player stats and standings that give fans immediate access to the information they care about most. Early results show that time spent within these hubs is double compared to traditional browsing on our platforms, along with higher engagement levels, which in turn creates a promising opportunity to further monetize our loyal sports audience. We're taking the same approach to new categories that spark passion and loyalty, whether it's entertainment or our recently launched USA TODAY Pets, which debuted in July with new branding, a fresh design and a video-first content strategy that spans the full journey of pet ownership. As we grow this passionate audience, our teams are expanding monetization opportunities through affiliate partnerships and sponsorships, while enhancing the platform with new features such as vertical video support and additional storytelling formats that are designed to deepen engagement and give our readers more reasons to register and subscribe. On that note, our digital-only paid subscription volumes continue to reflect the deliberate actions of our refined acquisition strategy. I'm encouraged to see new highs in digital-only ARPU, which drove sequential growth in digital-only subscription revenues from Q2 to Q3. As I mentioned on the prior call, games remain a key focus for us in the back half of the year, and that progress is evident with the launch of PLAY, a unified digital hub for casual entertainment and gaming. Designed to align with the daily habits of USA TODAY readers, PLAY brings together everything from morning horoscopes and comics to afternoon puzzles in one convenient destination. What's most exciting is the promising upside we see in games as a new consumer revenue stream. Nearly 1/3 of our readers already play games online, but only a small share are currently doing so on PLAY. That means every incremental gain and engagement has an outsized impact. For instance, if we can get 1 more percent of our audience to play games at our current play ARPU rates, that equates to an additional $10 million annually in digital-only subscription and digital advertising revenue. Overall, this presents a great opportunity to expand our audience, deepen engagement and drive incremental revenue as we continue introducing new features and promoting PLAY across our network. Across every initiative, from video to new verticals to games, our teams are working with creativity, focus and urgency to meet audiences where they are and deliver experiences that truly resonate. I want to thank our teams for their continued collaboration and determination. We are building meaningful momentum, and I am confident that our collective efforts are setting the stage for a strong finish to the year. Back to you, Mike. Michael Reed: Thanks, Kristin. It's exciting to hear about all you and your teams have going on and especially exciting to see our PLAY business launch, which we believe has tremendous potential. Now shifting gears to AI. The value of real-time trusted content continues to increase, and we are excited to partner with Microsoft on the upcoming launch of their publisher content marketplace. We are proud to be one of the select few U.S. publishers participating in their pilot program with Microsoft Copilot. And this exciting new initiative represents one of the first large-scale efforts to fairly compensate publishers for AI usage of their content to ground AI-powered features and results with trusted output. With regard to our AI content monetization strategy, in addition to creating valuable trusted content at scale and licensing at fair value is our new approach to deploying technology to block AI bots that try to scrape our content. Today, we are blocking over 99% of AI verified bots other than Google that try to scrape our content without licensing agreements in place. In September alone, we blocked 75 million AI bots across our local and USA TODAY platforms, the vast majority of which were seeking to scrape our local content and about 70 million of those came from OpenAI. This is a clear signal of just how valuable our content is to these AI engines, especially our local content, which we are uniquely positioned to deliver at scale. We will continue to partner with and provide access to companies that are interested in licensing our content responsibly and fairly. However, current structures limit publishers' ability to control how some major platforms such as Google use unlicensed content, an issue we continue to advocate for as part of building a fair and transparent AI ecosystem. Additionally, in Q3, we announced that DeeperDive, our industry-first Gen AI answer engine is now fully implemented on USA TODAY. Following a successful beta in Q2, DeeperDive brings the power of Gen AI conversations directly on USA TODAY's platform for all users, tapping into years of proprietary real-time, high-quality content created by journalists and editors at USA TODAY and across the USA TODAY Network. Since launching in mid-September, readers have asked more than 3 million questions with average daily activity well over 50,000 interactions. These early results show strong traction and highlight the meaningful opportunities to drive higher readership, deeper engagement and in turn, enhanced monetization on our platform. Now turning to our DMS segment. We continue to see encouraging stabilization across our key metrics with year-over-year trend improvement on our core platform, which includes revenue and average customer count, while ARPU remained near all-time highs. These gains reflect the positive impact of our strategic initiatives such as AI smart bidding and enhancements to our AI-powered software solution, Dash. For those who have been following our progress, I would like to provide a quick update on where these key initiatives currently stand. Starting with AI smart bidding. Search remains a key lead gen tool for our SMBs, and we've created greater efficiencies through the use of AI smart bidding. The adoption continues to ramp. And by year-end, we expect close to half of our U.S. budgets to be leveraging it. We are seeing encouraging results so far as it delivers a better cost per lead versus traditional integration strategies. Turning to Dash. We continue to see strong momentum with our voice and SMS agents managing a growing volume of customer interactions. Our voice agents are managing 15% of calls for enabled customers. As a result, we are driving greater efficiency and simplifying daily operations for the SMBs we serve. In parallel, for customers whose needs fall outside our core platform's ideal profile, particularly larger bespoke or media-heavy programs, we are increasingly serving them through capabilities in our Media segment. This approach puts each customer on the best fit solution, protects platform unit economics and enables us to grow DMS at the company level while concentrating incremental investment where ROI is highest on our own platform. Together, these efforts are building a stronger, stickier and more resilient DMS business, and we see a clear path to sustained growth. I'd now like to turn the call over to Trisha to provide additional details and color around our 2025 third quarter financials. Trisha? Trisha Gosser: Thank you, Mike, and good morning, everyone. Please keep in mind, all comparisons are on a year-over-year basis unless otherwise noted. In the third quarter, total revenues were $560.8 million, a decrease of 8.4% or 6.8% on a same-store basis. Despite the static revenue trends in Q3, we expect notable improvement in the fourth quarter, which is driven by a more significant impact from AI licensing revenue and larger digital advertising campaigns, along with targeted subscription pricing adjustments and platform enhancements. In Q3, operating costs and SG&A expenses decreased approximately 8%, reflecting our ongoing focus on disciplined cost management. That being said, Q3 expenses reflect incremental costs associated with our cost reduction program, which removed $100 million in annualized costs from our base. We believe the reduction of expenses, primarily associated with our headcount reductions, also accelerated some costs into the third quarter in areas such as medical and other benefit-related programs, which traditionally we would have expected to incur in the fourth quarter. Total adjusted EBITDA was $57.2 million in the third quarter, representing a 10.2% margin. These results were impacted by the timing of large drivers of revenue and adjusted EBITDA that shifted into the fourth quarter as well as the expense impacts I just mentioned. Many of our most profitable revenue drivers will contribute more meaningfully in Q4 rather than Q3, and our cost reduction program is fully in place as we enter the fourth quarter. As a result, we expect robust year-over-year growth in adjusted EBITDA in the fourth quarter as well as our third consecutive year of full year adjusted EBITDA growth. Total digital revenues in the third quarter were $262.7 million, a decrease of 5.3% or 4.1% on a same-store basis and represented 47% of total company revenue. Within digital, advertising revenues increased 2.9%, driven by a continued improvement in client retention and our large audience base. We anticipate even stronger results in the fourth quarter, fueled by strong advertiser response to our sports, pets and other high engagement verticals. In Q3, digital-only subscription revenues totaled $43.7 million, representing sequential growth of 2.4%. As a reminder, we faced our toughest year-over-year comparisons in Q3 as we cycled the prior year's benefit from system conversions and grace relief. Digital-only paid subscriptions also continue to reflect the intentional actions to optimize our acquisition costs by prioritizing long-term monetization versus shorter-term volumes. We believe these deliberate actions are paying off, evidenced by digital-only ARPU achieving a record high of $8.80 and growing approximately 8%. We expect digital-only ARPU to increase in the upcoming quarters as we maintain our focus on attracting and retaining more profitable subscribers. Looking at the Domestic Gannett Media segment. In Q3, segment adjusted EBITDA was $35.4 million, representing a margin of 8.5%. Revenue trends in Q3 on a reported basis continue to reflect the sale of the Austin American-Statesman in Q1 and businesses divested in late 2024. Turning to Newsquest. In Q3, segment adjusted EBITDA totaled $14.6 million, up 4.6%, while segment adjusted EBITDA margins increased 50 basis points to 23.9%. Revenue trends also posted their second consecutive quarter of growth, increasing 2.5% year-over-year. In our Digital Marketing Solutions segment, Core Platform revenue in the third quarter was $114 million. Segment adjusted EBITDA was $9.8 million. We ended the quarter with approximately 13,400 core platform customers and core platform ARPU remained near record highs at approximately $2,800, which reflects growth of 2%. We see encouraging signs of stabilization. And in Q4, we expect year-over-year improvement in both core platform revenue and segment adjusted EBITDA. and to better serve our customers in certain categories, particularly large multi-location businesses, we have transitioned some of these clients to be serviced through our Media segment, where they can leverage additional tools and capabilities. Now let's shift to the balance sheet. At the end of the third quarter, our cash balance was $75.2 million and outstanding net debt was approximately $921 million. Debt reduction remains a top priority, and we continue to make meaningful progress during the period. In Q3, we repaid $18.5 million of debt and generated $4.9 million of free cash flow. For the 9 months, we have repaid $116.4 million in debt, which brings our total debt to below $1 billion, and we expect to repay over $135 million in debt during 2025. As we look at the full year, several large revenue drivers that were originally expected to contribute to the third quarter are now expected to start in the fourth quarter. As a result, we now anticipate digital revenue to be down in the low single digits for the full year on a same-store basis, with growth in the low single digits in the fourth quarter. We believe the expected strength of the fourth quarter, combined with continued expense discipline, positions us to achieve full year growth in adjusted EBITDA and 30% growth in free cash flow. We know there is more work ahead to strengthen our financial results, but the third quarter also underscores the progress we're making to build a more durable and diversified business. With the scale of our audience, the strength of our brands and the ability to leverage our content across multiple revenue streams, we believe Gannett is well positioned to create lasting value. Combined with an ever-improving balance sheet and a disciplined focus on the execution of our strategy, we believe we are laying the foundation for long-term value creation. I will now hand it back to the operator for questions, and then we will go back to Mike for some closing thoughts. Operator: [Operator Instructions] Your first question for today is from Giuliano Bologna with Compass Point. Giuliano Anderes-Bologna: Congrats on the continued execution, especially on the securing another important AI licensing deal. As a first question, you referenced some of the developments this week in the Google antitrust lawsuit that you have outstanding. Can you share what the development was and how you think it impacts the case and how the case should move forward as a result of that development? Michael Reed: Hey, Giuliano, good morning. Thanks. Yes, let me start by explaining that or actually emphasizing that this is a very positive development for Gannett as it relates to our case against Google. And so a little more detail on what happened on Tuesday this week, Judge Castell the federal judge in New York issued a summary judgment ruling in our case against Google. And effectively, the court agreed with the Department of Justice's earlier findings earlier this year that Google illegally monopolized the digital advertising market and ruled that Google can't relitigate those issues in our case. So Judge Castell said Google basically -- said Google can't relitigate the issues in our case. That was a big win for us. But trying to simplify it, what it means for us. It means the court has already established liability on key aspects of our claims. And the case really now focuses on damages and remedies for these claims. And this is another important point, Giuliano. We believe this ruling has the potential to move the case forward more quickly now, allowing us really to concentrate on demonstrating the harm caused and the remedies we're seeking, which obviously include compensation for the damages done to us. So it was a significant win for Gannett that establishes liability, and we think moves the case along quicker and also will lead to a more fair and open digital marketplace eventually. So this was a really positive milestone for us, and we're excited about the developments this week, but also staying really focused on the next steps of the process in this case. Giuliano Anderes-Bologna: That's very helpful. Maybe shifting gears a little bit. You noted some of the large revenue drivers shifting, yes, from 3Q into 4Q. Can you unpack what's driving that timing and whether it reflects broader trends you're seeing in advertiser demand or digital monetization or onetime shift. Michael Reed: Yes, sure thing. I think the first point I really want to emphasize here is we do think based on October's activity that it is simply a timing shift. And I'll start with Perplexity, and that was really not -- that was just due to a product launch timing shift. We signed the deal with them, as you know, towards the beginning of the third quarter, and their common browser was scheduled to launch in September, and that got pushed to early October. And so the revenue that we had planned on for September from that licensing deal didn't begin until October. So truly a timing shift tied to a product launch. The good news is it launched in early October, and we are enjoying that partnership now with Perplexity, and it will help the fourth quarter now. We also saw a number of digital advertising deals that were in the pipeline shift from Q3 spend to Q4 spend. And again, the good news here is that we're successfully seeing those deals up and running in October and running their messaging and contributing to revenue in October. So we do believe that there's not more to it than a timing shift, both for the advertising customers that shifted as well as Perplexity. So we feel good about -- feel disappointed that it impacted the third quarter, but really excited about the positive impact it's going to have for us on the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate it. I guess can you give some more color on the incremental expenses that you incurred during the third quarter? And do you think any of these will continue to have an impact going forward? Trisha Gosser: Hey, good morning, Giuliano, this is Tricia. Yes, the biggest component of the incremental expenses that we saw compared to what our expectations were for the quarter were associated with the headcount reductions that we completed in the quarter. So that was tied to that $100 million cost takeout that we did. So we saw things like medical and other employee benefits programs spike up in the quarter. And we really think that, that was tied to people exiting the organization. And to your question about whether we think that continues, I don't think so. I actually think it has the ability to have a favorable impact on Q4. Generally, we see a spike in claims towards the end of the year, and we really think that, that was pulled forward into the third quarter as people exited the organization. The other thing I would highlight that's really important is that cost program is now fully implemented. So we're going to see the full benefit of that impact in the fourth quarter, and that really should set us up to have a strong year-over-year EBITDA growth in the fourth quarter. Giuliano Anderes-Bologna: That is very helpful. I appreciate that. And then next question, given that the digital revenue mix is now approaching 50% of revenue, how do you see that evolving into '26? And what gives you confidence in the durability of those revenue streams? Trisha Gosser: Yes. As you know, in Q3, we were about 47% of total revenues coming from our digital businesses. We expect that to be closer to 50% in the fourth quarter and then expect that to surpass 50% in 2026. And I think it's important to note that the makeup of our digital revenue is much more diverse today than it has ever been. You heard Mike talk about Perplexity launched earlier this month. We announced a Microsoft AI licensing deal just this morning. We've signed agreements with AI licensing partners throughout the year. We think there are more AI deals to be coming in the coming quarters and months. You heard Kristin reference the launch of PLAY, and we think that could be a good contributor from both the digital advertising and a subscription standpoint. And so we continue to develop these new revenue streams that can be created from the content and the core competencies we already have, creating high-quality content at scale and attracting this massive audience. And so we have all these new revenue streams taking hold, and we're also seeing some progress in our foundational revenue streams. The DMS initiatives that Mike mentioned, the fact that our digital-only subscription ARPU continues to grow and to reach new highs as our strategy takes hold. Our digital advertising deals have been strong as we enter the fourth quarter, and that ladders on top of what's already been a growing business. So we've got this really diverse digital revenue profile. We've got this really strong audience and the direction of each of these components is headed in the right direction, and that gives us a lot of optimism on the fourth quarter, but getting to that 50% plus composition in 2026. Giuliano Anderes-Bologna: That's very helpful. And then maybe the last one, touching on the AI side. You referenced the new AI partnership, including Microsoft. Can you elaborate on how those partnerships translate to monetization? And what do you see as next steps? Trisha Gosser: Sure. Kristin Roberts: Trisha, I'll take this one. This is Kristin. And first of all, thank you, Giuliano. I'm always very, very happy to talk about the value of these partnerships. I think that what is foundational to a healthy future for AI on the web is content that is high quality, of course, also trustworthy and factual. And so the way we're thinking about this is that as AI agents become sort of central to how people are discovering and consuming content, we -- alongside companies such as Microsoft, we believe that publishers play a critical role in determining the value of their content in these experiences. So now Microsoft is focused on building a scalable and equitable solution, one that is going to ensure that publishers are fairly compensated for the value that they're delivering through their content offerings, their premium content offerings. And so to this end, they are piloting this publisher content marketplace. They're doing this with a number of select U.S. publishing partners, and the aim here is to learn and to shape the tools and the policies and the pricing models really that are going to define this era. I'm certainly happy -- I think we're all very happy to be participating in creating that marketplace, creating it with Microsoft and with Perplexity and other partners. Each of our licensing deals, Giuliano, is structured a bit differently. Some of them include direct licensing fees, others include revenues sharing components. What I would say is that they all expand the ways that we can monetize the content we already produce and do it at fair value. So we see significant long-term opportunity in the space. The AI content marketplace certainly is still developing. I think the ultimate models for monetization are not quite fully defined yet. So our approach is to participate early, help shape the framework and then ensure that our agreements do not trade off the long-term upside of this evolving ecosystem. So I'd just say that overall, we view these partnerships as early building blocks for a more sustainable, more balanced digital ecosystem and one where publishers are rewarded for the value they are creating. I hope that helps. Operator: Your next question for today is from Matt Condon with Citizens. Matthew Condon: My first one is, just can you elaborate on what you're seeing as far as traffic coming from these AI platforms? Are you seeing meaningful click-through rates and meaningful traffic coming to your sites from these platforms, then thinking specifically about Perplexity just as that deal is launched in the early days here? Michael Reed: Yes, Matt, thanks, and thanks for the question. No, there's not meaningful traffic coming from AI search companies. And that's really why the value from a monetization standpoint for publishers like Gannett has to be from the licensing of our content. The whole model of answers on AI search platforms is they get the full answer on that platform. So the Google model of the blue links click back to the publisher's site is not the same model inside of the AI platform. So that's why we've been so focused on these monetization deals, these licensing deals because we don't see the traffic coming back. The other point I would make, Matt, is that we are actually blocking 99% of all the AI bots trying to scrape our content, other than for those platforms that we have to deal with or, as I mentioned early on the call, with Google for which we can't block because we still need that search traffic from the blue links, even though they don't distinguish and let us authorize content for the blue links only and not for AI, which is the problem I mentioned in the ecosystem that I mentioned earlier in the call. So the short answer is no, there's not a lot of traffic coming from the AI search platforms. That's why the licensing deals are so important. However, what's also important is that we're blocking the scrapers. And so in order to get traffic on their sites based on our content, they need to pay us for that content. And we continue, as you hear from Kristin on these quarterly calls, we're continuing to develop ways to go direct to the consumer and bring the consumers directly to our platform and also using other social media ways to bring consumers to our platform. And I think the final point I would make is despite not getting traffic necessarily from the AI search platforms, we're not having an issue with overall traffic. You heard this morning we had 187 million uniques on average on our platform in the third quarter, and that was up from 181 million uniques in the second quarter. So we're doing a great job creating the right content and doing the right -- doing a great job in driving consumers to our platform. Matthew Condon: Great. And maybe just a follow-up on that. It's just obviously, one of the major companies that you're blocking is OpenAI. And can you just talk about just their willingness to come to the table, maybe other AI platforms that you don't have partnerships today, their willingness to come to the platform and negotiate deals where you do feel like you'll get fair value for your content. Just how is that pipeline developing here today? Michael Reed: Yes. OpenAI, as you heard, was -- is the biggest offender in terms of trying to scrape. I mentioned we had 75 million AI bots we blocked and about 70 million of them were OpenAI. Another interesting data point there is that we're rounding down, it was a little more than 70 million. 69.9 million of the AI bots from OpenAI that we blocked were seeking our local content, really interesting. They really want our local content. We blocked them 69.9 million times in September. OpenAI is not willing to cut a fair deal at this point. We continue to talk to them, and we'll continue to block them. And we do know that there's value in our content. Otherwise you wouldn't have seen over 70 million attempted scrapes in the month of September alone. So short answer, Matt, no, we haven't gotten to a good place with them yet. We're really hopeful to. Our goal is to be -- and you heard it in Kristin's discussion and answer to the question Giuliano asked is we want to be proactive in creating the right solutions here with our AI partners. And so that remains the path we'd like to take, and we'd love to take that path with somebody like OpenAI. Matthew Condon: That's interesting. And then maybe just shifting gears here to the DMS side of the business. Can you just elaborate on what you were talking about, about pushing certain clients to the Media segment? Talk about the benefits there are both for those clients and for Gannett, just, yes, how, just how that strategy will develop over the long term. Trisha Gosser: Yes. Matt, this is Trisha. Good morning. I think there's 2 things here. First is how do we invest with the highest ROI in our platform? Who is the right ideal customer for our DMS platform? And how do we focus our investments to make sure that we are delivering the best experience and the lowest cost per lead for those customers on our platform. And we think we've identified what that ideal customer profile looks like. For those who sit outside of that, so you heard us talk about really large customers that are multi-location. There are tools on the market today that allow us to do that more quickly, get those campaigns up and running with more speed and to manage many, many different locations at scale, still leveraging some of the knowledge we have within the company and within the platform. But rather than develop that on our own platform, we're starting to leverage some tools in the media space that allow us to serve not just the ideal customer on our DMS platform, but a broader category of DMS advertisers. We also see that there's a percentage of DMS customers who want a predominant media buy. So a lot of our customers buy across our platform. But when somebody wants a predominant media buy with DMS, we can use some of these tools to service that buy more effectively. So it's really about how do we get the most value out of our platform and how do we deliver the best experience for our customers. Matthew Condon: Great. That's very helpful. And then maybe just one last one for me. Just great to see debt below $1 billion for the first time since the merger. Can you just talk about where we sit today as far as just real estate and asset sales and further debt paydowns? Trisha Gosser: Yes. So we're at $116 million of debt paydown through the year. We feel very comfortable that we'll get to $135 million or above for the full year. We still have a few small to midsized real estate deals in our pipeline that we expect to get through Q4, maybe Q1. We know we've talked about this before. We will always have some things in our portfolio that we're able to monetize. But I think once we get through this next chunk, we've largely monetized our real estate portfolio. But we also see that we're generating a good amount of free cash flow. We have several drivers for improved free cash flow next year. This year, we'll be up 30%. Next year with a lower debt balance and lower interest rates as well as the improving trends in our revenue and our EBITDA, we'll have a significant amount of free cash flow to address our debt. So there's always something in our portfolio. But I think from the real estate perspective, we've got one more small chunk, and then we've largely monetized that. Operator: Your next question is from [ William Kavaler with Odeon Capital ]. Unknown Analyst: Going back to licensing, this is obviously becoming a critical or is expected to become a critical revenue stream. Do you guys have any intention of breaking out that licensing revenue so that we can kind of look at that, say, like a library cash flow kind of revenue stream? Michael Reed: Yes. Great question. I think 2 thoughts there. One, and Kristin mentioned this earlier too, is the business model for our AI partners is still developing. And I think the long-term play for us on how we monetize the AI partnerships with the most upside is still developing. And so I think we want to see how those 2 things develop, and it does have to become a bit more of a meaningful piece of our overall revenue streams. But the short answer to your question is, yes, I could see us breaking licensing fees out at the right time as it becomes a more significant part of our overall digital revenue stream and as we have more confidence in what the sustainable revenue model is for us. Operator: We have reached the end of the question-and-answer session, and I will now turn the call back over to Mike for closing remarks. Michael Reed: Yes. Thank you, and thanks for being with us today. And as we part, let me leave you with a few thoughts to wrap up this morning. As you heard from us this morning, we're very optimistic about a strong fourth quarter, and we're nearing a month into that quarter, and we're encouraged by what we're seeing in October. To summarize, we had some clients shift digital spend from Q3 into Q4, and we'll realize the full benefit of our $100 million cost reduction program in the quarter. And that's all on top of what is typically a strong quarter for us from a seasonality standpoint. So high expectations for the fourth quarter. We're thrilled to have our Perplexity licensing deal up and running now in October and also really excited to be able to announce our next licensing deal with Microsoft this morning. And as I mentioned on the call, we do expect to announce a couple more AI partnerships over the next couple of months or a couple of quarters. We're encouraged by the pipeline there. And also, this came up just a minute ago, but we're really excited about how we continue to strengthen the balance sheet and continue to reduce debt. we're particularly excited to see our total gross debt drop below $1 billion. And with interest rates declining and lower debt balances, Trisha just mentioned, we expect that to lower our interest costs quite a bit in 2026, and that will be a big contributor to our free cash flow growth next year, which that free cash flow growth will allow us to continue to pay down debt above and beyond what our normal amortization is. And then final thought is just we're pleased, as you might expect, to see Judge Castell's ruling on Tuesday in favor of our partial summary judgment filing in our case against Google. This establishes liability for Google and moves our case an upcoming trial to a damages case for our key claims. And we're hoping a trial date gets set very soon. Although we think -- altogether, we think this sets us up for a strong fourth quarter and a strong future, and we look forward to updating you on the fourth quarter results early next year. Thanks for joining us today. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the Q3 2025 UFP Industries Inc. Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Stanley Elliott: Good morning, everyone, and thank you for joining us to discuss our third quarter results. With me on the call are Will Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Will and Mike will offer prepared remarks, and then we will open the call for questions. This conference call is available to all interested investors and news media through the Investor Relations section of our company's website, ufpi.com where we will also post a replay of this call. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These statements also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Will. William Schwartz: Welcome, everyone, and thank you for joining today's call to discuss our financial results for the third quarter of fiscal year 2025 and share our thoughts on what we are seeing in the marketplace and provide some preliminary thoughts on how we see the business heading into 2026. Net sales remained steady at $1.56 billion on a 4% decline in units and 1% decline in price. We saw encouraging traction in new product sales, which totaled 7.2% of total sales. Our profitability remains pressured when compared to a year ago but on a trailing 12-month basis, we continue to flatten out. Much of the market dynamics that we've seen early in the year have continued. We're seeing cyclically soft demand ongoing trade uncertainty and competitive pricing pressures, creating a difficult operating environment. Despite the ongoing market headwinds, we continue to see a number of our business units finding a level of unit and profit stabilization. While it might be early to identify what we are seeing as green shoots, it does leave us cautiously optimistic heading into 2026. I couldn't be more proud of the team and how they've managed through a difficult 2025. I think it's important for investors to understand, we are not sitting idly by and managing through what the cycle dictates to us. We have and will continue to take the necessary steps to emerge from this market a much stronger, leaner and profitable company. Across all of our businesses, we target above-market growth but with an overarching focus on returns. How we get there will vary by business, and it speaks to the balanced nature of our portfolio. We continue to introduce value-added products across our portfolio that will improve mix and drive higher margins. And we continue to address underperforming operations, primarily through active restructuring efforts, but in some cases, divestitures. We continue to make the necessary investments to upgrade our capital base and capabilities as we've discussed with our $1 billion CapEx program. Within this framework, we have earmarked $200 million towards automation to improve throughput and lower our cost structure. We are making select greenfield investments for certain products to expand geographically or expand capacity. In addition to what we are doing organically to drive outcomes, we remain very active on the M&A front and continue to explore transactions of various sizes. M&A has always been a key part of the UFP growth story and will be an important part of the story and a great complement to the other actions we're taking to win in the marketplace. We have completed three bolt-on acquisitions this year, all smaller in nature, but all are great fit from both a cultural and product perspective. The first, a wood packaging manufacturer located in Mexico and allows us to strengthen our business with certain multinational customers. Two, a supplier to the manufactured Housing, RV and Cargo markets whose location is complementary to our existing footprint and allows us to execute strategies to reduce our operating costs while providing additional capacity for growth. And lastly, a distributor to the RV market that complements our existing locations and product lines. We have taken steps to become more intentional, more strategic and focused in our deal evaluation. Our process around M&A targeting continues to mature. Centered around this is how an asset aligns with our core business while delivering on growth, margins and return targets. While the pace has improved, we will remain patient and disciplined. And to that point, we have been able to pivot to share repurchases this year given the market conditions and market volatility and have bought back roughly $350 million or 6% of our market cap through October. As we look ahead, the opportunities for our business are positive across the board, and we are using this period of softer demand to strengthen the core of our business. We believe we have the right team in place to weather the current climate and capitalize aggressively on opportunities when the market recovers to deliver on our long-term targets. Now turning to the individual segments. In our Retail segment, let's start with ProWood, which has performed well even in a tougher market. We continue to work on our cost positions and improving our manufacturing process. ProWood recently introduced TrueFrame, a proprietary kiln-dried factory plain joist product. The value we add on the front end helps the structure resist warping and twisting, which reduces build time and improves product quality and aesthetics. Along those lines, Surestone is another area of focus. We continue to see strong demand for our Surestone products and efforts to raise brand awareness are beginning to yield results. Consumers and contractors understand we collectively have something that they can't get anywhere else. While we're waiting for these investments to fully scale, we're confident in its potential once capacity is in place. That includes expansion efforts in Selma and our new plant in Buffalo, New York. Both expansion efforts are progressing well and will be fully operational and realized in first quarter 2026. These expansion plans are consistent with our plans to double market share over the next 5 years. Throughput improved every month of the quarter and into October. We remain on track to be fully stocked for the 2026 selling season as a part of our big box program as well as positioned to service our expanding relationships with 2-step distributors. ProWood also continues to serve as an important distribution partner for our Surestone products, and we see distribution as a competitive advantage for our ProWood business. I strongly believe our ability to self-distribute product, both pressure-treated lumber and composite decking products at the same location are true differentiators versus our market peers. The leveraging of these two strong brands allows us to provide a very high level of service in order fulfillment. To support the launch of this product, we have invested $30 million to support the brand, and we are pleased with the initial success. All of the metrics we are tracking to determine a successful return on our investment, including unaided brand awareness, product sample questions and website traffic, to name a few, have exceeded our expectations. We will continue to build on this platform to increase exposure, and we like our position looking ahead to 2026. Moving on to our Packaging segment. It was the first to fill the impacts of a down cycle. And based on performance for the past several quarters, we feel it is among the first to begin to stabilize from a sales and margin perspective. We like the long-term trends in these businesses and the complementary nature of packaging to other parts of our portfolio. We're well positioned to aggressively grow market share across the business given our engineering and design capabilities and structural packaging, geographic expansion on our Protective Packaging business and leveraging our low-cost position in our Pallet business. Like other parts of our portfolio, we continue to invest and drive cost out of the business. While developing new solutions to help customers reduce labor while improving safety in their packaging operations. We are working through patent process approval for our U-Loc 200 product and received an award for one of our structural packaging solutions this October. Now wrapping up with Construction. Markets remain pretty consistent to our last quarter, while we reported a very competitive Site Built business. Builders look to manage home inventories while consumer confidence and affordability remain challenged. And while we don't have a national footprint, we do overlap with some of the markets that have been more pressured. We continue to position this business for longer-term success with investments in automation to improve our cost position and throughput. Our Factory Built business continues to outperform our end markets as we develop new products that add content and expand our addressable market. We continue to believe our Factory Built business addresses the affordability issues impacting the residential marketplace, and we believe our Site Built offerings address these challenges as well. In both cases, we are working to bring solutions to the market that can help improve build times and reduce labor content at the job site. We also bring solutions to the nonresidential and public construction markets with our Concrete Forming business where we provide solutions that reduce job site labor. We have had great success in this fragmented marketplace and appreciate that our products are fungible across all types of concrete construction work. Looking ahead, we remain focused on driving innovation across the portfolio and making strategic investments to create shareholder value. We believe we're in a position of strength when it comes to M&A given our $2.3 billion in liquidity. As we've said before, our focus remains on the most attractive opportunities that enhance our core business. We have identified targets across each of our business units that complement our core strengths. We continue to refine the business, and we are looking to put capital deployment strategies towards the places with the greatest opportunities for shareholder return. Our balance sheet is ready for transaction that strengthen these areas. And we have the right team in place. We'll be patient and discerning and we're prepared to act when the right opportunity matures. We continue to be committed to our long-term targets and believe the steps we're taking today will position us to achieve these results in the future. As a reminder, we are driving towards a 12.5% EBITDA margin. to achieve 7% to 10% unit sales growth, some of which will come from M&A and new products. We will focus on driving ROIC in excess of 15%, which is well ahead of our cost of capital. and all of this while maintaining a conservative capital structure. We are making progress even in this down cycle and performing 200 basis points better than we did in 2019. That's a testament to the strength of our business model, which as previously stated, we continue to refine. In closing, I believe in the work UFP Industries is doing for the benefit of our shareholders, our customers and our communities. We will continue to bring to market value-added solutions that strengthen all three. Thank you again for joining us today. We're proud of the progress we've made and confident in our path forward. With that, I'll hand it over to Mike Cole, our Chief Financial Officer. Michael Cole: Thank you, Will. Net sales for the quarter were $1.56 billion, reflecting a 5% decline from $1.65 billion last year, because of modest declines in overall volumes and pricing. Share gains and recent acquisitions helped to offset some of the volume pressure from softer demand and more competitive pricing was primarily isolated to our Site Built unit. These headwinds resulted in a 15% decline in our adjusted EBITDA to $140 million, while adjusted EBITDA margin fell to 9% from 10% a year ago. Importantly, the structural improvements we've made in the business since 2019 have resulted in a nearly 200 basis point improvement in overall margins since that time. It's worth noting that 75% of the decline in our consolidated gross profit was due to lower volume and pricing in our Site Built business as affordability and confidence levels continue to weigh on residential construction activity. Even in this environment, our trailing 12-month return on invested capital stands at 14.5%, well above our weighted average cost of capital, clear evidence of the strength of our balanced business model. Operating cash flow was $399 million, and we maintain a robust cash position of over $1 billion, giving us the flexibility to pursue our strategic objectives. As we remain patient for the right M&A opportunities to materialize, we've returned significant capital to shareholders, repurchasing nearly 6% of our total outstanding shares through October. Moving to our segments. Sales to customers in our Retail segment were $594 million, a 7% decline compared to last year, driven by softer repair and remodel demand and our strategic exit from lower-margin product lines. Within our business units, ProWood volumes declined 5%, reflecting higher interest rates and weaker consumer sentiment. Deckorators delivered 5% unit growth and 8% net sales growth, including a 31% increase in Surestone decking and 9% growth in wood plastic composite decking. These gains were partially offset by a 13% decline in railing sales. As we discussed last quarter, our reeling sales declined due to the loss of placement with a large retail customer, which, to a lesser extent, offset some of our wood plastic composite decking growth. Positively, we gained share with another major retailer through the launch of our Summit Surestone decking, positioning us for a net market share gain as we expand capacity to supply approximately 1,500 stores. We expect to capture the full benefit of the share gain in 2026, an important step toward our goal of doubling our composite ducking and railing market share over the next 5 years. While our year-over-year gross profits in retail declined by $13 million, we consider the causes to be temporary. Falling lumber prices weighed on the profitability of our ProWood pressure-treated products. Inefficiencies associated with implementing and running our new composite decking capacity will be overcome as the lines reach optimal efficiency shortly. And lower volumes and inefficiencies resulting from the wind-down activities at our Edge manufacturing locations will be eliminated as we move production to other plants. Adjusted EBITDA in retail declined by $11 million because of the decline in gross profit and foreign exchange gains last year offset by a decrease in SG&A expenses despite significant investments we've made in building the Surestone brand. As we indicated last quarter, the closure of the two Edge manufacturing facilities is expected to improve adjusted EBITDA by $16 million in 2026. Looking ahead, we believe the continued improvement and resiliency of our ProWood business growth and margin potential of our Deckorators unit, restructuring of Edge and SG&A improvements position us well for stronger results ahead. Packaging sales were $395 million, down 2% with a 3% organic unit decline, offset by 1% growth from recent acquisitions. Pricing remains stable, and we continue to gain share with key customers. Protective Packaging volumes grew 15% driven by geographic expansion. While gross profit declined by $4 million due to price competition in PalletOne, overall sequential trends in this segment are stabilizing, providing cautious optimism for 2026. Adjusted EBITDA in this segment was flat year-over-year, supported by SG&A reductions. Construction sales were $496 million, down 7%, primarily due to volume and pricing pressure in Site Built as we protect our share. positively, volumes grew significantly in Factory Built, commercial and concrete forming, highlighting the strength of our diversified portfolio. Gross profit declined $20 million year-over-year, entirely due to Site Built but it's important to note profitability remains above 2019 levels, reflecting structural improvements. Adjusted EBITDA declined $9 million as we reduced SG&A by $10 million and align costs with current demand. In this environment, we remain focused on balancing cost discipline with long-term growth investments, expanding market share, driving innovation, strengthening our brands and improving efficiency through technology. Consolidated SG&A declined $13 million this quarter, even though we invested significantly in advertising for Surestone driven by a $7 million decline in incentive compensation and a $12 million reduction in our core SG&A. Looking ahead, we've targeted an annual run rate of EBITDA improvements from cost and capacity reductions, of $60 million by 2026. Our plan for SG&A expenses in 2025, excluding highly variable sales and bonus incentives is $137 million for Q4 and $553 million for the year. The annual target is $11 million lower compared to 2024, and it's comprised of $31 million of anticipated cost reductions offset by a $20 million increase in Deckorators advertising costs. Additionally, our Q4 targets are 3% of gross profit for sales incentives, 18% of pre-bonus operating profit for current year bonuses and $7 million of vesting expense associated with prior year share grants under our bonus plan. In addition to SG&A reductions, we've taken actions to reduce and consolidate capacity at locations that don't meet our profitability targets. We anticipate these actions will have a favorable impact on gross profits totaling nearly $14 million in 2025. And as I previously mentioned, the closure of our Bonner facilities is expected to eliminate operating losses totaling $16 million in 2026. Based on the actions we've taken to date and opportunities for continued improvement, we're confident in our ability to meet or exceed our goal of $60 million in cost out by the end of 2026. Moving on to our cash flow statement. Our operating cash flow was $399 million for the year, supported by strong working capital management. The strength of our free cash flow generation has allowed us to continue to invest in growing and improving key parts of our business. while also more aggressively pursuing share repurchases at an attractive price. For the year, our investing activities include $206 million in capital expenditures, comprising $81 million in maintenance CapEx and $124 million of expansionary CapEx. Our expansionary investments are primarily focused on capacity expansion for manufacturing new and value-added products geographic growth in our core higher-margin businesses and efficiency gains through automation. Our investing activities also include three small acquisitions. Finally, our financing activities primarily consisted of returning capital to shareholders through almost $62 million in dividends and $291 million in share repurchases. Turning to our capital structure and resources. We continue to have a strong balance sheet with over $1 billion in cash and total liquidity of $2.3 billion. Our capital allocation priorities remain unchanged: invest in organic and inorganic growth grow dividends in line with long-term free cash flow and repurchased our stock to offset dilution from share-based compensation plans and opportunistically buy back more stock when we believe it's trading at a discounted value. With these points in mind, our Board approved a quarterly dividend of $0.35 a share to be paid in December, representing a 6% increase from the rate paid a year ago. Last July, our Board of Directors approved a new $300 million share repurchase authorization that's effective through the end of July 2026. We were active in the quarter and repurchased almost 840,000 shares or nearly $78 million through October under this authorization. This brings our total repurchases in 2025, to $347 million or roughly 6.5% of our market capitalization. We currently plan to spend approximately $275 million to $300 million for CapEx for the year, slightly lower than previously anticipated due to longer lead times for launching and completing certain projects. Finally, we continue to pursue a healthy pipeline of M&A opportunities across our portfolio. that are a strong strategic fit and provide higher margin return and growth potential. We'll remain patient and disciplined on valuation as we pursue these opportunities. Finally, our outlook remains consistent. Low single-digit unit declines across each of our segments through year-end, reflecting soft demand and pricing pressure. Cycle faces the most pronounced headwinds, while our other businesses show signs of stabilization or modest growth. We're confident that our actions, cost reductions, capacity optimization and strategic investments position us well for above-market growth and margin expansion as business conditions normalize. With that, we'll open it up for questions. Operator: [Operator Instructions] And our first question will come from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: Good morning, everyone. Just wanted to start on Deckorators. And I was hoping you could talk about kind of where we stand with the Surestone retail rollout and whether it's kind of the pace of store expansion, service, sell-through, how that's generally performed relative to yours and your customers' expectations kind of coming into the year. William Schwartz: Yes. Good question there, Kurt. And what I would tell you is we remain on pace. We've talked about it openly. We're really targeting that 2026 selling season, and we'll be on shelf and ready to go for that season. We're still working through the capacity expansions that we've talked about, the CapEx expansions. And that's on pace. We'll see that really kind of kick in at the end of Q4 and into Q1, we'll be fully operational. I would tell you, sell-through is good. I think everyone is happy. It kind of shows in the results, especially in a market when you consider that the consumers, it's a very difficult market to upsell, looking for a value proposition. And so we're outsizing the market and results. And for that, I think all of us are really happy. Kurt Yinger: Okay. That's helpful. And it's probably difficult to parse out. But with the Surestone growth that we're seeing, is there any way to kind of ballpark what the impact of kind of the new retail shelf spaces as compared to maybe what you're seeing in the Pro channel. And relatedly, I mean, wood plastic composite grow 9% is very impressive considering the emphasis around Surestone. Maybe talk about some of the success there even with some of the shelf space losses last year? William Schwartz: Yes. We're very pleased and continue to gain share. We're happy. We're excited about where we're heading. And we're winning in all those places. Surestone is obviously something no one else can get their hands on. It's not produced by anyone else. It's a new technology. We continue to invest in that branding and that strategy. And with more awareness, I think it will continue to take market share. But we're very committed, we're very excited, and our teams continue to innovate and develop a great product to match up to all the price points. Kurt Yinger: Okay. All right. That's helpful. And just lastly on lumber kind of a 2-parter. I guess, first, given the current demand and competitive environment, if we were to see lumber prices start to inflate, is that a risk to profitability just given the demand environment? And then secondly, recognizing you guys don't want to be speculators on lumber. But just given where prices are, I guess, how do you think about the opportunity to perhaps lean into inventory here kind of in the winter months ahead of spring and summer of next year. William Schwartz: Yes. Good question there. And we always try to balance that. We're looking at what we believe the market will do. We try to use that in our strategies for building inventories for the following season. Right now, I think pricing is indicative of kind of the end takeaway and we continue to look at that. We focus on it. Your first question, getting back to is the pressure in a reduced demand environment certainly passing along those things are difficult, but we feel like we're positioned in and poised well to handle it. And in a lot of our business, our strategy is that we were priced for Texas in that. So it's kind of a balanced model. Operator: One moment for our next question. That will come from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: First of all, I just want to kind of acknowledge and applaud the improved disclosures and just the way the information is laid out in the release this quarter. So nice job on that. Maybe to start with, just continuing with composite decking and Deckorators. One of the competitors with recent consolidation was talking about sort of more bundling of products. Given sort of the size and scale I'm curious kind of from your standpoint, what are you doing to sort of continue on this pathway you talked about doubling market share. Can you talk about some of the puts and takes there? Michael Cole: You kind of cut out the last part of your question. Ketan Mamtora: Oh, I'm sorry. I'm just curious, from your standpoint, kind of what are you doing so that you kind of laid out the path to doubling share in that business. So from your standpoint, can you talk about sort of what you are doing? William Schwartz: Yes. So I think there's a couple of things there. One, that technology that we continue to talk about, and there's a reason we talk about it, it is next-generation material in technology that applies past decking too. But secondarily, and something that's not traditional for us is that branding exercise. We're really leaning into it because there's a great story to tell. And we believe that's going to drive those market share gains that we're talking about. We're building momentum every single day. And right now, we're at a capacity constraint that's about to be fixed, and you'll really start to see that capitalized on. Michael Cole: I think also the investments made to make sure the probe plants can distribute the Surestone product has been something that makes us unique and a key part of the growth strategy. Ketan Mamtora: Got it. No, that's helpful. And then switching to the cycle side. Curious kind of what recent trends you are seeing. And as you sort of start to think about 2026, given sort of there is a lag involved, any perspective on kind of what you're hearing from your customers and the competitive price pressures that business is being? Are you kind of seeing signs of stabilization and then it is more of a sort of just kind of an exit rate kind of a thing. Curious kind of what latest you're seeing there? . William Schwartz: Yes. I wouldn't tell you -- I think that's the area of the business that's the most murky and lacks clarity. There's a lot of things out there. Interest rate cuts, consumer confidence has to grow, but I think some of the -- just the uncertainty, the affordability piece leaves it a lot more cloudy and trying to project what 2026 holds. We're cautiously optimistic. Most of our businesses, we see stabilization. That one, we just don't have enough clarity at this point to put a bow on it. Mike, do you want to add anything there? Michael Cole: Yes. I would just -- I think part of your question, too, is pricing trends sequentially, Ketan, from Q2 to Q3, we did see additional pricing pressures. So we can see costs coming down mostly because of material cost but pricing was off more than material costs. So clearly, a little more pressure there, which probably extends on into Q4 as well, given the environment. Ketan Mamtora: Got it. That's helpful. And then just one last one from me. From a capital allocation standpoint, I mean, clearly, the balance sheet is very strong. And it seems like you are leaning more into kind of share repurchases. As we sit here today, how are you thinking about any opportunities that may come up from an M&A standpoint given sort of the weak environment right now versus kind of continuing to lean in on share repurchases. How are you sort of thinking about that balance? And within that inorganic piece, what is it that is sort of the most interesting to you from a growth standpoint right now. William Schwartz: Mike, you want to hit on that a little bit? Michael Cole: Yes. I guess, Ketan, the way we're thinking about it right now, our cash flow generation is really good. And what we're looking at is allocating more of our free cash flow towards share buybacks. And you can see we've accumulated a lot this year. And trying to preserve the balance sheet, the cash, the unused debt capacity for more meaningful M&A transactions. And very focused on our strategies. And so trying to be really disciplined on making sure larger transactions that fit into strengthening the core is where we're focused. William Schwartz: Yes. The last thing I'll add there, Ketan, is I'm really impressed and appreciate the work our team has done. We're really starting to refine the opportunities and really hone in on the spaces we're going to invest. And we believe we're going to have some opportunities there. Operator: Thank you. One moment for our next question, and that will come from the line of Jay McCanless with Wedbush. James McCanless: One and definitely I want to echo what Ketan said about the disclosure. We really appreciate the heightened disclosure and help so makes our job easier. So thank you all for doing that. The first question I had, and I know I'm nitpicking here, but kind of the language in the outlook where you are talking about Construction, Site Built versus Factory Built you guys changed that language up a little bit. Maybe it looks like you backed off how strong Factory Built is. Could you talk about that and talk about where the strength of that business is now versus a quarter ago? And what are you hearing from customers as we're heading into the spring season, well, almost there a couple of months? William Schwartz: Yes, I don't think it's really a huge shift. I think everything right now, consumer confidence affordability is just challenging in the marketplace and just trying to temper that a little bit. But we're still excited about where that goes. And the affordability challenges, that market, we believe, has a lot of legs and will continue to grow. But just tempering that just around the current environment and housing total. Michael Cole: I think in Q3, Jay, the industry production looked like it was a little more challenged than in not showing the types of increases it had been earlier in the year. So I think it's just a reflection of what we're seeing more recently. James McCanless: And then -- been a lot of noise about tariffs, et cetera, lumber tariffs, especially, I guess, what are you all kind of thinking about potential tariff impact for 4Q as we look ahead to '26. What should we be building in or thinking on our models? William Schwartz: Yes. What I would tell you is look at the pricing today, that's been hanging out there for a while. We've talked about it openly and yet we sit at some really low points in the marketplace. So would continue to reiterate. We're well positioned. The majority of our purchases are domestic purchases already, and I think there's opportunity for shifts that we see big changes. We're prepared and ready to act as needed, but I think it will be reflective of the market in total. James McCanless: That's great. And then the last question I had is, we've seen some articles out there talking about how data center builds are going to start flexing higher in '26. And I guess are you all seeing anything on the leading Edge of that from your customers that would support that view. And I guess, is there anything else you all could do to expand on concrete forming to take advantage of if there is this really big data center build that's going to start next year if you guys are doing anything or can do anything to expand your capacity or ability to take share in that market? William Schwartz: Yes, I'll hit that. Certainly, we're excited about that, and it's reflective in the numbers for concrete forming, meeting where the customers are at. And that opportunity certainly continues to present itself and the value-added solutions we can put there. we continue to try to grab more share of the wallet in the spend, and I believe we're excited about it. Operator: One moment for our next question. And that will come from the line of Andrew Carter with Stifel. Unknown Analyst: I realize that I'm kind of mixing a little bit of apples and oranges. But when I look at your Site Built units down 15% and then I take builders, which is, I guess, a good national proxy average, single-family, multifamily core organic they're down 13. They said content. All those things are headwinds. So you can assume that units are a little better than that. I guess what I'm asking is, past 10 quarters, your Site Built has consistently outperformed there, which I would call kind of a national metric. So what I'm getting at is as you look at your specific geographic footprint in Site Built, I think you've kind of been a little bit immune to the challenges during this kind of post '22 rightsizing are things getting worse and deviating from the national average, anything material you see? Or would you just not make too much out of that 3Q number? William Schwartz: Yes. I think -- and we've described it in the past. We've tried to remain -- we haven't invested in some of the boom and bust markets. And so we don't have that full geography of the U.S. in footprint. But I would tell you, some of the Western markets that have been really good for us over the past couple of years. We've seen some declines in a bigger way, and I think that's probably more representative of what you're reading into those numbers. Unknown Analyst: Fair enough. Second question I would ask is, you did say stabilization in some of your markets in the last quarter, I think you said that the challenges where you called out three businesses, structural pallet and, of course, Site Built. I guess as you think about stabilization, is there a path to, I guess, reclaiming some of the margin? Or do you have to -- are we stabilizing it kind of -- are you stabilizing at sort of a trough that we should think of and carry on into the next couple of years? William Schwartz: Yes. So we kind of -- we feel like we found the trough in some of the businesses, and we see that sequentially in margin pressure in pricing. And so specifically in the structural business, I'll call that out. And or -- when you hear me talk about optimism, it's not necessarily we're projecting the market changes drastically in 2026. It's really more of a result of the work we've done in cost out, automation, a lot of the investment that we've made and a lot of the hard work that our employees have made. And that's really what drives it more than anything. Michael Cole: And the share gain opportunity that we have, we've had in addition to Surestone, we've had other areas of the business where we've accomplished market share gains. And so that gives us good optimism into '26. Unknown Analyst: Last question I'll ask. It's kind of -- it's been asked a little bit about the kind of the sure stone and kind of all in on kind of your composite -- or your sorry, Decking, Railing business. But could you give us a cadence of kind of when you hit your full potential from a revenue perspective? And then also the flip side, there's a profitability perspective. I mean you mentioned some items that were headwinds in the quarter. When do those become kind of fully tailwinds? And then you, of course, invested $20 million in incremental advertising this year. Do you sustain that next year? Do you increase from that? And I will stop there. William Schwartz: Yes. I'll kind of start there and then I'll let Mike jump in. First and foremost, go back to the operations. We'll be fully operational in both sites, Q1. So a lot of those challenges that come along with capital investment, the disruption that takes place when you're introducing a lot of that technology, new equipment, et cetera. So we'll be operational in Q1. So some of that falls off. You asked about the brand, driving the brand advertising. We do not plan to adjust our marketing efforts in 2026, up or down. So that's going to remain pretty similar. And we continue to talk about market share gains. So we'll start to see the results of that in '26. Mike, do you want to add any additional color? Michael Cole: Yes, I would just say that we're expecting the most meaningful part of the sales growth to occur in '26 and maybe even more importantly, the margin. The contribution margins with the new capacity that tremendously helps us accelerate throughput through the plants. That really begins to have an impact in '26. There is inventory, I guess, to work through that would be at the higher cost, probably for the balance of the year. So really excited to get those new lines running optimally. And start enjoying some of those cost benefits in '26. Operator: One moment for our next question. And that will come from the line of Reuben Garner with Benchmark. Reuben Garner: So to start on the Packaging business, I think you referenced stabilization a couple of times in your opening remarks, even discussed kind of potentially aggressively growing in that market. I guess 2-part question. One, would you go as far to say that you're seeing green shoots in the end market overall? Or is it simply more of a bottoming and things have leveled off for long enough that you're a little less concerned about downside? And then secondarily, the growth part there, like what exactly is driving that potential aggressive growth or above market growth in that vertical? William Schwartz: All right. So the green shoots piece, the second part of your answer is right. We feel like we found the bottom. At least it feels that. Stabilization is feeling like we found the trough, feeling like we found the bottom. There's a couple of things that give us optimism. That's number one. A lot of the work we've done with national accounts and our strategic sales teams really focusing on big opportunities, and there are some near-shoring opportunities. We believe we'll expose themselves both in '26, but really beyond. And so that's really the optimism that we have. And then some consolidations, cost out, some automation work and investment inside of our factories, that's where the optimism comes from. We're geared and ready to roll. As business starts to come back. So I wouldn't say it's green shoots yet, but certainly optimistic. Reuben Garner: Okay. Great. And then the lumber piece, so lumber prices are relatively consistent with the year ago despite all the duty increases, the tariff talk and everything else that's gone on and supply coming out. So clearly, demand is much lower than a year ago broadly for wood. My question is, as we do see a recovery, given the increased tariffs and duties and the supply that's come out, it would point to pretty substantial upside to lumber prices and probably well above what would have been considered normal 5, 6, 7, 8 years ago. Does that impact the competitiveness of the wood in the packaging space? Are there alternatives that become an issue alternatives to wood that become an issue for you guys? Or did you kind of see through the pandemic spike that would necessary in a lot of these categories, and they'll have to deal with it just like they do in housing where there's not really an alternative to wood framing. William Schwartz: Yes, it's a really good question. Specifically, as we talk about packaging material, it's really the beauty of the balance of our business. And so what I would tell you is when you get into a more fiber stricken market, less fiber availability, that's generally where we tend to win a little more because we're not just buying those low-grade products. We're buying the entire gamut of products. We're buying the uppers and that gives us a little buying benefit. And so for us, we're kind of agnostic as where the market is. But generally, when the market gets tighter, that is also represented in pricing, it's generally a better market for us. We're able to put some pricing and purchasing strategies in place to take advantage of that. So that's why you can describe it. Reuben Garner: Great. And last one for me on Surestone. Can you remind us, is there any recycled component to that product? I know historically, it's a higher-end product and a little bit more costly maybe to produce in the wood plastic composites. Is there an opportunity to increase recycled or other ways to drive cost down besides just more volume and throughput in new facilities? . William Schwartz: Yes, there's certainly an element of recycled product in it today, and there's opportunity to grow that, and we'll continue to invest in taking advantage of that. So the answer is yes and yes. Operator: And one moment for our next question. We do have a follow-up from Kurt Yinger with D.A. Davidson. Kurt Yinger: There's a lot of moving pieces in retail with ProWood and Edge and Deckorators this year. Last year was actually a really impressive gross margin performance at 15%. Is that a reasonable bogey to get back to in 2026? Or given the actions that you've taken, is that perhaps even conservative? Michael Cole: Yes. Kurt, I think some of the challenges we've had this year with lower unit sales in the pro wood side, falling lumber prices on the ProWood side challenges with introducing the new capacity and inefficiencies as a result in the Edge business this year. To me, those are all challenges that are temporary. So we see a path to those types of margins that we experienced last year. And not only that, we see a path to improving it. We believe there's even more upside to margin in the proved area. There's a lot of things to be excited about in terms of cost out and being more efficient. But -- and then obviously, the Surestone and the mix benefits we get from the decorator side of things, a lot of reasons to be excited about margin expansion and above-market growth in the retail area in general. William Schwartz: There's one last piece there. I'll tack on because Mike had an absolutely spot on. The -- we didn't get to fully realize the value of our internal distribution through our ProWood plants this year. So when you think about Deckorators flowing through that, that's also a margin expansion opportunity for the ProWood plant as well. So just kind of wanted to make sure I mentioned that. Kurt Yinger: And Will, when you say you didn't fully realize that, is that kind of based on the growth you expect next year or something else going up? William Schwartz: Yes, absolutely. And that was just lack of capacity this year, and we weren't able to take full advantage of it because we didn't have the capacity we'll have that in 2026 and beyond, and we'll really be able to utilize that volume. It expands both the Deckorators side and the ProWood side. Kurt Yinger: Right. Okay. That makes sense. And then just going back to Site Built I know you mentioned that margins are still, I think, better than pre-COVID levels. I guess if you take a step back, like how would you kind of characterize your cost competitiveness there relative to what you see to peers mean it feels like an area where the automation and efficiency opportunity is maybe greater than other parts of the portfolio. So I don't know if that's fair or not, but any color there would be really helpful. William Schwartz: Mike, do you want to hit that? Michael Cole: Yes, I think we're really focused on being a manufacturer of engineered wood components. I mean that's all that we do. And the team, I think, has done a fabulous job of investing in automation and enhancing our processes in the plants in order to be able to be more efficient. So I can't speak with respect to peers, we're kind of built differently, just being a manufacturer of those product categories. But we feel really good about what the team has accomplished. I think that's one of the reasons why our margins, and I think I referenced in my comments that our margins this year are higher than what they were in of 2019. And I think it's because the team has done a great job in being investing in being more efficient in the plants. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Schwartz for any closing remarks. William Schwartz: Thank you, everyone. As we continue to press forward and fine-tune our business, I'm confident in the strategy and the team we have in place to meet our long-term goals and to bring new high-value products to market. Thank you to those on the call for your interest, and have a great day. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good morning ladies and gentlemen and welcome to the Vontier Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, October 30, 2025, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Good morning everyone and thank you for joining us on the call this morning to discuss our third quarter results. With me today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meanings of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to slide 3 and I'll turn the call over to Mark. Mark Morelli: Thanks Ryan and good morning everyone. Thank you for joining us on the call today. I'm pleased with the traction we are seeing from our Connected Mobility strategy which we outlined in greater detail at our Convenience Retail Showcase two weeks ago. We've realigned the organization to better execute our strategic vision. We're reinvigorating new product development and building significant competitive advantages. We're the clear leader in this space with some of the industry's most innovative integrated solutions. I'm encouraged by the progress we are making, which is reinforced in our customer conversations. I'll touch on a few takeaways from our event in a few minutes. Turning to the quarter, we delivered solid Q3 results in a dynamic environment. The quarter played out as expected, consistent with the preliminary numbers we shared at our investor event. Our sales, adjusted operating margin, and EPS landed at or near the high end of our guidance. Our teams remain disciplined on execution, advancing our 80/20 simplification efforts and tariff mitigation actions while delivering on the critical needs of our customers. Core sales were essentially flat for the quarter. Solid underlying performance at Mobility Tech and Environmental & Fueling was offset by ongoing macro-economic pressures at our Repair Solutions segment. Importantly, demand within the convenience retail end market remains constructive and contributed to the quarter's momentum, and we see the Repair segment stabilizing sequentially. Our car wash business returned to growth a quarter ahead of expectations as customers are adopting our cloud-based Patheon solution. This solution, which we featured at our investor event, helped us secure some key wins in the quarter and has a growing pipeline of opportunities in convenience retail. Our unified payment and remote asset management solutions are delivering real value for our customers, driving low double-digit growth across retail solutions. We have generated more than $275 million of adjusted free cash flow year-to-date, and we've deployed roughly $175 million of that to share buybacks so far this year. We also took a few targeted portfolio actions in the quarter, divesting two non-core assets and exiting a minority equity stake. Concrete examples of our 80/20 simplification work in action. Our decision to exit these businesses is a result of regional simplification efforts to sharpen our product and go-to-market focus, improving the overall growth and margin profile of Vontier. Given our solid execution year-to-date and the traction we're seeing in our end markets, we're raising the midpoint of our full-year guidance, and Anshooman will provide more details in a few minutes. I'm encouraged by the fact that core growth is now tracking above 2% for the year, particularly as we've absorbed the impact from two businesses that have reset over the last 12 to 24 months. We expect mid-single-digit adjusted operating profit growth and remain on track for roughly 10% adjusted EPS growth this year. This combination reinforces a solid value creation algorithm. Turning to Slide 4, as many of you are aware, we held a successful investor event at the annual National Association of Convenience Stores Trade Show two weeks ago and used that forum to highlight the comprehensive platform we've built for convenience retail. We're now a more focused, higher-performing business with a more synergistic portfolio and broader, more comprehensive solutions. Our connected mobility strategy differentiates us. We are delivering integrated site-wide solutions that combine hardware, software, connectivity, and services to help our customers navigate complexity. This lowers their operating costs and unlocks growth through improving consumer engagement. These end-to-end solutions expand our total addressable market and create recurring revenue opportunities. Our recently announced go-to-market strategy simplifies the sale and deployment of our differentiated solutions through key account managers, while streamlining processes, reducing friction, and speeding development with shorter sales cycles. Moving to Slide 5, our refreshed value creation framework rests on 3 pillars. Pillar 1 supports accelerating organic growth via connected mobility and innovation. Pillar 2 focuses on optimizing our core operations to drive improved and more consistent margin expansion through the Vontier Business System, and Pillar 3 guides how we deploy capital effectively, dynamically prioritizing the highest return options available as we look toward 2026. Each pillar will play a key role in delivering results. Assuming a similar macro backdrop extends through next year, we expect the convenience retail end market to be constructive. As we discussed at our investor event, we target above-market growth led by our convenience retail solutions, including accelerating growth in car wash. We have strong multi-year secular tailwinds extending into 2026 and beyond. Repair Solutions demand is likely to remain soft, though distributor inventories are lean and we are seeing sequential revenue stabilization. We expect better operating margin performance in 2026 driven by underlying productivity improvements, increased R&D efficiency, continued 80/20 simplification efforts, and more favorable mix as volumes at car wash and Repair Solutions normalize. On top of this, we expect modest margin accretion from the portfolio management actions we are taking on capital deployment. Our approach will be consistent with what you've seen from us, balancing organic investment with shareholder returns and balance sheet health. To summarize, our strategy is working. We delivered strong, disciplined execution in Q3, converted that into cash, refined the portfolio, and we're advancing our connected mobility strategy to capture incremental share gains. We will continue to manage near-term costs and tariff pressures while investing where we see the best returns and positioning the company for above-market growth in key end markets. I want to thank our teams for their focus and agility. Their dedication to continuous improvement through the Vontier business system gives us confidence to raise our outlook and to keep executing with discipline. With that, I'll turn the call over to Anshooman Aga to walk through the quarter's financial details. Anshooman Aga: Thanks Mark and good morning everyone. I'll start off with a summary of our consolidated results for the third quarter. On Slide 6, we delivered results at the higher end of our guidance, demonstrating the resilience of our portfolio and the effectiveness of our operational execution. Total sales of $753 million were largely flat with the prior year. Adjusted operating profit margin held steady, and adjusted EPS increased high single digits to $0.78. Adjusted free cash flow of $94 million came in at 82% conversion, including a modest net headwind related to the timing of cash tax payments made in the third quarter. On a year-to-date basis, we have generated over $275 million in adjusted free cash flow, approximately 12% of sales. Turning to our segment results, starting on Slide 7, Environmental & Fueling Solutions delivered core growth of approximately 2% in line with our guidance for low single-digit growth. Our sequential Q3 performance reflects an exceptionally strong Q2 driven by shipment timings tied to appliance maintenance outage and ERP go-live. Despite these timing impacts, North America dispenser sales increased mid single digits during the quarter. This was offset by softer performance at international markets related to timing of large tenders. These results, measured against the prior quarter timing dynamic and a strong prior year comparison of 9%, underscore the team's disciplined execution. Solid demand tied to new build activity from large national and regional players as well as healthy refresh and replacement activity continues to support growth in both above and below ground fueling equipment. Segment operating margin declined approximately 20 basis points ahead of our guidance for a 50 to 75 basis point decline, supported by ongoing simplification efforts. On Slide 8, Mobility Technologies core sales grew approximately 5% supported by high single-digit bookings. Core growth was led by continued strength at Retail Solutions, up low double digits in the quarter, and car wash returning to year-over-year growth, up low single digits. We are seeing strong global adoption of unified payment and point-of-sale technologies, which together were up high teens in the quarter. That's especially notable given these products grew nearly 50% in Q3 last year. And as Mark mentioned at the start, we're encouraged by core growth in car wash inflecting positive one quarter ahead of schedule. This was mostly the result of strong demand for Patheon software upgrades, which experienced mid-teens growth in the quarter. Mobility Tech's margins increased over 40 basis points versus the prior year, reflecting the benefits of simplification efforts and improved R&D efficiency, partially offset by unfavorable mix. Finally, on slide 9, Repair Solutions sales declined 7% versus the prior year as ongoing macro-economic conditions continue to weigh on service technician spend. This was slightly ahead of performance we saw in the first half, and we are starting to see signs of stabilization. Sell-through off the truck once again exceeded sell-in, indicating continued destocking by our distributors. While high-ticket product categories, including tool storage and diagnostic, remain challenged, we're seeing momentum in lower price point offerings. Segment margin declined approximately 50 basis points, primarily related to lower volume, partially offset by stronger contributions from price cost. Turning to the balance sheet and cash flow, on Slide 10, we completed another $70 million in share repurchases in the quarter, bringing us to $175 million in buybacks year-to-date. Net leverage ended the quarter at 2.4x. We exited a minority equity position and completed divestiture of two small encore businesses: a European service business, a part of EFS, and a small point-of-sale solution to the oil and quick lube end market within Mobility Tech. In total, this netted us $60 million in proceeds. On a pro forma annualized basis, these transactions remove approximately $70 million in sales at approximately 10% adjusted operating margin. Turning to our updated outlook assumptions for Q4 and the full year on Slide 11. For the fourth quarter we project revenues in the range of $760 million to $770 million, with core sales roughly flat at the midpoint. Adjusted EPS is expected in the range of $0.82 to $0.86, up mid-single digits at the midpoint. Our Q4 outlook includes a net headwind of approximately $15 million in sales and around $2 million of adjusted operating profit related to the divestitures I discussed. For the full year, we are raising the midpoint of our guidance range. We now expect sales of just over $3.03 billion at the midpoint, with core sales up 2% to 2.5%, reflecting continued strength within our Mobility Tech and EFS segments, which have more than offset the weakness seen in Repair Solutions this year. We're expecting operating margin expansion in the range of 20 to 40 basis points and now guide to adjusted earnings per share of $3.18 at the midpoint. We've updated our other guidance assumptions, which can be found on the right hand side of the slide. We entered the third quarter with a clear view of expected timing dynamics, and our teams delivered accordingly. Our strategic priorities remain unchanged. We're focused on operational excellence, unlocking self help opportunities, and driving innovation across our portfolio. Throughout 2025, our teams have proactively mitigated the inflationary impacts of tariffs and navigated broader macro uncertainty to support margin expansion and continued growth. At the same time, we're taking meaningful steps to optimize our cost structure and expect solid margin expansion next year. With strong fundamentals and cash generation, I'm confident that we are well positioned to deliver consistent performance and long term value. With that, I'll pass the call back over to Mark for his closing comments. Mark Morelli: Thanks, Anshooman. We are pleased with our results year-to-date, which have exceeded our guidance ranges and enabled us to consistently raise our outlook for the year. 2025 has been impacted by headwinds including significant cost inflation and related economic uncertainty caused by tariffs. As Anshooman mentioned, our teams have responded well. I'm proud of the way we have executed against an incredibly complex backdrop. Our connected mobility strategy, deep domain expertise, and broad service network provide us with a clear competitive advantage to capitalize on secular tailwinds across our three end markets. I'm also proud of the progress we've made to advance our strategy and align our organization, both of which lead to accelerating top line performance ahead. I want to take the opportunity to thank everyone who was able to make it to our investor showcase in Chicago recently. This was a milestone event for Vontier in terms of demonstrating progress and in illustrating the opportunity in front of us. This sets us up to better deliver long term value creation for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Sprague with Vertical Research. Please go ahead. Jeffrey Sprague: Mark, I was wondering if you could give us a little more color on sort of what you're seeing on the order front and some of the kind of longer cycle aspects of the portfolio. You know, you mentioned some project investment work in DRB, you know, these international tenders you mentioned. How far do those reach out? Just trying to get an early sense of maybe the exit rate or the setup into 2026 and some of those more visible parts of the portfolio. Mark Morelli: Yes, Jeff, happy to answer that. Look, I think what you've seen is the changes occurring at Vontier have led to some longer cycle type selling of digital solutions for our customers. They tend to be quite significant in size. Their selling cycle is a bit longer than maybe selling dispensers which are more shorter cycle. You've seen that run through our P&L and also in our order book. Our orders were just under one for the quarter, but if you look at it on a year over year basis and a two year stack, it's a pretty good level that we're running at. We've also made some announcements for some orders that will be landing for next year as well. I think when you I'll give you a really good example of this, in our car wash business that turned a quarter ahead of where we've told the street. It's really on the backs of bringing this type solution to market. It's an enterprise software solution where the market for car wash is actually flat even down from where we said it was. We're getting a return of growth in that business because we're selling this solution and we're getting some really good uptake from our customers on that. By the way, we see a really good pipeline of funnel of opportunities. We see that business returning to growth in a really good setup. I like our setup that we have for 2026 and I'm very encouraged. Jeffrey Sprague: Great. And then just on this, these exits, how much more of this is there to do? Is there, you know, kind of a -- I suppose there's always some kind of evaluation of the portfolio going on. You know, have you stepped up your activity there? Should we view this as one off or maybe more pruning as we look into next year? Mark Morelli: Well, I think you should view pruning as really part of our playbook. We're constantly, as you indicated there, reviewing our portfolio and looking at opportunities. This is also a real outgrowth of an element of VBS where we've incorporated 80/20, where we're evaluating and seeing parts of our portfolio that belong elsewhere. When those things arise, sometimes it takes a while for those things to work through to find the right solution for them. I think you're seeing the culmination of some work that's been underway for a while, and I think you should just look at us to constantly use that dimension to be able to enhance our growth profile and margin profile of the business. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Please go ahead. Yunhao Jiang: This is Jimmy Jiang on for Julian Mitchell. First off, appreciate all the detail you've given on the slides. Maybe just speak to any color on Q4 sales and margins by segment please? Anshooman Aga: Yes, it's just from a Q4 perspective as we said at the midpoint, relatively flat year-on-year. From a Mobility Technology perspective that business is going to be relatively flat also in Q4 year-on-year coming off a very hard compare and also some project timing. Some of these technology projects have upfront hardware component and then you have recurring revenues. It's the timing of the hardware component out there. Our Environmental & Fueling business should continue to post growth, low- to mid-single-digit growth. For Repair Solutions, we're starting to see signs of sequential stabilization which would put it down mid- to high single digits on a year-on-year basis. From a margin perspective, Mobility Technologies in Q4 should have at the midpoint roughly a 50 basis point margin expansion. If you recall, last year Mobility Technology margins in Q4 were relatively strong at 20.7% which was 170 basis points above their full year average. Despite the harder compare in terms of operating profit margins, we think we'll get another 50 basis points in Q4 this year. EFS had a slightly easier compare from a margin perspective. We expect, in Q4, we expect, they'll be up closer to 100 basis points and then Repair Solutions on the lower volume should be down about 50 basis points. Also as a reminder, we have about $17 million of impact in Q4 off the $70 million in terms of divestitures at roughly 10% operating profit margin. Yunhao Jiang: Got it. That's helpful. Maybe just switching gears a little bit, could you speak to the general bullishness on retail fueling? One of your peers sounded pretty upbeat on CapEx in this space, so would appreciate your thoughts here. Mark Morelli: Yes, happy to make some comments on that. Also, if any of you followed our investor teach-in that we had on convenience retail here recently, we are very constructive on the end market. If you take a look at Vontier, about 2/3 of our business is exposed to convenience retail and we have the leadership position worldwide on retail fueling, which is an important element and part of that, I think that's where you're going. If you look at the announcements of the major players in this space, they're building out their footprints and there's also consolidation that is occurring. Given that we've got 2/3 share or more in some of the larger market segments where these larger customers operate, they need the tools and capabilities to be able to operate more effectively, particularly when they're putting more assets in the ground and they're consolidating. This is a great backdrop for us in particular, I think a really positive setup for 2026. Also, I think the market is coming more our way with our technology solutions and market share. I think it's a very constructive element of the secular drivers that are at work that really help out our portfolio. Operator: Your next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Anshooman, maybe could you just peel back on the Mobility Tech [indiscernible] you obviously pulled out some of the hardware. If you just go to the segment level, especially DRB, I think should be accelerating. I'd be curious what's offset on that. Anshooman Aga: Yes, Nigel, you were breaking up but I think the question was around a little more color on Mobility Technology being flat in Q4. It's really coming off a very hard compare for Invenco. The business had a very strong Q4 based on the timing of certain projects. We've been talking about not only the NFX wins, which had hardware upfront but also the vehicle identification system order which was really delivery, large delivery last year, Q4 and also in Q1, Q2 of this year. It's hard compares for us in Invenco in Q4 again in Q1, Q2. The good news is we do have a couple of large wins in Invenco, another one in the vehicle identification system and one in indoor payments. The timing of these, usually after you win it, there's some development work with the customers, certification through their networks before the rollout starts. These projects, the rollouts will start in the back half of next year, really Q3, Q4. It's just a timing perspective I think for these kinds of businesses versus looking quarter to quarter. If we look at an annual chunk, that's a better way to look at these. This year Invenco will grow well in the double digits and next year we feel pretty confident that Invenco should grow mid-single digits again on a hard compare. Nigel Coe: That's really helpful. Maybe on environmental as the previous question alluded. Sounds like the U.S. is sort of in a new CapEx cycle. Just talk about environmental, I think that a bit more noise. Just curious how you see developing over the next 12 months or so. Anshooman Aga: Yes. So environmental is a good growth driver for us on an annual basis and I think the growth continues into next year. U.S. obviously we're supported by the tank replacement cycle that we've talked about. Also international, we've been seeing growth now, international growth. There's sometimes timing of tenders that cause a little bit up and down in a quarter to quarter. Again from an annual basis, environmental globally is an area that we feel strong about. There's continuing regulation in the space and there's not a slowdown of regulation. The amount of regulation, the complexity of regulation keeps increasing. Also with our connected offering where instead of having on-premises connectivity, our new solutions provide cloud-based connectivity where for larger customers being able to monitor the whole fleet centrally is a big advantage and we're seeing some of that play out. We feel pretty good about our environmental business. Operator: Your next question comes from the line of Katie Fleischer with KeyBanc. Please go ahead. Katie Fleischer: Just to kind of circle back on Mobility Technologies again, I was wondering if you could give a little more details about the margins. I think earlier this year you had expectations for that segment to grow over 100 basis points year over year with the operating margins. It sounds like that's coming down a bit. Just wondering what's driving that difference there. Anshooman Aga: Yes, Katie, just let's take Q3. We had expected margins in Mobility Technologies to be up 100 basis points and they were up less than that. It's also low numbers, you know, 40, 50 basis points. You're talking about $1 million, a little over $1 million. In our EFS business, we had some higher costs and timing of projects that caused that roughly $1 million, $1.5 million of lower profit versus our expectations. If we hadn't had that, we would have been right around the 100 basis points we were expecting. A little bit of headwind at our EFS business that we're working on righting and fixing. Katie Fleischer: Okay, that's helpful. I know you're not ready to guide for 2026 yet, but you made some comments about, you know, expectations for operating leverage to improve next year. How should we think about those comments in relation to the long term targets that you guys have out there? Mark Morelli: Yes, Katie, this is Mark. Look, I like our setup for 2026. I'm cautiously optimistic. As you said, it's a little bit too early to give guidance as we're heavily into the planning cycle right now. There is some color we can give. I think we're positioned to accelerate growth. I think our market leadership on convenience retail, being two thirds of our exposure there, looks good. Other elements of our business are stabilizing, like in the Repair Solutions side and, importantly, part of convenience retail. The car wash business is inflecting up. On the margin side, I think we anticipate better drop through than what we've seen because we're accelerating some of our BBS initiatives, particularly around 80/20. Do you want to add some color, Anshooman? Anshooman Aga: Yes, just putting some numbers around what Mark referenced. While early to give guidance, you know, if you go back to our convenience retail showcase, 67% of our revenue, the market's growing 3 to 4%. We think we can outgrow that market a little bit. That would put roughly 4 to 5% maybe growth for our convenience retail part of our portfolio, which is 67%. For the remaining, which large part of it is our Repair Solutions part of the business, we're starting to see signs of sequential stabilization, which still puts pressure on a year-on-year basis, especially in half one for us. You know the U.S. consumer is still stretched, especially at the lower end, and our technicians are those consumers. We still see pressure in that business but stabilizing sequentially. Best case, you know, as of now we aren't giving guidance but flattish on the remaining part of our portfolio. Our normal drop throughs on growth are typically 30 to 35%. We feel strongly that we'll outdo those given the fact that we have a lot of the 80/20 simplification, all part of our VBS system in terms of continuous improvement. You know, we could see the drop throughs north of 50%, next year approaching almost twice of what our typical drop through of 30 to 35% would be. Somewhere in that range. Katie Fleischer: Great, thanks for the color. Mark Morelli: Katie, I'll just also add as you guys start modeling, just a simple reminder, we do have a $500 million bond that comes up next year in April and that is at 1.8%. I don't think we'll be getting another 1.8% coupon, so it's probably some headwind in interest expense next year too. Operator: Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead. David Ridley-Lane: Hi, this is David Ridley-Lane on for Andrew. So on Repair Solutions, look, you know you have a publicly traded competitor out there, Snap-on Tools. Not going to make too much of 90 day performance. But year-to-date, their segment, tool segment is down 1% and Matco is down 8%. What explains kind of the gap that you're seeing versus your peers? Mark Morelli: Yes, David, this is Mark. I think on a quarter to quarter basis you're going to see some ebb and flow. First of all, we have a lot of respect for our competitors. Anshooman Aga: Those were year-to-date numbers. Mark Morelli: Yes, you know, I think if you go back to last year, you'll see we also gained share as well. I think there is some ebb and flow, and they're on the backs of their expo that they just had this quarter. We do think that the overall market for repair, and if you look at the comments that are out there, is a good backdrop, but the consumer is under a bit of pressure, which I don't think is any news. I think the real efforts that we have there is getting better vitality for some of the lower price point items. We started the year raising price, and we've hung on to some of that price that we've raised, and now we're pivoting back to some of the lower price items. I think the good news is we're seeing sequential stabilization in the business, and I think we're really focused to get an uplift on this business for next year. David Ridley-Lane: Got it. Just for clarification, I think you said your comments on orders, was that a book-to-bill being around. Or were you saying orders were up 1% year over year, organic? Mark Morelli: No, that was a book-to-bill. Anshooman Aga: Yes, book-to-bill. The book-to-bill is just under one for the quarter, hovering around that, around one for the year. We expect to end the year roughly at one. Operator: Your next question comes from the line of Rob Mason with Baird. Please go ahead. Robert Mason: It's good to see the recovery there in DRB. You know, Mark, there's in the past M&A activity in that space seemingly has had a positive dynamic on the business. I've seen industry sources suggest more of that activity could start, more consolidation activity actually could start to happen. I know there's maybe one higher profile thing out there, but just in general, I'm just curious if you're picking that up and does that inform your pipeline as maybe those larger customers where you're strong, you start planning that out? Mark Morelli: Yes, absolutely. I think our strategy in the car wash base is to win with the winners. Some of the bigger players out there, some of the more savvy operators in the space are actually making moves to further consolidate. These folks need the tools to be able to operate their footprint. The complexity they're dealing with not only on the cost management side, but also how they can more effectively attract consumers to their car wash. We have great tool with that. With Patheon, customers see excellent returns. If you have more than 100 car washes, that's even better. As you scale, these are the tools you need to scale. That's why we're getting traction in the space ahead of the overall market turn. I think we feel really good about the pipeline and what we've got in the pipeline and the engagements we have with customers. I think it's a real example of our connected mobility strategy beginning to pay off for us and real proof points around it. We're really excited about what we're seeing there. Robert Mason: Good. Going back to the event a few weeks ago in EFS, new products around the tank gauge and capitalize on that replacement cycle. One of the things that came out of the conversations was your install base, those products are just very durable. I'm just curious if there's any other incentives that you can point to that can help customers accelerate the replacement cycle around that product, new product that you introduced. Mark Morelli: Yes, we absolutely do. This is a piece of business here that we really derive a tremendous amount of leverage off the massive installed base. This is pretty much the brand of record. If you look at underground equipment, how it's being done on a worldwide basis and particularly on the upgrade cycle in the United States. A couple things we do, we package solutions so it's easier for folks when they're looking at a complete underground retrofit. We don't make or sell the tanks, but you can package up the tanks with the piping and the sensors and make it a lot easier for them to be able to do that. We also help them on interest rate issues that might come up when they're making a total retrofit solution there. We are very engaged with our customers on how they move that forward. I think the really good news about this secular driver for us is that it's a pretty steady driver that's in its early innings. It's not this massive driver that's going to drive a whole bunch of revenue in a couple quarters. I think it's going to be a pretty steady replacement cycle over the next five plus years, which I think is great. That's the kind of driver, regulatory drivers, that we like and I think we're just well positioned there to win. Anshooman Aga: I will also add, while Mark covered directly the question in terms of the incentives and how we help drive that, there's a significant value proposition of having connectivity and asset management, asset monitoring, which our solution provides, which the old solutions did not provide. When we talked about last quarter, one of our large customers doing a phase fleet wide upgrade, it's because of the value proposition that our connectivity, our new product offering provides. It's also the latest CARB certification that we provide. There are a lot of benefits. Also, to Mark's point, we are stimulating demand with a lot of these actions. Operator: Your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead. Unknown Analyst: It's actually Jose on for Andy, maybe going back to Repair Solutions. The margins there seem to be stabilizing, and you pointed to strong price cost contribution in the slide, and I think Matco was the business that was the most exposed to tariffs for you. Maybe talk through how the customer reception has been on those price increases and what you're expecting kind of moving forward. Mark Morelli: Yes, I'll jump in. I'll let Anshooman also talk about Repair as well. Look, there's no question that the tariffs have sort of been more significant for Repair Solutions. If you look back over a couple year basis, even from like Trump 1.0 to Trump 2.0, we have really worked very hard to source in region for region. I think, you know, when our setup, when we approach this year, is we source and manufacture 75% in region for region, which is a pretty significant change over the last couple years. We've made a lot of progress. I think we're going to be on our target of getting less than 10% of product sourced in China by the end of this year. I guess that long body of work has really been paying off for us. No question there's been headwinds there on costs and some of the supply chain related issues. I think as we get into next year and hopefully we see the tariffs stabilizing, I'm really proud of the management team for their ability to manage that and offset that. The pricing that we went out with earlier in the year, we've seen some drop through on that price increase that we've made. We're not making any further price increases at the moment, but we did pick up some on the price, and I think as we get into next year, as we continue to work through the tariffs adequately, we'll have better year over year compares on the tariff issue as well. Do you want to add some color there, Anshooman? Anshooman Aga: Yes, our gross margins have been pretty flat at Repair year-on-year, which basically we passed on the cost of the tariffs. Generally we've been okay passing through that. Some places it's a little more targeted where we have to make decisions around portfolio, et cetera. A large part of it, as Mark Morelli talked, has been moving supply chain and trying to optimize our cost position. Also because of leveraging a more not only a U.S. supply chain, but also other countries outside of China. We will be under $50 million of procurement from China by the end of this year on a run rate basis. Our teams have done a really good job mitigating some of the higher tariff exposures. Unknown Analyst: Got it. Helpful. Maybe kind of turning over towards cash, I did see that you slightly lowered the conversion to 95% for the full year from your 100%. At the event a couple weeks ago, you talked about targeting over 90% conversion through 2028, which is a little bit lower than the 100% you guys talked about at your previous investor day. I was wondering if you could touch on what's contributing to that and maybe elaborate on any working capital opportunities that you're working on. Anshooman Aga: Yes. If you also noticed, our tax rate is creeping up a little bit from 21% to 21% to 21.5% for this year. Part of it is to do with the R&D law change. We probably will take a lot of the cash benefit over two years because it does impact the tax rate when you take that. That's part of the 100% going to 95%, just managing our overall tax rate. We're splitting some of the tax benefit over the two years versus taking it all in one year. In terms of greater than 90%, I think that's a pretty good cash conversion. As you're going to have growth in the business, working capital kind of grows with your growth rate. One way to think about it is cash conversion of 100 minus your growth rate is a pretty good target to go for. Greater than 90% gives us some buffer, I would say. We feel very strongly that we have a really good cash conversion profile in our business. Operator: I'm showing no further questions at this time. I would like to turn it back to Mark Morelli for closing remarks. Mark Morelli: Thank you. Thanks again for joining us on today's call. We're exiting 2025 with fundamentally stronger operations, improving trends across our core businesses, and clear momentum on our connected mobility strategy. We're delivering differentiated solutions in attractive end markets, and we're committed to creating long term value for our customers and returns for our shareholders. Importantly, our shares remain meaningfully discounted to peers, underscoring the upside as we continue to execute. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Unknown Executive: Good afternoon, ladies and gentlemen. Welcome at the presentation of the financial results of Pekao S.A. Group after 9 months. We have our CEO, Cezary Stypulkowski; Dagmara Wojnar, CFO; Marcin Jablczynski; and our Chief Economist, Ernest Pytlarczyk. Cezary Stypulkowski: Good afternoon, ladies and gentlemen. We will briefly discuss our financial performance. And later, we are standing ready to take your questions. I just want to start with a disclaimer that we ask you to have some understanding about the upcoming transactions. We will have an opportunity to present a short wrap-up during the meeting of the general meeting of the shareholders. It's part of the agenda. Therefore, I do not want to have answers duplicated, but I'm not going to be very dogmatic just saying no. Well, what happened over the past 3 months? It was a good quarter. Our profit was up, and this data was released this morning. I think that the most important changes with our lending activity. It is true for the entire sector, but we do have a feeling that we were able to jump a bit higher in terms of market shares, especially on the corporate side. We uphold a strong capital position. The bank has been stable in this regard for many years. And what is critical for Pekao S.A. is improved digital penetration amongst our customer base, and this is happening as we speak. Perhaps the pace is not one of my dream, but we do see progress. The net profit that we reported is very robust. Now looking at the capital, it is also solid. You may say that it's very decent. And it would be really hard to say that it was excessive. Cost to income, I think that the bank is holding very well. We fully appreciate the fact that the banking sector is under the cost pressure. And this is mainly because of the BFG charges. The cost of risk is below our projections. and the growing loan portfolio. These are the basic metrics for the past quarter, and I may say for the year-to-date. And this is what we are really proud to say that we are growing at the 2-digit rate across all the strategic area. On one hand, this is cash loans where we are underrepresented, and micro financing where the bank was also somewhat standing aside, but wherever we had a strong position, which is like that, mid and SME financing, that's truly decent growth. And this is a nice picture. All the business lines have contributed to this good landscape that emerged after 9 months of the current year. And we are truly happy to see that eventually after years of stagnating fees and commissions, the bank was able to generate the growth of 9% during the current year. From the viewpoint of our prior communication 6 months ago when we presented our strategy, we are definitely scratching the horizon. Perhaps we haven't gone beyond the horizon yet. But the trajectory to target seems to be within reach of our capabilities and the current positioning of the bank. Well, this is not something that I'm going to discuss in great detail because this is probably not the information that is most critical to the analysts here. This is a range of our accomplishments for the past quarter. And I believe that the most important highlight is investment banking advisory and equities. We do want to have stronger positioning in that area. And there are some changes that in our solution to the corporate and sector and small enterprises likewise. And with regard to retail customer, we continue to improve onboarding process and facilitate the documentation processing. And to be honest, I was quite surprised with today's reading of Newsweek that shows that we are really charging ahead in terms of how we are being perceived as the retail bank, both in our real branches and the mobile offering. Mobile offering counts because we are the underdog. So we are catching up with the leaders. And we are acquiring active mobile banking customers, and we are selling more through that channel. We know that it is going to be the key element of our strategy. A number of important deals that we closed during the past year. I need to emphasize that we are the bond house in this market. That's our claim. We are #1. So the deal with European Investment Bank definitely should be highlighted. This is an important and demanding partner that's entering the Polish market with the financing in zlotys, and we were able to raise PLN 1 billion in that deal. So it is definitely a good idea to think about Pekao S.A. as the leader and corporate financing of various [ account ]. And now let me turn the floor to my colleague -- no, first, let me turn the floor to Ernest. Ernest Pytlarczyk: Okay. We would like to make the accounting of our projections for the current year. Well, we were predicting 4% GDP, and it's going to be less most likely. But in terms of the diagnosis of the direction where our economy is heading to, I think that we stand right. We do see the recovery in the investments. As our CEO pointed out, the growing lending volumes are triggered by the investment plans that the corporations started to work on. And the other part of the story is consumption demand. The consumption was a black horse of this year. In Europe, consumption is picking up when the inflation is going down, especially when the cost inflation is going down because it gives more room to consumers. The time of tightening is over. It was 2024 when we had to tighten the belt. Now the consumer started to go shopping. The consumption is up this year. And another thing that is important to note, on the right-hand side, the environment. Macro environment is really doing poorly. Europe is slightly above the 0, and the Germans announced their data today, and they are straight at 0. So they are stagnating with their economy. So historically, our key driving force for the economy is weakened. Export. Export was actually doing less because of the situation of our trading partners and the strong zloty. But nevertheless, the economy is holding strong. It is growing. We expect 4% GDP next year. We expect a major accelerating in investments. It could be even called a boom. It would be, in a sense, the outcome of the recovery plan accumulating, and the interest rate cuts -- we believe that the interest cuts will continue. The inflation will be actually hovering over the target, and the inflation will stop being a problem across Europe. And that should translate into further adjustments by the National Bank of Poland. Consumption. We believe that should stand at 4%, and 2-digit growth of investments in certain quarters of the year, and that should fuel the lending volumes. So next year, we expect 2-digit growth in lending, especially in corporate loans. I believe that this is a fairly conducive environment for our banking business that will help offset and compensate the interest rate cuts. The interest rate probably will go down to 3.5%, perhaps a bit higher, but it's not going to be a zero percent interest rate environment. So in that environment, banks are going to do pretty well. That would be all from me. Thank you. Dagmara Wojnar: Ladies and gentlemen, more details about numbers. Loans were up by 8% in total. And as we heard, all business lines contributed to that growth. Cash loans keep growing, and this is where we are selling mostly through the digital channel, remote channels, over 90%. Small and medium enterprise loans are going up too. And what happened last quarter, and it has continued, is growing loan volumes for large corporate customers, 19% up on a year-to-year basis. And I think that it's worth to note that we are strongly acquiring new customers, especially for mid and SME loans. The customer base growth was approximately 900 during Q3. Now moving on to the deposit side. The total deposit base was up by 6% year-on-year, and this is where we are also acquiring customers. We are acquiring a lot of young customers, under 26 years of age. And because of the attractive sales of our investment products, as you may see from that chart, investment funds were up by 30% year-on-year. And we opened up approximately 130,000 current accounts for young customers. These are retail customers. And 50% of these accounts were for people who are really young. Now looking at the net interest income. The net interest income was up by 8% year-on-year. Let me just say that we are facing the declining rates environment. And to the extent possible, we are trying to offset the interest rate cuts. We are, on one hand, growing the volumes. And at the same time, we are modifying our product mix, and we actively manage our deposit base. The interest margin was up 2 basis points. As I said, the volumes and the product structure and decreased cost of deposits contributed to that. We also mentioned that our NIM, in terms of sensitivity to interest rate cuts, is like 15 to 20 basis points down, so per 100 basis point cuts of interest rates. This slide, we have been showing consistently because it really illustrates our sensitivity to interest rate changes. Well, the actual sensitivity to interest rate cuts will be the end result of our capability to adjust the term deposit rates. Now commissions and fees. We were growing up by 9%. This is the third quarter in line when we were growing our fees and commissions by 2 digits nearly. And the major contribution comes to the capital market commissions. So this is asset management. This is brokerage services. We are also growing our margin on FX transactions, and this is mostly the outcome of the growing volume. And we do see the uptick in the fees and commissions on loans, as loan volumes are growing. Cost-to-income ratio of 34%. Here, we have signaled that taking into account the strategy and the place where the bank is now, we will have to face some expenditures in infrastructure, technological outlays. Hence, depreciation is growing slightly higher than personnel costs. OpEx and depreciation growth, 14.6%, and human resources, costs 4.8%. Cost of risk, maybe Marcin will address this. Marcin Jablczynski: Thank you, Dagmara. As for cost of risk, as has been mentioned, that cost remains at a stable level. For 3 quarters this year, the number is very similar to what we recorded last year, and the level is below what we stated in our strategy. Just to remind you, it was 65 to 75 basis points. And this is the market level. We see in general in the market that cost of risk is relatively low, lower than what we saw before COVID pandemic. In particular, in retail section of the market with individual customers, there is just a small part of clients who faced difficulties in repaying the loans. And also, there are some parameters used for assessing credit losses. With adjustments to these parameters, we have those costs significantly lower. At the same time, in the corporate segment, the results are also below the levels to which we are aspiring, but close to the normalized levels. In previous quarters, they were slightly lower, but still below our assumptions. As for NPL, which on the one hand, shows the risk in our portfolio, but on the other hand, is one of the dividend calculation parameters. We see there has been nothing unusual happening recently. Things are rather dull and boring and quiet. So I will not comment on this further. Back to Dagmara. Dagmara Wojnar: As for capital, we maintain a strong capital position with surplus both in C1 and total capital ratio. As for [ MLER ], we also have a surplus in meeting our requirements. We are going to be an active issuer in the upcoming periods as for [ MLER ]. To recap, increase in recurring net profit, 10% year-on-year. Reported profit, PLN 5.2 billion for 9 months of '25. This growth is achieved on the income side. On the one hand, we have greater volumes of both loans and deposits, 8% and 6%, respectively. We see a growth in interest/income plus fees and commissions. ROE at 21.5%. Cost-to-income ratio, 34.5%. So we are accelerating. We are pleased to see that loan volumes grow in second consecutive quarter. In the third quarter, they grew faster than in Q2. The CEO talked about -- Cezary talked about this. We are consolidating our market position in some parts of the market by increasing our market shares. Commissions, almost 10% for all the third quarter in a row. And all these elements contribute, on the one hand, to improving our credit offer and supporting our customers better and being a partner in the development. But also, on the other hand, we keep in mind -- building the value for our shareholders. Thank you. Unknown Executive: Thank you very much for this presentation. We will open now the Q&A session. Unknown Executive: There are 3 banks reporting the results today. Kamil? Kamil Stolarski: Kamil Stolarski, Santander Bank Polska. Congratulations on cost to income and fees growth. And also congratulations on the growth in corporate loans. Among the banks that have so far reported the results, Santander [ and then bank ] only showed minimum growth here. And today, at the conference, [indiscernible] said while commenting the situation in the bank, said that the margins on corporate loans grew even down to 18 bps on individual deals. So how come Bank Pekao S.A. has this growth that is clearly greater than anywhere else? And is this 18 bps thing driven by Bank Pekao S.A.? Cezary Stypulkowski: We will not comment on the numbers and margins so deeply. But I can say that we announced in our strategy that, first of all, following Ernest's advice, we said that market would become more dynamic. And we prepared for that with greater mobilization of the resources, with deeper penetration of customers. Bank, as you know, for a couple of years, was on standby, if I may call it so. And probably this broader approach to customer acquisition, not focusing on state-owned companies only resulted in a diversification of the range of clients and diversification of risk. Price does play a role. Of course, it is not just margins growth and volumes growth. No, that is not the case. But it seems that all in all, given that we had small downtick in net income quarter-to-quarter, not a major change, but that was affected. Also, margin was affected to some extent. This is not the only element. revaluation of the portfolio of government papers. There are some things happening at the same time. But I wouldn't be so quick to make such generalizations about margins. Colleagues in the market signal changes, but we had some low business cycle, and everybody has some dry powder to use. It's hard to say whether we are on the eve of a major war. It's hard to predict. I was even surprised that the bank, while it had a very strong capital position, and its competitors were under major pressure of loans, we failed, at least from my perspective, to capitalize on this advantage. Now to the extent to which we can expand the spectrum of our corporate penetration in the segment where we are simply good. We have good products. We have good personnel. And now we simply have to utilize those resources better. That is it from me. Maybe you want to add something? Unknown Executive: I would say that, as Cezary highlighted, mobilization and the coordination of our sales, CRM and other activities, very active involvement of senior management, also some process-related changes. All these brought their effects. We see that the price pressure continues to be high. Competition is stiff. And if you look at stand-alone credit products, we can have some doubts. But if you look at the balance sheet of the bank in total, you see still some room for improvement. We try to keep our margins whenever the competitive situation forces us to do so, we react. But we are doing fine, and we look at comprehensively at the entire relationship with the customer. Kamil Stolarski: And I also have a question about financing and mortgage loans. ING said that more than 10% of sales was mortgage financing, and mBank said that many more customers came to them for refinancing than left them to seek financing elsewhere. Is there any acceleration here? And what is the policy of your bank towards refinancing of the portfolio? And what ambitions do you have to collect the debt? Unknown Executive: Indeed, we see that refinancing is becoming increasingly important. And we have seen some dissonance in recent years between sales of mortgage loans and sales of flats and housing. And this resulted from the fact that refinancing became more active in the market. We also see a certain growth here. However, as of now, the growth is not material yet. About half of the portfolio here are safe loans. So there is no motivation to seek refinancing. This is the phenomenon which we are following closely. It is not as pronounced here as in other banks yet. However, it is definitely something we will have to look at in the future because we see diverse attitudes of various banks, which are becoming very active in refinancing their own customers. We are more selective in our approach. We check whether so far the clients had just one mortgage loan, or whether they have a stronger relationship with us. And the phenomenon on the whole is much lower than in other banks. Unknown Executive: Maybe I will make a more general comment. Given that we are at a stage of declining interest rates. We can, of course, expect strengthening of this phenomenon. But also from my experience elsewhere, I can say that there are some markets, especially those saturated markets, refinancing is actually the name of the game. And some banks may position themselves in such a way so as to aim at refinancing the existing loans, which are characterized by being proven to some extent. There are markets where a large part of that market is built on this type of product. And there is no such great supply of new money. The market is also more monopolized. This is not what we see here in this market. But also a lot of loans were sold at a fixed interest rate. So something will happen here, but we do not know yet what. Unknown Executive: Any other questions from our audience in the room? Well, at any time, we can come back to your questions. Let me read the question that we got online. At the conference back in June, the bank claimed that 70,000 payment [ bands ] will be sold. What is the end result of that action? Unknown Executive: To be honest, I'm worrying too, but I cannot answer this question. I think that we have to get back with the answer through a separate channel. We will do that. Unknown Executive: Now let me combine a few questions. But we already explained the fact that we are actually reducing our sensitivity to interest rate cuts by 5 basis points. Why? What is the reason for that? And is there any competition in the deposit market? And what is our sensitivity to that in the declining interest rate environment? Unknown Executive: Okay. We showed that our NIM is sensitive by 15, 20 basis points per 100 basis points interest rate cuts. Well, the actual was 15 basis points. This is a slight change. We speak about the range. During the past quarter, we increased slightly the share of assets with fixed rate, and that's about mortgage loans and bonds, direct securities. As far as deposits are concerned, since like 18 months, we have had very active management of the deposit side of our balance sheet. And as you could tell during the past quarterly presentations, the deposit side helps us offset the impact of the interest rate cuts. But the deeper the cuts, the less room we have to maneuver. And how NIM is going to land in the future, it all depends on how we are going to respond with the term deposits given the upcoming interest rate cuts. Unknown Executive: So we have one more question about the numbers. Do we have any guidance for upcoming quarters regarding the cost of legal risk of Swiss franc-denominated mortgages? Unknown Executive: So in terms of the cost of risk, let me start with the historical background. In April, we implemented yet another edition of the settlement program. The settlement program is progressing quite well. We targeted -- and we addressed the majority of the targeted population. We observed that in terms of the incoming lawsuits, we have more lawsuits that are about the lost mortgages. So we are tracking the parameters on an ongoing basis, and we will respond accordingly. Is it the end of the provisions? And is it the end of the Swiss franc mortgage story? I believe we haven't reached that point yet, and time will tell when this point in time -- when it comes. Unknown Executive: We have another question. Please quantify the possible changes of site -- based on our performance. This is a simple arithmetic. So are we going to comment on that? Unknown Executive: No, let's let people crunch the numbers. We will find out something about ourselves. Unknown Executive: Okay. We got another question about PZU to Pekao transaction. Our CEO mentioned that on the 6th of November, we have General Meeting of Shareholders, and we do have an item of the agenda about this transaction, and it will be available on our Investor Relations website if you are not able to participate in the streaming. The question is when we expect legislation and the decisions on the Alior Bank? And what would be the exchange parity? Unknown Executive: Well, as I said earlier, it is our intention to speak about the transaction to the General Shareholders' Meeting at great length. And therefore, I would rather refer you to the 6th of November. Let me just say that we have little control over the legislative process. We expect it to unfold duly. Hypothetically, I assume that it should come to a close by the end of this year. And following this assumption and given the structure of the transaction that has been presented in the term sheet, I believe that Q3 is also a good timeline for closing. In terms of the exchange ratio, it's premature to answer this question. Unknown Executive: Any other questions from the room? Andrzej Powierza: Andrzej Powierza, Citi. I have a question about the cost structure and specifically personnel cost structure. Is it possible to estimate roughly what percentage costs are attributed to the IT personnel? Unknown Executive: I don't think that I have such data breakdown at hand. Perhaps we will come back to you offline with this piece of information. Unknown Executive: There are a handful of technical questions. I will address them on a one-on-one basis. Thank you so much for your attention. As we said on the 6th of November, we have General Shareholders' Meeting. We don't have the date for the publication of the annual report. Normally, it happens in February. But obviously, our Management Board will be available to you during upcoming investors conferences. Thank you so much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the Flushing Financial Corporation's Third Quarter 2025 Earnings Conference Call. Hosting the call today are John Buran, President and Chief Executive Officer; and Susan Cullen, Senior Executive Vice President, Chief Financial Officer and Treasurer. Today's call is being recorded. A copy of the earnings press release and slide presentation that the company will be referencing today are available on its Investor Relations website at flushingbank.com. Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including as set forth in the company's filings with the U.S. Securities and Exchange Commission to which we refer you. During this call, references will be made to non-GAAP financial measures as supplemental measures to review and assess operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and for a reconciliation to GAAP, please refer to the earnings release and/or the presentation. I would now like to introduce John Buran, President and Chief Executive Officer, who will provide an overview of the strategy and results. John Buran: Thank you, operator. Good morning, and thank you all for joining us on our third quarter 2025 earnings conference call. We're pleased to report strong third quarter results, continuing on the momentum we achieved in the first half of the year despite macroeconomic uncertainty and reflecting the considerable progress we've made on our 3 key focus areas: to improve profitability, maintain credit discipline and preserve strong liquidity and capital. Our team has remained focused, consistently executing on these objectives. For the third quarter, the company reported GAAP earnings per share of $0.30 and core earnings per share of $0.35. Core earnings improved 55% from a year ago. Turning to our financial highlights on Slide 3. We showed improved results throughout our business. Net interest margin expanded 10 basis points quarter-over-quarter with GAAP net interest margin increasing to 2.64%, while core net interest margin expanded to 2.62%. We saw improvement from the first quarter of this year and 55 basis point growth from last year's third quarter core net interest margin. We also demonstrated stable to improving credit metrics this quarter, reflecting the strength of our conservative underwriting approach. Net charge-offs totaled 7 basis points for the third quarter, improving 15 basis points from the second quarter of this year. Nonperforming assets as a percentage of total assets were at 70 basis points compared to 75 basis points in the second quarter of this year. During the third quarter, we also continued to see noninterest-bearing deposit growth, which increased 7.2% sequentially. Average noninterest-bearing deposits increased 2.1% quarter-over-quarter and 5.7% year-over-year. This strong operating performance also strengthened our balance sheet. Our tangible common equity ratio remained stable in the quarter at 8.01%, increasing 101 basis points from the third quarter of 2024. Our liquidity remains strong with $3.9 billion of undrawn lines and resources as of September 30, 2025. While there's more work to be done, we're pleased with our execution to date, while the real opportunity lies ahead as our loan portfolio reprices upward in 2026 and 2027. I will now turn it over to Susan to discuss this and other news. Susan? Susan Cullen: Thank you, John. We continue to focus on improving profitability, the first key focus area in our strategy. As John mentioned, both GAAP and core NIM expanded 10 basis points quarter-over-quarter, demonstrating the benefit of our asset repricing strategy. Real estate loans are expected to reprice approximately 147 basis points higher throughout 2027, which should drive further net interest margin expansion. We continue to see additional growth in our noninterest-bearing deposit base, which is a key focus area with our revised incentive plans emphasizing this important funding source. We are also continuing to invest in the business, both in our people and our branches in order to keep driving core business improvements. Given this, we expect capital to grow as profitability improves. On Slide 5, we provide further details on our net interest margin expansion. Core net interest income increased by $8.6 million or a little over 19% year-over-year, demonstrating our increased earnings power. Key drivers of the NIM quarter-over-quarter include loan and security yields increasing 8 basis points and 15 basis points, respectively, which was partially offset by a 4 basis point increase in interest-bearing liabilities, which was driven by swap maturities. Episodic items, which include prepayment penalties, net reversals and recovered interest from nonaccrual delinquent loans, fair value adjustments on hedges and purchase accounting adjustments were higher in the third quarter compared to the second. We remain confident that in the long term, loan pricing should drive NIM expansion, assuming no change in the current flat yield curve. A positively sloped yield curve will aid net interest margin expansion, while negatively sloped curve will make margin expansion more challenging. Slide 6 illustrates one of our most significant embedded earnings drivers, the contractual repricing of our real estate loan portfolio. For the remainder of 2025, approximately $175 million of loans are scheduled to reprice at rates 128 basis points higher than their current coupon. Through the end of 2027, approximately $2 billion of loans or about 1/3 of all of our loans are scheduled to reprice at significantly higher rates, providing substantial predictable tailwind for our net interest income. Contractually and on an annualized basis, net interest income will increase $2 million from the fourth quarter of 2025 repricing, $11 million from the 2026 repricings and $15 million from 2027 repricings. To demonstrate this point, as of June 30, 2025, $96 million of loans were due to reprice in the third quarter. We successfully retained 80% of these loans at a weighted average rate of 6.65%, 222 basis points higher than the prior rate, and there aren't any loans in this bucket that are nonaccrual. This clearly speaks to our strong client relationships and our disciplined pricing and confirms the earnings power embedded in our loan book. Our deposit franchise remains a key pillar of our funding profile. As seen on Slide 7, average total deposits were $7.3 billion. Our strategic initiative to grow core relationships are continuing to pay off. The revamped incentive plans we've previously discussed, which emphasize noninterest-bearing deposit accounts, are delivering tangible results. Average noninterest-bearing deposits increased approximately 6% year-over-year. We continue to closely watch our funding costs as the overall cost of deposits increased slightly quarter-over-quarter to 3.11%. In late September, we reduced the rate on approximately $1.8 billion of deposits 20 to 25 basis points with the full benefit expected to be recognized in the fourth quarter. We continue to see opportunities to lower deposit costs over time as the Fed reduces rates. Total CDs are $2.4 billion or 33% of total deposits at quarter end. Approximately $770 million of CDs with a weighted average rate of 3.98% will mature in the fourth quarter, and our current CD rates are 3.40% to 3.75%. Our second area of focus, as shown on Slide 8, is to maintain credit discipline. We continue to operate with a low-risk profile built on conservative loan underwriting standards and our long history of low credit losses. We have enhanced our focus on relationship pricing and are seeing positive results from these efforts. As Slide 9 illustrates, we have a long proven history of net charge-offs significantly better than the industry, characterized by strong debt coverage ratios. Our conservative underwriting standards and credit culture has been proven through multiple rate and economic cycles, and we are committed to having a low-risk credit profile. Our multifamily and investor commercial real estate portfolios maintain strong debt coverage ratios at 1.7x. Even when we stress test these ratios for higher rates and increased operating expenses, the debt coverage ratio remains strong. In a stress scenario with both a 200 basis point increase and a 10% increase in operating expenses, the weighted average debt coverage ratio is approximately 1.36x. In all scenarios, the weighted average current loan-to-value is less than 50%. Slide 10 shows how our noncurrent loans have been outperforming the industry for well over 2 decades and throughout numerous credit cycles. Flushing Financial has a proven track record of industry-leading credit quality. Our borrowers maintained low leverage with the average loan-to-values in our real estate portfolio of less than 35%. We have only $67 million of real estate loans with a loan-to-value greater than 75% and about $18.5 million of those have loans with mortgage insurance as of September 30, 2025. Our strength rests in the quality of our loan portfolios. There's a growing need for affordable housing in the New York City area. As detailed on Slide 11, in our $2.4 billion multifamily portfolio, nonperforming loans were just 53 basis points. Criticized and classified loans in this segment improved to 66 basis points compared to 73 basis points in the prior quarter and are 16 basis points in the first quarter. The portfolio maintains a very strong weighted average debt coverage ratio of 1.7x based on the most recent financial data from our loan portfolio review group for the rent-stabilized multifamily loan portfolio. Further details are included in the appendix. Slide 12 provides perspective on the positioning of our rent-stabilized portfolio compared to recent market data. Ariel Property Advisors published a report for the third quarter sales, which provides great insight into the strength of our rent-stabilized multifamily portfolio. This slide details the facts supporting our level of confidence in concluding that there is a minimal risk in the rent-stabilized multifamily portfolio. This slide shows the average sales price in each of the [ neighborhoods ] for the third quarter actual sales of rent-stabilized multifamily units, including sales under duress, providing an accurate reflection of true market value. For example, in the Bronx, the average sale price for each individual apartment was approximately $98,000, while our carrying value is approximately $60,000, implying equity of $38,000 per individual apartment. This conservative positioning provides substantial equity cushion and validates our disciplined underwriting in this portfolio segment. Slide 13 provides peer comparison data and our current multifamily credit quality statistics. Our criticized and classified multifamily loans to total multifamily loans are 66 basis points, which compares favorably to our peer group. 30 to 89 days past dues are 71 basis points. Nonperforming loans are 53 basis points of total multifamily loans. Our multifamily allowance for credit losses to criticized and classified multifamily loans improved to 74 basis points, demonstrating appropriate reserve levels. During the third quarter, $49.4 million of multifamily loans were scheduled to reprice or mature. Approximately 71% of these loans remained with the bank and repriced 250 basis points higher to a weighted average rate of 6.5%. With these credit metrics, we see limited potential risk and loss content. Slide 14 provides an overview of our investor commercial real estate portfolio, which is 29% of gross loans. The investor commercial real estate portfolio has 111 basis points of nonperforming loans and 155 basis points of criticized and classified loans. These metrics provide a clear representation of our conservative investor commercial real estate portfolio. Finally, on Slide 15, our third area of focus is preserving our strong liquidity and capital. We maintain an ample liquidity position with $3.9 billion in undrawn lines and resources at quarter end. In the third quarter, average noninterest-bearing deposits increased 5.7% year-over-year and 2.1% sequentially. Our reliance on wholesale funding remains limited due to our strong deposit levels. Uninsured and uncollateralized deposits represent only 17% of total deposits, providing a stable and reliable funding base. Our tangible common equity to tangible assets ratio was 8.01% at September 30, 2025. In summary, the company and the bank remain well capitalized, and our strong balance sheet and resources give us the financial flexibility to invest in our strategic initiatives designed to support our continued growth. With that, I'll now turn it back over to John. John? John Buran: Thanks, Susan. Our strong financial results that Susan just went through are the result of our continued strategic execution throughout the course of the year. A key driver of our franchise growth is our focus and commitment to the Asian banking communities we serve. Here on Slide 16, you can see that due to our targeted efforts, we have grown these deposits to $1.4 billion. This represents an 11.3% compound annual growth rate since the third quarter of 2022. Currently, about 1/3 of our branches are in Asian communities with more to come in the future. With only a 3% market share in this $47 billion market, we continue to see tremendous opportunity to grow. Our growth in this market segment is aided by our multilingual staff, serving our customer base, our Asian Advisory Board and our active sponsorship of cultural activities within this vibrant community. Now let's turn to our outlook for the remainder of the year on Slide 17. We expect total assets to remain stable for the remainder of 2025 with loan growth being market dependent as we stay focused on improving our overall asset and funding mix. We expect to see normal historical funding patterns during this time. There are a number of factors related to our outlook for net interest margin. First, we have $770 million of retail CDs at a weighted average rate of 3.98% to mature in the fourth quarter. The rate on September CDs that were retained was 3.54%. There's an opportunity to continue to reprice nonmaturing deposits lower. Second, we have $175 million of loans scheduled to mature or reprice upwards of 128 basis points in the fourth quarter. Lastly, we have no swap maturities for the remainder of the year. Noninterest income should continue to benefit from our healthy pipeline of approximately $59 million in back-to-back swap loans scheduled to close by the end of the year. We expect banking services fee income to benefit in the quarter as these loans close. BOLI income is expected to total $2 million per quarter. We are maintaining our disciplined approach to expenses and continue to expect core noninterest expense growth 4.5% to 5.5% for 2025 compared to the 2024 base of $160 million as we continue to invest in the company. Lastly, we are expecting an effective tax rate of 24.5% to 26.5% for the remainder of 2025. In summary, on Slide 18, our key takeaways for the quarter reinforce the meaningful progress we made in all areas of our strategy. First, we continue to improve profitability with another quarter of both GAAP and core NIM expansion, each growing 10 basis points. Other factors supporting this are real estate loans, which are expected to reprice approximately 147 basis points higher through 2027. Additionally, there are opportunities to lower deposit costs. We are continuing to invest in our people and branches to drive core business improvements. At the same time, we remain focused on improving ROAE over time. We expect capital to grow as our profitability improves. Second, we are maintaining our credit discipline. Our portfolio is 91% collateralized by real estate with an average LTV less than 35% Further, our weighted average debt service coverage ratio is 1.7x for multifamily and investor commercial real estate loans, while criticized and classified loans are 111 basis points of gross loans. Our Manhattan office buildings exposure is also minimal at 0.48% of gross loans. Lastly, we're preserving our strong liquidity even as we grow capital. As of September 30, 2025, we have $3.9 billion of undrawn lines and resources. At quarter end, uninsured and uncollateralized deposits were 17% of total deposits. At the same time, average noninterest-bearing total deposits increased 5.7% year-over-year, and our tangible common equity ratio stood at 8.01%. Our third quarter results clearly show that we've executed on our 2025 plan in all areas of focus. Our profitability is improving even as we maintained exceptional credit discipline and preserve strong liquidity and capital. We intend to keep executing on these priorities as we move forward and build even greater long-term value for our shareholders. Operator, I'll turn it over to you to open the line for questions. Operator: [Operator Instructions] The first question comes from David Konrad with KBW. David Konrad: Just want to talk a little bit about the NIM, maybe a starting point next quarter, even if you're kind of have to give us some sort of range, but a couple of specific questions would be, I think you had 9 bps in the NIM of kind of miscellaneous fees and things versus 6 last quarter. Should we think about maybe losing the 3 next quarter? What's kind of a, if you will, normal run rate there for those types of benefits to the loan yields? Susan Cullen: I think, David, those have been running a little bit higher than they historically have been as we've seen the loans prepay. Yes, I would think they'd still be a little bit elevated, but maybe not as much as we had at the -- for the third quarter. Let me give you the starting point of the NIM for rolling into September. The NIM -- or at the end of September, the NIM was 2.68%. So it was up a few more basis points from the average for the quarter. David Konrad: Got it. And then maybe on the deposit side, you gave us a lot of good information on the CD. Just wondering what kind of deposit beta you would expect on the nonmaturity deposits? Susan Cullen: Not maturity, we would expect to closely mirror what's been happening with the Fed. So we would expect the beta to be very similar to what we had so far in this down cycle. As a reminder, at the very end of September, we lowered the rates 20 to 25 basis points on a $1.8 billion portfolio of deposits that's not fully captured in that 2.68% number that I gave you. David Konrad: Perfect. And then just last question with the Fed moves, I mean, it seems like your balance sheet is positioned to be liability sensitive. Would that be fair? Susan Cullen: It's a little bit liability sensitive. We've moved it more towards a neutral position, but there is a little bit of liability sensitivity that we hope to -- that we will capture. Operator: Our next question comes from Mark Fitzgibbon with Piper Sandler. Mark Fitzgibbon: First question, I guess, Susan, what was the miscellaneous nonrecurring professional expense for like a little over $1 million this quarter? Susan Cullen: So those are related to some year-end strategic planning we've been doing. Mark Fitzgibbon: Okay. So those will all be gone in 4Q or there's more to follow? Susan Cullen: There's probably -- there's more to follow. Mark Fitzgibbon: Okay. And then secondly, I wondered if you could share with us your thoughts on stock buybacks. The stock is trading at 63% of tangible book value, I think, right now. And the balance sheet growth has been -- you've been sort of controlling that or managing that to flattish. Capital ratios look to be optically sufficient to be able to buy back stock. Why not buy back stock at these levels? John Buran: We're really concentrating on maintaining the dividend over time, and we also want to keep capital ready as the opportunities come up to recommence with growth in the portfolio. Mark Fitzgibbon: But I mean, I assume you think the value of the stock is really attractive. And if the market is not recognizing that, why not even shrink the balance sheet some more and take advantage of the fact that your stock is so deeply discounted relative to book? John Buran: Well, I think we want to -- again, we want to be focused. We want to have the opportunity to utilize any excess capital to grow the portfolio in the coming months. Mark Fitzgibbon: Okay. I guess I was just wondering, is the economics more attractive of a buyback versus growth? And I suspect they are today, and it's obviously a riskless transaction. John Buran: Over the long haul, we prefer to be in a position to grow the portfolio. Mark Fitzgibbon: Okay. And then I guess sort of a bigger strategic question, John. Do you worry if you can't get the ROTCE up into that double-digit range soon? I mean there's been so much activism in the industry. Do you worry that that's a risk for Flushing to become kind of a target for an activist? John Buran: Look, I think there's a possibility of that. We clearly are on a path to improve the earnings of the company. And as we said in our opening remarks, 2026 represents a better opportunity than 2025. And 2027, we have $1 billion worth of repricing loans. So we think we're on a very, very strong path to certainly improve the ROAA and ROAE. Mark Fitzgibbon: I guess I'm curious, is there a line of sight in your strategic plan, whether it's 1-year, 3-year, 5-year, where you can get to a double-digit ROTCE or ROE? John Buran: I think in late 2027, yes. Operator: Our next question comes from Steve Moss with Raymond James. Stephen Moss: Maybe following up on the balance sheet positioning here. I know you have $480 million of swaps. And if I recall correctly, they start to mature next year. I'm just kind of curious about the cadence of that maturity and just kind of how you guys are thinking about that. Susan Cullen: So we've been thinking about those. We think about them a lot. We have the ones that are maturing, we have partially repurchased, and we have forwards coming on board that will help to mitigate some of those that are rolling off. Unfortunately, I think those that are rolling off are at a very low cost. So we're not going to be able to capture that 15 basis points or 75 basis points we had, but we have about $80 million worth that are... John Buran: $180 million. Susan Cullen: $180 million, excuse me, that are forwards coming back on. Stephen Moss: Okay. So the impact on the margin is going to be small, relatively speaking, I guess? Susan Cullen: Yes. In the overall scheme of our financial assets and liabilities, yes. But still beneficial. Stephen Moss: Right. Okay. Got you. And then in terms of the balance sheet positioning here, you guys added it looks like some securities late in the quarter and then the loan pipeline being higher here. Just kind of curious, do we think about -- I heard you on the flattish comments, but was there maybe like some of the loans just didn't close in the third quarter? I'm just kind of curious is that on those dynamics there. Susan Cullen: So what we've seen is that we have a book of CLOs, and those are getting called pretty frequently is probably the right word. So we are prefunding some of those calls that we've seen and also the loan pipeline, yes, we did see some things close that we thought we would. So what we've talked about in the past still holds that as loan growth picks up, we'll start relieving some of the investment book. Stephen Moss: Okay. Perfect. And then I guess the -- just one more thing. I hear you on the deposit beta being similar here in the down cycle. You mentioned the 20 to 25 basis point reduction with the September cut. Are we going to be for the $1.8 billion of deposits, is that going to be similar for yesterday's cut? John Buran: I see a good opportunity to do that as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Buran for any closing remarks. John Buran: I want to thank everybody -- everyone for their attention, and we look forward to continuing to engage with you as we go into the fourth quarter of the year. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen. Welcome to the Third Quarter 2025 Illumina Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Head of Investor Relations, Conor McNamara. Conor Noel McNamara: All right. So we'll kick things off. Today, we will review our financial results released after the market close and provide prepared remarks before opening the line for Q&A. Our earnings release is available in the Investor Relations section of illumina.com. Joining us on today's call are Jacob Thaysen, Chief Executive Officer; and Ankur Dhingra, Chief Financial Officer. Jacob will start with an update on Illumina's business, followed by Ankur's review of the company's financials. We will be discussing certain non-GAAP financial measures on today's call, and a reconciliation to GAAP can be found in today's release and in the supplementary data available on our website. Please note that unless otherwise stated or when referring to our end markets, all year-over-year revenue growth rates discussed in our prepared remarks are presented on a constant currency basis, excluding the impact of foreign exchange fluctuations. In addition, all references to China refer to our Greater China region, which also includes Taiwan and Hong Kong. This call is being recorded, and the replay will be available in the Investors section of our website. It is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Illumina files with the SEC, including our most recent Forms 10-Q and 10-K. With that, I will now turn the call over to Jacob. Jacob Thaysen: Thank you, Conor, and good afternoon, everyone. In the third quarter, we delivered another strong performance with revenue, non-GAAP operating margin and diluted EPS all above our guidance range. We reported total revenue of $1.08 billion, and we returned to growth ex China, up about 2% year-over-year. Non-GAAP operating margin was 24.5% and non-GAAP diluted EPS was $1.34, both reflecting strong year-over-year expansion and above our guidance. This performance reflects the momentum we're building through the NovaSeq X transition, especially in the clinical markets, where sequencing consumables revenue grew at a high single-digit rate year-over-year. Given this strength, we are raising our total full-year 2025 outlook with staying disciplined as we monitor macro and funding dynamics through year-end. In our end markets, clinical continues to accelerate. Customers are advancing new assays that demand increasing sequencing capacity and intensity. And the NovaSeq X is proving to be the ideal solution, delivering higher throughput with the same trusted accuracy and workflow as the existing NovaSeq 6000 instruments. Growing sequencing volumes are more than offsetting transitional pricing effects, driving a sequential and year-over-year increase in consumables revenue. In research, we saw stabilization in demand, even as many labs continue to manage spending carefully in light of regulatory and funding uncertainty. Our teams remain closely engaged with customers to help sustain their work. We were also encouraged by the resilience of our business in China, where our revenue came in ahead of our guidance despite ongoing export restrictions. As a reminder, a fraction of our business is served by OEM partners that sell our instruments and consumables into specific customer segments. We have now received approval to serve those partners through the manufacturing of select instruments locally in China. While this marks a measured step forward, we have not yet reached a long-term resolution related to our operations in China, but we remain in dialogue with the relevant agencies. Now, turning to our strategy. In Q3, we made significant progress across the 3 pillars that underpin our long-term financial targets, growing our core sequencing business, scaling into multiomics and expanding our services, data and software capabilities. Together, these pillars are shifting the conversations from cost per gigabase to delivering the highest quality biological insights at the lowest end-to-end cost. Starting with our core sequencing business. In Q3, we had another strong quarter for the NovaSeq X with more than 55 instruments placed in line with our goal of 50 to 60 placements per quarter. Most importantly, we achieved the milestones we have set for our high-throughput transition to the NovaSeq X. Our goal was to reach approximately 75% of high-throughput gigabases shipped and 50% of high-throughput revenue on the X platform by year-end, and we exceeded both here in Q3. Our results highlight the strength and elasticity of sequencing demand. NovaSeq X consumables revenue growth accelerated even as conversion from the NovaSeq 6000 increased, demonstrating that our transition strategy is working. Clinical remains the primary driver, supported by new assay approvals, positive reimbursement decisions and growing demand for more sequencing-intensive tests, all trends that position us well for sustained growth. As pricing headwinds ease and research end markets stabilize, we believe these dynamics will put us back on track toward our long-term revenue growth targets. Moving to our second pillar, scaling into multiomics. Following our announcement, announced acquisition of SomaLogic in Q2, which we continue to expect will close in 2026, we launched Illumina Protein Prep in Q3. This co-developed proteomics assay brings the power of NGS to protein analysis through a simple integrated workflow that delivers scale, precision and accessibility for labs of all sizes. Illumina Protein Prep can measure up to 9,500 proteins per sample and provides highly consistent results in about 2.5 days with minimum hands-on time and at a lower cost per insight. Importantly, Illumina Protein Prep integrates with Dragon and our upcoming Illumina Complete multiomics software suite, extending our end-to-end capabilities from sample prep through data interpretation. Beyond proteomics, earlier this month at ASHG, we expanded our multiomics portfolio with the launch of our 5-base solution, an integrated library prep and software offering that simultaneously reads genetic variances and DNA methylation. Using proprietary chemistry and our new DRAGEN algorithm, 5-base preserved both variant and methylation information in a single workflow, delivering accurate single-base resolution while reducing complexity and cost. Turning to our third pillar, expanding our services, data and software capabilities. Earlier this month, we introduced BioInsight, a new business created to accelerate the use of genomic and multiomics data in drug discovery and research. BioInsight brings together our population sequencing programs, data partnerships and software and AI capabilities under one structure, creating a more strategic platform to collaborate with governments, biopharma and research institutions. By combining advances in sequencing, economics and AI, BioInsight enables customers to generate and interpret data at a greater scale, positioning Illumina to capture new opportunities in this fast-growing space. In the near term, BioInsight will focus on large-scale data generation partnerships with longer-term plans to further monetize data, software and AI-enabled services, adding another layer of growth that supports our long-term financial targets. Together, these initiatives show how we are executing on our strategy, expanding Illumina's reach from sequencing to multiomics and from data generation to biological insights. They reflect an innovation road map that is delivering for customers today while setting the stage for what comes next. Throughout the quarter and ASHG, I met with many customers, those enthusiasm for our recent launches and upcoming solutions like Constellations with CLIA. These discussions are one of many ways we gather customer feedback, and we continuously integrate those insights into our road map. Customer focus and understanding are core to how we operate and my own conversations are an extension of that discipline. We are focused on what matters most to them, making sequencing easier, more accessible and more affordable, which helps us build stronger partnerships and better solutions. As a result, customers are expanding into new sequencing-intensive applications, broadening the reach and impact of our technology. At ASHG, these conversations reaffirmed our leadership position, built on end-to-end solutions, the quality and consistency of our data and proven reliability and service and highlighted the trust customers place in Illumina as a long-term partner. That feedback strengthened our conviction in the path ahead and our ability to extend our leadership for years to come. Looking ahead, we remain focused on disciplined execution and building our momentum from Q3. Clinical will continue to be our primary near-term driver of revenue growth as NovaSeq X volume more than offsets conversion pricing headwinds. We also anticipate a gradual return to growth in our research business as pricing headwinds abate and end markets stabilize. Together, these dynamics position us well going into 2026, giving us confidence in our ability to achieve high single-digit revenue growth and 20% non-GAAP operating margins by 2027, excluding Greater China. With that, I'll turn it over to Ankur to walk through our Q3 results and outlook before we move to Q&A. Ankur Dhingra: Thank you, Jacob, and good afternoon, everyone. I will give you an overview of our third quarter financial results, provide more color about revenue, expenses, earnings and capital deployment and then speak about our outlook going forward. Before I get into the details of the financial performance, let me give you a high-level view of how the third quarter played out. In Q3, our business outside of China returned to growth, an important milestone towards our long-term goals. We made significant progress in the NovaSeq X transition with over 75% volume and over 50% revenue now transitioned to X. High-throughput consumables had strong growth in our clinical business, driven by continued expansion of X. Revenue exceeded the top end of our guidance range, was roughly flat globally and grew approximately 2% year-over-year ex China. Non-GAAP operating margin expanded by 190 basis points to 24.5% and non-GAAP diluted EPS of $1.34 grew $0.20 year-over-year. Now let me provide you details of our financial performance. Third quarter revenue of $1.08 billion was roughly flat year-over-year on both a constant currency and reported basis and ahead of the top end of our guidance range. Revenue, excluding China, which makes up 95% of our revenue, grew approximately 2% year-over-year. Greater China revenue was $52 million. Sequencing consumables revenue was $747 million, roughly flat year-over-year and up about 3%, excluding China, both on reported and constant currency basis. High-throughput volumes continue to grow as customers across research and clinical take advantage of the NovaSeq X instruments. In clinical, momentum remains strong with double-digit revenue growth outside of China, driven by broader adoption of comprehensive genomic profiling and growing use of sequencing-intensive applications like MRD. In research and applied, consumables sales declined high single digits outside of China, reflecting continued funding uncertainty and pricing dynamics tied to the X transition. To give investors better visibility into these dynamics, we have added new disclosures for revenue outside China, showing instruments and consumables revenue and also consumables revenue growth by clinical and research segments. This can be found on Slide 10. The X transition progressed significantly in Q3, roughly 78% of volumes and 51% of revenue in Q3 was sequenced on X. 91% of research volumes were sequenced on X. The clinical X transition has progressed to roughly 64% of volumes in the quarter. Our customers are taking advantage of X's capabilities to increase content on their assays, expand into new indications and taking whole genome-based approaches, as you may have seen with several product launches and approvals in the last few months across therapy selection, MRD and genetic disease indications. Now that we have achieved this transition milestone, we thought it would be helpful to illustrate the conversion patterns with our clinical customers. On Slide 12, we look at the 40 customers that have fully transitioned to X as of Q3, and we see how elasticity of demand played out. For this group of customers, volume offset price in year 1 and then revenue and volume both accelerated in year 2. We continue to be in deep dialogue with our clinical customers about their growth trajectory and their 6K to X transition plans. These plans support a view of continued revenue growth in 2026 and beyond. Specifically, business with our largest customers is projected to grow faster than the overall company average rate, at least over our strategic plan period. Taken together with the range of new assays coming to market and these discussions with our customers, gives us confidence that clinical demand will remain strong as the X transition advances. On sequencing activity, total sequencing GB output on our connected high- and mid-throughput instruments grew at a rate of more than 30% year-over-year, driven by robust strength in clinical, but a more muted growth from our research customers. Moving to sequencing instruments. Revenue of $107 million was up approximately 3% year-over-year in Q3 and 6% ex China on both a reported and constant currency basis, driven by the broad adoption of the MiSeq 100 in the low-throughput space. NovaSeq X placements were strong at over 55 in Q3. In line with recent trends, over 50% of Xs placed in Q3 were to clinical customers. In Greater China, our instruments business was down approximately 54% due to restrictions on exportation of instruments into China. Sequencing service and other revenue of $147 million was down approximately 3% year-over-year, below our expectations. The decrease was mainly due to the timing of certain strategic partnership revenues. Moving to the rest of the Illumina P&L. Non-GAAP gross margin of 69.2% for the third quarter. Tariffs impacted gross margins by roughly 220 basis points on a year-over-year basis. Non-GAAP operating expenses were $484 million, which is down approximately 6% or $33 million year-over-year, reflecting results of multiyear cost reduction programs while prioritizing key growth investments. Non-GAAP operating margin was 24.5% in Q3, expanding 190 basis points year-over-year. Non-GAAP operating profit grew approximately 9% year-over-year, reflecting increased operating leverage from the improved cost structure. Looking at our results below the line, non-GAAP other expense, which is largely comprised of net interest expense, was $13 million and non-GAAP tax rate was slightly higher than expectations at 18.6%. We continue to assess long-term tax structure optimization to balance U.S. R&D benefits with efficient credit utilization across jurisdictions. Our average diluted shares were approximately $154 million, roughly $3 million lower than last quarter, driven by an increased level of share repurchases, net of dilution from employee equity awards. Altogether, the non-GAAP earnings per diluted share of $1.34 grew 18% year-over-year and came in well above our guidance range. Moving to cash flow, balance sheet and capital allocation items for the quarter. Cash flow provided by operations was a robust $284 million. Capital expenditures were $31 million and free cash flow was $253 million. In Q3, we repurchased approximately 1.24 million shares of Illumina stock at an average price of $97.10 per share for a total of $120 million. At quarter end, we had $684 million remaining on our share repurchase authorization, and we intend to continue to repurchase shares opportunistically. Additionally, last quarter, we entered into a definitive agreement with Standard BioTools to acquire SomaLogic and other specified assets. We are working with regulatory authorities to obtain clearance and still expect the deal to close in the first half of 2026. We ended the quarter with roughly $1.28 billion in cash, cash equivalents and short-term investments and gross leverage of approximately 1.6x gross debt to last 12 months' EBITDA. Now moving to guidance for the year 2025. As you may have seen in the press release, we are increasing our guidance for 2025. Starting with revenue. We're raising our revenue guidance for the Greater China region by $20 million to approximately $220 million for the year. For the Rest of the World, we're projecting revenue growth between 0.5% and 1.5% on a constant currency basis, unchanged at midpoint. Hence, we now anticipate total Illumina constant currency revenues to decline in the range of minus 0.5% to minus 1.5%. On a reported basis, that equates to Illumina revenue in the range of $4.27 billion to $4.31 billion, up $20 million at the midpoint relative to last guidance. Now shifting into our product assumptions for rest of the world, excluding China. We now expect sequencing consumables growth between 2.5% and 3% towards the higher end of our prior guidance of 1% to 3%. This increase reflects strong performance in Q3, driven by sequencing consumable volume growth from our clinical customers. We are reiterating our guidance range for sequencing instruments decline of minus 6% to minus 4%. The offset is in services related to timing of certain strategic partnership revenues. Moving down the P&L, reflecting our strong execution and results as well as increased revenue expectation from China, we are increasing our non-GAAP operating margin guidance by approximately 60 basis points at the midpoint to a range of 22.75% to 23% -- we now expect full year 2025 non-GAAP tax rate to be approximately 20.5% and our full year 2025 weighted average shares outstanding of roughly 156 million shares to reflect our Q3 repurchases. Bringing it all together, we're raising our non-GAAP diluted EPS guidance by $0.20 at the midpoint to a range of $4.65 to $4.75, reflecting 13% growth year-over-year at midpoint. This guidance implies that for Q4 2025, we expect our year-over-year revenue growth in rest of the world ex China to step up to the 4% and China contributing $33 million in Q4. As we close out 2025, we are quite encouraged by the momentum we've built from the successful NovaSeq X transition and the continued strength of our clinical business to the progress we've made preparing for multiomics launches across single cell, spatial and proteomics. Looking ahead to 2026, we see 3 key trends. First, in clinical, we expect dynamics similar to this year, strong volume growth and continued transition to X. Second, in research and applied, we anticipate conditions to remain muted, consistent with the latter half of 2025, with pricing headwinds easing now that 91% of high throughput volume has transitioned to X. And third, our planned 2026 multiomics launches will begin contributing to growth as and when research end markets recover. Altogether, we expect the end markets in 2026 to look similar to the second half of 2025. We'll provide detailed 2026 guidance when we report our Q4 results. In closing, I want to once again express my sincere appreciation to the Illumina team for their continued focus and disciplined execution throughout this year. This quarter was extremely encouraging as we returned to growth and made significant progress towards our short- and long-term goals. Thank you for joining our call today. I'll now invite the operator to open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Puneet Souda with Leerink. Puneet Souda: If I could, I'll just wrap my questions into one. Thanks for the details on the $33 million for China that you are implying versus the full year, I'm just trying to understand how should we think about China in sort of '26? You seem to be isolating China as you are moving forward. Maybe if you could provide some color there. And then a bigger question here is what competitively has been announced at ASHG. Is that leading to any freezing on the research and applied side of the market? I appreciate you providing more color on the clinical. And then the last part, if I may, clinical growth, 12%, thank you for that. How should we expect that for the full year and '26, if you could? Jacob Thaysen: Puneet, this is Jacob. So thanks for that one question, which I think had a few smaller parts. But let me start with the China setup. First of all, I'm very pleased with the performance in China. As you know, we still haven't resolved the situation in China, but we made a good step forward here by now being able to serve our OEM partners so they can serve their customers in China. So I'm with instruments. So I'm really pleased about that. I'm also very happy to see how Jenny, our General Manager in China and the Illumina team continues to serve our customers in a challenging environment. They've shown really resilience in this. And of course, what we're also seeing and we continue to be very pleasantly surprised about is how well or how much our customers do want to continue to work with Illumina. They continue to see the high quality and innovations, and they want to see us stay in the market. We are taking this right now, quarter-by-quarter. It will be too early for us to go in and give you a view on '26. But clearly, again, we need to find a way to resolve the situation, and we continue to work with the regulators in China to find a solution for that. Operator: Your next question will come from Doug Schenkel with Wolfe Research. Douglas Schenkel: Two questions. So the first, as I think about 2026, based on how you described trends in your prepared remarks, there's 3 things that really jump out to me. One, it seems plausible that research revenue could be flat to down low singles next year in a somewhat stable funding environment given the state of the transition to the X. Two, clinical revenue should grow, but maybe mid-single digits to high single digits as volumes grow and customers continue to transition to the X, keeping in mind the slide that you presented on 3-year precedent with clinical customers. And then third, China could be a 50 to 100 basis point headwind to growth. So like when I pull those 3 things together, mathematically, it gets me to low single-digit revenue growth, at least as a starting point for next year. I'm just wondering if that's a reasonable framework. And then the second thing is, operationally, you have managed to expand margin about 50 basis points year-to-date in a period where total revenue is down a couple of points. including a close to 25% year-over-year decline in high-margin China revenue. So it's been really impressive. I'm just wondering what does this mean as the margin outlook or the margin outlook as the environment normalizes? Because on one hand, you could argue you already pulled forward a lot of operating levers to get to these levels. On the other hand, the fact that you've accelerated operating efforts the way you have could lead to pretty material flow-through when revenue starts to pick up again. So I just -- Ankur, it would be great to just know how you're thinking about this. Jacob Thaysen: All right, Doug, thank you for the questions. And let me start again on '26. As I said before, we're not going to go in and give guidance. We do think it's highly appropriate to wait until we have a better sense for how what will happen over the next quarter here and how the market evolves and also the regulatory space, of course, from a China perspective. That said, I think that the framework you're putting out looking at clinical being the driver of growth in next year also, where we are seeing more muted environment for research. And I think we're seeing it more like a second-half environment as we see it right now, it is stabilizing, but still soft. And then we think there will be some contribution from some of our new launches of our multiomics products here. How we think about it right now, we are not taking -- I wouldn't take China into the consideration at this point of time for -- in our framework. That's too early to see where this is -- where China is going. I would say overall, on the -- how we are operating the company and how disciplined the team has been on executing, I feel good about the opportunity we have to further expand our margins. And I feel really good about, as I mentioned in my prepared remarks, moving towards our goal of 26% in '27 and above going forward. Ankur Dhingra: Yes. On the margin side, good question, Doug. Very pleased with the performance, especially as some of the result of the actions that we've been taking coming through here in this quarter as well. We're pleased with 190 basis point operating margin expansion during the quarter. So we've taken a lot of cost structure actions. I'm looking forward, there are still several plays that are yet to reflect the full benefit in our P&L, especially in our gross margins, where we continue to work with optimizing our manufacturing footprint. And on the OpEx side, our sense is we've put in a lot of structural plays in move. Some of those have to play out. But at the same time, we are making growth investments as well. So going forward, I do anticipate additional margin expansion coming both from cost action, but also most certainly, much stronger operating leverage given where we are from a cost structure perspective. Operator: Your next question will come from Vijay Kumar with Evercore ISI. Vijay Kumar: Congrats on a nice sprint here. Two quick ones, Jacob, Ankur, for both of you. On consumables, I thought the expectations for the quarter was something like 720, 725-ish, given China headwinds. I recognize China came in better. Was there any pull forward in academic and government segments? Like how would you -- when you look at the consumables growth of 3% rate, what was -- what is macro versus this transition impact? If you could just parse that out. And Ankur, for you, I think in the past, you've said 500 basis points of margin expansion. Is that still relevant given off of current levels given you guys have executed in margins? Jacob Thaysen: So Vijay, thanks for the question. And yes, we are excited about Q3. We think -- and consumables were definitely a highlight of the quarter also. It continues to see momentum. What you're seeing is how the quarter played out. There's not been any pull forward either from China or what we've seen from NIH. We're very pleased to see that the grants are starting to flow again, but it did not -- there was no catch-up effect from actually spending from NIH customers, so to say, grant receivers. So we're not seeing that at this point of time. But we are, of course, hopeful that more will happen. But I think it will take time for this to stabilize even further. Ankur Dhingra: Yes. So the only thing I would add, bulk of the overperformance, rest of the world came from clinical side there on the consumable side. So very robust demand there. And then on the margin expansion, the 500-basis point was the goal we had set ourselves when we had the Analyst Day last year with a starting point where our base was much closer to about 21% or so. So we're marching towards in aggregate, getting to that 500 basis points over time. But as I've said, the business, the way it is at close to 69%, 75%, 70% gross margin, we do hire long-term opportunity in that space, but we'll talk about it once we achieve our first milestone and then go from there. Operator: Your next question will come from Tycho Peterson with Jefferies. Tycho Peterson: A couple of quick ones. So as we think about research being muted next year per your comments, how are you thinking about multiyear grants and then on the flip side, allowing labs to potentially tap into indirect funds for capital equipment and also pent-up demand? So that's the first question. I also understand you don't want to talk about '26 a lot, but can you grow earnings in your view, given China and Roche headwinds? And then maybe for Ankur, on the consumables for this quarter, how much of the beat was China and tariff surcharges? And then what -- you didn't really explain gross margins, down 130 basis points year-over-year. Can you maybe touch on that? Was that all pricing? And what are the levers that you're implementing to offset? You said there's some GM levers coming. Jacob Thaysen: Okay. So the first question was the research part. So I think still, there's a lot of in and outs on both single-year grants and multiyear grants. I think what we're seeing right now is that while grants has been granted, we have not seen many of the researchers starting to spend the money yet. And I think if you think about an academic researchers right now, usually, they might get several grants during the year. So it's not the one grant that drives and necessarily decision. It's predictability of the grants coming also. And I think that's a little bit what we are still and what the market on the academic market is still waiting to see is the new predictability. Can they expect that grants are also flowing in '26. So I think there's a little bit of that uncertainty that has to play through before we start to see a more normal situation. So we will definitely be ready to respond, and I'm actually quite pleased with our lineup in multiomics also that will be very relevant for this type of customers when the funding is coming back. We are very confident and believe we can grow our earnings also in '26. And I think we have proven that here in '25. It's been a lot of headwinds from many different angles. And I think you can definitely see that we have been able to do so. So that brings my confidence for what we can do in '26 also very high. Ankur Dhingra: Okay. Let me address the other 2 parts there. One, on the gross margin side, down 130 basis points, almost 220 basis points is from tariffs, which we'll talk about -- we're working towards mitigating some of those. The remainder base gross margin was up about 90 basis points accordingly. So the base business is continuing to do very well, and we are working towards, over time, find a way to mitigate the impact coming from tariffs. Your question about the beat on consumables, so roughly half and half in China and outside China. Most of the outside China is in clinical. The surcharge was exactly where we guided it to be. It came in right at the forecast. Operator: Your next question will come from Dan Leonard with UBS. Daniel Leonard: Apologies for that. One question on the growth in clinical consumables. That double-digit growth rate, did that include any positive lumpiness in there? Or do you view that as more run rate? Jacob Thaysen: Dan, thanks for that question. We are very pleased again with the performance for Q3 and also definitely the clinical performance. As you also saw in the prepared remarks, but also in the slide that we had a very strong movement going from 44% of revenue in the high throughput on the X now up to 51% at the same time, also moving a lot of volume. So I think it really speaks to that when we are -- even with the shift and the transitioning that we can grow in -- even when we have a fast transitioning. That's what you're seeing. There's no specific lumpiness in this. I wouldn't count on that this is the run rate from now on, but I do believe that we will continue to have strong growth in the clinical space. Operator: Your next question will come from Patrick Donnelly with Citi. Patrick Donnelly: Maybe one, I know Roche has been mentioned a few times. Would love just your guys' perspective on the competitive environment. Jacob and Ankur, I know you're both up at ASHG, talking to a lot of customers seeing the product. So can you just give us your perspective on the competitive landscape, what factor that plays into '26 and just how you're thinking about any pressure or freezing that could offer to the market, particularly on the clinical side? Jacob Thaysen: Yes. Patrick, thanks for the question. And as I mentioned before, we've always had competition in this space. We definitely have a lot of competition right now, and I love it. I think competition is great for us and how we think, how we push ourselves and how we thereby also become a better partner for our customers. What I also see out there is that most of our competition -- competitors are trying to compete and differentiate on one dimension only. But in reality, as you also mentioned here, we've been in conversation with many of our customers, and our customers are much more sophisticated than looking at one single dimension. They are actually looking at multidimension as highest quality data combined with the best workflow and lowest end-to-end cost. And as I see it, and I think also our customers resonates with our customers is that Illumina is really the only one that's delivering across all these dimensions and continue to innovate also. So I feel really good where we are and the competitive situation. Operator: Your next question will come from Mason Carrico with Stephens. Mason Carrico: Assuming similar market trends next year. How sustainable is the 50 to 60x per quarter moving forward? What does the pipeline look today? And maybe assuming we get a flattish NIH budget, do you think X placements could remain stable around these levels? Jacob Thaysen: Yes, Mason, so thanks for that question. We started the year coming out and guided towards a 50, 60 placements per quarter. And remember, in '26 -- '25 when we provided this guidance, what happened afterwards was, of course, our challenging situation in China, combined with the challenges in NIH and funding. And yet, we have still been able to deliver on that algorithm. And I also expect here that Q4 will look stronger than the average of the year, which is usually do. We always have a stronger instrument placements in Q4. So I think -- and what I see is that I don't see no reason why -- any reason why that trend wouldn't continue into next year. But at this point, it's too early to actually give you specifics on exactly how we think about that range. Ankur Dhingra: Mason, from an end market perspective, if you look at the overall sequencing demand, we still see a significant number of sequencing-intensive applications that are both in the clinical as well as in research space that are building and continuing to build traction and momentum here. So we do see a several-year further expansion of the sequencing ecosystem, which actually should translate into placements as well. Operator: Your next question will come from Catherine Schulte with R.W. Baird. Catherine Ramsey: Maybe in research and applied, it looks like the NovaSeq X transition is almost complete there. Just curious, how has the gigabyte output looked in that customer group this year, just as we try to think about underlying activity levels? And then related, are you baking in any government shutdown impact for the fourth quarter? Jacob Thaysen: Yes, Catherine. So I'll start by the first one, looking at the transition here and we're very pleased -- but also as expected that the NovaSeq X would transition much faster in the research and academic environment. As you can -- as you might know, is that what is happening there is that when a researcher have finished up their project on the 6 when they get the new project, they can immediately start on the X and do a bigger single cell project or whatever else they are working on in that particular research environment. That's very different from the clinical space where you have to validate and you have to make sure that it works on the new platform before you move over. So we're very used to and we expected that research applied would move much faster. And now with the transition done, we see that, that pricing headwind is, of course, reducing. So we are, of course, encouraged about the future. That said, there's still, of course, concerns about NIH funding, and they'll be muted for the time being. So maybe, Ankur, you can a little more. Ankur Dhingra: So Catherine, in terms of actual GB volume growth, the -- as you may have probably worked through with where our research revenue growth in consumables has been, the GBs have grown both in clinical and in research during the quarter. Clinical was much, much stronger. The growth rate in research has come down relative to what the historical growth rates have been, but it is still growing. Now the overall funding environment has played out where the actual demand in that space and the activity has become muted, but the GB still grew, albeit below the 30% kind of number that we've talked about. Operator: Your next question will come from Kyle Mikson with Canaccord. Kyle Mikson: Congrats on the print and all the updates, really good. Yes. Ankur, for you on the quarterly R&D expenses declined a bunch quarter-over-quarter. It's like the lowest dip below $230 million for the first time since 2021. Wondering if that's -- if this is a new run rate or will it grow from here? And how much of it relates to the recent or the upcoming launches of new products as well as your efforts to remain competitive, obviously, too? And then just one quick one on the clinical. That looks like it's accelerating. What's specifically driving that? And there are there other catalysts that could unlock further growth? Jacob Thaysen: Yes, Kyle. So let me start on this. This is Jacob, on the R&D. And I'm very pleased with how Steve, our CTO and the R&D team is driving a disciplined execution of the R&D and the portfolio. And -- but we also, at the same time, we're very disciplined on how we spend our money and how we think about OpEx going forward. And I think that's the result you're seeing. But what I'm really pleased about is that I continue to see improved productivity in the R&D organizations also. So I'm excited about what we have in our portfolio and what will come out over the next few years. Some of that we have talked about, a lot we haven't really shared as of yet. So much more to come. Ankur Dhingra: Yes. Thanks, Jacob. On the -- your second question, Kyle, the -- okay. The clinical acceleration during the year, think about it in 2 ways. We've talked about the number of X placements and more than 50% of the Xs being placed in the clinical over the last several quarters and a significant number placed during the last quarter, talked about the validation of Xs in the clinical takes a little bit longer than what it has in the research environment. So the -- what we believe we are seeing the effect of is a lot of our large customers launching and getting approval for several new tests in some even in early detection, definitely in therapy selection, also in MRD and in genetic disease, even if you just line up the number of tests that have been approved in the last 2, 3 quarters alone, you will see the significant new activity that is getting added, right? And a lot of these larger highly intensive tests have been enabled on X given the amount of sequencing intensity of these new tests take. So we think it's the clinical market is building momentum, and there is legs to this momentum going forward as well. The eventual growth rates in itself will pan out the way they would pan out, but there's a lot of good fundamental momentum building in that business. Jacob Thaysen: Yes. And I also remind that we did a lot of X placements in Q4 and Q1 in '25 here in Q4 '24, and that's playing out now. You can see that many of those went into the clinical space, and that's where you start to see volume coming from also these placements. Operator: Your next question will come from Jack Meehan with Nephron Research. Jack Meehan: You've given a lot of very helpful comments around 2026 framing thoughts. In the past, you've talked about a goal of double-digit EPS growth. I was just curious with the building blocks that you've laid out for us, just your confidence that you think you can deliver on that next year. Jacob Thaysen: Jack, good to hear from you. And yes, we continue to -- as I mentioned also in the call, we continue to -- of course, we were not guiding when we were at our earnings -- our investor set up here last summer. We were not providing too much detail on the EPS as far as I recall, it was more on the operating margin, where we said we were going to -- where we're going from 500 basis point up to 26%. But with that also comes, of course, strong EPS growth. So we're confident we can continue to grow the EPS in that range we were talking about also here. Now we're not -- it's too early again for us to give specific guidance for next year, but we believe we can continue to do so. And I think we have proven very well in very tough environments that we've seen both in '24 and here in '25 that we have expanded the EPS. And our aim is to continue to do so in the same level. Ankur? Ankur Dhingra: Yes. Thanks, Jacob. Jack, yes, we still have several levers that we continue to work on from an overall earnings expansion perspective. Clearly, getting the OpEx cost structure to a level where we have much stronger operating leverage was an important point, and we feel we're getting close to that. So keeping discipline on that spending is one crucial aspect. We still continue to work on several of the programs that we've kind of outlined before. And the results of some of those are yet to play out in the P&L. We've talked about setting up our core centers of excellence in Singapore. We've talked about centers of excellence in India. We've talked about continuing to work on the gross margin on our instruments. These are all levers that we continue to play and still have additional value to be dried. And on top of that, as we return to growth and with a better cost structure, there should be better operating leverage, too. So in short, yes, our focus is to continue to expand our earnings going forward. We'll talk about the specifics, of course, for 2026 when we get to the guide. Operator: Your next question will come from Tom Stevens with TD Cowen. Daniel Brennan: Great. This is Dan Brennan. Congrats on the quarter. Maybe just a couple. So I know a few questions have been asked on the X transition, but the 900 basis points of like sequential increase of volume on the X from 55 to 64, like could we see another 900 basis points in 4Q? And kind of how do we think about getting to the research kind of level for the X, which is 90%? Like how long will that take, do you think? And then b, in terms of research, can you just break down a little bit like what you're actually seeing from your U.S. academic and government customers? Like what have those trended year-to-date in the third quarter? And if we do get a flat budget or even like a CR, do you think that would be enough to see like a nice uptick in spending? Or what are you hearing from customers about what will allow them to spend more in the research customers? Jacob Thaysen: Yes, Dan, thanks for that. I think at the last earnings call, we had a lot of conversations with all of you about why the transition was slowing. And now we have a conversation about why it's accelerating. I think first and foremost, what's important is that revenue accelerated with the acceleration of the conversion. So we're very pleased with that, and we continue to see that, that trend will continue. I will caution and overinterpret deceleration and deceleration quarter-by-quarter. The trend is what we want to look at. So where we are in a quarter from now, we will take that and see that. But it's 1 quarter, it's too early to say whether it's -- how much we are accelerating, whether that's a new line we should go after. But overall, I'm very encouraged where we are. And more importantly, I'm encouraged about that we continue to grow through an accelerated conversion. If we look into the academic environment, as I mentioned before, we're pleased to see that the grants are flowing. I think it's -- from now on, it's more and getting predictability in the grant flowing and the predictability that the researchers can actually expect to get also future grants because they are not planning their spending based on one grant, they're spending on what is expected to come over the next few quarters. So I think that's the next -- this was a great checkmark that we now see that NIH is spending. The next checkmark is, of course, we need to have the budget approved at least a CR. And finally, of course, we need to see that the grants are flowing regularly. So I think that's the steps we have to go through. How long time that's going to take? I don't know exactly, but it's going to move into '26 for sure. Operator: Our next question will come from Subbu Nambi with Guggenheim. Subhalaxmi Nambi: First, 2 quick ones for me. First, it looks to me, Ankur, that you're expecting a bit of a step-up in Q4 instrument revenue outside China up to $125 million. Do I have that right? It would still be down year-over-year, but it's a decent sequential step-up. So what are you assuming relative to historical norms when it comes to budget flush? And second, as a follow-up to Catherine's question, is that the right way to think about research customers that most of the X transition is done? I ask because unlike clinical, which you did a nice job addressing in the slides, I would think you get to the other side of the transition and start growing again more quickly. Is that right? Jacob Thaysen: So Subbu, let me start on overall. I think there's nothing uncommon in having a very strong Q4 in instrument placements. That is the usual way we look at it. So I don't consider that as a budget flush, but it's very normal in the Q4, and we saw that last year and we've seen the other years also in Q4 is usually stronger. And that's not an Illumina thing, I think that's a life science -- at least what I know, a life science tools industry phenomenon. So we expect that also for Q4, but we are not building in any specific time of flush -- budget flush. Ankur? Ankur Dhingra: Yes. Subbu, good questions. So Jacob's addressed the Q4 instruments. Certainly anticipating and the forecast assumes a pickup up there, not as big as the 91 placements that we had in Q4 last year. That's not what we're assuming in our forecast, but if that happens, that will be a nice upside overall. In terms of the research market looking forward, you have it right in the sense vast majority of our -- the volumes in the research market have transitioned to X, implying that as and when those markets return to growth or even in a stable environment, the actual pricing headwind should start to dissipate from that and resulting into a better revenue performance or revenue growth performance. We're also pleased with the series of multiomics that are getting launched. So we feel we're very well positioned as and when those markets return as well. So yes, thinking about the right way. Operator: This concludes the Q&A section of the call. I would now like to turn the call back to Conor McNamara for closing remarks. Conor Noel McNamara: Thank you for joining us today. A replay of this call will be available in the Investors section of our website. This concludes our call. We look forward to seeing you in upcoming events. Operator: This concludes today's call. We thank you for your participation. You may disconnect at this time and have a great day.
Heli Jamsa: Good afternoon, and welcome to the Qt Group's Third Quarter 2025 Results Presentation. My name is Heli Jamsa, IR Lead. And with me today are CEO, Juha Varelius; and CFO, Jouni Lintunen, to present the results. After the presentations, we will have Q&A first in the room. And if we have time left, we will move on to questions from the lines. Without further ado, please, Juha, the floor is yours. Juha Varelius: Thank you. Good afternoon, everyone. My name is Juha Varelius, CEO of the company. And as Heli was already saying, I'm going to go through the business performance on Q3 first. Well, our quarterly sales was EUR 40.7 million and the decrease on 3.4% comparable currencies, it was flat basically. And year-to-date, we've been growing 1% on comparable currencies. And our EBITA margin on Q3 was 10.5%. What has actually led into this and why are we below on our expectation is the fact that the market has been a softer longer than we've been anticipating. So if we look at the -- what we've been missing is basically larger deals. The number of the deals we've been making this year and on a Q3 has been pretty steady and growing. And so we've been doing more deals than we've been doing before and we've not been losing any customers. So the churn rate per se is at the same level that it has traditionally been, but the average deal size has been lower. So what we are experiencing on a few segments, particularly where our customers are suffering, we are doing smaller deals. Our customers are reviewing the number of licenses they require and they try to go forward with the, let's say, kind of a -- with a minimum investment. So there is still life in the market. We see the activity in the market. We don't see any competing technologies. So we're dealing with the same customers. We're getting new customers, but the deal sizes are lower. We've also experienced some shift from 3-year deal to 1-year deals. And we were expecting that this -- on the second half, this market condition would get better. Well, it hasn't. And we gave a profit warning because we anticipate that basically this same development will continue in the fourth quarter as well. So we were looking for that market demand would be stronger. Now we don't anticipate that anymore. Of course, we could have been waiting and see what's going to happen on big deals on a Q4. I'm going to talk about that in the future outlook more. But as we concluded that the -- we had a bit of same thing on the second quarter and now in the third quarter that we saw the bigger deals moving forward and the overall deal size being smaller. We think that this outlook that we've now given is more on a realistic size. The distribution license revenue on third quarter was on the previous year level. Overall, this year, the distribution license revenue has been developing favorably, and that's been on our expectations. So -- but on our license sales, we've been suffering both on a QA and Qt side. Personnel-wise, we had 922 people on September 30 and year-on-year increase is 64. We are, of course, cautious on the cost side, but on the long term, we are still continuing our investment as planned because we don't see on a long-term vision any changes in that sense. We did complete the IAR acquisition a couple of weeks ago. And like we've said before, where do we see IAR is that the -- we do have a more comprehensive product portfolio. We see our strategy as that when we look at the development process of our customers, we want to be on the whole process. And with IAR, we are now with their compiler. It's in the very beginning of this development process, so to say, so that when customers are starting a new project, the first thing they will do is that they will choose the hardware and then they start looking for a compiler. And after that comes actually how to develop software and so on. So it will give us a benefit, of course, to be aware of customer projects on an earlier phase. It also gives us a benefit that we can be yet even a more one-stop shop for our customers. They don't have to go and shop various things from various places. And specifically on our QA, our testing offering, it's a complementary or we can do cross-sell. So when people buy the IAR product, also that needs to be tested. So we have a cross-sell opportunity over there. IAR is well positioned in safety critical systems, which is also an area where Qt works. So we do have safety critical, you can see in the automotive, for example, quite a lot and on medical. So they are typically the same segments where we work. We do have coincidentally also offices pretty much on the same locations throughout the world. So we are operating in the same segment and this strengthens our position in embedded world quite a lot. So we are becoming a Nordic powerhouse going global. IAR is selling perpetual licenses. They have started the subscription change on licensing model, which we did a couple of years back. We are now reviewing -- we're doing a bit different scenarios that on what scale and on what speed we're going to be doing that transition going into next year. As of now, I don't have an info to give that what that's going to look like. But of course, more aggressive you're going to be the effect on revenue is going to be greater on the short term and then on later, it will grow faster. But what is the kind of a speed of change, we haven't yet decided, and we are doing that study as we speak as well as we're doing the next year's budgeting and so on and so forth. So we do look that the IAR is going to be a very complementary product for our portfolio, and we've started the integration work now. When we made a public offer, it was on a due diligence -- on a light due diligence. Now we are going through the processes. We've started the integration work. And like I said, we started the planning for next year budget. We started the planning for the subscription change. And once we have those ready, then we're going to share more on that information to you on a later stage. And with these words, I hand it over to Jouni. Jouni Lintunen: All right. Thank you, Juha, and welcome from my behalf as well to the earnings call of Q3. I will dig into a little bit more details on P&L, income statement and balance sheet as well. Juha already discussed quite in detail already about the top line net sales. We reported negative 3.4% net sales growth. And we see that happening driven by the customers' kind of cautiousness for most parts. We are seeing the headwind from the FX, specific from U.S. and the magnitude of that was a negative 1.4% in the Q3. So in other words, in comparable currencies, the net sales were flat year-on-year. For first 9 months, we are reporting a negative 1% reported net sales growth. With the constant currencies, we are around 1% positive, so flat all in all. We did some flattening on the materials and services part. There's still an increase of roughly EUR 100,000. That's the resources -- external resources that we are using for our customer consulting projects. So kind of insignificant in any means, though. Our headcount, as Juha described, was up by 64 year-on-year. And we have been adding resources into R&D, product management and also customer-facing organization during this period. And these are specifically the growth areas we see to be contributing going forward. This headcount increase, it reflects very much in line to personnel expenses growth, 10% in Q3 or 9% for the first 3 quarters. Some increase in depreciation. We have extended our -- in some -- extended the premises in some of the locations of ours -- in our locations and also in Finland during this year. So this shows a slight increase in that line. The other operating expenses, the expense side, it's up roughly by EUR 2 million. That's for most part driven by the IAR-related acquisition costs. And that impact is EUR 1.7 million now in Q3 or roughly 4 points in the EBITA margin, if you will. So run rate EBITA margin, excluding the one-off, would be somewhere 15% level, still close to 10% or 9% down from last year's. The amortization, specifically from froglogic and Axivion acquisitions back in '21 and '22 remains unchanged, EUR 2 million a quarter, EUR 6 million for year-to-date. And this leads us to the EBIT of EUR 2.3 million or 5.6%, down by 13% points from last year's. And the year-to-date EBIT percent is 13.2%. The financial items did not play that big a role now in Q3. There was not that much fluctuation in the exchange rates. We are suffering from the headwind from the first half year from USD fluctuation specifically by EUR 1.8 million. Our income tax was for third quarter, EUR 650,000, for first 3 quarters EUR 3.4 million, which equals to roughly 21% effective tax rate, which is our run rate and a good scenario going forward as well. And then this leads us to a net profit of EUR 1.4 million for the period -- for the quarter or EUR 13 million for the year-to-date numbers. On the balance sheet side, we see a significant increase in cash balance. I mean that's the reason of the seasonality of the business and that shows as well in the accounts receivable, trade receivables bucket, which went down by roughly EUR 16 million from end of last year. And this is driven by the seasonality of the business we execute. I mean, fourth quarter is always the busiest one with highest number of invoicing. And then the cash will be collected in the first half year time. And then again, fourth quarter will be the busiest one. We also see a reduction in the contract assets by EUR 3.9 million, which is a reflection that we have not been booking any major significant deals recently with multiyear deals with extended payment terms. So this is kind of contributing to cash flow, which is EUR 32.4 million for year-to-date. When it comes to the equity and liabilities, there's very little movement on that in accounts payable or any other items. And I mean, this balance sheet obviously will be subject to change now quite significantly because of the acquisition of IAR and then that will be taken into account into Q4 finances then in February. With these words, I will hand it back to Juha to go through the outlook and guidance for this year. Juha Varelius: Yes. Thank you. Well, we don't see any changes on our long-term growth prospects in a sense that the -- we do see all our customers planning for new products. They're going to be launching new products. They are designing new products. We do see graphical user interfaces coming more and more into play. We see on testing that the more and more software is being developed that needs to be tested to be robust. So in that sense, we don't see a -- on a long term, we don't see a whole lot of change on that. However, we do see that the -- on the short term, what we see in our customers, there has been lay-offs in our customer base on different regions and segments. Basically, on all our regions, we see that our customers are on many cases on a saving mode, if you like. And we do see that there is -- on embedded market, specifically, we see on consumer electronics, we see in automotive that there is a bit of a downturn on our customers on that. Do we see that, that's going to continue in the long term? No, we don't. And do we see, like I've said before, that the -- is there a need to develop further new products, new product launches? Definitely. So the number of devices will be growing. The software will be growing. AI will be generating a lot of software. And whatever software AI develops, all of it needs to be tested because we never know what the AI does. The market uncertainty, this is a, as I say, a great question that how long do we think that this is going to last. And as a matter of fact, I was thinking and I was -- we were kind of hopeful and we were -- well, not hopeful, we were pretty certain that the second half would be better. Well, that's not been the case. And we see that this market uncertainty on the embedded segment will definitely continue. How long? At this point, I don't want to make that estimation. But the -- let me put it this way. I don't see it getting any worse. So we don't -- I think that the cost savings that we're seeing, companies are doing it and I don't expect it to get any more challenging than it is as of today. So we estimate that the -- we gave a profit warning and we gave the new estimation for this year, 3% to 10% year-on-year comparable exchange rates and margin between 20% to 30%. And as you know, the large part of that delivery will come on the fourth quarter. We took a very -- well, if we were on a positive side, now we are -- our estimations, we've been on a conservative side on the -- that the -- how do we see on 2025. As we go forward into -- if we look into the next year, like I said, the basis what we have on our -- how do we prospect market going forward, we do expect this market to get better. And we're kind of on a low end of this turn as we speak now. Well, it's the usual I already mentioned that basically on our segments, the automotive, consumer electronics are suffering the most, defense and medical, maybe the least. So it's a good thing that we are on multiple different industries. If I look on the regions, maybe U.S. been for us -- kind of varies that which region is the best. Probably U.S. was suffering a bit more than Europe, apart from the -- on APAC, we're doing better. And well, of course, when you think of it, it's kind of no surprise that the Chinese automotive is doing pretty well. But it doesn't kind of offset that how we're suffering in the other parts of the world. So that's basically the outlook we have. And now if you have questions, please. Felix Henriksson: Felix Henriksson, Nordea. 3 questions, if I may. It sounds like your customers are reducing the number of licenses that they have in use. What is the reason for that? What do they tell you? Is it merely because of cost savings or is there anything to do with structural matters with developers becoming more efficient and companies seeing a lower number of licenses and that sort of thing? Juha Varelius: Well, they have less developers. They're downsizing, right? So if we look on the IT market, I think it's 2 years back, there was a shortage of developers. I mean, everybody were anxious to get developers. It was very hard to find them. And that was kind of a bottleneck for IT company growth. If you look now at the job market, I mean, there are developers unemployed basically at this point of time. So now it's kind of the opposite. If you look at the big companies in the U.S., for example, that how big lay-offs there's been during the course of the, let's say, 1.5 years now. So that's one of the reasons. Then the other is the overall cost awareness, let me put it this way. So it was very typical for our customers that whatever they had when they renewed, they renewed the same amount with the same deal like a 3-year deal and so and so many developers. Now they are calculating exactly that how many do we need and they try to survive with the least amount of licenses. And then when they start new projects, when they are starting a project, they started with as small amount of developers as possible and try to go forward like that, whereas before, they started in a bigger scale. So that's where it comes from. But like I said, the churn has not increased. So we still have the same customers. They continue their development. They are just more cautious on the spending. And also the number of the deals we do, so the number of new customers, that is actually even increasing than what we've been doing before. Felix Henriksson: And secondly, what about quality assurance? Did that grow in Q3? Because it sounds like you seem to think that there's a bit of a structural tailwind from AI in that area. Is the demand on that front any better than for traditional Qt developers? Juha Varelius: I would say that our QA business is the license sales is suffering a bit same things than on Qt. So the growth on QA has been slow as well. We've also -- well, testing is kind of -- it's -- development is something that you either do development or you don't. Testing, you can always not to test and hope for the best. So you don't have to test everything and completely and so on and so forth. So that is -- for customers, it's easier to adjust on a testing bit than on development bit. But I would say that our license sales has been sluggish, both on QA and Qt. Felix Henriksson: Were quality assurance sales down year-on-year? Juha Varelius: No, it's not down, but it's – yes, same roughly -- follows pretty much closely to what Qt is doing. Felix Henriksson: And then regarding the one-off costs relating to the IAR acquisition, they were for the full year, at least a bit higher than what I had anticipated. Will there be any one-off costs in 2026 from that? Juha Varelius: 2026 on IAR? Felix Henriksson: Yes, these one-time costs. Juha Varelius: I don't think so, but you never know if there are surprises that we need to close down something or do something extraordinary that we are not anticipating. But I mean, these one-off costs are -- well, this money so far has been flowing mainly to bankers. So what can I say? It's a big amount. But the -- so do I anticipate any one-off costs on 2026? Well, at this point, I'm not aware of. But of course, if there would be something that we would totally write-off, then there would be, but we don't see that as of now, no. Antti Luiro: Antti Luiro from Inderes. I could ask on the lack of large license deals and kind of the drivers behind that. What -- do you have any sort of idea where that comes from? Why are larger deals not coming in? Juha Varelius: Well, they are being postponed. Yes. So they've been pushed forward. The big projects, they are waiting to start. So a bigger deal usually comes. So in our business, the first deal is always a smaller one. Then there is -- the people start developing, then there is the expansion and that comes a bigger deal. And there have been postponements on those projects. They've been kind of -- well, put on hold is a wrong word, but they continue with a smaller amount of developers, they don't scale up. That's the -- so the projects are not going away, but they go on a lower flame, so to speak. Antti Luiro: Right. So does that mean that they are basically extending the time lines for getting those products out or... Juha Varelius: Yes, they're doing -- yes, basically, they're doing with less, yes. Antti Luiro: Okay. I could also go back to the discussion around having less licenses sold to the same customers and then optimizing the amount. Drilling down to the AI effect because you could assume that developers are getting more efficient every year. You could see a recurring effect that companies downsize every year because they can do more with less. Do you see that as a realistic risk for the market and your license sales volumes or do you think that the customers might just, at some point, expand the scope of their products because the AI can help them do more? Juha Varelius: Well, if I look at AI as of now, where I see that -- you can use it is that on the web technologies or mobile technologies. So if you want to do a simple mobile app, for example, you can have the AI helping on that. If you want to do kind of simple things that are very easy to verify that what they are, yes, you can do that with an AI. If you're doing any safety critical functional safety type of things, you can't -- or let's say, that the infotainment system on a car it's a very complicated system. AI can't do that. Will it be able to do that some day? Well, of course, you can take both views. Some people say that in a few years, we don't have to work anymore because AI is doing everything and other people are saying that, well, maybe not. So I think that on embedded before the AI starts doing so much work that there is really less need for developers, that's kind of down the road and let's see how that goes. On top of that, AI is not very reliable, as you know. So as of today, you can do simple things with AI. On testing, for example, you can do -- you can have test scripts written by AI. And if that's not complete, well, then the test is not complete, but it's not end of the world. Those type of things you can do. And you can use -- it can be a helper. But do I see that developers being so much more efficient that there'd be need for less on embedded side? Not really. Do I see that what's really affecting our customers is the lack of demand and their profitability is under pressure and they need to do less. That's more of the reason as of now. Unknown Analyst: [Indiscernible] Private Investor. So my question is about the competitive landscape. What's going on in there? And are you seeing any sort of advances in the competitive technologies that might be impacting the license volumes? Juha Varelius: No. Yes, that's -- and I can elaborate on that. So we do have the usual suspects. We do actually see the -- I don't know if you've heard me speak before, but so we have Android on the IVI on the automotive, but there is not a whole lot of change. There is Flutter that the Flutter was coming and that was kind of the recent emerging technology came from mobile and web and they were kind of making inroads into embedded. We don't see them that much anymore. And as far as I know, they are more in a maintenance mode nowadays and they've cut back on their development. We do see Unity. Unity is very good on the 3D. And on advanced 3D, if you want to have very nice-looking 3D, then Unity is -- it's a good choice. However, it consumes more hardware. So you need to have more powerful hardware, more expensive hardware. And it's fairly expensive on the -- per item cost on Unity is much higher than on our pricing, for example. So what we now see is that on kind of good times, we saw Unity being used also on kind of a middle tier automotive or middle tier cars, whereas now we see that customers are looking at cheaper offerings for low and middle tier and Unity can be used only on a high tier vehicles. So basically, this cost pressure is, on that sense, it's working on our benefit rather than and more against Unity. So we don't see a change over there. And we don't see -- at this point of time, we don't see any new technologies that would be coming into our territory. And like I said before, we don't have any customer -- our customer churn is the same that it's been for years. And that's kind of a natural, I would say, natural churn that the project ending and whatnot. We don't -- we haven't seen that and we haven't seen any reduction on the number of the deals we're making. So we're selling as well as before, even a bit better on a number of deals, but the actual sizes are smaller. Waltteri Rossi: Waltteri Rossi from Danske Bank. First, on Q4, as the problem this year has been especially related to the large deals. Do you expect Q4 sales to be under more pressure actually compared to Q2 and Q3? Because I would assume that there is even more of those large deals. Juha Varelius: Yes. And so, yes -- well, yes. And when we gave our estimation for our full year guidance, we kind of took that into account that there will be less, yes. So we were more conservative on that one, especially for that particular reason. Waltteri Rossi: All right. Then about the license maturity mix once again. Would you say that the 3-year license lower-than-expected renewal rate has had over or under 5% impact on this year's sales? Juha Varelius: How much is 5%? I would say that on -- it's somewhere between EUR 3 million to EUR 5 million on the third quarter is the effect, yes. Waltteri Rossi: On the third quarter? Juha Varelius: Third quarter. I was trying to calculate what percentage, but yes, somewhere between that. Waltteri Rossi: And how much would you say year-to-date? Juha Varelius: That figure I don't have out of my head. But I knew that you're going to ask, so I looked at Q3 specifically. Waltteri Rossi: All right. Last one about the underlying market conditions. Do you expect the market to improve still this year or are we going to have to wait until next year for that to happen? Juha Varelius: Well, yes, I was more hopeful when we were here on the beginning of the third quarter, I was expecting a -- obviously, I was expecting a better third quarter. That's for sure. I was expecting the -- and that didn't happen, right? And so we are now more conservative on that and we don't expect much of a change on the fourth quarter and hence our guidance. Are we going to see better next year? Well, at some point, this starts turning for sure. And so yes, we are expecting -- we're kind of seeing that it doesn't get any worse than this, but when do we see it turn to better, on what particular quarter that will happen, it's -- well, I can't say that. And as you can see from our fourth quarter guidance, it's fairly conservative. So we don't expect any big turn this year. Jaakko Tyrväinen: Jaakko Tyrvainen from SEB. I could continue on the AI and the related productivity gains on software development. Are you seeing such kind of a trend or pattern that proprietary development would become, again, a bit more appealing for the clients or do they still need to trust in some sort of tools when developing the embedded solutions? Juha Varelius: Yes, they are definitely going to be using tools. That's for sure, yes. And I think that the -- like I said, on embedded development, you can use AI for writing test scripts on embedded development. You can use AI on design phase to give you trade ideas that what could be different kind of different kind of solutions and ideas, creativity ideas. But the actual coding on embedded, I don't see that the AI will be there for anytime soon to replace the developers. No, we don't see that risk. But on simple tasks, you can -- I've used the AI like that it's a great buddy -- it's your best work buddy. It can help you out on many – automating many simple tasks and whatnot. But the actual coding, I don't see that on embedded for the foreseeable -- in many, many years that would change. I mean you can use AI doing simple mobile apps, for example, now. But -- and of course, there is also the other side of the room saying that it's going to advance so quickly that we're going to all be surprised. Well, usually on these new things, as you know, is that when the change starts happening, it takes many, many years and people kind of even forget it and nothing happens and then the change comes later on. But on this embedded coding, not in the -- well, foreseeable future is always kind of a scary word, but not in the coming years, let's put it that way. Jaakko Tyrväinen: Okay. And still using the word of AI, have you included any kind of AI features in your own products? And has that improved the customers' productivity so much that they need less licenses perhaps? So are you basically cannibalizing the renewals by including such features? Juha Varelius: No, no. I mean these embedded systems that people build using Qt, they are very complicated systems, very big platforms and whatnot. So no, that's not the case. I think what we see is that the -- well, first to your question, yes, we utilize AI in many aspects in our products. Is that downscaling the number? Is that affecting less license sales? Definitely not. We do see that there is -- our customers are feeling the pain that they are not selling their products as much as they would like to and they have cost pressures, and that's where -- that's what we are seeing. And those cost pressures are not only that they're selling less. Many of our customers are having high tariffs, for example, selling stuff in the U.S. I mean, like the -- well, I don't know what's going to be the South Korean car manufacturers' tariff, but it used to be 25% before. Trum now visited and them, they've made a deal. I don't know if it's now 15%. But I mean many, many of our customers are having a 15% cost increase on stuff they are selling to U.S. So -- and then there is a bit of an oversupply on some industries and whatnot, and this is causing the overall friction in the -- on embedded business. Jaakko Tyrväinen: Okay. Then finally, on the license maturity mix, you mentioned that customers are perhaps now choosing a bit more on the 1-year licenses. Doesn't this imply that you should have a pretty nice growth in your 1-year license base for '26? And could you elaborate a bit what type of a growth you are seeing in renewing 1-year licenses when going to '26? Juha Varelius: Well, yes. Of course, yes. I mean, on a short term, it affects us specifically. As you know, that our monetization model is that if you buy a 3-year license, we book it as revenue at that point of time as one goes. So if people are buying more 1-year licenses, we book it at that point, which is obviously less than a 3-year license, right? But then the good thing is that the 1-year is going to renew next year. So obviously, it's going to help us, absolutely. Jaakko Tyrväinen: And how much larger is the base now versus a year ago? Juha Varelius: Well, I can't answer that. But I mean, the logic is right that it will help us next year, of course. Matti Riikonen: It's Matti Riikonen, DNB Carnegie. A couple of questions. First, regarding your cost base at the moment. It's now clearly more elevated because you have done growth investments, but you haven't got the growth. So you are going with a pretty heavy cost load into 2026. So how are you going to tackle that? Should we expect lower margins in '26 because of that or do you think that just operating leverage would work in your favor in '26 to basically set it to the right path? Juha Varelius: Yes. So you should not expect lower margins because of that and the operating leverage will fix that. And in the case that, let's say, that this would be a permanent situation that the revenue will never ever grow, obviously, then we would not have growth investments and we would get -- we would still get the profitability, right? Now the one thing that will affect our profit margin next year is obviously IAR. And that effect, I'm not fully aware yet and it depends on how aggressive subscription change we take. If we take very aggressive subscription change to IAR, then the revenue might be flat or even decreasing, which would mean that the IAR profitability would be diluting our group profitability. I will give guidance to that once we've made those decisions and I know that what the effect will be. But the IAR profitability traditionally has been lower than Qt. So obviously, there is potentially an effect. Having said that, IAR profitability will obviously improve because they are not any more listed company and whatnot. So we're going to get some savings out of there. We have some ideas over there that how can we improve some of the performance on revenue even if the subscription is over there. So that remains to be seen. But overall, that is the moving part over there. I would not be worried about the Qt profitability. And by the way, of course, we're going to have one-offs the same type on the fourth quarter than we had on the third quarter. Matti Riikonen: Okay. Now regarding Q4, you have a fairly big hockey stick model for Q4 to meet the full year numbers because in the first 3 quarters you haven't grown at all basically. So when the customers know that and they kind of want you to give them discounts at the end of Q4 to close the deals this year, not next year, so usually that creates a psychological kind of challenge. So is there a greater risk that if you stick to your discount policy and don't give any discounts then there would be a bigger share of those deals being postponed to '26? Juha Varelius: Yes, that is a risk, yes. Of course. Matti Riikonen: Right. Then a question of your forecast model. Throughout this year, we have basically been disappointing in each quarter. And your sales forecast model looks to be kind of broken or it hasn't worked like it did in the previous years. So have you scrutinized what's wrong? And how can you improve the accuracy so that going forward your forecasts would be a bit closer to reality? Juha Varelius: Yes. So we have 2 ways of looking into the forecast. The one is that actually starts from the bottom up. So the sales -- each salesperson, they have their pipelines and they make the forecast. They make what is their best case and what is the most likely case. And it's been built upwards from the pipeline and the sales makes their forecast through that. And then we have through finance, which is more like a scientific model that they've been looking at the pipeline over the history and they've been -- they have forecasting model that this pipeline is likely to get into the sales, kind of an AI approach. And both -- basically both have been broken this year. So what we did -- so if you look on the third quarter, for example, when I was here telling you what are my expectations on the third quarter, we had a pipeline and we had a forecast model done by the sales that this is the most likely out of this pipeline. And we do have -- and the same thing from finance. So we know that if this is the pipeline most likely with these multiples, this is how it's going to turn into sales. And that was not the case, right? And so when we look into more detail on the big bulk of things, that's how it's been moving around roughly there, but less. And then these bigger deals being missing over there. So if we look at the end of the day on these numbers, it doesn't have to be -- the deviation doesn't have to be that many millions, right? So if you're missing some of the bigger deals over there, then all of a sudden, you are on the -- out of the scale what you were forecasting. And that's basically been the -- what's been misleading us, say a bit. So we haven't been closing the pipeline as we did in the history. And when you look what's been the reason behind on that on the pipeline, we've been closing the deals on the pipeline, but the deal has been smaller. So the average deal size has been smaller. So have we been able to forecast that we have this amount of deals, are we going to close this amount of deals? Yes, we have. We've done even a bit better than we've been expecting. But the deal sizes on those pipelines, they've been smaller. So the deal has been closed, but on a smaller amount that's been expected. And that we need to adjust going forward in our forecasting. So our customers have been closing the deals, but smaller than we've been anticipating. And then your follow-up question is that have we been giving discounts so that the deal has been shrunk? No, we haven't. It's been less licenses basically. And that's where we've gone wrong. So now on a Q4 or at the -- when we saw what happened on Q3, we took a more conservative look for our Q4, because in our old world, if we look at what's our pipeline for Q4, it's big enough for a bigger sales than we have, but we took a more conservative view how that pipeline is going to be closing. Matti Riikonen: All right. So that was actually partly an answer to my next question, which was that, did I really hear you correctly saying that you think that your guidance for Q4, and of course, this year is conservative? Juha Varelius: We think that if it goes like the Q3, then this is the best guidance we can give. If we look on the pipeline and if we look at the -- we take the older history kind of the multiples, then it would be conservative. But now we've seen 3 quarters that the pipeline doesn't close as it used to be. So I think that this guidance that we are now giving is very best we can give. And I think that that's going to happen given the fact that we are using now the multiples that be into reality on the second and third quarter. So for the old world, it's conservative. For this world, I think it's spot on. Jaakko Tyrväinen: Jaakko Tyrvainen from SEB still continuing. In the aftermath of the, let's say, Q3 and perhaps the year-to-date performance, which has been the most kind of a disappointing revenue stream for you? Has it been the renewals or the new license sales or the quality assurance tools or the distribution license? Juha Varelius: Well, new sales, definitely. So new sales has been the -- that's been lower than we anticipated. We've had our challenges on renewals, but I'm very happy with our renewals team. They are doing a magnificent job. And of course, they do have this challenge that people, when they renew, they're going to go through each licensees and there are reductions on some cases, but our customers are renewing. So the projects are continuing. They are not resigning. They are not churning. They do have a pressure on the renewals, but less so. But new sales being the biggest challenge for this year for sure. And if I look on Qt and QA, I would roughly say that the same challenge. Jaakko Tyrväinen: And then finally, I know it's a bit difficult to have the apples-to-apples comparison in your case, but could you elaborate a bit what is the magnitude of average price hikes during the year? Juha Varelius: Average price hikes? Jaakko Tyrväinen: I believe you have hiked prices. Juha Varelius: Yes. We have -- I would say that not significant. We've increased our distribution license. It's kind of -- it's a -- there are different buckets in our distribution licenses and we've changed the pricing on the different buckets. But I would not say that not a huge impact on that, no. Heli Jamsa: There are no more questions in the room. I think we can check if there is anybody on the line. No. So we can conclude the Q3 results and maybe some final remarks. Juha Varelius: Yes. Thank you, everybody, for great questions. I think we kind of covered pretty much everything. Like I said, we do have -- I want to emphasize the fact that we're doing the number -- the number of the deals we're doing is looking good and promising. It's actually bigger than we've been experiencing so far. What we do see is that our existing customers and new customers are very cautious on buying the number of licenses, and we've seen deal sizes decreasing. We haven't seen any decrease on our churn. And so we continue with the same customers we've had. We don't see any new technologies or competition coming into the market on that effect. How long do we think that this embedded market downturn will continue? Well, definitely, it will continue into Q4 and going into the next year. Do we think that we're kind of on the bottom of the downturn here? Definitely. And do we see that we're going to be going forward upward from here? Yes, but the timing is a bit of a question. Do we think that -- are we concerned about the next year profitability because we've been investing on a long-term growth for next year? No, we are not. And we do expect the return on the normal profitability that you've been expecting to see from us. And like I said, we're very thrilled about the IAR acquisition. We are now going through with them, different customers, integration facts and whatnot. We are preparing a budget for next year. And depending on how aggressive we are going to go into the subscription change, that depends on what's going to be the IAR profitability next year and how that will effect on group profitability. So that is the moving part and we're going to get -- give you more info on later once we've concluded that work. I don't expect that to take a very long time because we need to get going in the early next year. So all in all, disappointing Q2, but we are very -- we think that the future looks better and we are in a good move to execute in -- towards better performance on the top line. Thank you.
Operator: Ladies and gentlemen, welcome to the Wacker Chemie AG Conference Call Q3 2025. I am Mathilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Joerg Hoffmann, Head of Investor Relations. Please go ahead. Jörg Hoffmann: Thank you, operator. Welcome to the Wacker Chemie AG conference call on the third quarter 2025 results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will walk you through the presentation. The press release, our IR presentation and detailed financial tables are available on our web page under the Investor Relations section. Please note that management comments during this call include forward-looking statements involving risks and uncertainties. We encourage you to review the safe harbor statement in today's presentation and our 2024 annual report for information on risk factors. All documents mentioned are available on our website. Chris? Christian Hartel: Hello, everyone, and thank you for joining us on our third quarter 2025 results call. Chemical industry is under pressure worldwide, but especially in Europe. The economic situation is tense and demand is weak. At the same time, the market environment is challenging and competitive pressure is high, especially from China. In addition, the stronger euro creates headwinds. Like many other chemical companies, we had to revise our full year forecast downward in the middle of the year. All our divisions are affected. Despite these challenges, Wacker remains focused on executing its strategy and safeguarding profitability. Our third quarter performance and our refined full year outlook on the next page reflect the ongoing headwinds. Sales in the third quarter came in at EUR 1.34 billion with an EBITDA of EUR 112 million. The sum of the 4 operating segments EBITDA amounted to EUR 159 million. This is 18% lower than a year ago and 13% lower sequentially. Despite the lower EBITDA, net cash flow at plus EUR 19 million was markedly better than a year ago. The result was supported by targeted actions to reduce working capital. Utilization rates remain unsatisfactory, and our operations continue to be held back by ongoing macroeconomic and geopolitical headwinds. Our chemicals segments, Silicones and Polymers saw low demand in all major markets. Polysilicon was held back by weak demand and lower prices for solar products due to still ongoing regulatory investigations. On the other hand, semi continued to see strong demand year-over-year and our new etching line proceeds on schedule. Before we move on to the next page, let me say that the Chem-X initiative under sustainability marks an important step towards standardizing data for product carbon footprint calculations. Robust PCF data enables us to reliably speak about the sustainability of our products and strengthen our competitiveness. Now to our refined guidance. Considering the ongoing headwinds and soft order intake, we have updated our guidance. We now see full year sales at the lower end of the EUR 5.5 billion to EUR 5.9 billion range. We expect EBITDA in the lower half of the EUR 500 million to EUR 700 million range. These changes also affect our expectations about net cash flow. Net cash flow will be negative but significantly higher than the prior year. Our priorities are clear: sharpen focus on specialty chemicals, align polysilicon with semiconductor growth, accelerate efficiency and speed across the entire organization. Immediate measures addressing cash and costs are already underway. In the next step, we have launched a comprehensive project with the aim of significant cost savings. It will primarily target fixed production costs. We expect to achieve significant cost cuts in production and production-related areas as well as administration. We're also taking a close look at asset optimization across all regions. Measures are currently being developed. We intend to start implementation in the first quarter of 2026. Our goal is clear: restore competitiveness, protect profitability and position Wacker for sustainable value creation. Let me now hand over to Tobias for a look at the group financials and segments. Tobias Ohler: Thank you, Chris. Welcome, everybody. Let's now take a closer look at the financials for the third quarter of 2025. Sales in the third quarter were EUR 1.34 billion, down 6% year-over-year, and EBITDA declined to EUR 112 million from EUR 145 million a year ago. This development was primarily driven by lower pricing, foreign exchange and volume mix. Excluding others, which held back the reported EBITDA by EUR 47 million, the cumulative EBITDA of the 4 operating segments came in at EUR 159 million. This is down from EUR 195 million in the third quarter of 2024. As previously discussed, the main component of the others EBITDA is the CO2 compensation offset. In the third quarter, this was approximately EUR 40 million. As explained before, we expect a refund of these offsets in the fourth quarter of this year. The lower EBITDA and higher depreciation drove EBIT to minus EUR 20 million versus the plus EUR 30 million a year ago. Depreciation has increased in line with investments made over the past couple of years. Many of our major growth projects are by now completed, and our focus is on growth and filling the new capacities. As already flagged in the H1 report, the German government will gradually lower the corporate income tax from 15% to 10% during the period of 2028 through 2032. This is a welcome development, but it triggers a remeasurement of our deferred tax assets. The lower tax rates led to a deferred tax expense of EUR 30 million in the third quarter of 2025. After this expense, net income was a negative EUR 82 million, equating to a loss of EUR 1.73 per share. Our balance sheet shows EUR 4.42 billion in shareholder equity and strong liquidity of about EUR 781 million. Since the start of the year, inventories are EUR 173 million lower with efforts to reduce stock levels gaining traction. Looking at our financial liabilities, they are largely unchanged since the start of the year at EUR 1.94 billion. The shareholder equity ratio is 52% and remains at a high level. After the end of the reporting period, we successfully closed the order book for a new Schuldschein issue with 3-, 5- and 7-year tranches. Settlement is set for November 6. This is part of our established strategy of having well-balanced debt maturities. At Silicones, sales in the third quarter were EUR 673 million, down 7% year-over-year and 6% below the previous quarter. Following a weak order intake, volumes were largely flat year-over-year. A combination of price, foreign exchange and a weaker mix held back both sales and earnings. EBITDA was EUR 86 million, down 19% versus the prior year. For the full year 2025, we have updated the Silicones outlook. We now expect sales and EBITDA to be a low single-digit percent below the prior year level. In the fourth quarter, we typically see a year-end slowdown. This is nothing unusual, but this time around, we expect a pronounced year-end seasonality due to the ongoing weak order intake. At Polymers, third quarter performance was defined by ongoing slow markets. Sales came in at EUR 344 million, 6% below last year and 5% below the previous quarter. Sales were held back by a combination of foreign exchange and price as well as lower volumes in consumer-related binders. Volumes in construction-related binders, on the other hand, showed some improvement year-over-year, but remained at a low level. EBITDA came in at EUR 47 million at the same level as last year and ahead of the preceding quarter. As a reminder, our second quarter performance was held back by a turnaround. For the full year 2025, we have updated our Polymers outlook. We now expect sales to decline by a mid-single-digit percent with a margin below the prior year level. Overall, end market dynamics have not changed and remain challenging. For the fourth quarter, we expect to see the typical year-end slowdown. At Biosolutions, our performance was marked by a soft demand environment. Sales during the third quarter were EUR 93 million, down 7% year-over-year and 6% higher than in the previous quarter. EBITDA came in at EUR 8 million, down year-over-year and a bit ahead of the previous 2 quarters. The sales and EBITDA performance was primarily driven by the timing of customer project recognition. For the full year 2025, we have updated our Biosolutions outlook. We now expect sales to be similar with the prior year level with an EBITDA of around EUR 25 million. Our focus is on filling our capacities, but we see some customers delaying projects due to market uncertainty. At Polysilicon, sales in the third quarter totaled EUR 197 million, 6% lower year-over-year and 10% lower than the preceding quarter. EBITDA came in at EUR 18 million. Our performance over the past 5 quarters primarily reflected the low volumes of solar-grade polysilicon sold. Headwinds in solar over this period masked our successes in semi. Here, we continue to show strong growth with volumes being significantly higher year-over-year. For the full year 2025, we have updated our outlook for Polysilicon. Sales are now expected to be a high single-digit percent lower than the prior year with an EBITDA of approximately EUR 100 million. In Polysilicon, our semi volumes continue to grow strongly and the new etching line is on schedule. Semi is our primary focus and the new facility Burghausen will support strong semi growth. This supports the segment's overall performance, but we still have significant exposure to solar. As we highlighted on the last call, there might be opportunities ahead due to ongoing regulatory changes in the U.S. solar market. We need to wait for the outcome of these investigations only then we will be able to get a reliable view on how our solar demand may develop going forward. Now let's look at our net financial position. During the first 9 months of 2025, we generated a gross cash flow of EUR 128 million. After cash flow from investing activities before securities of EUR 411 million, the dividend payment of EUR 124 million and some other effects, we ended the third quarter with a net debt of EUR 1.16 billion. Before we get to the Q&A part of this call, let me make this clear. We are acting decisively. We will reduce CapEx meaningfully going forward. I expect 2026 CapEx to come in well below EUR 400 million. We implement targeted measures to improve our capital efficiency. While we have seen some progress already, we see further room to free up cash tied up in working capital. And we have initiated an ambitious holistic cost project aimed at all our production sites to structurally reduce production costs and administrative expenses. As Chris already mentioned, we will keep you informed as our plans become more developed. We face a demanding environment, but our actions are clear and focused. By improving cash flow and reducing costs, we will free resources to invest in innovation and specialty growth, strengthening Wacker's resilience and profitability. Thank you for your attention, and we are now ready for your questions. Operator: [Operator Instructions] The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Christian Faitz: Yes. Two questions, please. First of all, can you remind us where at this point, which of your product groups are impacted by tariffs, even only via precursor products? I'm aware that now also Silicones are hit and what else? And is there any estimated financial impact you could provide us for the remainder of the year from tariffs? And the second question is in Polysilicon. What is the current split roughly between semi grade and solar grade? Christian Hartel: Okay, Christian. This is also Christian answering your questions. Now first question on the tariffs. In essence said, not much more development on the tariff side. And I mean, we communicated already that we expect an impact -- a direct impact of EUR 20 million to EUR 30 million for the full year. And which is, I think, more important, we also expect that we can pass this on to our customers, most of it. And I think it's also fair to say that probably the bigger financial impact goes from the indirect effect, meaning that there is less demand because of uncertainty of these tariffs. But of course, that is much harder to get a grip on. Yes. And so nothing really kind of new. On the mix between semi and solar, I mean, we don't disclose these numbers. But as Tobias also mentioned, we see quite good growth this year. And although we don't speak about next year, I can assure you we will also see growth in the semi side next year. And of course, solar depends on the regulatory decisions. Operator: The next question comes from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: I was just looking at your Q3 numbers, and I was surprised at the comment of solar polysilicon ASP down Q-on-Q. Why is it down? Because you're really not selling to the Chinese customers. So why is the ASP falling in that business? The second question I had was, you're talking about pronounced seasonality in Silicones in Q4. I mean you've not really seen any seasonal pickup through this year. So why would you see a pronounced seasonality in terms of decline? I mean, I'm just curious, are the orders getting worse in October so far compared to what you would normally expect for this time of the year? And is that mainly a function of weaker volumes? Or is it more that you see incremental pressure on pricing in Q4, which is driving that pressure? Tobias Ohler: Chetan, Tobias here, trying to answer your 2 questions. The first is on the ASP trend for solar, as we have referenced a sequentially lower price. I think you can find that also in the international price index, if you look at that, there's a little bit of a downtick. And as we have that also in mind when setting the price with our customers, we are also impacted by that. The second question is a bit broader, Chetan, on the overall seasonality, I would say all regions and industries see volumes that are lower than last year and the market dynamics haven't changed. So overall, in all industries and regions, customers are very cautious. And I think that sluggish macroeconomic behavior leads to a sluggish macroeconomic environment. And with respect to the current trading that we see, we had the weakest orders in August. So September and October were above that, but they were flat. And if I compare that to the order pattern of last year, we had an uptick in October. And then we had an uptick in November, and we haven't seen that in 2025 so far. And that's the reason why we are cautious to assume a year-end slowdown. So it wouldn't be surprising to see customers working on their inventories. And I mentioned we are working on our inventories. So don't be surprised if that is the broad picture that we feel in the market. So that's why assuming a slowdown and inventory management is our key assumption for the fourth quarter. Chetan Udeshi: Maybe can I ask one more on your Polysilicon business. Again, what I'm seeing as a dynamic is some of the Western polysilicon companies, Hemlock, OCI, they seem to be going down the chain, doing their own wafers, using their own polysilicon and trying to sell the wafers in the U.S. and maybe other Western world. Is this something you will consider as part of your strategy to use your solar polysilicon? Or you would rather just shut it down if there's not enough demand for solar polysilicon, especially one of your plants in Germany, which is focused solely on the solar part? Christian Hartel: Well, Chetan, we have a clear strategy focusing on semiconductor polysilicon. And I think that has been proven to be quite successful with the market share of about 50% globally. And now with the very successful ramp of our new etching line, leading into further volume growth also next year and quite some long-term agreements we have with our global customers. So from that perspective, that is the clear focus we have, the clear strategy we have on Polysilicon. The solar side, we see as an opportunistic opportunity and the Section 232 investigations, once there is a final ruling, this might be an attractive opportunity to continue. But I think it very much depends on the 232 ruling. And before that, I think it doesn't make sense to talk about further downstream integration. But even if it would come, if it would be attractive, then we would follow this opportunity. And then I would say there's also no need for an additional downstream investment. So from that perspective, we stick with semi. That's our strategy. We follow up on the opportunity which might arise from 232 solar in the U.S., but no downstream investments into the solar chain. Operator: We now have a question from the line of David Symonds from BNP Paribas. David Symonds: Yes, a couple for me, please. So just following up slightly on Chetan's question. Struggling to follow the development of the Polysilicon division a little bit. EBITDA virtually halved quarter-on-quarter despite the semi line running quite well. Could you maybe say whether -- I mean I think some of these contracts in the solar business are probably starting to roll off. So was there a material step down in the solar volumes that you did quarter-on-quarter? That's question one. And then question two, bear with me because it's a little bit of a long one, so apologies. But if I look at Silicones, EBITDA was down 20% year-on-year in the third quarter. It set to be down 40% year-on-year in the fourth quarter based on your updated divisional guidance. And coming into the first half of 2026, the comp from this year is very tough. So EBITDA was up 40% in Silicones in Q1. Q2 in Silicones, there was a EUR 20 million one-off. So if I sort of follow that math through, I think you have a EUR 50 million to EUR 60 million headwind in Silicones alone just from sort of mechanical comps next year, which is around sort of a 10% EBITDA drag at group level. And I'm just thinking, is there a chance that EBITDA could actually be down in 2026 overall for the group? Maybe you could comment on that and on any sort of mitigating factors that might benefit you next year. Christian Hartel: Okay. David, on the -- on your first question on the solar side. So we do have solar LTAs for this year, and we also have solar LTAs for next year to come. And that's the good part of it. And I think as we said before, the 232 decision, hopefully soon, will give us some more clearance and guidance on this segment. Yes. Tobias Ohler: David, Tobias here for the Silicones question. I mean you are trying to move towards '26. I think that's far too early. As you know, we typically give guidance in March next year. But nevertheless, your observations for Silicones, I'm happy to comment on these. I mean, you see a significant slowdown in the second half. Why is that? Because we have a drag on, as we described on the top line. I talked about adverse effects from volume mix and exchange rate and some -- also some price, I mean, all 3 together. But on the other hand, also in the second half, we see the impact of our efforts to reduce working capital. And if you run at lower utilization, just to get that under control, you get a lower absorption on fixed costs. And that definitely makes it not a good way to think about the run rate for next year. So it's far too early. We have many moving parts. As Chris mentioned at the introduction, I mean, we have embarked on a comprehensive cost program, exactly focusing also on the fixed manufacturing costs. So I would be not in the position now today to talk about any '26 hint on how the profitability might move. David Symonds: Understood. And then maybe just on that working capital point, I mean I noticed that payables as a percentage of sales is actually down quite a lot last year -- versus last year. Is there anything that's changed there? Or what's meaning that payables seems to be running at a much lower level this year? Tobias Ohler: Payables are running lower also from our reduced investment levels. I mean that is a huge swing factor. As I mentioned, going forward, we are targeting '26. And that type of guidance I can't give because we are just right in the midst of the planning discussions. We will be far below EUR 400 million in next year. And I mean that -- I mean decline in investment also plays a major role why payables are running lower. Operator: The next question comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: I have 2, please. The first is on the pricing in specialty silicones more broadly. I've played with this data in different ways, but it looks as if at the margins, the specialties pricing may have started to slip a little. Is this fair? And what can be inferred about behavior moving into 2026? My second question is on the cost savings measures that have been announced and in particular, as they relate to Biosolutions because we're focused on Polysilicon and if Wacker can maybe shut a production line or what goes on there? But if I take the amount of capital invested in Biosolutions over the last decade, the company could have bought back as a rough guess, 1/4 of its stock at the current stock price with it. What is going on in that segment? And what are your thinking in terms of what is on and off the table when it comes to making potential savings? Could you shut a Polysilicon line? Could it involve divesting parts of Biosolutions? What are your preliminary thoughts? Tobias Ohler: Sebastian, Tobias here to start with your first question on Silicones and pricing in specialties. I think there is not big movement in pricing. I think if you look at the overall development throughout the year, we had a very strong start in the year with a strong mix. But if you look at the overall margin progression in specialties, I think it's rather flat. So from that perspective, it is flat and unsatisfying today because of the low utilization. And that is the topic also of that comprehensive cost program that we are trying to address our fixed cost base. And for that reason, no view into '26 again, as I said before, guidance will be disclosed in March, as always. Christian Hartel: Sebastian, let me answer your second question and maybe for clarification. So this ambitious and holistic cost project, which both I and Tobias talked about is for all the divisions. So it's not specific only for Polysilicon or only for Biosolutions. It's also for -- it's for the whole group. Therefore, it's kind of really comprehensive and ambitious. And it is on the -- especially on the cost -- sorry, on the production cost side. Now your question was more specific on what could we do on Biosolutions and on Poly. And I think that's a totally different topic because on the solar side, I think on the Poly side, it is very clear, as we mentioned before, strategy on semi. If there would be a very clear decision that there is no attractive solar market left for the Western players like us, then yes, you are right. We would have probably one plant too many for our semi strategy. And hopefully, we get an answer from a 232 decision. On the Biosolutions, I think we have a totally different situation. Although the utilization is also not satisfactory at the moment, we do see potential for growing this business. And I think at the moment, it is more by a very soft market environment, which we and others face. But we work very diligently on acquiring new projects in the pharma space, sometimes it takes more time. We have a pipeline working on it. And so that's what makes me confident about this and optimistic about this segment, but it might take more time than we have originally anticipated. Sebastian Bray: That's helpful. Just as a quick follow-up. Can you give any guidance on energy cost relief year-on-year expected for '26 for at current hedging, prevailing spot rates and so on? Tobias Ohler: Again, Sebastian, it's rather early. But I mean for energy, we do have our hedges. We see market prices trending down a bit. So there should be some relief on that. On the other hand, energy costs will be higher next year due to the lower CO2 compensation because that is always coming with a time lag from lower production as a reference. But on the other, there might be some positive changes from regulation. So again, as I said before, it's too early to give you a precise guidance for this cost next year. And the same goes for raw materials, slightly trending lower, but too early for guidance. Operator: [Operator Instructions] We now have a question from the line of Tristan Lamotte from Deutsche Bank. Tristan Lamotte: I was just wondering if we could see material upside to EBITDA from demand for Polysilicon for semis in 2026? Or is it more kind of the case that most of these capacities are already filled and therefore, it's not really going to move the dial and the pricing is fairly stable and on multiyear contracts? So I'm just kind of wondering about the materiality of potential upside. Christian Hartel: Okay, Christian (sic) [ Tristan ]. Again, Christian, I'm happy to answer Christan's (sic) [ Tristan's ] questions. And the answer is yes. We do -- although we don't want to talk about guidance for 2026, I think this is the exception we can really make. We do see an upside to EBITDA from the semi side because of increasing volumes to be sold next year, coming also from our hedging line. Tristan Lamotte: And maybe second, I was wondering if you could just talk a little bit more about where you're seeing pressure from China? And is there any reason that you're seeing why that additional pressure should go away at some point? Or is this kind of the new normal? Christian Hartel: Yes, it's a very, very good question, especially the second part of the question. For the first part, where do we see pressure from China? Yes, it's in some chemical segments. And I would say more also on construction-related and standard product-related stuff. And the main reason is an underutilization of assets in China and a weaker-than-expected market development in China. So we see volumes from China pressing into Europe. Obviously, not so much into the U.S. because of the tariffs. The question is, will it go away? I'm cautious on that. At least we prepare with our cost program to be -- to stay competitive and not to hope for that everything will come back. I think that's the right and cautious approach you should take in such a situation. And of course, we fight on the market for the volumes. And I think here also our very clear strategy on more specialties, on more elaborated products working together with customers is the answer in reducing the share of -- which can be taken by the Chinese or other competitors. Operator: [Operator Instructions] Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Joerg Hoffmann, Head of Investor Relations, for any closing remarks. Jörg Hoffmann: Thank you, operator. Thank you all for joining us today and for your interest in Wacker Chemie. Our next conference call on the full year 2025 results will take place on March 11, 2026. As usual, we intend to publish our preliminary numbers at the end of January or the beginning of February. As always, please don't hesitate to contact the IR department if you have further questions. Thank you for your interest. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to Comcast's Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded. I will now turn the call over to Executive Vice President, Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker. Marci Ryvicker: Thank you, operator, and welcome, everyone. Joining us on today's call are Brian Roberts, Mike Cavanagh, Jason Armstrong and Dave Watson. I will now refer you to Slide 2 of the presentation accompanying this call, which can also be found on our Investor Relations website and which contains our safe harbor disclaimer. This conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP. With that, I'll turn the call over to Mike. Michael Cavanagh: Good morning, everyone, and thanks for joining us. First, I'll start with the leadership news we announced earlier this morning, which is that Steve Croney will be elevated to CEO of our Connectivity & Platforms business at the beginning of 2026. And at that time, Dave Watson will become Vice Chairman of Comcast Corporation. This will be a well-earned and seamless transition for Steve, who has already made a significant impact as Chief Operating Officer, leading the operational transformation of our C&P business over the past year. He has the full trust and confidence of our entire management team, and he's exactly the right person to take the business forward. And I want to congratulate and thank Dave for his extraordinary leadership of the business for the past 8 years. Over more than 3 decades, Dave has been an integral part of building the best connectivity business in the industry. The fact that Steve comes from inside the company also speaks to how thoughtfully Dave has developed the leaders in his organization. And I really look forward to continuing to partner with you, Dave, in your new role as Vice Chairman. Brian will have more to say about this leadership transition later in the call, but now let me get into the quarter. I have 2 topics to discuss, convergence and sports. So starting with convergence, the broadband environment remains intensely competitive, which we do not expect to change anytime soon. Over time, though, we believe that the vast majority of the broadband market will be comprised of 2 multi-gig symmetrical providers serving most addresses, and we aim to be a winner in this segment, with the rest of the market likely being served by capacity limited alternatives. We've been seeing this end state begin to take shape. Fiber expansion continues at a steady pace. And as we've said before, we expect most of our footprint will eventually be overbuilt. At the same time, fixed wireless remains a durable competitor, serving price-sensitive segments with moderate performance needs. Against this backdrop, we have adapted our approach to compete more effectively for the long term. Our strategy rests upon 3 pillars: Network, product and customer experience. Our network is built to scale and now leverages AI end-to-end to optimize performance throughout the home. This enables best-in-class WiFi, which matters more than ever as usage continues to rise. We're seeing this on our network, where broadband-only customers averaged 800 gigs a month in the third quarter, up 9% year-over-year. In product; broadband, wireless and our entertainment OS operate as one system, integrated and designed for how customers actually connect. Taken together or individually, they deliver a seamless experience that differentiates us in the marketplace. And finally, in customer experience, where we need to improve over the long term, our near-term focus is on price transparency and in making it easier to do business with us. With respect to these pillars, we made meaningful progress in the quarter. First, we streamlined our organizational structure to better align with our strategy. Steve has centralized key functions such as marketing, data science and customer experience and reduced management layers to sharpen local execution. Second, we're pressing ahead on WiFi, an area where we are already recognized as a market leader. Strong, consistent WiFi remains the #1 factor driving customer choice, and this is where we excel. Opensignal recently ranked Xfinity, the top provider in our footprint, outperforming Verizon, T-Mobile and AT&T in reliability, download speeds and streaming. This leadership comes from the technology behind our network, especially our gateways, which power the strength and consistency of the WiFi experience. During the third quarter, we began rolling out our most powerful gateway yet, the XB10, supporting multi-gig symmetrical speeds and up to 300 devices using AI to self-optimize network performance in real time. With our new national pricing, gateways are included in every package, ensuring every customer receives our best technology and an integrated experience with mobile. Third, we've accelerated momentum in wireless, now reaching more than 14% penetration of our broadband base and adding over 400,000 lines in the quarter, our best result yet. Xfinity Mobile is a standout growth engine for us. We're leaning in with sharper marketing, stronger brand awareness and compelling offers like a free mobile line for 1 year. This was also the first full quarter of our new premium unlimited plan designed for higher-value customers that delivers what they want at $40 per line on a 2-line plan and the ability to upgrade devices twice a year with a guaranteed discount on a new phone. Our progress in mobile is clear with meaningful product uptake, higher attachment rates across our broadband base and growing recognition of Xfinity Mobile as a leader in value and performance. Fourth, video performance improved meaningfully this quarter with subscriber losses down more than 100,000 year-over-year, which is our best result in nearly 5 years. Churn is at record lows, supported by our focus on delivering the right products for each customer segment. Our entertainment OS continues to lead the market, enhanced by features like Multiview, which allows our customers to view several live events simultaneously. Fifth, we introduced a simpler, more transparent pricing model. As we detailed last quarter, we've moved to nationwide offers built around 4 clear speed tiers. Each plan includes our gateway, unlimited data, WiFi controls and cyber protection at a lower everyday price backed by a 1- or 5-year price guarantee. It's a more predictable experience for the customer and a clearer value proposition in the market. And finally, we're taking meaningful steps to simplify the customer experience across all channels. Our new AI engine now supports agents, technicians and customers through assisted chat, phone, our website and our AI-enabled Xfinity Assistant platform. We also launched a program that connects customers to a live agent in seconds, which is now available to half of our customer base. It's still early, but we're moving fast and executing with focus towards a simpler, smarter and more seamless customer experience. So taken together, these efforts mark tangible progress in what is an important shift to position our Connectivity business for future sustained growth. This is a deliberate investment phase, one that will take time and carry a cost as reflected in the 3.7% decline in Connectivity & Platforms EBITDA this quarter. And we expect this decline to build slightly over the next several quarters as we continue to invest in pricing, product and customer experience. And my second topic is sports. Last week's NBA tip-off marked the start of one of the biggest stretches of live sports in our history and drew the largest audience for an NBA opening doubleheader since 2010. We're in the heart of the NFL and college football seasons. And in February, we'll have the Super Bowl, Winter Olympics and NBA All-Star Weekend, followed by the World Cup on Telemundo in June. Sports remains a cornerstone of our Media business. The NBA's return to NBC and now Peacock expands both our reach and our creative opportunities. Sunday Night Basketball launches in February, modeled after the success of Sunday Night Football, which has been the #1 prime time show for 14 straight years and now averages roughly 25 million viewers. We're proud of the sports portfolio we've built. Each property adds value across our entire media ecosystem, driving NBC's distribution, helping Peacock attract and retain subscribers and powering our advertising business. And as audiences continue to shift from linear to streaming, the multiple benefits of sports becomes an even greater advantage. Live sports continue to deliver strong viewership and ad performance across broadcast and streaming. Momentum at Peacock remains solid and retention has held steady even after our $3 price increase. Running linear and streaming as one integrated media business gives us real scale and flexibility. It allows us to align programming, marketing promotion and monetization across NBC, Peacock and our studios. And as we near completion of the VERSANT spin, NBCUniversal's media business will be more focused and well positioned to grow. So now let me turn it over to Jason to go over the third quarter results in more detail. Jason Armstrong: Thanks, Mike, and good morning, everyone. Let me start with a high-level overview of our consolidated results before getting into more detail on our businesses. Total company revenue declined about 3% year-over-year, primarily due to the tough comparison to last year's Paris Olympics. Excluding that impact, revenue increased nearly 3%, driven by strong performance across our 6 growth businesses, highlighted by nearly 20% growth in theme parks and 14% growth in domestic wireless. EBITDA and adjusted EPS were both consistent with last year, while free cash flow increased 45% to $4.9 billion. We returned $2.8 billion to shareholders this quarter, including $1.5 billion in share repurchases and $1.2 billion in dividends, reflecting our ongoing commitment to disciplined capital allocation. Now turning to our businesses, starting with Connectivity & Platforms. The competitive environment for broadband remains intense. As we've highlighted, we've made a significant pivot in our go-to-market strategy this year, focused on simplifying pricing, improving transparency and enhancing the customer experience. While it's still early, we're encouraged by what we're seeing in our broadband customer base: Continued stabilization in voluntary churn, a healthy mix of customers opting into our 5-year price guarantee and nearly 40% of new connects choosing gig-plus speeds, which is up about 10 points from the start of the year. We're also seeing higher utilization of our new packaging, including new everyday pricing and retention, helping transition more of the base into simplified market-based plans, and we continue to accelerate our wireless net additions this quarter to a new record high. As we've said from the beginning, this pivot carries several costs, including rate reinvestment through pricing simplicity, which carries revenue dilution as well as investment in customer experience, which carries additional operating costs. This quarter is the first quarter where these impacts are reflected in our financial results. You see it in broadband ARPU growth dilution as well as elevated marketing, product and customer service expense, all contributing to a 3.7% decline in EBITDA this quarter. As Mike mentioned, as these investments continue, we expect continued EBITDA pressure over the next several quarters until we lap this transition. On the other side of this, we're positioning ourselves for growth with a more durable broadband customer base on stable market-based rate plans combined with a larger wireless base that gives us a very strong hand in convergence, along with meaningful monetization upside as customers roll off promotions and we expand the relationship over time. All in, our converged product offerings provide customers with substantial savings versus comparable plans from telecom competitors. Now let me get into some further details of the quarter. Broadband subscribers declined 104,000 in the quarter. We saw the typical seasonal benefit from back-to-school activity as well as the early traction from our new go-to-market initiatives, but this was more than offset by the continued intense competitive environment. The rollout of our new everyday pricing structure at the end of June, combined with the success of our free wireless line offer, caused a deceleration in our broadband ARPU growth, resulting in 2.6% growth this quarter. As we continue to transition customers to more consistent pricing and ramp up free wireless line additions, we expect ARPU growth to step down more than 1 point in the fourth quarter, and we expect continued pressure on ARPU in early 2026 as our current plan is to not take a rate increase in broadband in the early part of next year. As we've said, this pivot we are making will take time, but it sets the foundation for a far more stable broadband base in a more challenged competitive environment, and we're confident we're on the right path. And while we invest to stabilize broadband, wireless is our core growth engine. On that note, convergence revenue grew 2.5%, supported by mid-teens growth in wireless. Wireless net additions hit a new record at 414,000, and nearly half of our residential postpaid phone connects came from customers taking a free line, which is a great way to bring new customers into the ecosystem. At the same time, we saw strong uptake in our new premium unlimited plans, enhancing our position in the high-value postpaid market. Our total wireless lines are now approaching 9 million with penetration of our broadband base surpassing 14%, and we're pleased with the momentum in wireless net additions. Looking ahead, in the second half of next year, many of the free lines will come up for monetization. Our intention is to convert the majority to paying relationships, which should provide a significant tailwind to convergence revenue growth at that point. Turning to Business Services. Consistent with prior quarters, revenue was up 6% and EBITDA grew by nearly 5% in the quarter. In the SMB segment, we're seeing elevated competition, particularly from fixed wireless. Despite this, we still delivered modest revenue growth by driving ARPU higher through increased adoption of our advanced services like cybersecurity, cloud solutions and Comcast Business Mobile. Where we're seeing real momentum is in our Enterprise Solutions, which continues to be a key growth driver. These customers have more complex needs, and we're leaning in to deepen relationships and expand our advanced solutions mix. It's a segment where we're investing, and we expect continued strong growth. In Content & Experiences, there are a few items I'd like to highlight. At Parks, we delivered another strong quarter with revenue up 19% and EBITDA growth of 13%, benefiting from the first full quarter of Epic Universe. We're really pleased with the early results from Epic, which are driving higher per cap spending and attendance across the entirety of Universal Orlando. We remain focused on expanding ride throughput as we build to run rate capacity and expect Epic to continue scaling over the next year with higher attendance, stronger per caps and improved operating leverage. At Studios, we had solid theatrical results, led by the strong performance of Jurassic World Rebirth early in the quarter, which has grossed nearly $900 million in worldwide box office and pushed the franchise's cumulative total to $7 billion. While this success contributed to top line growth, Studio's EBITDA was impacted by higher marketing spend tied to our larger film slate this year. Looking ahead, we're excited for a strong fourth quarter slate, including the highly anticipated release of Wicked: For Good on November 21. In Media, excluding the comparison to last year's Paris Olympics, which generated $1.9 billion in incremental revenue, revenue increased a healthy 4%. And on the same basis, Peacock revenue grew at a mid-teens rate, driven by strength in both advertising and distribution. Advertising was up 2.6%, our best result year-to-date, fueled by sports with the strong return of Sunday Night Football. In fact, our 20th season is our highest grossing season to date. Distribution revenue grew 1.5%, supported by 25% growth at Peacock. Overall Media EBITDA increased 28%, driven by nearly $220 million year-over-year improvement in Peacock losses, which landed at a loss of just over $200 million in the quarter. Peacock subscribers were flat this quarter as the strength of our content slate late in the quarter as well as our strategic distribution initiatives offset the impact of additional churn from our in-quarter $3 rate hike. Looking ahead, the NBA just premiered on NBC and Peacock last week and is off to a great start. While we expect a positive impact on advertising and distribution revenue, it also introduces a new expense. As we've said, we'll straight-line the amortization of these sports rights, which will create some upfront dilution, particularly in the first season, with the game counts driving quarterly realization of this expense. But over time, we'll offset this through advertising growth. Our recent record upfront tied to sports, including the NBA, is a good indicator and through subscriber acquisition and monetization across both linear and Peacock, we also expect to optimize NBCUniversal programming investment across sports, entertainment and news. Now I'll wrap up with free cash flow and capital allocation. As I mentioned earlier, we generated $4.9 billion of free cash flow this quarter, up significantly year-over-year. And year-to-date, we have generated $14.9 billion in free cash flow. The increase in the quarter was driven by a tailwind in cash taxes from the new legislation, along with favorable working capital timing, particularly around studio production spend and the comparison to the Olympics. These benefits were partially offset by higher organic investment with total capital expenditures of $3.1 billion this quarter, reflecting increased spending in Connectivity & Platforms, where we're investing to pass more homes, to strengthen our broadband network and to deploy our market-leading gateways into homes at a faster rate. Our gateway is now included in our broadband offers, which is a key part of our product strategy. On the Content & Experiences side, capital spending declined as we're past the construction on Epic that elevated capital spending last year. Through our investments and our significant pivot in broadband, we have maintained a healthy balance sheet, ending the quarter with net leverage at 2.3x. We also returned $2.8 billion to shareholders, including over $1.5 billion in share repurchases, contributing to a mid-single-digit year-over-year decline in our share count. As we look ahead to next year, our capital allocation strategy remains unchanged. Our priorities are to invest organically in our growth businesses, maintain a strong balance sheet and return capital to shareholders. That formula has served us well, and it will continue to guide our approach. At the same time, we'll stay disciplined and balanced as we move through this transition. We do have some near-term headwinds, namely the EBITDA impact from our broadband repositioning, the onboarding of NBA rights and the spinoff of VERSANT and its associated EBITDA and free cash flow. For those reasons, we reduced our quarterly buyback pacing a touch to $1.5 billion in the quarter. I'd point out this remains one of the strongest absolute and percentage buybacks in our broader peer group. At the same time, our healthy dividend offers a yield that is multiple times the yield of the broader market. So we believe we are balancing strong returns back to shareholders with significant reinvestment in our business and doing so in the context of a balance sheet that provides cushion through any operating or macroeconomic environment. With that, let me turn it over to Brian for a few remarks. Brian Roberts: Thanks, Jason. Mike, as you referenced a moment ago, I want to talk about our recent leadership announcements. Let's start with you, Mike. I could not be more thrilled to have you become our co-CEO. Working side by side for over a decade, you're an incredible partner and now especially as we manage the pivot we're making to meet the moment in all of our businesses that you just laid out so well, you are critical to navigating our plan to achieve sustainable growth for the future. I'm also very excited and proud for you, Dave, to become Vice Chair, working with me, Steve and all the others on the strategic initiatives as we look forward. But as I step back and think about Comcast's culture, doing the right thing, caring about people, building something truly unique. So much of that started with my dad, but it's actually been brought to life for decades now by you, Dave. So on behalf of thousands and thousands of employees, a huge thank you. And Steve, who's sitting right here, not going to speak today. We're going to start him next quarter. You have been often running from day 1 when you became COO just under a year ago. All of the changes you're hearing about and have seen in our pricing, packaging, customer experience and infusing AI across the connectivity businesses have been driven really by Steve and his energized team. We're clearly at an inflection point in the industry and transformational moment in our company. And we now have a leadership team adding on to the great successes of the past that's leaning in to change and actionize all the plans you just heard about, and we're excited about the future. So before we get to Q&A, Mike, back to you for one last word. Michael Cavanagh: Thanks, Brian. I truly appreciate the confidence that you and the Board have in me, and I couldn't be more excited to become Co-CEO at such interesting times in our industries. I know that I and I think I can speak for the next wave of leaders across the company are very eager to meet these challenges. And we're very confident -- I'm very confident that we will drive value over the next several years on the back of the strength of our people, our business assets and the strategies that we already have in flight. And we'll make whatever adjustments need to be made, but couldn't feel more excited and more confident. So with that, I look forward to diving into your questions, and back to you, Marci. Marci Ryvicker: Operator, let's open the call for Q&A, please. Operator: [Operator Instructions] Our first question today is coming from Michael Rollins from Citibank. Michael Rollins: Congratulations, Mike, on being named co-CEO and Dave, becoming Vice Chair. Just a couple of questions. So first on broadband. Just curious if you could share some more context around the evolution of ARPU and what you're seeing in terms of customers migrating to the new plans and the opportunities to build better retention, but the cost of that coming through on the revenue side. And then on convergence, you referenced the 2.5% growth in the quarter. As you continue to market the new slate of offers and promotions, is there an anticipation that this rate of growth should improve over time? David Watson: Mike, this is Dave. So let me, if I could, just take a quick moment. I appreciate your comments on Mike and I and Steve. But I do want to just take a brief moment to say what an incredible privilege it's been to help to lead this team in this business. Working alongside Brian, Mike, Jason and the entire management team has truly been the highlight of my career. Very proud of the progress that we've made. Brian touched on some of that, but we've built a world-class network and the products that set the industry standard. And leaning in with new businesses in wireless and Comcast business, which continue to create real momentum, I'm optimistic about the future. There's so much opportunity ahead as we bring our broadband, wireless and entertainment products together, and we'll continue to innovate. And that's why I'm so confident in Steve. As Brian said, Steve and his team are leading these big changes that we're rolling out. Steve is an exceptional leader; thoughtful, decisive and focused on innovation, the customer experience and execution, qualities that will position us for success in the years ahead. I want to thank our teams across Comcast for their relentless focus and hard work every day. It's been an extraordinary journey, and I look forward to what's ahead for all of us. So speaking of what's ahead, let me answer your question on the revenue side, on ARPU and then hand it over to Jason to talk a little bit about convergence. So given the investments we're making, as we've said, it's unlikely that we'll be able to grow ARPU in 2026, especially in the early part of the year. But part of it is, to your question, Mike, we're going to be very active, and we are active migrating customers to the new pricing and packaging with lower EDPs, an all-in approach and, of course, all eligible for that free mobile line. So as Jason said, and he talked about the timing in Q4, and the current plan is to not take a rate increase in broadband in the early part of the year. But we're real confident that we can get back to ARPU growth as we migrate through and manage through the transition. So we are very focused on the tier mix and the higher packages. So we're being deliberate and focused to the base on how we're going to the customers and through multiple ways. And most certainly, as you brought out, retention is a key one. And so tons of value that we have with the free mobile line and the all-in approach that we have and the lower EDPs. In Q3, nearly half of our resi postpaid phone connects were free lines. So it's working. You saw through the phone results, and it gives us longer-term growth potential as these migrate off and convert later on next year. So we're very focused to the base and will not be hesitant to move the customers to these new packages, and we'll take every appropriate opportunity to do that. No specifics in terms of the actual migration amounts, but our focus is long-term revenue growth, that's sustaining and continuing to work on the competitive landscape and getting customers into these packages. So that's the overall view in terms of our ARPU management. Jason Armstrong: Yes. Mike, let me -- maybe I'll put those 2 questions together and just give you, as Dave said, sort of the broader strategic framework, which is we're in a transition period, we're pivoting, but the mandate here is let's get to the other side as quickly as possible. And Dave, Steve and team are driving towards that. So that's the common thread. If you look at the repackaging we're doing, whether it's 5-year price locks, whether it's free wireless lines, we're seeing good uptake, and we're moving the base along as quickly as possible, and there's no mandate to slow that down. Instead, it's let's get to the other side. And so as you've seen, that's going to create a little bit of ARPU pressure. You saw that in the quarter. You'll see it again next quarter. We're not taking a broadband rate hike at least in the early part of next year. So that will compound the pressure a little bit more. Saying that, we're adding a lot of wireless lines, and we're adding free wireless lines. So if you think about sort of the other side of this, vast majority of our base on super competitive broadband pricing, where we're a lot more competitive than we used to be and wireless lines more broadly deployed in our base and a bunch of free lines that right now are diluting ARPU, but we are absorbing the cost for them. We're proud of what we're seeing. We're actually seeing people activating. We're seeing them using the lines, which portends, I think, good things for the activation rates next year and our ability to translate those into paying lines. So what is a headwind right now in the form of wireless to our broadband ARPU becomes a tailwind. And so we're setting ourselves up for the other side, but there's going to be some near-term headwinds, as we said. Michael Cavanagh: And I'll just add, long term, I completely agree with what Jason said, but -- this is Mike. But we're encouraged when you look at how fiber pricing, broadband pricing is increasing across the industry. That's quite a good backdrop for where we're taking the business over the long term as well as the continued data usage across our networks, which continue to grow this quarter, up 9% year-over-year. So continued strong growth in the use of the service. So good backdrop for -- once we get to the other side, confidence that we'll have revenue growth in the broadband business in the years ahead. Marci Ryvicker: Operator, we're ready for the next question. Operator: Next question today is coming from Michael Ng from Goldman Sachs. Michael Ng: I wanted to just ask a little bit more about the trajectory of C&P EBITDA next year. We obviously talked a lot about the ARPU side. Just on the OpEx side, could you talk a little bit about the investments that you're doing there, whether that be in CPE, sales, marketing or customer service to support the reset here? David Watson: Sure. This is Dave. So we talked about, and Jason, Mike, myself talked a little bit about the revenue approach being aggressive, deliberate on the getting to new and existing customers, the new packaging and the simple transparent approach that we have. So that has an investment attached to it. But in addition, we're also focused on making sure the media supports the strategy, the marketing sales channels, everything and the experience, in particular, is consistent with everything that we're doing. So we are investing in sales channels and in marketing, and we'll see. But the biggest impact that we will experience in terms of timing is the things that we've already talked about in terms of free mobile line, the revenue investments that we're making that is -- there's a ton of activity, but the marketing effort connected with it and the customer experience improvements, making sure that every tool, every aspect of the business is going to continue to improve, those are things that are just as important. Jason Armstrong: And I think along with that, just to round out the question and cost opportunities. I think the team, to their credit, has been fairly aggressive in cost rationalization. You've seen that more recently with some realignment around divisional structures and cutting out layers in the company. So that continues the pace. A lot of that, though, obviously being reinvested in the pivot, which we think is the appropriate thing to do. Operator: Next question is coming from Craig Moffett from MoffettNathanson. Craig Moffett: Two questions. First, Dave, I just want to say congratulations on an exceptionally successful and long run as President of the cable side of the business. Two questions, if I could. First, I have to ask about all the speculation about Warner Bros. Discovery. So Brian, if you could just share any thoughts about how you think about those assets, the complementarity of those assets and whether or not, in this political environment, M&A of that kind is even possible. And then on the cable side of the business, I wonder if you could just talk about the transition at Verizon to Dan Schulman and whether you expect that to have any implications for the relationship you have with Verizon and the MVNO? Brian Roberts: Let me kick it over to Mike as co-CEO to answer those questions. But on the second one there on Verizon, we wish him well, and we have an important relationship with Verizon, and we are confident that we'll find ways to work together very successfully in the future. But Mike, why don't you take the... Michael Cavanagh: Sure. On Media M&A or M&A generally, I mean, I think we've said repeatedly, and I'll say it again, that the bar is very high for us to pursue any M&A transactions given how strongly we feel about the businesses we have, the strategies we're pursuing and the opportunities we have ahead of us. So that continues to be an important anchor point for how we think about things. Second point I'd make is that you should expect us to look at things that are trading in the space around our industry. So we'd be -- it's our job to try to figure out if there's ways to add value. But I would point out that with the kind of VERSANT spin, we've set NBC Media business up, pairing Peacock on the streaming side with NBC Broadcast. You've seen lots of news lately about us attracting the NBA, Taylor Sheridan and the like over the long term. And you put that business alongside one of the finest studio businesses in the industry and our Parks business, and I think the strategies we have are really sound and durable without M&A. That said, the question about what's feasible to get any deals through. Obviously, the fact that we've been taking the path of setting VERSANT up as our cable network business to pursue strategies that didn't fit inside the sort of the new NBC Media business with great strength in assets and the cash flows they have with light leverage and that is on track to happen, you can expect that any view we would have about other media assets that could be complementary to our existing Media business would be of the same sort. So in this case, it would be streaming assets and studio assets since there's no other parks assets out there, and that makes us such a unique company ourselves. So I think in light of that, what we'd be looking for and what we're going to look like post the VERSANT spin, I think more things are viable than maybe some of the public commentary that's out there. Operator: The next question today is coming from Ben Swinburne from Morgan Stanley. Benjamin Swinburne: I guess two questions. One, I wanted to get a sense a little bit on how you're thinking about the conversion of free wireless lines to pay next year. We've sort of seen this in others in the industry. But how are you guys just ensuring that the customer quality is there and making sure you're putting in kind of the right guardrails so that when you get to that point a year from now, we see that nice uptick in convergence revenue growth. And then, Jason, you mentioned a couple of things on Epic, focusing on expanding ride throughput, et cetera, operating leverage. Can you just talk a little bit more about what you were referring to there and kind of what we should expect as we move through 2026? David Watson: Let me start, Ben. This is Dave, on the wireless migration. So we've had solid momentum leading up to this quarter. We've been in the 300,000-ish net new additions prior to launching the free line package. So we just stepped up to a nice level for the first time, a new record that we've all been talking about. But I can't think of too many other things that are as important as making sure quality connects coming in, and there's going to be a real focus around making the transition to paid status for those free lines as they come off next year. So have a lot of experience with promotional activity, very accustomed to proactive and reactive approaches, and we've watched it closely in the marketplace those that have done this. So tried to learn quite a bit. But it's -- our focus has been and continues to be providing real choice in the marketplace. And we've been very consistent going after quality, high-end segments. We want to compete in every segment. And so whether it's broadband and mobile or broadband and other packages. And we've launched, for example, new high-end wireless tiers that have been really attractive in the marketplace. And so that's a good sign. We've seen these new wireless plans, our gig speeds, 4K, the ultra-high-def streaming capability, more WiFi hotspots, advanced spam call protection and guaranteed device upgrade capabilities. So you can see our focus is to stay very much and when we go after mobile relationships, we'll maintain the history that we have of going after the best customers. And the experience itself, I think, is critical and that we will continue to make sure people know we have the best along with great mobile service, great WiFi and that it all comes together and converged in a way from a product experience that it really works. So the migration activity next year, we will be all over. That will be an important part of our plan. Jason Armstrong: And Ben, it's Jason. Just rounding that on wireless. The steps we've taken this year, I think, broadly were to get after 2 particular issues in our wireless base. So on the one hand, we've got 14% penetration of our broadband base. That's a lot of progress in 7 years since launching wireless. So that's terrific. On the other hand, it's a captive base to sell into. So we all think our penetration -- natural penetration over time is a lot higher than 14%. Two things related to that. Number one, an awareness issue in our base, which the solution for that is if you don't know about us or don't trust the network, the product, et cetera, because you haven't had any exposure to it, what better way to do that than a free line for a year. So that's designed to sort of push through that side. And then the other, I think, critique was, can you really serve the high end? Historically, we launched on a by-the-gig plan that was sort of our niche early on in the market. That's not a high-end plan. We've evolved since then. And more recently, with the premium unlimited plans, exactly what Dave was talking about, that is a very competitive plan with high-end wireless. That is full data allotments, that is access to handset upgrades on a regular cycle. So very much looks like typical high-end postpaid plan. So rounding that out, I think we're kind of -- we're set to be much more competitive in wireless. This is an investment year, obviously, as we push free lines into the base, but this sets us up well beyond that. Michael Cavanagh: And then on Parks, let me just step back and we had another strong quarter. Revenue is up 19% and EBITDA up 13% year-over-year, and that's, of course, driven by the first full quarter of Epic. Orlando, broadly, the full resort of Orlando is very strong. So we're very pleased. The idea was to have Epic head us towards a week-long vacation type of experience. And what we're seeing as Epic is now in the market is that it's driving higher per cap spending and attendance across the entirety of Universal Orlando. So -- and one of the nice things is that lesser cannibalization of attendance from our 2 pre-existing parks than we had expected. In terms of Epic ourselves, our focus now is just driving increased ride capacity. It's a new park and very technologically advanced. So working on the labor and the kinks to drive it to full capacity. We've been holding back a little bit to make sure the experience is what we want it to be. So we expect it to fully scale up in the months ahead and will really be driving higher attendance per caps and improved operating leverage, which is what Jason referred to as you look out over the next year to year plus. Operator: Our next question is coming from Jessica Reif from Bank of America. Jessica Reif Cohen: Two things. Given the meaningful sports investment plus the overall content investment at Peacock, what are your plans to scale up, if any, globally? If you are, do you need to participate in M&A to actually do that? And if not, I know there was an earlier question, but what is your view on NBCU's competitive position if you don't participate since this seems like a moment in time? And then the second thing, if you could talk a little bit in more detail about your advertising outlook. We saw Google had like really strong results yesterday. Maybe you could drill down a little bit on -- not that you're competing directly, but just what you're seeing in your various lines of business, both cable and media and how the move towards programmatic may be affecting those businesses? Michael Cavanagh: Sure. Well, on the first, I kind of said what there is to say about the business. I think NBC is -- just look at the partners we've attracted and again, on the talent side from, again, Taylor Sheridan and Jason Blum and Chris Meledandri and Steven Spielberg and Jordan Peele and others. I mean we just have a -- and Christopher Nolan, obviously, with coming up. So obviously, Pay 1 movies and originals are a piece of the pie of driving scale in Peacock. And likewise, sports. Sports has been very successful for us. It's live as a lot of the coverage has had, and it's hard to build the kind of portfolio that we have. So obviously, you have to pay the bill to meet the market. But beyond that, you have to produce it well. And I think some of the -- and NBC Sports has just got a great tradition of working with partners. And so I think many partners look to us to broaden their reach, increase the brand of their own properties. And I think that's a durable advantage for NBC broadly, Jessica. So I don't think M&A is necessary and you think about the nature of sports is fundamentally market by market as opposed to global. We do have the Olympics, but those rights are in the U.S. So I think that's where I'll leave it on that front. And on the advertising front, another strong quarter. We're up 3% excluding last year's Olympics. And again, sports is a big driver. Sunday Night Football returned, 20th season, the highest grossing season to date. So we had a strong upfront, and we're using more and more programmatic and digital. And obviously, as we talked in prior calls, Peacock was up over 20% year-over-year in this past year's upfront, and that was 1/3 of NBC's total upfront commitments. So feel good that the balance between linear and digital, particularly as we look to what our portfolio is post VERSANT spin is balanced and strong and benefits greatly from sports and the other properties, Pay 1 window and NBC content and originals in Peacock. Dave, I don't know if you want to add anything on the advertising side on cable. But I think there, it's sort of similar trends. David Watson: Very similar. Marci Ryvicker: Operator, we have time for one last question. Operator: Certainly. Our final question today is coming from John Hodulik from UBS. John Hodulik: Great. Maybe a follow-up to a previous question. Is there evidence that wireless and convergence in general is lowering churn in the broadband base? And if we focus more just on the free line promotion, is that helping the overall trend as it relates to new connects? And then a second question on the business market. Business trends have held up pretty well, actually been pretty stable. And I realize you have the acquisition in there, but you guys gave a lot of forward comment on what I think related to the residential business. But how do you see competition shaping up in the business market? And can those business trends sort of remain -- pretty solid right now, as you look forward? David Watson: Let me -- this is Dave. In terms of -- when we add wireless to the relationship, it's positive, the impact to churn. So it is -- has been, continues to be. From the impact of the free line plan, part of the deliberate strategy that we have is really a longer-term bet. On the Connect side, there's some -- a little bit of an uptick of help, but it's really a longer-term bet around churn. Already has been noted, Jason, Mike, that we're really encouraged by the early results. The fact that we have this step up to 400,000 is a real opportunity, not just in terms of relationships that will continue to build, but it's also an opportunity financially down the road as they convert. But it's the longer-term bet around churn, that's where the benefit is. Business Services, it is competitive. There's more activity in fixed wireless as we've seen the telephone companies talk about that. There's a fair amount. We have, I think, a really good portfolio, though. We've done -- and I think Ed Zimmermann and the team and Steve driving that as well, $10 billion and growing in terms of mid-single digits, great margins and a huge addressable marketplace at over $60 billion. So we've become a leader in the small business space. We are the challenger when it comes to mid-market and enterprise, and there's just upside as you look at how the strategy has come together around expanding relationships, but as importantly as anything, adding more capability and more value in the additional services. And we're just getting going in terms of mobile and the Business Services. So we're thrilled to have a great relationship with Verizon, as noted, but we're thrilled to have the new relationship with T-Mobile to be able to go after the Business Services side of things. Mobile is just one more great product to add to the portfolio around everything else that we're doing. So a lot of upside on the business services area. Marci Ryvicker: Thanks, John, and thank you for everyone joining our call this morning. Operator: Thank you. That does conclude today's conference call. A replay of the call will be available starting at 11:30 a.m. Eastern Time on Comcast Investor Relations website. Thank you for participating. You may all disconnect.
Ronald Kohler: Welcome to the Covestro earnings call on the third quarter results. The company is represented by Christian Baier, our CFO. [Operator Instructions] You will find the quarterly statement and earnings call presentation on our IR website. I assume you have read the safe harbor statement. With that, I would now like to turn the conference over to Christian. Christian Baier: Thank you, Ronald, and good afternoon, everybody. I would like to start my presentation with some insights into a recent acquisition. Following the successful completion of the purchase of Pontacol in Q3 2025, Covestro has signed another value-accretive transaction, which is expected to close in Q1 2026, depending on regulatory approvals. This deal will also benefit our Solutions & Specialties segment with the acquisition of 2 HDI derivative production facilities from Vencorex in Rayong, Thailand and Freeport in the U.S. This strategic move enhances Covestro's global aliphatics production footprint in attractive growth regions, particularly the U.S. and Asia Pacific. Aliphatics isocyanates are essential raw materials for light stable coatings, paints and adhesives, primarily used in the mobility sector, but also in construction and furniture applications. The acquisition strengthens Covestro's position in the coatings and adhesives market, expanding its capacity to meet customer demand across key regions. The acquisition delivers financial value through a low double-digit million euro EBITDA addition and synergies of up to high double-digit euro million amounts within the next 5 years. These synergies stem from substantial utilization rate improvements across our asset base, combined with the implementation of Covestro's advanced aliphatics technology platform. This deal demonstrates our disciplined capital allocation approach, targeting high-return opportunities that enhance our specialty chemicals portfolio and drive sustainable value creation. Let us now turn to the key financials of the last quarter, which are clearly impacted by the Dormagen fire incident and the ongoing challenging business environment. On the sales volume side, we declined by 1.5%, also leading to lower sales of EUR 3.2 billion that are also due to negative pricing and FX effects. We achieved an EBITDA of EUR 242 million, which is towards the upper end of our guidance range and mainly due to successfully delivering on cost ambitions. The free operating cash flow came in at a positive EUR 111 million. As usual, and with just 2 months to go, we are narrowing our FY guidance. On Page #4, we are looking at the business and the volume development in the third quarter of 2025. Year-over-year, global sales volumes slightly declined, primarily driven by the external fire incident in Dormagen and partly continued macroeconomic headwinds. Volume growth in APAC and North America provided for a partial offset, but could not fully compensate for the European decline. Without the Dormagen incident, the European sales volume decline would be limited to minus 2% and global sales volume would have turned positive. Looking across the different industries, only auto showed a low single-digit increase, mainly due to the year-over-year low baseline after a strong decline in Q3 2024. Construction, electro and furniture wood all showed a low single-digit to low teens percent negative development, reflecting persistent economic weakness across key markets. Regional dynamics varied significantly. In EMLA, the performance remained challenging with automotive volumes flat and significant decline in electro, construction and furniture wood. This reflects both the operational impact from the Dormagen incident and broader regional economic softness. In North America, we have achieved slight volume growth, supported by strong furniture wood demand. Electronics and automotive remained flat, while construction declined significantly due to elevated interest rates and inflationary pressures and also trade policy uncertainty. In APAC, we have delivered slight volume increases driven by robust construction and automotive demand. However, export-oriented electronics and future -- and furniture wood segments contracted significantly, reflecting the impact of U.S. tariff measures on trade flows. We are now on Page 5 of the presentation and are coming to the year-over-year sales bridge. Sales for Q3 2025 declined by 12% to EUR 3.2 billion. While all contributing factors were negative, the decrease was mainly caused by negative pricing and adverse FX impacts. Pricing pressure contributed 7 percentage points to the sales decline, reflecting continued market softness and competitive dynamics across our portfolio. Foreign exchange headwinds accounted for 3.5 percentage points of the decline, predominantly due to weakness in the U.S. dollar, Chinese renminbi and Indian rupee against the euro. As mentioned earlier, lower volumes contributed minus 1.5% to the sales decline. With that, let's turn to the next page, where we are showing the Q3 2025 EBITDA bridge. Year-over-year, EBITDA decreased by 15.7% to EUR 242 million. The performance towards the upper end of our guidance range of EUR 150 million to EUR 250 million was driven by delivering on our self-help measures in the form of short-term contingency savings as well as long-term structural savings. The persistent unfavorable industry supply-demand balance continued to pressure margins with selling prices declining more rapidly than raw material costs. This negative pricing delta impacted EBITDA by EUR 102 million. In addition, lower volumes and adverse foreign exchange rates added to the headwinds. Other items provided for a significant positive contribution, primarily due to the mentioned cost savings. Restructuring costs related to strong burdened EBITDA with EUR 26 million in Q3 2025 and EUR 170 million during the first 9 months of 2025. On Slide 7, we break down the details for the different segments, starting with Solutions & Specialties. In S&S, the combination of the year-over-year price decline and negative FX effects led to a sales decline of 7.7%. Volumes remained flat. Quarter-over-quarter, sales declined globally and volume growth was only recorded in APAC, while EMLA and North America declined. Prices were stable in North America and APAC, while a decline was observed in EMLA. The EBITDA in Q3 2025 declined slightly year-over-year as the negative pricing delta and FX effects could not be fully offset by positive volume development and others. The quarter-over-quarter EBITDA increase was caused by positive pricing delta and cost savings, while volumes and FX diluted the increase. The EBITDA margin increased to 12%. After Solutions & Specialties, we now turn to the Performance Materials segment. Sales declined 16.2% year-over-year, driven by negative contributions of 9.8% from pricing, 3.3% from FX and 3.1% from volumes. The volume reduction was primarily attributable to production disruptions in TDI and basic chemicals stemming from the Dormagen incident. Quarter-over-quarter, sales declined in EMLA and North America, while APAC was flat. The Q3 '25 EBITDA of EUR 174 million is higher year-over-year, mainly due to an increase and -- mainly due to an insurance reimbursement and cost savings, while pricing delta, volume and FX all contributed negatively. Please note that the segment Performance Materials benefited from a EUR 75 million payment from the Covestro International Re, a licensed reinsurance company, to self-insure property damage and business interruption risks. Therefore, there is an equal negative amount booked in the other reconciliation segment. In Q3, we assume that Covestro had a mid-double-digit euro million negative operational impact from the incident. We do not expect another insurance booking in Q4. Therefore, we assume that the operational loss of another mid-double-digit euro million amount will burden the EBITDA in the last quarter. The next topic is the free operating cash flow development. As you can see from the graph, the free operating cash flow in 9M 2025 improved to minus EUR 370 million, with Q3 free operating cash flow contributing positive EUR 111 million. The free operating cash flow declined after 9 months year-on-year, driven by lower EBITDA and higher CapEx. The usual buildup of working capital during the year was less pronounced compared to last year due to reduced inventories. CapEx after 9M of EUR 556 million was higher year-on-year due to higher expenditures in our Performance Materials segment. We maintain our full year CapEx guidance of EUR 700 million to EUR 800 million for 2025. Income tax payments of EUR 145 million remained consistent with the previous year. The minus EUR 152 million in other effects mainly comprises the bonus payout in Q2. Let's now look at our balance sheet on Page 10. Our total net debt increased by EUR 292 million compared to the end of 2024. The increase was caused by a negative free operating cash flow of minus EUR 370 million. The decrease in the net pension liability of EUR 240 million was driven by an increase in pension discount rates, mainly in Germany. This comprises pension provisions of EUR 285 million and a net defined benefit asset of EUR 70 million. Summarizing our net debt situation, the total net debt-to-EBITDA ratio is at 3.8x based on our 4-quarter rolling EBITDA of EUR 0.8 billion. Covestro remains committed to a solid investment-grade rating, which was confirmed in April by Moody's, including a stable outlook. That concludes the overview of the Q3 financials, and we are now moving to the forward-looking part. We are continuing with the outlook for Covestro's core industries on Page 11 of the presentation. The global GDP forecast has decreased to 2.5% from February's 2.8% outlook. This reduced global outlook also affects most of Covestro's key industries. Growth projections for the automotive industry have been reduced to 1.9% from 2.7%, primarily driven by U.S. tariff policy impacts and weakening demand in Europe and North America. However, the electric vehicle segment continues to demonstrate a robust momentum with 25.7% growth expectations. The growth forecast of the construction industry increased to 0.6%, partly due to stabilization in the Chinese housing market, though ongoing conflicts and macroeconomic uncertainty limit further growth. Residential construction is seeing a further decline to minus 1.8%. The growth forecast for the furniture industry decreased to 0.2%, which is more than 1 percentage point below earlier expectations. Primarily, this is due to weakened production activity in the APAC and EMLA regions. The growth forecast for the electronics industry is now at 2.9%, down from 5.2% with persistent uncertainty regarding U.S. trade policy and potential tariffs affecting investments. Household appliances show an improved growth expectation at 3.1%. In line with our usual practice, we are now narrowing our guidance corridor for our KPIs in Q4. We narrowed the EBITDA guidance to now in between EUR 700 million and EUR 800 million, and I will explain on the next page the relevant drivers for that. The free operating cash flow guidance has been adjusted in line with EBITDA and is now expected in between minus EUR 400 million and minus EUR 200 million. Accordingly, ROCE above WACC is now projected at minus 9 to minus 8 percentage points. The greenhouse gas emissions forecast was also narrowed mainly due to lower volumes after the Dormagen incident and are now expected between 4.2 million to 4.4 million tonnes. Beyond that, most other financial expectations remain unchanged, only Covestro sales are now estimated to come out at around EUR 13.0 billion. As referenced in our Q2 reporting, this waterfall chart illustrates the sequential factors driving our EBITDA guidance revision from the initial February outlook. Our February guidance established a midpoint of EUR 1.3 billion. Market headwinds of about EUR 700 million, countered by EUR 300 million in proactive short-term cost contingencies to mitigate these pressures resulted in our July guidance midpoint of EUR 900 million. Global market conditions remained challenging throughout Q3 and are expected to persist in Q4, characterized by sustained margin pressure and significant oversupply across our core product portfolio. While our transformation program is strong and short-term cost contingencies provide partial mitigation, we are accelerating both initiatives to capture earlier benefits. This may require pulling forward restructuring costs of low to mid-double-digit millions from 2026 into 2025. The effect of the Dormagen incident, which has occurred 1 day after our revised FY '25 outlook has been part of our Q3 guidance, but had not been incorporated in our FY '25 outlook. We are today in a much better position to evaluate the full impact of the outage for FY 2025 and estimate a burden of up to EUR 150 million. Meanwhile, we resumed partial production of TDI and expect to continue running at a low operational load. During 2026, production will be gradually increased to full capacity depending on improving chlorine availability. The lacking TDI and basic chemical volumes in combination with the ongoing challenging economic situation leads to the new EBITDA guidance midpoint of EUR 750 million. Before summarizing Q3, I would like to give you an update on the XRG transaction. We have successfully completed all pre-closing merger control approvals following Vietnam's recent authorization, and Indonesia will be addressed post closing in accordance with local regulatory requirements. Two key approvals remain outstanding, the German foreign direct investment FDI clearance and the European foreign subsidies regulation FSR approval. Regarding the European FSR, we entered Phase 2 proceedings in late July and have since maintained constructive dialogue with the EU Commission. We achieved a significant milestone by submitting commitments, which have also undergone market testing, a standard procedural step in the FSR process. For German FDI approval, we are in final stages of the clearance process. Both regulatory authorities are fully aware of our December 2 long stop date and remain confident to achieve the closing of the transaction before this deadline. So let me quickly summarize the highlights and the key points for Q3 2025. We have seen a negative volume development as we were burdened by the Dormagen incident and ongoing challenging economic conditions. We have also seen sales lower at EUR 3.2 billion, mainly caused by lower prices and unfavorable FX. An EBITDA of EUR 242 million ended up towards the upper end of our guidance range, helped by delivering on our cost savings ambitions. And we have narrowed our FY 2025 guidance with an expected EBITDA of EUR 0.7 billion to EUR 0.8 billion. On the XRG transaction, we are on track for closing before December 2, which is the long stop date. And now Ronald and myself are happy to answer any questions that remained open. And with that, I hand it over to Carsten, who will guide us through the Q&A session. Carsten Intveen: Thank you, Christian. [Operator Instructions] And the first question comes from Christian Faitz from Kepler Cheuvreux. Christian Faitz: Hope you can hear me. Yes, 2 questions, please. First of all, thanks for the helpful comments on Dormagen and the ramp into 2026. Can you talk or elucidate a bit how much of that EUR 150 million impact you talked about is actually covered by insurance payments, for example, or will be covered eventually? And then also a second question, your presentation suggests that electric vehicle growth continues to have solid momentum, even more so in '25 than in 2024. Can you remind us how much Covestro product in terms of value is in an average car with a combustion engine versus a battery electric vehicle? Christian Baier: Yes. Thank you, Christian, for your questions. Very happy to comment on both. With respect to Dormagen and the insurance perspective, we are, on the one hand, very early in that process, really focusing heavily on restoring operations where we are very confident to be able to ramp that up significantly over time. The insurance perspective that you have seen, first of all, we have that internal insurance of EUR 75 million, and we have basically deductibles of EUR 25 million. So we are very strongly expecting that the coverage is there above EUR 100 million effect that would be happening at that point of time. With respect to the EV view, we certainly have a very high ratio of products within the EVs, especially when we talk the high-end luxury EVs, we are talking about a very significant number, which is about 2 to up to 5x higher than in a normal combustion engine car. So EVs definitely is an important market for us, and it continues to be. Still, we see, obviously, in different regions, various strength and also weaknesses overall. But given that we are very much penetrated also with a well-performing Chinese players, we see also a good perspective down the road in that market, while auto at the moment certainly is somewhat challenging. Carsten Intveen: And the next question comes from Sebastian Bray from Berenberg. Sebastian Bray: I have 2, please. The first to come back on Dormagen. Is this done in January of '26, the plant is fixed and everything goes back online? Or is it not quite that simple? And my second question was on the comments around September mark-to-market pricing for key products implying about EUR 750 million of EBITDA for the year FY '25. And I'm looking at MDI, a little bit of polycarbonate and some other commodity prices, and these all appear to have deteriorated significantly in excess of raw material prices through October. If you were to perform the same analysis again with mark-to-market October prices, is EUR 700 million a more reasonable figure? Or does it not differ very much? Christian Baier: Yes. Thank you, Sebastian, for your questions. Happy to address those. I think with respect to Dormagen, it is basically a multifold analysis that is being done. We already have ramped up parts of the various production entities. I think the key one was to restore relevant parts of the power supply in order to also ramp up trains on various of the subproducts. But just answering specifically your question, no early in January '26, this is not all going to be fixed at that point of time, but we will be ramping up throughout that year on the key products in order to then basically come back to full TDI availability at that point of time, but we're very confident together with the external partners that are important here also on that external fire incident to ramp up reasonably quickly at that point of time. With respect to the September mark-to-market, yes, certainly, there is always some fluctuations between the various months, but we very much remain confident with the guidance range that we have narrowed today of this also being the relevant one to look at for the full year outlook also on the back of current trends that we see in the last couple of weeks. Sebastian Bray: Could I just follow up on this? So we're comparing Q4 versus Q3, I appreciate there are various bits and pieces of noise around semiconductor supply to automotive in Europe and so on. But it is notable how much some of these prices have declined, let's say, October versus year average -- versus quarter average for quarter 3. Is this because one who are ramping up further MDI supply? Is it entirely demand led? What is your own view on why prices are seemingly weak in October? Christian Baier: Yes. Well, as we are not commenting then on competition, but what we basically see is some headwinds certainly on the products that you quoted. It's in the end a combination of various factors that we see there. There certainly is demand development that also from a seasonal perspective is ramping in, providing some pressure. And given that we have seen some additional volumes in this year, hitting that demand situation, supply-demand certainly is something to be improving over time. But at the moment, that's the balance that we see. And still, it's consistent with our expectations for the full year. Sebastian Bray: And if the deal closes, all the best for life on the Adnoc. Carsten Intveen: So unless no additional question still occurs, there are no further questions. We have an additional -- yes, there are no further questions at this time. One occurred by [ Tiffany Zfati ]. Tiffany, up to you. Tiffany, can you hear us? Tiffany, we can't hear you yet. Now, we can hear you. Unknown Analyst: Okay. Perfect. Sorry. So you said [ 4 ] weeks ago at a conference that you had an agreement with the German government on the FDA approval. So my question is, what are they waiting for? Christian Baier: Well, I think we basically are making good progress on the FDI side. We have never said we have an agreement on the FDI or the approval in Germany, but we continue to be very constructively in conversations there and are very confident to, by the long stop date, have clearance not only on FDI in Germany, but also on FSR in Europe. Carsten Intveen: So with that, there are no further questions. With that, handing back to Ronald. Ronald Kohler: Thank you all for listening in. I know it's a busy day today with a lot of other companies reporting. So thanks for your questions. And if you have any follow-up questions, don't hesitate to call the IR team. Thanks, and goodbye.
Operator: Greetings. Welcome to the Polaris Renewable Energy Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alba Ballesteros, CFO at Polaris Renewable Energy. You may begin. Alba Ballesteros: Thanks, Hallie. Good morning, everyone, and welcome to the 2025 Third Quarter Earnings Call for Polaris Renewable Energy, Inc. In addition to our press releases issued earlier today, you can find our financial statements and MD&A on both SEDAR+ and our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. I would also like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy Inc. and its subsidiaries. These statements are current expectations and as such, are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2024. At this time, I will walk through our financial highlights. Overall, Q3 2025 was a steady quarter for Polaris. Results reflected solid operational execution, disciplined cost management and the second full quarter of contribution from our Puerto Rican wind operations. Together, these factors supported both year-over-year and year-to-date growth in generation, revenue and also adjusted EBITDA, despite production generally being lower in the third quarter of the year, which coincides with the dry season in those countries where the company has hydroelectric plants, and therefore, there is less resource available for energy generation, as is the case of Peru and Ecuador, as well as the rainy or hurricane season, and therefore, we have less radiation or wind in those countries where the company operates solar plants as it is the case of Dominican Republic and Panama and our wind farm in Puerto Rico. So starting with operations. Third quarter consolidated energy production totaled 181,235 megawatts hour versus 168,639 megawatts hour for the same period last year. Consolidated energy production for the 9 months ended September 30 totaled 613,524 megawatts hour, representing an 8% increase as compared to the same period last year. The strongest performance this quarter was achieved by our hydroelectric project in Peru, where favorable hydrology during what is typically the dry season and an excellent plant availability led to a 44% increase, both in Q3 2025 and year-to-date in hydro output for the Peruvian projects. Our hydroelectric facility in Ecuador also had an exceptional quarter, producing 24% more energy in the 3 months ended September 30 versus the 2024 comparative period, thanks to strong rainfall and an excellent technical performance. In Puerto Rico, the Punta Lima wind farm acquired in March added incremental production that did not exist in 2024, and is now fully integrated in our portfolio. In Panama, solar generation in the quarter was 2% higher than in the 2024 comparative period. These increases offset lower output from Nicaragua, where short-term well instability and natural steam field decline earlier in the quarter reduced generation by about 5% for the 9 months ended September 30 versus same comparative period in 2024. Production at our Dominican Republic Canoa 1 Solar Facility decreased 1% in the quarter when compared to the same period in 2024. While year-to-date, the production increased 5% versus the 2024 comparative period, reflecting efficiency gains from the new panels installed in 2024, which allow offsetting grid-wide curtailments. Overall, our diversified portfolio spanning geothermal, hydro, solar and wind across 6 jurisdictions continues to provide balance and resilience in the face of localized resource variability. So turning to the financial results, starting with revenue. Revenue was $19 million during the 3 months ended September 30, which represents an increase of 8% versus Q3 in 2024. Revenue year-to-date was $60.9 million versus $56.9 million in the 2024 comparative period, reflecting higher generation in Peru and Ecuador, as we have mentioned, and the addition of our project in Puerto Rico, the Punta Lima wind farm. Adjusted EBITDA, adjusted EBITDA of $12.8 million for the quarter compared to $12.4 million for the same period last year. And furthermore, for the 9 months ended September 30, the company realized $43.2 million in adjusted EBITDA compared to $41.4 million in the same period last year, reflecting a 4% increase. Operating margins remained strong despite inflationary pressures and the integration of new assets, supported by disciplined cost control and lower insurance expenses following our debt repayment. Cash generation, net cash from operating activities remained robust, with $29.2 million for the 9 months ended September 30, exceeding the same period in 2024 by $3.3 million. The increase mainly reflects the collection in Q3 2025 of the strong Puerto Rican revenues from Q2, which follow a 47-day collection cycle, and the shift from quarterly interest payments from regional loans in 2024 to semiannual bond interest payments in 2025. Net cash used in investing activities for the 9 months reflects the initial $15 million payment for the acquisition of Punta Lima wind farm, while there was no comparative transaction in 2024. Net cash used in financing activities for the 9 months mainly reflects the early debt repayment of 4 credit facilities totaling $120.6 million. Dividend. Finally, we remain committed to delivering shareholder returns. I would like to highlight that we have already announced that we will be paying a quarterly dividend on November 21 of $0.15 per share to shareholders of record on November 10. With that, I will turn the call over to Marc, who will elaborate on Polaris' third quarter results as well as on current business matters. Thank you. Marc Murnaghan: Thanks, Alba. I'll just take a few, call it, operational comments about where we see sort of the rest of the year looking forward. As Alba mentioned, the hydros were stronger than normal in Q3, which is the dry season in those jurisdictions. But we -- and we do see that, at least October to date, continuing. So hydros, we think, will be somewhat stronger than usual in Q4 here as the rainy season has started somewhat earlier than normal. I would say, what's going to offset that a little bit is that those call it, rainier conditions do seem to be also in the solar jurisdictions, DR and Panama. So they're looking maybe a little bit softer. But I would say, the net effect of those 2 things should still be positive in this current quarter. I see San Jacinto, as I mentioned the last quarter, in the 49 to 51 range, which it did. And then I would just -- I'm saying 50 megawatts current quarter, plus or minus a little bit similar. So that -- when I run our numbers, that would bring the quarter in around 195 to 200 gigawatt hours, it would be the current range that we're looking at right now. And just a reminder that -- and that is because we have moved the major maintenance at San Jacinto into January of next year instead of December of this year, just based on some availability of Fuji staff. So that will land in Q1 next year. In terms of really the growth and the developments, the big focus remains ASAP. The update on that is that the contract was submitted by ourselves in LUMA to PREB, which is the Energy Board, a while ago. It was approved by them, and then it went to PREPA. And just to explain -- I'll give a little bit more detail. There's 3 entities that need to approve it there, which is PREB, which is the Energy Bureau, then PREPA, which is the contracting agent. And then after that, FOMB, which is the Oversight Management Board. Basically, we had received PREB. We have PREB approval as of this past Monday, and I would highlight that on September 22, the governor issued an executive order, which was really focused on the energy, call it, emergency situation. It's an acute need for more energy on the island. And in that order, it was really, I would say, directing government entities, whether it's PREB, PREPA or even Ministry of Environment, to expedite approval processes and permitting processes, such that new generation and including storage can get brought on the system quicker than what has traditionally happened in the past. So we are -- while it did take a bit longer than we expected to get this PREB approval, we are expecting things to move reasonably quickly from here on out. What does that mean, though, in terms of -- we would look at likely a Q4 in-service date next year for that. And in terms of the sizing, it has landed on 71.4 megawatts, which was approved as opposed to 80, and that's really just a technical limitation at the interconnect point. So those metrics, based on what we're seeing from the procurement, and we are, I would say, reasonably far along in the procurement process, it would be gross CapEx of about $70 million. But we do still anticipate being able to achieve an ITC on that, and which would bring the CapEx down to a net CapEx of about $50 million. And at that size of 71.4, you'd be looking at EBITDA around the $13 million to $14 million on net CapEx of $50 million, which is about a 3.5 to 4x sort of CapEx divided by EBITDA build multiple. So still very excited about those numbers and hoping to launch the program in this quarter and the next month. We're also hopeful that this won't be the only storage project in Puerto Rico that we do. We've already been asked by LUMA to formally give our intention to move forward with something called SO2, so we're looking at that. And I would also say, given what I mentioned with the executive order, we are talking to several developers on the island -- or with projects on the island for more traditional solar plus storage projects that have contracts or have been awarded approvals for contracts, but they're looking for sort of larger financial partners or operational companies, and this has really come on the radar screen just in the last, I would say, 2 to 3 months. We like these because of what we're looking at on the island as well as they're reasonably chunky. I would say the small ones are $5 million of EBITDA, but we're seeing things in the $10 million to $20 million range. So but with very good, I would say, capital ratios, probably not quite as good as the ASAP program I mentioned, but in the, call it, 5x, which we're still looking at 20-year USD contract. So that's very good return profiles. So that really is, call it, the brownfield focus right now. And I would say that is the focus for the company. I would mention the DR, which we have continued to push on more in the background. It looks like that will get pushed into next year in terms of potential contracting as the government is now saying that they want to look at doing a tender situation instead of bilateral. We would obviously have the ability to participate in that. And I think we'd be in a good shape for that, but we do need to wait likely 'till next year. So what that means is really pushing the Puerto Rico projects in front of that. Balance sheet is strong with $99 million of cash. We did repurchase another 27,000 shares in the quarter in Q3 and continue to in Q4 here. So I guess the -- it is somewhat slower coming with the ASAP project, but we're very confident it is coming. And with these other projects that we're looking at, I do see a situation quite quickly here where we will be using up that spare capacity on the balance sheet that we have and hopefully then some. So really, I would say, over the next 12, 15 months here, the story would be steady as she goes from an operating perspective, but a big and expected big pickup in what I call development and construction activities and news flow. And I would say, as we as we move forward on ASAP and as we move forward with hopefully 1 or 2 other projects next year, and we will, for sure, I would say, be giving more market updates and press releases as we move forward with these projects. So it will be more sort of -- call it, newsy on the development and construction activities next year. And I think it's important because those will be very material for the company. And then, call it, financial results on the back of those coming in 2027 and 2028. So with that, we can open up for questions. Operator: [Operator Instructions] Your first question for today is from Baltej Sidhu with National Bank of Canada. Baltej Sidhu: Could you -- it's great to see the progress with SO1, but could you just remind us of, one, the comparability of SO1 and SO2 as it pertains to the attractiveness for Polaris that you -- with the infrastructure you may have to leverage with the implication of SO1 that would be in place? Marc Murnaghan: So the technical difference on the island is just SO1 was only for people that have a current operating interconnect agreement in place. And in other words, you had to have some generation facility with an interconnect. SO2 is really open to either the same group, which is some people that have an interconnect or anybody that just has a new development. So you have a new project without an interconnect, you could then participate. So it's really the same terms for us. The only difference is we need to up our transformer capacity, but on a, call it a $60 million, $70 million project, that's only a $2 million or $3 million CapEx item for us. So it's essentially the same type of economics. Baltej Sidhu: And the transmission capacity would be there that you would have, right? Marc Murnaghan: Yes, the transmission capacity on the sort of downstream on the line is about 130, 140 megawatts, and we're sort of -- the first ones really 35.7x2, that's a 71. So we have a fair amount of -- we could probably triple it from here. Baltej Sidhu: Great. Great. And then might be too early, but is there any impact to pricing that we could see you relative on SO2 versus SO1? For PPA, sorry. Marc Murnaghan: Well I think pricing might be higher because the way that they do things on the island, typically for a traditional solar, let's say, is that any interconnect costs and system upgrades that are needed for new project rather than the transmission company or the distribution company paying for that and charging it to the rate base, the developer actually has to finance that. And so it comes into the cost of the PPA, let's say. So for SO2, though, the assumption is that there will be participants that don't have an interconnect yet. So they will have to finance and build that. And so compared to SO1 with existing interconnects. So if anything, the price should be somewhat higher. I don't think it would be -- well, it could be instead of 16,000 megawatt per month, [ 18 to 20 ]. We don't know that yet. I don't think they've landed on it, but I think if anything, it would have to be somewhat higher. And the good news there is the backdrop of still, I'd say, very competitive activities in the actual -- the lithium battery cost curve, that's probably going to continue, right? So still to be determined, I would say, the worst case scenario is it would be the same type of economics. Baltej Sidhu: Very interesting. And then looking forward to hearing those organic updates over the course of next year. And just switching over to, as you noted, the capacity that you have on the balance sheet and the ability to leverage that for organic development. How are you thinking about the inorganic growth and the M&A side? Could you point towards any color that you see on the M&A pipeline and/or valuations in the regions in which you operate? Marc Murnaghan: Yes. And then just to be clear, when I said we're talking to the local developers with brownfield, I wouldn't put that in the M&A bucket, even though it's kind of in between. I would put that still more in the brownfield development side. But in terms of M&A, which I would also just suggest is probably a little bit comes on the back of us actually, I think, putting some runs on the board in terms of ASAP and probably some other development projects, I would say. But multiples, I would say, came down more like 6, 12 months ago to, I think, a reasonably attractive level. I think they've kind of leveled off there. So if I had to put super high-level numbers on things, I would just say if you -- let's say, you take ASAP at 4. Let's say, you take 4x, I'm talking -- this is a build multiple. Probably these other development projects we're looking at are [ 5, 5.5 ], same as the DR. I've seen sort of more actual operational with contracts, running assets in the M&A side in the jurisdictions we're in, anywhere from 6.5x to 8x. Operator: Your next question is from Nick Boychuk with Cormark Securities. Nicholas Boychuk: In Puerto Rico, can you comment a little bit on the competitive dynamics? So you mentioned that there's these local developers with brownfield opportunities. How many other players in the space could potentially be having these conversations to develop these? And I guess, once you have that conversation, how fast do we then move through permitting, construction and getting these things operational? Marc Murnaghan: Yes. I don't know, obviously, with 100% certainty, who else is out there, but it definitely seems like there's the dynamic of you have a few big players on the island with operating assets that wouldn't be interested in the stuff we're looking at. And you have a lot of, I would say, call it, local developers that don't have the financial capacity. For people in the middle that are looking at, I would say, again, projects that once they're up and running have from $5 million to $20 million of EBITDA. We do know of one player that was definitely there and in the game, but they are not anymore. So it does seem like it's really opened up for us from that perspective. Nicholas Boychuk: Okay. Understood. And would it be a similar dynamic in the Dominican? I appreciate that it's been pushed back a little bit by a year, but could you theoretically also have similar activity in that country? Marc Murnaghan: Yes. I would say, I think interestingly, the DR might be a little bit more competitive for us in the midrange than Puerto Rico. So the flip of that is that Puerto Rico does seem to be quite open right now. And I think it's a weird -- the Dominican, you actually -- a bunch of, call it, credit is available because it's a "developing country." So you have a whole bunch of lenders that would maybe fund a smaller developer to get a project off the ground. That doesn't exist in Puerto Rico because it's part of the United States. So that -- it's almost more of a capital issue in Puerto Rico as opposed to how many competitors are there, if you understand what I'm trying to get to, like Puerto Rico, it's just -- there's a big issue with getting capital for these small developers to get a $50 million, $100 million project off the ground, whereas there's a little bit more availability in the DR for that, even though I would say it's not as if there's a bunch of other competitors that are a similar size to us in that market. It's just that the option of them to maybe get it further along to get construction going. There's a little bit of a better chance in the Dominican, which is a little counterintuitive, but that's what we see. Nicholas Boychuk: Okay. Got it. And then I appreciate that the return profiles on the M&A. You said it was 6.5x to 8x versus the [ 5 to 5.5 ] for something that you'd be building brownfield. So better returns if you do brownfield. But just cognizant of your internal resources, your own abilities internally to develop these things simultaneously in given time. Is there a point where you recognize you could leverage more of your balance sheet and acquire something now, add incremental EBITDA and have a meaningful impact on shareholder value in the near term versus trying to maximize the return profile? How are you thinking about the difference between time to getting these built and maximizing the near-term shareholder value? Marc Murnaghan: Good question. I would say, believe it or not, the -- call it, the senior management time to do, let's just say, real due diligence on operating assets, legal side of things, operational side of things on the front end, maybe not the back end. Once the operations are there, I would say, streamlining them into yours isn't a huge deal. There's always issue, but it's not a huge deal for us. I would say, at the front end. So to your point, where there's going to be a bottleneck would be more that we are doing, call it, the late-stage development on ASAP ourselves, right? If we partner with some developers, we're going to be doing -- we're going to be heavily involved in that late-stage development/construction and procurement, which I think is very similar to the M&A side of things. So it might seem it's easier. But I'd say, it's at the front end where there's a potential bottleneck. And we could -- but we can, for sure, do 2. It might get a little bit harder at 3, but believe it or not, like I think we could do all -- like we can for sure do 3, like we could do ASAP, we could do a development, a new development in Puerto Rico now also because we're there. It's not as if it's a new jurisdiction for us. So we -- our conversations with the authorities on some of these other projects that are right after we've talked to with ASAP. So I do think we can handle that. It would be different if it is a new jurisdiction. And some of the M&A stuff, I think at the front end, we could do it as well. So I don't think it's necessarily an either/or. Nicholas Boychuk: Okay. So just to confirm my understanding, you could do ASAP one, develop something else in Puerto Rico and then one or the other of a DR or M&A type project? So theoretically, 3 different things on the go at the same time, call it, $10 million to $15 million in EBITDA for each and all of that could potentially be wrapped up by 2028? Marc Murnaghan: Yes. I think that the -- in our presentation, we sort of show a 5 year, but it's just safe to 2029, that EBITDA by [ $100 million, $100 million plus ]. What we're looking at right now is I think we could, let's just say we're flat for the next 12 months operationally, but we will be doing things since that '28 number, I think, can get very close to that. It's a big step up. So the '28 number is looking very close to the '29 number that we have in the presentation. Operator: Your next question for today is from Theo Genzebu with Raymond James. Theophilos Genzebu: Just a couple of quick questions. So just on the curtailments at Canoa 1 and the expected curtailment now at Canoa 1, the delay of the interconnection for Canoa 2. I guess, is there like -- how are you engaging like with the government to address the -- to address these? Is there anything that can be done on, I guess, by talking to the government there? Marc Murnaghan: Yes. I think I'd say a fair amount of conversation where it just always goes to is that, yes, we're going to -- we need storage. So they very much acknowledge that. And so this is my comment about they're likely -- as opposed to doing a bilateral negotiations, which we were looking to do, which was going to be put panels, but also put a reasonable storage capacity there such that you're switching, call it, a problem challenge into at least an opportunity or at least you hedge yourself off with the storage. And so they see that, but they don't -- they acknowledge it. They're just -- they want to get the regulation set and they're likely to do a tender next year, and that's really how they're planning on dealing with it. Theophilos Genzebu: Got you. And then I guess it's safe to say that it doesn't really impact like, I guess, how you guys think about future development in the Dominican? Marc Murnaghan: Well, I think what it does do is it -- I've probably bumped up the percentage of storage coverage that I think we need, from maybe 25% to 40%. But I think that -- yes, I think it's a "problem" now, but I think it will end up morphing into an opportunity when they're ready, and I think that will be next year at some point. Theophilos Genzebu: Okay. Great. And then I guess just one more for me. And just on the regulatory time line of Puerto Rico for this ASAP storage program. I understand, you expect the approvals within the next 60 days. Just in your opinion, is there any possibility of further delays to that? Or it's pretty much we expect? Marc Murnaghan: Yes. Well, I can't say no to that. I mean, I think that the -- this island is known to have very good projects, but we need to play the patience game, so I think it's possible. But I would say with this September 22 executive order by the governor, the entities do seem to be very responsive right now. So it's probably as good as we can expect in terms of that time line for Puerto Rico. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your lines at this time. Thank you for your participation. Marc Murnaghan: Thank you. Alba Ballesteros: Thank you, everyone.
Operator: Ladies and gentlemen, thank you for standing by for the Cigna Group's Third Quarter 2025 Results Review. [Operator Instructions] As a reminder, ladies and gentlemen, this conference, including the Q&A session, is being recorded. We'll begin by turning the conference over to Ralph Giacobbe. Please go ahead. Ralph Giacobbe: Great. Thanks. Good morning, everyone. Thank you for joining today's call. I'm Ralph Giacobbe, Senior Vice President of Investor Relations. With me on the line this morning are David Cordani, the Cigna Group's Chairman and Chief Executive Officer; Brian Evanko, President and Chief Operating Officer; and Ann Dennison, Chief Financial Officer. In our remarks today, David, Brian and Ann will cover a number of topics, including our third quarter 2025 financial results and our financial outlook for 2025. Following their prepared remarks, David, Brian and Ann will be available for Q&A. As noted in our earnings release, when describing our financial results, we use certain financial measures, including adjusted income from operations and adjusted revenues, which are not determined in accordance with accounting principles generally accepted in the United States, otherwise known as GAAP. A reconciliation of these measures to the most directly comparable GAAP measures, shareholders' net income and total revenues, respectively, is contained in today's earnings release, which is posted in the Investor Relations section of the cignagroup.com. We use the term labeled adjusted income from operations and adjusted earnings per share on the same basis as our principal measures of financial performance. In our remarks today, we will be making some forward-looking statements, including statements regarding our outlook for 2025 and future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations. A description of these risks and uncertainties is contained in the cautionary note to today's earnings release and in our most recent reports filed with the SEC. Regarding our results, in the third quarter, we recorded a net after-tax special item benefit of $61 million or $0.23 per share. Additional details of the special items are included in our quarterly financial supplement. Additionally, please note that when we make prospective comments regarding financial performance, including our full year 2025 outlook, we will do so on a basis that includes the potential impact of future share repurchases and anticipated 2025 dividends. With that, I'll turn the call over to David. David Cordani: Thanks, Ralph. Good morning, everyone, and thank you for joining our call. In a highly disruptive market at the Cigna Group, we continue our track record of sustained growth in 2025. And I'm pleased to report that in the third quarter, the Cigna Group delivered strong results and continued -- in a continued dynamic environment. Today, I'll briefly walk through how we will sustain our growth by accelerating innovation to meet the needs of our customers, clients and partners. We're also introducing new solutions to create meaningful value and impact, including our announcement earlier this week of a new rebate-free model for pharmacy benefits. Then Brian will provide an update on our performance on our growth platforms as well as provide some perspective on 2026. Then Ann will share some more details on our financial results for the quarter. Then we'll open up for your questions. Now let's get started. During the quarter, we delivered revenue of $69.7 billion and adjusted earnings of $7.83 per share, all while continuing to strategically invest in our business to drive growth and innovation. We've also taken further strategic actions to expand our addressable markets and position the company for future growth. One example is our recent investment in Shields Health Solutions completed earlier in September. Brian will share more details on this shortly. Our performance this quarter also underscores that we continue to deliver for those we serve, consistently navigating through dynamic and challenging environments. For example, this year alone, we publicly committed in February to a series of actions to further ease access to care in a coordinated way for patients and their physicians. Then we step forward to partner with HHS Secretary Kennedy and CMS administrator Oz, along with others on a broad set of initiatives that will create a more seamless access to care environment and care continuity for Americans, for example, when they switch health plans. Additionally, earlier this month, Evernorth Fertility Pharmacies worked with the Trump administration and EMD Serono to make fertility treatments more accessible for Americans struggling to start or expand their families. And just this week, we announced our transformative new rebate-free delink model. Our pharmacy benefit services here are designed to improve health care affordability and the experience for tens of millions of Americans. Our durable business model is designed to evolve, flex and thrive through a variety of changes, whether economic, regulatory, legislative or evolving technologies. Today, the powerful forces of change across health care are accelerating and converging around long-standing challenges, particularly balancing access and affordability for consumers and patients. Drug pricing continues to create a significant affordability challenge and has become an even more intense part of the public dialogue in 2025. One area where we've helped address affordability relates to generic drugs with Americans today enjoying the lowest prices in the world for these medications. In fact, generic drugs now account for 90% of all prescriptions. And on average, they are 1/3 cheaper than in the United States and in other countries. And pharmacy benefit managers and the industry as a whole have played a key role in contributing to these lower costs by leveraging a competitive environment for clinically equivalent drugs. Now on the other hand, prices for brand name medications continue to skyrocket with those drugs that do not have a generic equivalent costing 4x as much as the same drug in European markets. And in 2025, it's estimated that the median price set by drug companies for new FDA-approved drugs is projected to be approximately $390,000 per treatment course. As a result of these marketplace dynamics, even though brand name drug medications comprise only 10% of overall pharmaceutical volumes in the United States, they account for 88% of the spend. In recent weeks, President Trump announced a series of initiatives aimed at lowering the cost of brand name medications, bringing the U.S. prices in line with those paid in other developed countries. We are aligned with these efforts and seek to expand access for all our clients from employers to health plans and governmental plans so that even more Americans can benefit from fair pricing on the prescriptions. Additionally, similar to our work to reduce pricing in generics, we continue to advocate for necessary changes to accelerate and broaden access to biosimilars, which boosts competition and lowers prices further. For example, the list price of HUMIRA is approximately $7,000 a month and approaches $85,000 a year for this single medication. Thanks to our innovative offering, we provide customers with HUMIRA at a biosimilar level at no cost to the individual consumer. From a consumer point of view, that's real value, and that's innovation that matters. Even with these efforts, we continue to advance change for the benefit of our customers, clients and patients. We've deliberately shaped our well-balanced portfolio of businesses across 2 growth platforms at the Cigna Group, Cigna Healthcare and Evernorth Health Services. As a reminder, Cigna Healthcare is approximately 40% of our enterprise earnings. And in Evernorth, Specialty & Care and pharmacy benefit services are approximately 30% each. So 70% of our portfolio, Cigna Healthcare and Specialty & Care Services remain well positioned for growth in 2026 and beyond. And to future-proof our company within our pharmacy benefit services, we continue to take significant actions. First, we proactively secured a number of long-term large client renewals and extensions, including the U.S. Department of Defense, Prime Therapeutics and Centene. We're pleased to be able to serve them and their customers and patients now and through the end of the decade and beyond. Second, we've stepped forward with our new simple and transparent model for pharmacy benefit services, which will replace the complex post-purchase rebate process with a simple upfront discount, which will enable customers and patients to automatically pay the lowest price at the counter, whether through their benefit or on a cash pay basis and apply their payments to the deductible. And importantly, continue to provide approximately 18,000 clinical safety checks as well as care coordination programs, which are essential for Americans who are taking multiple prescription medications that may have dangerous interactions. To make the benefits of this model even more evident, consider this, for Americans and health plans where they pay the full cost of medications, including, for example, high deductible plans, our new model will reduce the cost for a brand name drug prescription on average 30%. This will be real savings for the consumers, and they'll see it right at the counter. Cigna Healthcare will adopt this model 100% for fully insured lives beginning in 2027, and it will become our standard offering broadly for the Cigna Group to the marketplace starting in January 2028, and we expect to transition at least 50% of our book of business into this new model by the end of 2028. Consistent with this direction, we are also creating a more sustainable economic model for independent pharmacists we contract with. We understand the critical role these clinicians play in health care, particularly in rural at-risk communities and commit to continuing to support them with fair competitive pricing reimbursements for dispensing medications as well as clinical services they provide for customers and patients. Further, the combination of market forces and our capabilities position us to proactively drive these long-term strategic renewals, extensions and program transformations to positively impact the marketplace for years to come. Now over the next 2 years, we will invest to support these renewals extensions and innovations. These investments will support recontracting efforts across many clients and supply chain partners, technology improvements, process reengineering as well as building and further enhancing data and analytical capabilities. Additionally, given the significant financial and affordability pressures for partners operating heavily in government programs, we have proactively improved the economic terms of the contracts for the benefit of these long-term strategic clients. As a result of these factors, we expect margin pressure within our Pharmacy Benefit Service segment over the next 2 years. To be clear, we expect a sustained and durable growth trajectory over the long term for the business. I also want to be clear, even with these significant investments, we expect to grow EPS in 2026. Brian will discuss this further in a few minutes when he addresses our tailwinds and headwinds. All these actions demonstrate the commitment and resolve from the Cigna Group to build a better future and sustain our growth and impact. Now to wrap up, against the backdrop of a dynamic and challenging environment, our third quarter results and our reaffirmed EPS outlook of at least $29.60 underscores the strength of our diverse portfolio of businesses and sustained disciplined execution and focus. With that, I'll turn the call over to Brian. Brian Evanko: Thank you, David. Good morning, everyone. I'll start by emphasizing our continued performance and delivery through a dynamic operating environment. Our strong fundamentals, disciplined focus on execution and innovative mindset position us to continue demonstrating leadership for the benefit of those we serve and to build a more sustainable model for health care. Our continued success is rooted in the reasons our clients choose to partner with us, our breadth of capabilities, our clinical excellence and our benefit plan administration. Taken together, our expertise in these areas enables us to provide access to quality health services and prescription drugs at lower unit costs than clients could achieve on their own, helping them meet their affordability goals, programs and services that deliver personalized care and prioritize patient safety and efficient and effective management of their complex benefit plans. Today, I'm going to cover 2 things. First, I will go through our third quarter performance across our businesses, and then I'll touch briefly on the tailwinds and headwinds we see for 2026. Let's begin with our performance in Evernorth and Cigna Healthcare. Evernorth Health Services delivered earnings in line with expectations in the third quarter. Our Specialty & Care Services businesses had another strong quarter where we delivered 11% adjusted earnings growth, reflecting our ability to deliver meaningful value to those we serve. Already this year, our specialty pharmacies have delivered approximately 7 million prescriptions, growing at a double-digit rate from last year. And we are continuing to see a strong shift to biosimilars for HUMIRA and STELARA, saving patients millions of dollars in out-of-pocket costs. This quarter, we also completed a strategic investment in Shields Health Solutions, further expanding our existing specialty capabilities to serve health systems, hospitals and other providers. We're excited about the multiple future opportunities in the over $400 billion specialty market. With our investment in Shields, we are enhancing our ability to serve the provider-administered portion of the specialty market, which today represents approximately 40% of the specialty space. This addressable market has strong secular growth and our investment in Shields will enable us to accelerate our strategy in the hospital and health system segment that Shields serves. We're also pleased to be part of an effort by the Trump administration to make fertility treatments more affordable for Americans. As David noted, earlier this month, we announced that in conjunction with the launch of TrumpRx, we will expand our successful partnership with EMD Serono to deliver fertility treatments from our Evernorth fertility pharmacies in 2026, providing lower costs and differentiated clinical capabilities for the benefit of patients. All in, we see a number of growth opportunities in our Specialty & Care Services businesses. With our combined suite of capabilities across Accredo, CuraScript ST and CarePathRx, we have opportunities to enhance and expand the ways we support specialty for all stakeholders. Now I'll turn to our second major platform within Evernorth, our Pharmacy Benefit Services business. We are proactively transforming our pharmacy benefits model to meet the demands of the market and improve affordability and experiences for our customers and patients. We're also seeing strong client retention and demand for our services. And as the 2026 selling season comes to a close, we expect approximately 97% retention in our Pharmacy Benefit Services business. During 2025, we proactively executed renewals and extensions with our largest clients, including Prime Therapeutics and Centene, building on our previous extension with the Department of Defense. We recognize there are significant financial and affordability pressures for partners operating heavily in the government programs market. We have proactively improved the economic terms of the contracts for the benefit of these long-term strategic clients. We're pleased to have these partnerships secured through the end of the decade, given their attractive long-term economics. Separately, we're also continuing to see positive impact from our suite of GLP-1 offerings EncircleRx, EnReachRx and the new EnGuide pharmacy. These offerings are anchored around affordability, access, clinical support and patient safety. This includes access to FDA-approved medicines, prioritizing adherence, proper dosing and a focus on diet and exercise to ensure durable, lasting results for our patients. Across Evernorth, we had a solid quarter as we continue to grow our specialty and care capabilities and invest in our pharmacy benefit services model, strengthening our leadership position and delivering solutions for the future. In Cigna Healthcare, we delivered financial results that were in line with expectations, underscoring the resilience of our portfolio and business mix even in an environment of persistently elevated medical costs. This performance reflects our ability to navigate dynamic market conditions while delivering on our commitments to those we serve, along with targeted customer growth, including an 8% increase in our under 500 Select segment and continued strong performance in International Health. As it relates to the medical care ratio, we were pleased with solid performance in the quarter from our U.S. employer business, including Stop Loss, which performed in line with expectations. Our overall Cigna Healthcare segment-wide medical care ratio was 84.8% for the quarter, driven by an updated view of risk adjustment in our individual exchange business. Across all of our Cigna Healthcare customers and clients, bending the cost curve and delivering affordability is more critical than ever. As I noted, our clinical expertise and support programs are key reasons why our clients choose to partner with us. We're investing in predictive capabilities that allow us to engage our customers at the right time to support their care needs more effectively. We also enable clients and customers to access high-performing providers through value-based reimbursement models that align incentives and drive better outcomes. In Cigna Healthcare, we're proud to have delivered another solid quarter, fueled by the strength and diversity of our portfolio and our operational focus. Next, I'll share a view of some of the tailwinds and headwinds we anticipate for 2026. Notable tailwinds include continued strong growth of our specialty and care businesses, including our investment in partnership with Shields Health Solutions. In Cigna Healthcare, consistent with prior commentary, we took corrective action to reprice the stop-loss business beginning early this year and expect to benefit from margin expansion within that business in 2026. Turning to headwinds. In Evernorth, the aforementioned renewals and extensions will generate a modified margin profile going forward for these large clients. And our new rebate-free pharmacy benefits model will incur short-term investment and transition costs, including for technology and operational reconfiguration as we accelerate transformative change. And within Cigna Healthcare, the absence of nonrecurring benefits in 2025, specifically related to our divested Medicare businesses as well as our individual exchange business. Taking these factors all together, overall, we expect EPS growth in 2026. In Evernorth, we expect operating income to be slightly down in 2026. Our Specialty & Care Services business will grow income towards the higher end of its long-term growth target, offset by a decline in pharmacy benefit services. In Cigna Healthcare, we expect operating income to grow towards the higher end of its long-term growth target. As I wrap up, I'd like to reiterate some bright spots for the quarter. We continue to deliver strong business performance and operational execution even in a dynamic environment. Evernorth continues to see strong growth in specialty, and we delivered 11% adjusted earnings growth within Specialty & Care Services, reflecting the strength of our capabilities and clinical expertise. We're proactively bringing market-leading innovations such as our new rebate-free, delinked fee-based pharmacy benefits model that will deliver more value to customers and clients and simplify our economic model. We've also extended our relationships with our 3 largest Evernorth clients through the end of the decade, providing further multiyear predictability. And Cigna Healthcare is successfully navigating a dynamic environment and delivering on our financial commitments with notable strong medical customer growth in our Select segment. Overall, we remain confident in the growth opportunities ahead, supported by strong fundamentals and secular tailwinds that position us to deliver even greater value for our customers, clients and shareholders. Now I'll turn it over to Ann. Ann Dennison: Thank you, Brian, and good morning, everyone. Today, I will review Cigna's third quarter 2025 results and discuss our outlook for the full year, which we reaffirmed this morning. As David and Brian mentioned, our strong third quarter results demonstrate our ability to execute and deliver on our financial commitments in a dynamic environment. Key consolidated financial highlights for the third quarter include revenues of $69.7 billion and adjusted earnings per share of $7.83. Our performance through the first 3 quarters gives us the confidence to deliver on our full year 2025 adjusted earnings per share outlook of at least $29.60. Now turning to our segment results. I will start with Evernorth. Third quarter 2025 revenues grew to $60.4 billion, while pretax adjusted earnings grew to $1.9 billion, in line with expectations. Specialty & Care Services continues to deliver strong growth with revenues up 10% to $26.3 billion and pretax adjusted earnings up 11% to $928 million, consistent with expectations. This performance reflects strong specialty volume growth and increased biosimilar adoption. We continue to see drugs used to treat inflammatory conditions, advanced pulmonary conditions, rare diseases and infertility as some of the drug classes that have seen the largest increases in utilization. As these trends continue, we remain well positioned to build on this momentum, leveraging our expertise in specialty to drive affordability and strong clinical outcomes for our clients and patients. In our Pharmacy Benefit Services business, revenues were $34.1 billion and pretax adjusted earnings were $1 billion, in line with expectations. Pharmacy Benefit Services results in the third quarter reflect the rate and pace of investments, including initiatives to improve the patient experience and accelerated biosimilar adoption, consistent with our prior commentary. Taken together, we are pleased with the performance of Evernorth in the third quarter. Turning to Cigna Healthcare. Third quarter 2025 revenues were $10.9 billion and pretax adjusted earnings were $1 billion. Cigna Healthcare pretax adjusted earnings were in line with expectations. Overall, results in our U.S. employer business, including Stop Loss and our international business were consistent with expectations, while our individual business had an impact on our medical care ratio of 84.8%, reflecting an updated view of risk adjustment revenue. The higher medical care ratio in the quarter was offset by operating cost efficiencies. Now turning to our outlook for full year 2025. Given the strength of our results through the first 3 quarters, we have the confidence to reaffirm our full year 2025 expectation for consolidated adjusted earnings per share of at least $29.60. Our full year 2025 outlook for pretax adjusted earnings for each of our reporting segments remains unchanged. In Cigna Healthcare, we now expect our full year medical care ratio to be at the high end of our full year guidance range of 83.2% to 84.2%. This is driven by a higher expected MCR in our individual business. Turning to our 2025 capital management position. Third quarter operating cash flow was $3.4 billion, and we continue to expect strong cash flow from operations in the fourth quarter, similar to the pattern we observed last year. Our debt-to-capitalization ratio was 44.9% as of September 30, 2025. The increase primarily reflects the impact of debt issuance associated with our investment in Shields Health Solutions. We continue to target a long-term debt-to-capitalization ratio of approximately 40%, and we expect to progress towards this target in the fourth quarter. Looking ahead to 2026, we expect another year of strong growth in Cigna Healthcare and Specialty & Care Services, both at the higher end of our respective long-term growth targets. And as David and Brian mentioned, we are proud to lead the industry with the proactive transformation of our new rebate-free pharmacy benefit model, which positions us for durable and sustainable long-term growth. Due to the deliberate investments we anticipate making to implement this new model and the renewals and extensions of our largest clients, we expect adjusted operating income in Pharmacy Benefit Services to decline in 2026. Regarding our capital management position, we expect cash flow from operations in 2026 to be back half weighted, consistent with the 2025 pattern. Taken together, we expect EPS to grow in 2026. We look forward to providing further details on our 2026 outlook on our fourth quarter earnings call. And with that, we'll turn it over to the operator for the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from Lisa Gill with JPMorgan. Lisa Gill: Obviously, a lot to unpack on the pharmacy side of the business. So first, I just want to make sure I understand a few things. One, we've heard from a competitor around rebate guarantees. From my memory, I don't recall Express Scripts ever having specific guarantees around rebates. So I want to clarify that, that's the case. And then secondly, when we think about the renewal pricing going into next year, the shift over to the new rebate-free model, I really want to understand the economics. Is it that as we move into next year, there is an incremental element to the renewal pricing? And then longer term, how do we think about those economics? And then when we put this all together, I think your long-term growth rate for Evernorth was 5% to 8% EBIT growth. Are you saying we're going to take a step back from that in '26, but the plan is to get there in this new model longer term? I know that's a lot, but I'm just trying to unpack all this. David Cordani: Lisa, it's David. It is a lot. And clearly, there's a lot going on in the space. Let me come to a couple of headlines for you first and foremost. The new model that we just walked through is a model that we're extremely excited about. I'm personally proud of our team's ability to step back and architect the new model of the future that is fee-based, delinked, transparent and has the mechanism to have the lowest available price for the consumer at the counter at each transaction and it's highly aligned with the regulatory priorities of the day. So that's frame one. To the core of your question, there's a few pieces in there. Our long-term algorithm for the Evernorth portfolio stays intact, number one. Two, for 2026, Evernorth will not be on that long-term growth algorithm. Specialty & Care will be and it will be at the high end of its growth algorithm. The segment as a whole, Evernorth as a whole will not be specifically focused on the PBS segment of our portfolio for the 2 reasons we talked about, significant investments in building these new sets of capabilities and the proactive actions we've taken around renewals and strategic extension of contracts, acknowledging the significant challenges of those that are serving the government-sponsored marketplace. We believe that the combination of those 2 actions materially future-proof that business for many years to come and are highly responsive to where the market needs to go. To the last part of your question, and then I'll ask Brian to add any go-to-market comments, specifically around value propositions to some of our stakeholders. The initial part of your question was around guarantees. Yes, there are instances where different dimensions of offerings have guarantees. We've not spent time with you all talking about guarantee volatility because, by and large, the aggregate relationships we've had with our clients over many years and the value we've delivered for our clients has performed in a dynamic and volatile environment. So -- but it's never been a headline that we've needed to bring to you on a regular basis. Importantly, ending where I started, the new model that we're building takes all that out of the equation. Rebates no longer exist. Reimbursements are no longer linked. They are transparent and fee-based, and they're highly aligned to the consumer low cost at the counter, which is why we're so passionate about it. Brian, maybe I'll ask you just highlight a few more of the benefits for our stakeholders of the new model. Brian Evanko: Yes. Sure, David. And maybe just to -- before I get to that, I'll touch on your question about how to model the medium and longer term because I think it's important as you step back and reflect on what David just went through. So far in 2025, our Pharmacy Benefit Services business is tracking to expectations even in a challenging environment. So we're not seeing variability from expectations due to rebate guarantees or those sorts of drivers importantly. And for 2026, we do expect margin compression within our Pharmacy Benefit Services business, driven by the 2 headwinds that we outlined earlier, specifically headwind 1 being the large client renewals and extensions that we secured through the end of the decade and headwind 2 being the transitional and investment spend associated with this transformative new rebate-free model, and that will result in meaningful cost across 2026 and 2027. So when you think about modeling this business in the future, I would encourage you to think of it in 3 categories. Category 1 is represented by the 3 large clients that we referenced earlier. This represents roughly $90 billion of annual revenue, and the 2026 margin profile should run rate through the end of the decade. We're thrilled to have these clients through the end of the decade. Category 2 is the transitional and investment spend associated with our new rebate-free model. This will result in margin pressure across 2026 and 2027, but it will largely dissipate thereafter. Category 3 is the fundamental earnings profile on the balance of the pharmacy benefit services book. You should think of this as not meaningfully changing from today in terms of client level earnings contributions, meaning that we would expect comparable earnings contributions from our rebate-free model as we have today in our existing solutions. So you put that all together, all these actions strengthen the long-term durability of our pharmacy benefit services business. David asked me to touch briefly on what's in it for some of the stakeholders in terms of our new free model. So let me just do a very brief run through some of the key stakeholders. So for patients, this model will insulate them from the high list prices set by drug manufacturers even if they're in a high deductible health plan. Our Price Assure technology will ensure that they always pay the lowest possible out-of-pocket price even in those rare instances where an alternative cash pay option is less expensive than our negotiated price. And if the patient does pay out-of-pocket, we will ensure that it applies to their deductible. Our breakthrough new model also supports independent pharmacists by reimbursing them based upon their drug procurement cost plus a dynamic dispensing fee that varies based upon the clinical intensity of the prescriptions they're filling. Critical access rural pharmacies will receive a higher dispensing fee in acknowledgment of the crucial role these pharmacies play in their communities. And for our clients, I'll just use an employer to illustrate this quickly. It's a simple, fee-based delinked payment structure that covers all administration and clinical programs. This offers the employer more budget certainty versus today's model, which is a post-utilization reimbursement approach. It also should result in greater employee satisfaction with their benefits. Today, often, they're sticker shock when a patient is faced with the out-of-pocket cost for expensive brand drugs. This is a solution to that problem for employers. And we would expect stronger adherence to treatment protocols, resulting in improved employee productivity and presenteeism over time. And from a shareholder perspective, we expect that this model will simplify the analysis of our company and provide you with more visibility, transparency and predictability of our performance. So long question, long answer. Hopefully, that helps. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: I'll stay on the PBM here. First, just any color you can share with us in terms of the magnitude of that 2026 decline? Is it low single digits, mid-single digits, not to pin you down on the number, but just maybe a range you could help us with so we could think about the magnitude of the pharmacy benefit pressure there next year. And then you -- so it sounds like you're saying the renewals will play themselves out next year, and it's really that transition and investment spend that will be the pressure in 2027. So maybe you could give us some color on how much of that -- how big that investment spend bucket is maybe relative to the overall pressure and how much of that we should see in '27, just so we can understand how much of a -- do we get back to typical earnings in '27 growth minus whatever this investment spend is? Is that the right framework? And maybe give us some numbers on that? Brian Evanko: Justin, it's Brian. So in terms of the second part of your question, your framework is right in terms of the large client extensions and proactive renewals, that will become a new run rate starting in '26 through the end of the decade plus. And the investment spending is the component that will continue into '27. So you've got the right frame of reference there. As it relates to sizing the impact on the Pharmacy Benefit Services operating segment for '26, just maybe I'll walk through a few of the components within Evernorth to help give you some color here. And just note, we're not giving explicit guidance today. This is meant to be more of a directional outline to help you understand what we see for '26. If we start with our 2025 Evernorth income guidance of at least $7.2 billion, you can think of this as round numbers split approximately equally between Specialty & Care Services and Pharmacy Benefit Services. So that would be about $3.6 billion of income each. And as I noted earlier, we expect the Specialty & Care Services business to grow toward the higher end of its long-term income growth algorithm, inclusive of the contributions from our investment in Shields. And we expect the aggregate 2026 Evernorth segment income to decline slightly from the 2025 level. So the delta between those 2 items represents the expected decline in Pharmacy Benefit Services in 2026. Now the expected decline in Pharmacy Benefit Services income is attributable to the 2 headwinds that I made reference to earlier, one being the proactive extensions and renewals of our 3 largest clients, including both Prime Therapeutics and Centene during 2025. All of that results in a new margin profile on these clients going forward. You can think of that as that headwind being more than half of the overall Pharmacy Benefit Services decline in income that we expect in '26. And then the second headwind for the 2026 Pharmacy Benefit Services income is the investment and transitional costs associated with our transformative new rebate free model. So this is less than half of the 2026 headwind for the PBS business. And again, while these are 2026 headwinds, both of them serve to extend the long-term value and the durability of our pharmacy benefit services platform for the future. So hopefully, that helps with some of the components. Operator: Our next question comes from A.J. Rice with UBS. Albert Rice: Just to maybe keep on trying to drill down that point. If you're looking at the Pharmacy Services business sort of at the higher end, the health care business at the higher end of long-term targets and then the PBM pretty much offsetting the growth in pharmacy services to the point where Evernorth is slightly negative a couple of percentage points. I'm getting back of the envelope that, that probably generates EPS growth of roughly mid-single digits, 5% to 6%. I would -- just so people get off this call understanding in some framework, what you're describing, is that generally in the ballpark? And are you making any assumptions about capital deployment, share repurchase, et cetera, and how they may contribute to growth in the next 2 years in this model? And then I'm finally going to just ask a fundamental question on the new program. A lot of employers have had the opportunity to do pass-through rebates and so forth. You're going a step further in eliminating rebates, but a lot of employers push back and say, "Hey, they like that pool of rebates. Have you got any early indications of how likely they are to want to adopt this model as you go out with it? David Cordani: A.J., it's David. Two different questions. Let me give you some color on the first. First is you walked through it. The big box cars, I would ask you to think about it in terms of the earnings profile in my comments, I'll separate the EPS profile here in a moment. You have the big box cars CHC, 40% of the company on algorithm toward the higher end of the range. Specialty & Care on algorithm toward the higher end of the range, offset by the PBS downturn in 2026, driven by the 2 items that we drove ourselves relative to the strategic positioning of the franchise on a go-forward basis. We're not guiding to EPS for 2026. I appreciate the desire relative to that. So we gave you the components on how to think about the earnings. The last piece I would encourage you to think about in Ann's prepared comments, she profiled our cash flow profile for 2025 is largely being back half weighted. The capital profile for 2026 will follow a similar pattern to be back-end loaded. So you may want to think about that in the context of how you're considering your own buildup and projections. Additionally, we've noted that we will balance share repurchase and deleveraging priorities over the near term. So I just would give you those components. The last part of your question, which is a very important part of the question in terms of framing in terms of go-to-market, yes, pass-through has been available for a long period of time. By the way, as have point-of-service rebates in the marketplace, and we offer both. This goes beyond it and just to reiterate your points, no rebates delinked economics and importantly, a capability that validates for the consumer, lowest available price at the counter regardless of the mechanism that generates that. And in 95-plus percent of the situations, it's the benefits program that yields it. But in low single-digit percentage, which is meaningful given the number of scripts in America, it could be an alternative mechanism. We have the ability to facilitate it. We indicated this will be our standard offering as we look to the future. We will carry Cigna Healthcare's guaranteed cost portfolio across to it on January 1, 2027. It will be our standard offering out of Evernorth for the 2028 cycle. And employers, let's say, for example, as you infer, maybe a collective bargaining union employer, state employer, if they still want a different program or they want to transition over a multiyear period of time, we have the broad suite of capabilities. We have a broad suite of capabilities. And lastly and importantly, we have the consultative approach to work one employer, one buyer at a time to come up with the transitional strategies that work best for them based on how they design the program, ending with, we believe this is the future of where the market is going. We're proud to lead it, and we need to have the capabilities to be able to serve the consumer, the employer and the independent pharmacist with the model. A.J., thanks for the question. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: I wanted to follow up on the Evernorth comments. My understanding was that some of those large contracts were only modestly profitable, and now you're talking about lower profitability on those contracts. So is it fair to think that some of them might be operating at a loss near term? And how should we think about the progression of profitability over a multiyear period? David Cordani: Andrew, I'll start. We don't comment on individual contract profitability, number one. Two, I think if you take the bigger picture, typically in business of all shapes and sizes, very large relationships have lower earnings profiles than a portfolio as a whole. So a directional comment going with you. I'd ask you to consider we proactively extended. We proactively work to restructure, and we engaged in energized renewals for these contracts. Said otherwise, we're pleased to have these relationships. and we're proud to be able to support and service the DoD, be a differentiated partner for Prime and be a strategic partner for Centene. So we proactively collaborated to generate this. I'm not answering your numbers. I'm coming back to lower margin profile, yes, $90 billion, as you would expect. You should assume we would not have proactively engaged in these relationships if we didn't deem them to be strategically important. And maybe Brian comment a little bit relative to the relationship and the evolved relationship we have with the parties as well. Brian Evanko: Andrew, just a couple of comments I'd pile on to David's start there. One, we don't write business at a loss consciously. So you should not expect that these contracts are running at a loss on a sustained basis. But to David's point, they do run at a lower margin profile on balance compared to the overall portfolio. It's also important to note that across the Pharmacy Benefit Services client relationships that we have, many of them deepen over time. So sometimes that's our strong specialty capabilities or home delivery pharmacies or some of our care services capabilities such as our virtual care platform, MDLIVE. So oftentimes, the relationships deepen and expand over time. We're not banking on that happening with any of our 3 large clients here, but it is an opportunity for further value creation in the future. Operator: Our next question comes from Charles Rhyee with TD Cowen. Charles Rhyee: Maybe, David, obviously, you're making this choice to strategically move the business model going forward, and I appreciate all the comments that you had here. You're kind of going it alone at the moment. You talked about sort of the examples with prior auths earlier this year. Can you maybe give us a sense here on what the dialogue might be like in Washington between yourselves and other -- and some of your peers. It does seem like the work that you're doing with administration IVF and some of the other things seems to suggest that the environment is better in terms of coming to some type of bigger resolution and trying to see, do you see room to find more common ground either with regulators or the administration to maybe come to some more broader resolution that could perhaps lift this regulatory overhang that's kind of been on the industry for years. David Cordani: Charles, thank you for the question. I guess I'll come at it through a few frames as you paint the picture. One, we've long as a company, believe that sustained public-private partnership collaboration is critical in the United States. If you step back and look at the way in which programs are designed in the United States, having good alignment of public-private partnership is quite important and the interdependencies of the programs, be they employer, Medicaid, Medicare, exchange or otherwise, there are interdependencies between the way the programs function. Point two is, if you paint the last year, and you referenced some of the components, you can think about actions we've driven in a few categories. One, further extending public-private partnership. Example of that I cited in my prepared remarks and pleased to see the industry more broadly stepping forward with Secretary Kennedy and Administrator Oz relative to changing and transforming the way prior authorizations work and changing and transforming continuity of care between health plans for an individual that in no action of their own results in a preapproved event in December, their health plan changes over in January. They today have to go through a new event. We took that off the table. That's a good example. Or as you referenced, the fertility outcome on an expedited basis, taking our capabilities, understanding the need statement and through public-private partnership, evolving a capability with EMD Serono, ourselves, the administration going forward, that falls into public-private partnership. Bucket 2 is sustained relentless innovation. and you use the go-it-alone phraseology, while I won't put it uniquely in the go it alone, if you just look back at the GLP-1 space over the recent past, we led the industry with our Encircle program that acknowledge and recognize the need to have broader programs wrapped around GLP-1s for employers around lifestyle management, behavior modification, titration of medication programs on an individual-by-individual basis. We're pleased to have over 10 million individuals benefiting from that program today or an expansion of a program that didn't have one drug had both leading drugs with a different program for employers that capped the out-of-pocket up to $200. So those are examples of continued innovation like our Pathwell programs or otherwise. And the third category are step function transformations. This is a step function transformation. We should be very blunt about it. It is a reframing of the marketplace to where the marketplace needs to go whether you look at it through the consumer's lens, the consumer, even on 5% of the pharmaceuticals in America, if there's 6 billion prescriptions, if 5% or 3% of them have some dislocation at the counter, that's too many. That's too many for Americans. And while benefit programs have been designed comprehensively and responsibly by employers, by health plans, by governmental agencies, there is increasing friction for the consumer. This takes that out of the equation. There is increasing complexity for the employer. As Brian referenced, this takes that out of the equation, and there is more support for the independent pharmacist. All of that is to say that we're driving public-private partnership, we're driving innovation, and we're driving step function growth. And there is good collaborative engagement in Washington relative to the direction, the importance and the need. And we will continue to lean into a nonpartisan, fact-based, patient and customer-centric engagement in Washington going forward. So this is an important moment for us, and I appreciate your question. Good progress through all fronts of the 3 categories I referenced. Thanks for your question. Operator: Our next question comes from Scott Fidel with Goldman Sachs. Scott Fidel: Well, I guess one of us should probably ask about Cigna Healthcare, so I'll do that. I appreciate the framing that you gave around 2026 and the growth in Cigna Healthcare expected to be towards the higher end of the long-term algorithm. Can you walk us through maybe some of the key building blocks that are the inputs into that? And just thinking about some of the most impactful dynamics that have been driving sort of fundamentals there. One, stop loss -- it sounds like that was in line with expectations in the quarter. How does that sort of feed into the expectations into next year? And then the exchange business as well? And just within the exchange business, if you have any sort of framing around sort of the pricing and enrollment expectations that you're sort of building into that? David Cordani: It's David. Good to hear from you. It sounds like you may have a little bit of a cold. So hopefully, you're doing okay. I'm going to ask Brian to provide some color relative to the components you articulated because there are several pieces I hear in your question. One is building blocks that support the outlook for 2026, and there's a couple of important ones you called out. And as he talks, for example, through the stop-loss component, maybe I'll invite Ann to talk a little bit about what we've seen on a year-to-date basis in the results, and Brian will talk a little bit about what we're seeing in terms of the go-to-market component. And then I'll punctuate on the back end, the individual or the exchange-based programs. Before I hand it over to Brian, in a nutshell, we're on track in 2026 for our growth outlook and algorithm. And by and large, our 2025 performance is in line with our expectations with the exception of, as called out in advance, some of the pressure we saw in the individual exchange business. Brian, can I ask you to talk a little bit about the Cigna Healthcare tailwinds and headwinds for 2026? Brian Evanko: Sure, David. Scott. So for Cigna Healthcare, which represents, again, about 40% of the company's earnings, we expect tailwind from the repricing of our stop-loss business within the U.S. employer portfolio. Now this is partially offset by the absence of some nonrecurring benefits that we had in 2025, specifically the contributions from our divested Medicare business as well as some prior year true-ups in the individual exchange business. So when you net that all together, we expect that 2026, Cigna Healthcare income will grow toward the higher end of our long-term income growth algorithm. As it relates to Stop Loss, we're tracking well as it relates to the 2-year margin recovery plan that we outlined in our fourth quarter call. So we've been able to execute against the higher rate actions that we required with typical levels of retention. So we're quite pleased with the performance of that year-to-date. 2026 will be a step forward toward the ultimate margin recovery that we expect to be completed by the end of 2027. And so far, the claims experience on that business has been running in line with expectations in 2025. As it relates to the '25 performance, Ann, do you want to talk about what we're seeing in stop-loss and individual exchange a bit? Ann Dennison: Yes. Sure. Thanks, Brian. So as Brian said, our stop-loss business continues to track in line with expectations. So just as a reminder, we had assumed a higher MCR for this year compared to last year, which was in the low 90s. So a few things I'd note on what we're seeing sort of as we're sitting here now in the fourth quarter. Our rate execution and persistency, as Brian said, are tracking in line with expectations. I'd also point to the paid MCR, which measures claims as a percentage of premium collected. That is tracking where we would expect it to be at this point in the year. In addition to those stats, we are analyzing how the results are tracking against expectations. We've developed enhanced analytics in addition this year that include those that leverage both claims and clinical data to predict individual claims experience. So using these analytics, we've constructed a range of stop-loss outcomes based on where members currently sit against their pooling points and predictions of their future claims. Those analytics reinforce our expectations for the full year. So taken together, we feel good about expectations for the stop-loss book this year. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: I just want to make sure that I'm clear about what you guys are communicating around the investment spending component of the pressure on the PBM business. When you say that the investment spending will continue into 2027, are you saying that it's going to be a similar year-over-year drag in '27 or that it's stable in '27 before margin recovery in '28 as you start to overcome those investments and recapture them? Brian Evanko: Kevin, it's Brian. So it's more of the latter. If you were to think about the choices that you outlined there, you can think of the investment spending continuing from '26 into '27. So at this juncture, we don't anticipate that being a year-over-year headwind '27 over '26. Maybe let me elaborate a little bit on the nature of it just to give you a little more texture here. So as I noted earlier, this is one of the 2 headwinds that were impacting our Pharmacy Benefit Services business as we head into 2026 with the other being the large client renewals and extension. And the investment in transitional spending represents less than half of the pharmacy benefit services headwind. Now importantly, as we've said multiple times here, this is a fundamental business model pivot, much more than just simply a new product launch. So as a result of that, there's some substantial technology investments required, both some that are market-facing as well as others that are more back office in nature. So just keep in mind, our existing infrastructure really has been built around a pharmacy rebate-oriented ecosystem. Secondly, we do have a series of recontracting work that needs to be completed in order to deliver the model. So think of this as manufacturer contracts, network pharmacy contracts as well as client contracts. So overall, these are fairly substantial changes that represent, again, one of the drivers of 2026 being a transitional year for our PBS business. But you should think of the spend levels as being broadly consistent between the 2 years. David, anything you'd like to add? David Cordani: Kevin, just maybe to give you a summary, I think we're going with your question. And I'm going to give you a directional comment as opposed to a financial comment. As you think about the building blocks of the capabilities, our CHC were on algorithm in '26, Specialty & Care on algorithm in '26, PBS off algorithm in '26. As you play that forward another year where you're going in terms of the moving points, Brian indicated the greater than 50% in the PBS part of our capabilities that is large client related will run rate going forward. So you have a different basis but new run rate going forward. And when you wrap it together, while there's investments that will carry into 2027, at this point, it'd be reasonable to assume we would expect to be back on at the enterprise level on algorithm for 2027 with the strength of the franchise. Operator: Our next question comes from Jason Cassorla with Guggenheim Securities. Jason Cassorla: Maybe just for health care first, could you clarify, are you seeing health care AOI growth at the high end of your long-term target next year off of the AOI baseline that does not include some of the nonrecurring benefits like Medicare attribution and those true-ups? And then my real question for 2026, are you expecting further membership growth there? Just any pockets or areas you want to highlight you're looking for strong growth? And any other puts and takes around membership to consider for next year would be helpful. Brian Evanko: Jason, it's Brian. So on the first point, the again, directional commentary we're giving you today, we expect Cigna Healthcare income growth at the higher end of our long-term growth algorithm off of our full year guide. So no adjustments to that. So our guide is at least $4.125 billion. We expect to grow at the higher end of our income growth algorithm off of that. So just to clarify that. As it relates to customer growth going forward within Cigna Healthcare, the portfolio is obviously quite diverse in terms of the different types of buyer groups within that. Our national accounts business, which is largely done for 2026 at this stage as it relates to January 1, we expect a flat to slightly declining customer outlook for '26, which is in line with our expectations over the long run, given that our strategy is to maintain share in that part of the portfolio. Our Select segment continues to grow, as I indicated in my earlier comments, also within the U.S. employer portfolio. And despite the higher rate increases that are in the market across all competitors, we're tracking for another good year of performance in the Select segment. Our Individual exchange business, we expect to see a decline in membership next year, roughly commensurate with what the overall industry-wide enrollment is expected to look like. So those are the bigger building blocks as you think about the overall customer picture for 2026. So different rates of growth or decline business to business. But overall, we like the way we're positioned in Cigna Healthcare and again, confident in growing the income at the higher end of our long-term growth rate range. Operator: Our last question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: So back at September, I think you mentioned that roughly in the range of 4% PBM margin would be durable or sustainable even with some of the potential permutations of outcomes from a PBM reform perspective, at least those that are out there today? And is that still the right way to think about it, particularly also in light of the rebate-free model transition over the -- obviously, this is over the longer term, excluding some of those nuances in 2026, '27. Just if you could comment on that longer-term margin profile. Brian Evanko: Erin, it's Brian. So as it relates to the 4% margin benchmark we've provided in the past for Pharmacy Benefit Services, we do believe that that's a reasonable way to look at the business when you think about the long term. So as I made reference to an earlier question, we would expect the earnings contribution for our new rebate-free delinked model to be comparable to what the existing solutions are across the portfolio. Now when you do the overall calculation at the portfolio level, depending on the mix of large clients, small clients, mid-market clients, the overall portfolio level margin may be higher or lower than that at any given point in time, but we would expect strong levels of contribution from our new rebate free model comparable to what we see on a similar client level today with the existing solutions. Operator: Thank you. At this time, I'll turn the call back over to the speakers. David Cordani: I just want to briefly wrap up our call today. First and foremost, thank you for joining, and thank you for your questions during our call. As I wrap up, I want to say how much I appreciate and how proud I am of our coworkers across the globe. It's their continued focus and dedication that support our ability to deliver on our commitments for those we serve and generate the net benefits for our shareholders. And this is all in an environment that is dynamic as we both deliver on our existing promises and enable ourselves to design and deliver these new solutions and these transformative solutions for the benefit of our customers for years to come. We're proud of what we've achieved. We're jumping off a strong base in 2025 and 2026 will mark another strong year for the organization in our Cigna Healthcare portfolio and in our Specialty & Care portfolio as we invest significantly in our PBS portfolio to future-proof it for years to come. Thanks again, and have a good day. Operator: Ladies and gentlemen, this concludes the Cigna Group's Third Quarter 2025 Results Review. Cigna Investor Relations will be available to respond to questions shortly. A recording of this conference will be available for 10 business days following this call. You may access the recorded conference by dialing (866) 405-7290 or (203)-369-0603. There is no passcode required for this replay. Thank you for participating. We will now disconnect.
Operator: Greetings, and welcome to the Terex and REV Group merger call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President of Investor Relations. Please go ahead. Derek Everitt: Good morning, and thank you for joining us to discuss the planned merger of Terex Corporation and REV Group and Terex's intention to exit its Aerial segment. A copy of the related press release and presentation slides are posted at investors.terex.com and investors.revgroup.com. The replay and slide presentation will also be available on those websites. This morning, Terex also announced its third quarter 2025 earnings. The corresponding presentation and press release are posted at investors.terex.com. Please turn to Slide 2 of the merger presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the presentation and in our reports filed with the SEC. In addition, we will be discussing non-GAAP financial information we believe is useful in evaluating operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. References to year is [indiscernible] unless otherwise stated. Terex's fiscal year-end is December 31 and REV's fiscal year-end is October 31. References to the merged company's financial year on a pro forma basis reflect these different fiscal years. On Slide 3, we provide additional information and links to related documentation. Continuing to Slide 4. Today's presenters will be Terex's President and Chief Executive Officer, Simon Meester; and REV Group President and Chief Executive Officer, Mark Skonieczny; Jennifer Kong-Picarello, Terex Senior Vice President and Chief Financial Officer; and Amy Campbell, Chief Financial Officer of REV Group, will also be participating in the Q&A session that will follow the prepared remarks. Please turn to Slide 5, and I'll turn it over to Simon. Simon Meester: Thanks, Derek. Good morning, everyone, and thank you for joining us today as we launch a transformative new chapter for Terex and REV Group. Before we discuss this exciting new step, I want to take a brief moment to thank the Terex team for another solid quarter. We delivered $1.50 of EPS on sales of $1.4 billion with a cash conversion of 200% and are maintaining our full year outlook. The team continues to execute really well. We successfully completed the ESG integration, and we're very excited about what's next. Today, we are announcing the merger of 2 great companies to create a U.S.-centric large-scale specialty equipment manufacturer with iconic leading brands serving highly resilient and growing end markets. The new combined company will be truly transformational in makeup and markets served. With complementary operations, management systems and channels, we have created the opportunity to unlock significant readily achievable synergies, making the combined company stronger and more competitive, a win-win for our customers, our team members and our shareholders. We believe the financial profile, growth potential and leverage is highly attractive and will deliver significant value to Terex and REV Group shareholders. In addition to stronger, more predictable earnings and associated free cash flow, the combined company will have a low capital intensity profile, providing a solid foundation for future profit enhancing and growth investments. Let's move to Slide 6 to review the transaction in more detail. Terex and REV have entered into a definitive agreement to merge in a stock and cash transaction that will result in Terex shareholders owning 58% and REV shareholders 42% of the combined company. This allows both Terex and REV shareholders to participate in the potential upside of the combined company. REV shareholders will also receive $425 million in cash consideration. The combined company will trade on the New York Stock Exchange under the current Terex stock ticker, TEX, and I will serve as CEO of the combined company, supported by a proven management team that reflects the strengths and capabilities of both organizations. At closing, the Board will be comprised of 7 directors from Terex and 5 from REV. We expect to complete the merger in the first half of 2026, subject to customary closing conditions. Our teams have developed a detailed plan to deliver at least $75 million in annual synergies, contributing to the highly attractive financial profile of the new company. We're also announcing that we plan to exit our Aerial segment and are evaluating a potential sale or spin-off. This exit will significantly reduce our exposure to cyclical end markets. Considering the achievement of synergies and the exit of Aerial segment, the merged company is expected to provide a mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, near the top end of the specialty equipment peer group. At closing, the combined company is expected to have a strong balance sheet and liquidity position with approximately 2.5x leverage on a pro forma basis with the opportunity to delever further upon the exit of the Aerial business. Turn to Slide 7, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon, and good morning, everyone. Speaking on behalf of the REV team, I'm excited about joining forces with Terex and embarking on the next chapter of our transformation, becoming an even stronger company with new opportunities to leverage our combined scale and operating systems to drive product innovation and even greater efficiency. Both our teams have done a lot to transform our businesses over the past several years. We have taken steps to strengthen our respective portfolios by acquiring highly regarded businesses and making them even better while driving greater focus by divesting businesses that don't align with our strategic direction or financial thresholds. Over the past few years, the REV team has deployed its operating system to drive broad-based improvements within the business. We executed simplification and process flow improvements across our manufacturing footprint, worked diligently to improve safety and invested in onboarding and training for our employees. Our sourcing team fortified the supply chain through multi-sourcing initiatives that lowered costs and made material flow more dependable and less exposed to market disruptions. And we are now in the early stages of product simplification and commonization that we believe are the next steps in maximizing our operational potential. I am proud of the hard work and improvements delivered by our team over the past 3 years and believe the company has reached a level of performance that provides a foundation for even greater momentum. Combining with Terex is a unique opportunity that we believe will create meaningful value for our shareholders. Simon Meester: I agree, Mark. Terex went through a similar rationalization exercise in recent years. And when Terex acquired ESG last year, we took a significant step to strengthen our portfolio, improve our margin profile with higher and more predictable earnings and associated cash flow. The recently announced divestiture of our Italian crane business that we expect to close very soon was another step in that direction. And clearly, merging with REV and exiting the Aerial segment will take our performance to another level. All that said, we are still in the early innings of our strategic transformation with significant synergies to deliver and growth opportunities across each of our end market verticals to continue to create shareholder value beyond this merger. Let's turn to Slide 8. We are merging 2 strong companies to produce a combination that will clearly be greater than the sum of the parts. After completing the Aerials exit and adding $75 million in synergy value, the pro forma company is expected to deliver EBITDA margins of about 14% with a cash conversion of approximately 85%. At $5.8 billion in revenue, we will have meaningful scale with a strong balance sheet, well positioned to continue to invest and create additional value for our shareholders. Moving to Page 9. The combined company will be U.S.-centric, competing in a diverse and balanced set of attractive end markets. Approximately 85% of the combined revenue will be generated in North America with the vast majority from products that are made in our combined U.S. manufacturing network. The portfolio will be well balanced with about 40% of sales related to Specialty Vehicles with the remainder split between Environmental Solutions and Materials Processing. Each business has a demonstrated track record of delivering resilient and predictable operating results to a large degree because of the resilient end markets they serve. From a Terex perspective, the pro forma end market profile will be less cyclical than ever before in our history. And by design, with nearly 60% of revenue associated with emergency vehicles and waste collection, a significant share of our volume is tied to essential services that are not subject to economic ebbs and flows like other markets. On the utility side, we expect accelerated growth for years ahead stemming from AI, data centers and the need to significantly upgrade the U.S. power grid. We also continue to see growth for infrastructure spending in the United States, Europe and around the world, which will benefit our Materials Processing business. Turn to Slide 10, and you will see a snapshot of some of our great products and brands. We are a leading player in each of these markets. As I mentioned earlier, with combined pro forma sales of $5.8 billion, the total addressable end market for our products provides significant opportunity for additional penetration and growth. Terex Utilities manufactures bucket trucks, digger derricks and related products that enable linemen to work safely on light electrical transmission and distribution lines across North America, a key advantage to maximize grid uptime with emerging opportunities overseas. As a leading player in this space, we are increasing capacity and throughput within our current manufacturing footprint as we see share gain opportunities in this expanding market. Our ESG business is a leader in refuse collection vehicles, compactors and related digital products. The HAL brand is regarded as a technology leader with a full range of automated side loaders, front loaders and multiple digital products. Our 3rd Eye digital platform is a meaningful and growing revenue stream on the refuse side of environmental solutions with extension opportunities across every vertical. In the center, you will see examples of our extensive materials processing product range. Our Powerscreen and Finlay brands are global leaders in mobile crushing and screening within the broad aggregates industry and relatively new brands such as Ecotec are leveraging core MP technology to expand into environmental and other adjacent markets. Examples of our industrial vehicles range include Advance, a market leader in front discharge cement mixers and Fuchs material handlers sold to scrap, recycling and port customers around the world. Turning to Specialty Vehicles. REV has developed an extensive line of fire trucks and ambulances all under brands such as E-ONE, Spartan, AEV and Wheeled Coach that are recognized as market leaders in quality and reliability by the first responder community. REV's nationwide customer base is supported by an expansive dealer network to ensure their vehicles are available to execute their life-saving duties. In addition, REV's niche portfolio of motorized recreational vehicles includes such leading brands as Fleetwood and Renegade. Turning to Slide 11. Common characteristics across many of our end markets include economic cycle resiliency through reliable replacement demand and aftermarket service, market growth supported by secular tailwinds and the ability to differentiate through quality technology and life cycle support. The emergency response fleet with the support of its dealer network serves the nation's first responders from volunteers in small towns to the largest cities that own fleets of hundreds of fire trucks and ambulances and everything in between. We continue to see demographic trends, including outward suburban expansion that leads to municipalities growing their fleets. REV has done an excellent job customizing its product offerings to align with the needs of its diverse customer base and vastly different infrastructure requirements. Its end customers have stable budgets supported by municipal tax receipts and departments that prioritize emergency vehicle replacement and fleet growth to maintain coverage requirements. There are similar dynamics in waste and recycling, where growth is fueled by 4 main drivers, starting with population and economic growth, more consumption generating more trash; and second, disciplined vehicle replacement, particularly with the national fleets and large municipalities. Third, accelerated replacement demand driven by innovation leading to lower total cost of collections from products such as automated side loaders that replace manual rear loaders and reduced emissions delivered by our CNG offerings. And finally, growth in digital solutions where we are the clear leader in this space. Within infrastructure, there is plenty of runway ahead with the allocated government spending with a clear need for more investments ahead. In the U.S. alone, the backlog of mega projects continues to grow, providing a tailwind through 2030 at least. Looking abroad, we are seeing infrastructure spending momentum across Europe, while the Middle East and India, where MP already has a strong presence also continue to grow. And finally, the utilities market is also poised for significant market growth. Demand on the U.S. electrical grid is increasing with the majority of data center-related growth still yet to come. Industry forecasts anticipate public power and independently owned utilities CapEx to grow between 8% and 15% per year through 2030. So with this portfolio of leading businesses, we think we're very well positioned for growth for years to come. Let's turn to Page 12, and I'll hand it over to Mark. Mark Skonieczny: Thanks, Simon. I agree the combined company is well positioned for sustained growth. The investments we have made in our respective operating systems will help ensure we capitalize on those growth opportunities and deliver the synergy value that we have defined here today. Through our operating systems, our companies have provided a framework designed to drive excellence across all aspects of our organization from operational efficiency and innovation to customer satisfaction and employee development. By leveraging a structured set of tools, processes and performance metrics, these programs ensure consistent execution of our strategic priorities, fostering sustainable growth and profitability. They empower teams at all levels to focus on continuous improvement, problem-solving and value delivery, creating measurable benefits for customers, employees, shareholders and communities alike. This disciplined approach will align the combined company towards achieving world-class results while reinforcing our commitment to being trusted leaders in the industries we serve while delivering value to our shareholders. Simon Meester: And at Terex, we launched the Terex operating system, which is very well aligned in its design and purpose with the REV system to accelerate continuous improvement and leverage our growing scale. We also refined the integration excellence playbook component of our operating system as we integrated ESG. Terex has muscle memory from its past and got it back in shape recently, setting us up well to execute this integration. Our organizations also share a performance-based culture. The combined team will be energized and fully capable of capitalizing on the many opportunities that lie ahead. Let's move to Slide 13 to talk more about the $75 million in synergies. Our teams have already started to lay the groundwork for synergy realization. We have a detailed project plan and will hit the ground running the day we close. We expect to achieve about half the $75 million run rate within the first 12 months as we consolidate corporate activities and eliminate duplication. Sourcing savings will ramp up starting with simpler categories like MRO, hardware, steel and more standard material before moving into more customized engineered components. Ultimately, every category will be addressed by the team, resulting in a more resilient and cost-efficient supply base. On the operational side, we will build on the best practice sharing that has been done within both organizations and extend them across the company. The extensive U.S. footprint will provide greater optionality to increase domestic capacity, leveraging our combined capabilities. We expect go-to-market synergies over time as we optimize distribution channels and customer relationships, and we see meaningful opportunities to extend our 3rd Eye digital platform in the fire and ambulance verticals in the future, building on the technology developed in refuse, which we have started to extend into our utilities and concrete businesses. The mission-critical status and intense conditions faced by first responders creates a natural use case for enhanced situational awareness for better maneuverability and safety provided by the 3rd Eye digital platform. We have a lot of exciting value creation opportunities and a track record of delivering. Turning to Slide 14. With this transaction, we are essentially rebaselining the new company with much more resiliency and predictability in both top and bottom line performance in different end market mix and an overall enhanced margin profile. As an example, we are significantly reducing our exposure to the cyclical construction markets. We believe that equity markets value resilient, predictable earnings and reward growth. The transformational actions we announced today hit both notes. The exit of the Aerial segment further enhances that profile by removing cyclicality in the combined business. With pro forma 2025 estimated EBITDA margin of 14%, we are creating a company with greater revenue growth potential and reduced earnings cyclicality that we believe is highly sought after by market participants. Moreover, our combined balance sheet provides optionality to take additional strategic steps over time to grow and further improve this attractive financial profile. Let's wrap up our prepared remarks on Slide 15. Merging Terex and REV creates a large-scale specialty equipment manufacturer with a highly synergistic portfolio of leading businesses across a diverse set of attractive, growing, resilient markets. We see a strong fit between our cultures and our management systems. We have the playbook, the muscle memory and the team in place to execute our integration plan and unlock at least $75 million in annual synergy value. We will leverage our shared capabilities to outperform in our end markets and generate strong earnings and free cash flow. We purposely structured the transaction to result in a strong balance sheet and flexible capital structure to enable future organic and inorganic investments. I want to close by thanking the REV and Terex team members for their tireless efforts getting us to this point. I look forward to the exciting future ahead for our combined company. And with that, I would like to open it up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Stephen Volkmann from Jefferies. Stephen Volkmann: Congratulations. I don't usually say that, but this seems like a lot of work in a big transaction. So best of luck on all that. I guess I'm curious maybe as a starting point, Simon, you talked about the sort of more stable profile and the cost synergies, which all kind of makes sense. But what are you thinking strategically relative to growth going forward? I know you listed some specific growth things, but there were mostly kind of stuff that I think we already thought Terex had. So how does this kind of jump-start growth for you over the next sort of 5 years or so? Simon Meester: Yes, Steve, thanks for the question. And yes, thank you. We are obviously very excited announcing the merger this morning. We think it checks all the right boxes. And to your point, it creates a new significantly less cyclical combined portfolio with attractive and growing addressable markets. And yes, besides the synergies that this brings and the more predictable profile, we do see a lot of growth potential, as I mentioned in our prepared remarks, across all of our verticals. And a lot of that is tied to just urban expansion, population growth, electrical grid upgrades, infrastructure investments, but also more waste and recycling. And that's just the addressable markets as they grow. But then as this group comes together, we also see a lot of opportunities in customers that we both cover in products that we can develop together. I'm thinking about the digital use cases that we referenced in our prepared remarks that we see use cases, for example, in some of the REV applications with our 3rd Eye products. So we see a lot of growth upside in both purely addressable market and in terms of revenue synergies. Stephen Volkmann: Okay. Great. And then maybe just a follow-up relative to the AWP sale or spin. That's interesting from a timing perspective because I guess one might argue that things are sort of bumping along a bottom there. Why not sort of hold on to that until it's a better business and sell it at some other point? Simon Meester: Yes. Great question. We think that the Aerial's journey is very well documented on how it performs through the cycle. Our Aerial's business has a strong brand, strong team, strong footprint, strong legacy. We are excited about the product portfolio and its pipeline. And obviously, the level playing field now that we have these 2 favorable antidumping rulings in both North America and in Europe. And we are convinced that there will be plenty of suitors out there who will recognize the through-cycle value that we believe the Aerial's business will bring to their portfolio. So we think that, that is transparent enough. Operator: Our next question comes from the line of Mircea Dobre from Baird. Mircea Dobre: I guess I would have a question for Mark, and this is a REV Group perspective here. I'm just sort of curious, Mark, to get your thoughts in terms of how this transaction came to be and how you evaluated value creation from the standpoint of the REV Group shareholders. Your Specialty Vehicles business has done well, and you're clearly on a path to expand margins with a lot more to come as we look at the next couple of years, right? So that opportunity is still ahead. So as you think about this business now being part of Terex, why does it make sense to enact this merger at this point? And from a valuation standpoint, I don't know if I'm doing the math correctly, but it looks to me like the transaction implies about 11x EBITDA on 2026. If that's correct, how did you think about the right valuation framework to apply in this transaction? Mark Skonieczny: Yes, sure. So obviously, from how it came about just through the normal course of banker discussions and the opportunity that was presented was really compelling, as we've said in our prepared remarks. But as we also talked about, it's just a natural step in the transformation journey. I think, Mig, in the past, we've talked about what kind of products that we'd be looking for, what kind of companies we'd be looking for. And obviously, we've stressed something in the refu or utility space was always on our radar. When you look at the leading brands that come together in this portfolio, it was just a natural fit for us, especially with the exit of the Aerial's business when you put these 2 companies together. And from a valuation perspective, when you look at the mix of the consideration, it treats both shareholders very well and it provides the ability to participate in future upside of the company, the combined company. And the $425 million of cash consideration still leaves a strong balance sheet for the new company. So if you look at our shareholders specifically, they continue to participate in the upside that you are quoting there, but also get to participate in the synergy realization, the $75 million and to participate in the value unlock associated with the Aerial exit, which we've included in that -- in the deck. So I think that really was the construct and how we came about it and how I looked at it, both from an operational good tangential products and ultimately, the value creation that it gives our shareholders. Mircea Dobre: Okay. And then my follow-up, $75 million of synergies, certainly not a bad number, but as a percentage of sales for the combined entity, it doesn't seem like a big hurdle. So I'm kind of curious to what degree this number might prove conservative over time. And we haven't really talked about RV. I know this has been part of the REV portfolio a smaller business, but perhaps less of a focus? Is RV considered for potential sales divestiture in the near term as well? Simon Meester: Yes. Thanks, Mig. So yes, $75 million run rate going into 2028. We think 50% is -- will be achieved within 12 months after closing. We have very similar operating systems, very similar culture. So we do think we will hit the ground running, and we have a good pipeline. We just want to walk before we run. And I think similarly to when we announced the ESG synergies, we just want to make sure that we manage the pipeline accordingly. And then obviously, we're going to try to overdrive the number, but that is the number that we're currently communicating, and we're going to do our best to exceed that expectation. And when it comes to the RV business, first and foremost, we're going to focus on the things that we are announcing today, the integration of the 2 companies, the execution on the synergies and then the Aerial's exit. But going forward, we will continue to assess the effectiveness of our portfolio as both companies have done and will continue to do and just -- and make the right decisions for our shareholders. Operator: Our next question comes from the line of Jamie Cook from Truist. Jamie Cook: Congratulations on the transaction. I guess my first question, Simon, back to the unlocking of shareholder value. Key to that, obviously, is you guys either selling or spinning the Access business. So I'm just wondering your confidence level in sale versus spin and potential timing because if it's a spin, I guess I'd be probably more concerned with the market would value the Access business. So first that. And then I guess my second question, wondering if you could talk a little more about the opportunity with 3rd Eye. You mentioned it a little in your prepared remarks and whether with the 2 combined companies, what the aftermarket is as a percent of sales? And is there a bigger aftermarket story here, the ability to grow aftermarket and increase it as a percent of the total to again reduce cyclicality and potentially improve margins further? Simon Meester: Yes. Maybe I'll talk about Aerial's and then maybe, Mark, you can share a little bit your thoughts on digital in the applications that your business addresses. So on Aerials, yes, as I mentioned earlier, the Aerial's business is a great business. There's a lot of equity in the brands. There's obviously 60 years of history, part of the founders of that industry. And it's been a public reporting segment for almost 20-some years or so. So we think it is very well known what the Aerial business does and can do through the cycle. It is a cyclical business, but there are suitors out there that like that kind of profile. So we are not concerned that there won't be any suitors. Quite the opposite, we think there will be quite a few. So for the simple matter is that it's a very recognized business on how it performs through the cycle. Mark, do you want to take the digital question? Mark Skonieczny: Yes. I think, Jamie, I won't address the aftermarket side. But obviously, as I visited the facilities and look at the products, and there's just a plug-and-play replacement for some of the cameras that we use, but also the back-end software capabilities. We are in the beginning stages of looking at telematics and other things that, that product offers. So it's really an advancement of some of the things that we are doing from an innovation side. So it really gives us an upper hand in advancing that. So I would say the aftermarket part of that comes afterwards, obviously, but the initial install will be very favorable to the combined company, which is what we referred to. So I think that we're excited about that and the opportunity and the advancement that this gives us on the innovation side of the -- especially on the municipal-based businesses like we've talked about. Operator: Next question comes from the line of David Raso from Evercore. David Raso: I was curious, Simon, the decision to exit Aerial's, when was that strategic decision made? Was that something you thought about when you became CEO about 2 years ago? Was that already on the agenda? Or would you say it was more related to the potential swap here in businesses? Simon Meester: Yes. We have always had the intent to make our portfolio less cyclical. And the first step, we kind of diluted the cyclical part of our portfolio by means of the ESG integration. And I think that's exactly what happened, and our stock has shown more resiliency as a result of it in the last 12 months. And it's been a very successful integration. And then as this deal was -- or this opportunity was presented to us, we just started to analyze and we saw the merit and we saw the clear value that it would bring to our shareholders and that it would be that next step in terms of making the portfolio less cyclical. So no, it's just something that's kind of evolved organically over the last couple of months. And then we felt that it was a really compelling case and hence the reason we pushed forward with it. David Raso: Yes. I'm just trying to get a sense of how far along are we already in you understanding who the potential buyers are? Are books out already? Just trying to get a sense of the timing, if it's something you've thought of for a while. And as you discussed, you feel like the earnings over the cycle are well understood enough. The timing of the sale, maybe you're a little less sensitive to than others could believe. But just curious, how far along are you in this process knowing who the potential buyers are? And are the books already out? Simon Meester: Yes. No, they're not out. But yes, obviously, we talk to a lot of people just as you do. As I said, I think it's -- the business is well understood. And I think it's also, as I mentioned a couple of times, very well documented on how it performs through the cycle. And I don't want to get into too much detail on who we're talking to and what's going on. But we're starting the process formally today. And we will -- we feel confident that there will be plenty of suitors that will reach out to us over the next couple of days, weeks. David Raso: Okay. But safe to say this is not ground zero starting the process. It's been something that's been in the works at least in that, okay. Simon Meester: No. Operator: Our next question comes from the line of Tim Thein from Raymond James. Timothy Thein: The question I had was on distribution, specifically as it relates to Terex's ES segment and the Specialty Vehicles group of REV Group. I'm just curious if there is any overlap there. I'm thinking -- I know there's some mix of direct sales as well as what goes through dealers. And so again, I'm just thinking to the extent there's overlap or any potential kind of channel conflict just given that a lot of these specialty dealers will carry multiple lines and multiple brands. And so I'm just thinking if that's any issue that has to be thought through. Mark Skonieczny: Tim, this is Mark. And from our perspective, and we've looked at that, there is no overlap across these channels, which sort of is again, the beauty of this transaction, bringing these complementary products together. So there is no overlap that we're aware of that will cause an issue. Timothy Thein: Got it. Okay. And then just on the -- I apologize if I missed it, but was there a time line in terms of -- for the AWP sale or spin? And then anything you can help us with respect to the tax basis of that business as we think about those 2 potential options? Simon Meester: Yes, we have not communicated an explicit time line. And yes, we will keep you updated as material developments occur, but nothing else to share on that at this point. Operator: Our next question comes from the line of Michael Shlisky from D.A. Davidson. Michael Shlisky: Congratulations. I wanted to circle back to Mig's question and just kind of follow up there. Looking at the 2026 EBITDA for REV Group Mark, it is looking like around 11x, but you had some pretty sharp increases in your 2027, 2028 outlook where have much higher than that, 25%, 35% higher by that point, roughly $75 million worth. So I guess, one, I want to make sure that you're not double counting. You're still on track to get that 2027, 2028 EBITDA goal that you've already stated. And then secondly -- and this is all new synergies beyond that. And then secondly, I think the multiple is a lot lower or a bit lower when you consider that most of that number in 2027, 2028 is I don't want to say in the bag, but largely booked because it's a lot of fire trucks. So I'm just curious how you engage in discussions, given what you know about where you think that is going as opposed to where it's been and the trailing EBITDA. Mark Skonieczny: Yes. Again, I think this transaction allows our shareholders to continue to participate in that as you've seen in our quarterly results and the fact that we've been ahead of the targets for 2027. So from the progression to those targets. So we feel very good about the accomplishments that we've had so far to date with the throughput increases and the margin realization that you're pointing out. So this is not a reflection at all of our ability to hit those. We are very confident in those numbers that those, and they were obviously supported the deal when we looked at valuations for both sides of the shareholder base. So I would say that. And then obviously, the synergies on top, as you pointed out, gives us value creation as well as the ability to participate in the unlock, like I said, to Mig on the Aerial exit on the side of the Terex house. So ultimately, I think all that was taken into consideration when we did the deal. Michael Shlisky: Okay. And then secondly, I wanted to ask the synergy outlook for the combined company. is that combined with Aerial's or without? I guess I'm kind of curious, you'll get some synergies on purchasing steel and so forth post the merger, but are there dissynergies if and when you spin off the Aerial's and you'll have the opposite. We'll have a little bit less scale on buying steel and other components. I guess I just want to know, is it net or is it gross, the current synergy expectation? Jennifer Kong-Picarello: This is Jen. That's a net amount. So we have taken into account the dissynergies. Operator: Our next question comes from the line of Kyle Menges from Citigroup. Kyle Menges: Congratulations on the deal. I am curious how you're thinking about integration of these 2 entities over time. It looks like there's some operational cost revenue synergies, especially between the ES segment and REV Group's businesses, but also looks like these 2 will kind of run as individual segments. So any thoughts there would be helpful. Simon Meester: Yes. Thanks for the question. Yes, first of all, in terms of integration, the plumbing, so to speak, will follow the same playbook that we used for the ESG integration. And we think we have a strong process there and a strong track record on doing these kind of integrations. And then the way we will complete the segments makeup, so to speak, is that the REV segment will become a dedicated third segment to the Terex portfolio. Kyle Menges: Got it. And then on synergies, it feels like the bulk of cost and revenue synergy would be between the ES segment and REV Group. So curious what the synergy is between REV Group and Materials Processing and just now how you think Materials Processing, how that segment fits in the portfolio? Simon Meester: Yes. The big swings are the -- obviously, the corporate cost synergies because we're merging 2 public companies. And then there is multiple efficiencies in SG&A and supply chain and logistics. Also in terms of our shared services footprint, there are synergies there and then a big one in terms of manufacturing best practices. And one of the examples I'd like to call out is if you look at what -- how our utilities margins, for example, have improved over the last 12 months just by the virtue of now reporting into the ES segment, you can see that how those manufacturing best practices can really drive margins up. So those are the big swings in terms of synergies between the 2 companies. Operator: Our last question comes from the line of Angel Castillo from Morgan Stanley. Angel Castillo Malpica: Congrats on the deal announcement. Simon, just wanted to go back to the point on cyclicality on Aerial's, I understand, and I think this has been asked in a number of different ways, but I just wanted to touch on it a little bit more. Just given you don't need the proceeds to kind of delever to a reasonable range here, why not keep Aerial's as a means of kind of maintaining some diversification in terms of kind of end market exposure near term? And maybe just kind of -- that's just kind of a different way of asking basically, if you don't mind kind of expanding on some of the implications of the intention to sell Aerial's on kind of your view of either the near-term upside opportunity associated with the U.S. rate cycle or kind of improvement there and also the longer-term views of the ability of Aerial's to kind of achieve mid-teens margins kind of through the cycle, I believe that I think that was kind of the longer-term target. So if you could just talk about -- are these positives getting pushed out to the right? Any structural changes to kind of how you look at that business would be helpful. Simon Meester: Yes. Thanks for the question. So yes, we're basically -- with this merger, we wanted to rebaseline the company. That's what we wanted to do. So with these -- with the REV Group and our Materials Processing segment and our Environmental Solutions segment, we're basically becoming a new company. And what we want to pursue is a more predictable, much less cyclical kind of earnings profile. That's what we want to do with the company going forward. And we believe that Aerial's is a proven business. It's a strong business. There is a lot of upside coming from the mega projects alone in the United States. And then obviously, we see now Europe starting to invest in infrastructure, public construction as well, which will fuel further demand. We're not going to get into guiding, obviously, for 2026 here on this call today, but we think there is a lot of upside for the Aerial's business for years to come. And then combine it with, I think, a well-documented proven track record on how it performs through the cycle, we think it's a very nice business for anyone. Angel Castillo Malpica: That's very helpful. And maybe just could you touch on -- I guess, comment on what you kind of perceive would be kind of the fair value for this business given the current demand backdrop and everything you just discussed? And importantly, as it pertains to potentially different avenues to divest any concerns over the current geopolitical kind of environment and whether that limits the potential range of interested parties in these assets? I guess we're asking -- I'm asking because there's been other construction OEMs who kind of put on pause some intentions to sell assets due to kind of geopolitical challenges, maybe limiting international parties from moving forward. So just curious if you could comment on that. Simon Meester: Yes, I'm not going to comment on any kind of valuation. I think that, that would be too premature on this call. And in terms of its appeal, I mean, it's one of the -- it's a leading brand in its space. It's a very strong business with a strong brand. We have a level playing field in its addressable market, which means that there is no immediate risk for any kind of dumping activities in North America and Europe. So an attractive end market. And it has a pretty strong U.S. base. So quite honestly, I see it as the exact opposite. I see it as a very interesting asset that could give any owner a meaningful footprint in a very attractive end market and a big part of that being the United States and Europe, which are -- which is probably 90% of it anyway, if not more. So I see it completely opposite. I think it's a very attractive asset. Operator: We have a question from Steve Barger from KeyBanc. Steve Barger: And sorry, I didn't have time to look this up, but can you tell me the dollar amount and duration in years of REV Group's backlog and maybe the concentration of it by product category, if you report that? Mark Skonieczny: We don't report it by product category, but maybe, Amy, you want to take that. But it's about $4.5 billion all in and 2- to 2.5-year backlog. I don't know if you want to comment on. Amy Campbell: You answered the question pretty well there, Mark. No, that's correct. We have a $4.5 billion backlog. We do break that out, $4.2 billion of that is in what we consider our Specialty Vehicle segment and about $300 million is in our Recreational Vehicle segment. And that 2- to 2.5-year backlog is strictly for those fire trucks and ambulances. Steve Barger: Got it. And there are other fire truck and municipally oriented companies out there that, in some cases, have higher than current margins embedded in backlog due to strong pricing. Is that the case with REV Group as well? Amy Campbell: Yes. We have the same. During the pandemic, we saw backlogs for emerged fire and emergency equipment manufacturers increase across really all brands. And all of the providers of that equipment have been working through those backlogs and continue to work through those backlogs. Operator: That concludes our question-and-answer session. I'd now like to turn the call over back to Mr. Simon Meester for closing remarks. Simon Meester: All right. Thank you. So thank you for your questions today. I want to just reemphasize how excited we are by today's announcement. We are merging 2 great companies, creating a low cyclical portfolio with strong synergies, a better margin profile, a U.S.-centric footprint, leading brands and last but not least, a low capital intense kind of structure. So we're very excited on how this sets up and the value that it brings to our shareholders. So with that, I want to thank you. If you have any additional questions, please follow up with the respective Investor Relations leads. Operator, please disconnect the call. Operator: This concludes today's session. You may now disconnect.
Operator: Good morning, and welcome to the Bandwidth Inc. Third Quarter 2025 Earnings Conference Call. [ Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sarah Walas, Vice President of Investor Relations. Please go ahead. Sarah Walas: Good morning, and welcome to Bandwidth's Third Quarter 2025 Earnings Call. I'm joined today by David Morken, our CEO; and Daryl Raiford, our CFO. They will begin with prepared remarks, and then we will open up the call for Q&A. Our earnings press release was issued earlier today. The press release and an earnings presentation with historical financial highlights and the reconciliation of GAAP to non-GAAP financial results can be found on the Investor Relations page at investors.bandwidth.com. During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our financial guidance for the full year 2025. We caution you not to put undue reliance on these forward-looking statements as they may involve risks and uncertainties that could cause actual results to vary materially from any future results or outcomes expressed or implied by the forward-looking statements. Any forward-looking statements made on this call and in the presentation slides reflect our analysis as of today, and we have no plans or obligation to update them. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our latest 10-K filing as updated by other SEC filings. With that, let me turn the discussion over to David. David Morken: Thank you, Sarah, and good morning, everyone. Thank you for joining us. Bandwidth delivered another solid quarter of execution with outperformance in revenue and profitability that extended our momentum from the first half. We again saw accelerating growth in our core voice business, driven by broad-based demand across our global voice plans and enterprise market offers as real-world AI voice usage continued to grow, and we closed more million dollar-plus deals in the third quarter, bringing us to a record pace year-to-date as the largest Global 2000 enterprises increasingly choose Bandwidth. To our customers, thank you for placing your trust in us for your most essential communications. To our bandmates, thank you for the talent, energy and commitment you bring to our customers' success. And I thank God for the blessings and purpose that continue to guide our work. Our third quarter performance strengthens the foundation for continued growth, fueled by large customer wins, conversational AI adoption and disciplined execution. At the same time, we're evolving our business model toward a higher mix of recurring software-driven revenue, adding intelligent automation and value-added services that customers love. We're seeing especially strong traction in financial services and health care, where performance and trust matter most in mission-critical communications. An example of how much bandwidth is valued is the Technology Disruptor award we won from Ally Financial, which recognized our key role in transforming their customer experience. It was especially meaningful to be honored by Ally, which is one of the original disruptors in digital banking. The story of this quarter is innovation, powering our growth, strengthening our customer relationships and moving AI voice from potential to production. At Reverb25, our award-winning annual product and customer showcase, we announced the next chapter of Bandwidth's AI and software strategy to make cloud communications more intelligent, more automated and more trusted. It was part of an entire Reverb week of customer roundtables; market offer deep dives and hands-on sessions, attended live by more than 100 customers and partners along with nearly 3,000 online. Customer feedback was overwhelmingly positive as they saw how our product road map connected directly to their priorities and real-world use cases. Last year at Reverb, we talked about the promise of AI. This year, we're delivering it. Let me give you some highlights. We shared our vision to be the most open and flexible provider for enterprises to integrate conversational AI into cloud communications through 4 key paths: native AI within CCaaS platforms, prebuilt partner integrations, bring your own AI with third-party apps and public APIs like OpenAI's real-time interface. Whatever path customers choose, our new MCP server empowers AI voice agents to control Bandwidth APIs in real time using natural language, enabling actions like searching phone numbers, sending text or triggering other actions mid-conversation, no custom code required. This open freedom of choice strategy gives customers the power to innovate on their terms and keep control over their tech stack without sacrificing optionality or scalability. It also reinforces our role as a platform partner that supports the full life cycle of customer engagement. By building on Bandwidth, enterprises can move faster now and derisk changes in the future. In short, we are strongly positioned to be the provider of choice for conversational AI deployment, no matter what path our customers choose. This strategy is already translating into meaningful deployments. For example, a long-time Bandwidth customer in digital commerce serving tens of millions of small business customers expanded their partnership with us for their new AI-powered voice ordering system for food venues nationwide. The service answers 100% of incoming calls with natural conversational AI and is sophisticated enough to allow customers to place complex orders by phone just as they would with a staff member. This is large-scale AI voice in production today made possible by our Maestro software and AI optimized edge infrastructure, enabling enterprises to integrate AI voice on their terms. At Reverb, we also did a live demo of the prototype for our AI receptionist, an automated front door for any business. It uses conversational AI to handle most calls without human intervention, answer questions in detail and route inquiries efficiently. For small businesses sold through our resellers, it can deliver a professional always-on customer experience at scale. For large enterprises, it could serve as a modern IVR replacement, streamlining call handling and improving operational efficiency. AI receptionist processes calls natively within our communications cloud to ensure natural human-like conversations and protection of customer data. Our team built the AI receptionist to showcase our ability to develop intelligent voice solutions that unlock new opportunities for recurring scalable software revenue over time. We also see it as a potential extension of our Maestro software platform. We're also applying AI to simplify our customers' back-office workflows. At Reverb, we introduced our first AI agent, the Bandwidth Activation agent to automate complex number activation through a guided compliance-aware chat interface. Designed for customers managing high-volume multi-country deployments, it reduces operational workload and accelerates time to value. We'll continue expanding its capabilities to help customers operate more efficiently, reduce support tickets and scale faster. It's another step toward embedding automation into the core of our cloud platform, improving customer experience while lowering our cost to serve. As we expand AI-driven intelligence and automation, we're also strengthening the foundation every customer interaction depends on, trust. At Reverb, we announced an expanded trust services portfolio with new capabilities for our number reputation management solution. Originally launched as an enterprise offering, we've now expanded NRM to serve our global voice plans customers as well. This reflects growing interest from the power platforms we serve across the UCaaS and CCaaS landscape. NRM addresses an urgent customer challenge to protect call answer rates in an era of spoofing and fraud. If end-users don't trust who's calling, they don't answer, leading to lost revenue and missed critical calls like medical test results or service notifications. Because we own the network layer, Bandwidth can embed trust directly into our cloud platform, authenticating identity, managing number reputation and controlling how brands appear on mobile devices. The result is higher connection rates, stronger engagement and greater platform usage as we elevate outbound phone calling as an essential and high-performing channel for enterprise communication. Number reputation management was the deciding factor for a leading transportation and logistics provider. They chose Bandwidth to modernize their communications stack, consolidated 161 call paths to 10 and installed number reputation management to resolve spam-likely flags that were negatively impacting answer rates with carriers and distributors. Our trust services software portfolio was a key lever for this win, and we expect it to deliver a significant competitive advantage going forward. Finally, we advanced our vision for next-generation messaging through a new RCS for business partnership with Out their Media, which we announced at Reverb25. Based in Europe and trusted by global brands like Coca-Cola, Unilever, Disney and Netflix, Out their Media chose Bandwidth as the sole provider to launch its RCS portfolio in the United States. It's a strong validation of our platform's deliverability and scalability as we partner to launch a new wave of exciting mobile-first brand experiences from some of the world's most recognized companies. Trust and scalability continue to resonate with enterprises that depend on both messaging and voice, and this quarter brought another powerful example of Bandwidth as their unified platform for mission-critical communications. A leading property management software company chose Bandwidth as their primary voice and messaging provider for a cloud contact center migration. Using Genesis with our Bring Your Own Carrier model, they ported more than 300,000 toll-free and local numbers from multiple legacy carriers and unified programmable voice and text messaging on the Bandwidth platform. They also activated our built-in transcription and call recording APIs for compliance. It's a textbook Bandwidth win, showing how we can consolidate providers and deliver total communications transformation as a trusted partner. While many of our Reverb announcements scale over coming quarters, Global 2000 enterprises are choosing Bandwidth today for reliability, flexibility, scalability and AI voice. Let me walk through a few highlights. A financial services firm responsible for nearly $2 trillion in client assets chose Bandwidth to move their legacy on-premises call center to the cloud. Their need to run both environments simultaneously during the migration is proof of our Maestro software's strength in orchestrating complex compliance-driven contact center call flows. In another financial services win, a credit union serving employees of a U.S. government Space Administration selected Bandwidth for a comprehensive communications upgrade, integrating Microsoft Teams Operator Connect for employee communications and Five9 with Pindrop for a new cloud contact center build. Our Maestro software's ability to support the customers' chosen multi-vendor environment across UCaaS, CCaaS and fraud prevention without being locked in was the key differentiator. It's our freedom of choice strategy in action. In summary, this quarter combined 3 powerful drivers of our business: disciplined execution, continuous innovation and deep customer trust in our mission-critical communications platform. We delivered another quarter of solid growth and profitability. We showcased at Reverb how Bandwidth is shaping the future of trusted intelligent communications enabled by AI, and we expanded customer adoption with more multi-solution deployments and a record number of million-dollar wins. These are all clear demonstrations of solid momentum and durable growth powered by a trusted platform our customers rely upon, and a team committed to delivering long-term value. Across AI voice, trust and messaging, our focus is the same: to evolve Bandwidth toward a higher mix of software-driven revenue that broadens market differentiation and deepens customer loyalty while expanding margin performance. We're building toward a future where every enterprise interaction is more than a transaction. It's a conversation that is trusted, intelligent, secure and AI optimized. Now I'll turn it over to Daryl to detail our financial results. Daryl Raiford: Thank you, David, and good morning, everyone. Building on our solid performance in the first half of the year, Bandwidth delivered another good quarter, highlighted by further accelerating momentum in voice. Profitability remains central to our strategy, and this quarter's results reflect that discipline with both revenue and adjusted EBITDA exceeding the high end of our guidance ranges. Let me now walk you through our third quarter 2025 results. Total revenue of $192 million increased 11% year-over-year normalized for third quarter 2024 cyclical political campaign revenue, included within that result, cloud communications revenue reached $142 million, an 8% year-over-year increase on a normalized basis. Non-GAAP gross margin remained strong at 58%. We are really pleased with that result as we had expected and did experience third quarter cross currents, namely the tougher comparison to last year's quarter given the absent benefit of political campaign messaging completely overcome by the growing contribution from software and services revenue. That growing contribution is accelerating and has long-term staying power, positioning us for continuing margin expansion over the next year. Adjusted EBITDA was $24 million, exceeding our expectations due to a combination of higher revenue and lower spending from timing of cloud expansion operating expenses. We generated $13 million of free cash flow in the quarter, modestly below last year, driven by normal timing of working capital and capital investments for cloud expansion. Our trailing 12-month free cash flow grew 35% year-over-year, underscoring the durability of our cash generation. Focusing on our 3 market offers. Enterprise voice revenue increased 22% year-over-year, reflecting strong adoption among existing customers expanding through Maestro software integrations and AI voice initiatives, along with contributions from new customers ramping on our Bandwidth cloud. Global voice plans, our largest customer category, grew revenue 7% year-over-year, more than doubling the growth rate from last year. It's worth noting that the combined voice growth of our enterprise voice and global voice plans was 9% year-over-year, an acceleration from last year, driven in part by expanding software revenue. Programmable Messaging achieved a normalized 6% year-over-year growth, in line with our expectations. Moving to operating metrics. Net retention rate for the third quarter was 105% and 107% when excluding the benefit from political campaign revenue in 2024. Customer name retention remained well above 99%. Average annual revenue per customer set another record at $231,000 or $224,000 when excluding political campaign revenue in the 12-month period. Over the last 3 years, average annual revenue per customer has grown 46%. Reflecting on the quarter performance, both our operating and financial results again demonstrate the strength, resilience and long-term value of our business model. AI is not a stand-alone product for Bandwidth. It's integrated throughout our cloud and embedded in the services our customers use every day. You see its influence in our revenue growth, our gross margin expansion and in the continued durability of our cash generation. AI is everywhere and is a central theme in every customer discussion. We are creating a synergistic effect. At times, we are leading our customers to AI with our advanced offerings. And at other times, we are supporting our customers as they rapidly deploy their AI initiatives. We believe this is just the beginning of how AI is accelerating innovation and creating new sources of value, value that we believe will continue to set us apart in 2026 and beyond. Looking ahead to the remainder of 2025, for full year revenue guidance, we are tightening the range with the midpoint yielding 10% organic revenue growth year-over-year. This is due to moderated expectations for messaging surcharge growth and increased expectations for voice growth. As a result, we've increased our full year cloud communications revenue growth to 8% organically year-over-year. And for the third time this year, we are raising our full year adjusted EBITDA outlook, now reaching $91 million at the midpoint. Reflecting our third quarter overperformance and strong execution and financial discipline, we now expect the updated EBITDA outlook of $91 million to represent about $1.30 non-GAAP earnings per share. In closing, we believe the growing momentum in voice AI, our increasing software revenue, strong customer focus and our sharp business execution position us for a solid fourth quarter and start to the new year. Looking ahead to 2026, we anticipate continued momentum within our global voice plans and enterprise voice customers as well as another robust political campaign messaging season to drive us toward our 2026 medium-term financial targets. With that, I'll now turn the call over to the operator for the question-and-answer portion of today's call. Operator: [Operator Instructions] And our first question comes from Patrick Walravens from Citizens. Patrick Walravens: Congratulations to you guys. David, for you first, can you maybe drill down a little more on what your overall conversations are like and what you're seeing, how you characterize sort of overall demand? And then I think -- I thought the property management example was particularly interesting. And then on the financial side, maybe if you guys could remind us what those 2026 medium-term targets actually are and so what it means when you say that you're driving towards them? David Morken: Thanks, Pat. And I'll answer the first part of your question and then hand it over to Daryl. I'd characterize broadly the conversations that we're having with customers consistent with signing a record number of $1 million-plus revenue customers again this period for the second time this year. That stat reflects broad-based demand. Voice is growing in a way that's really healthy and exciting, and every conversation is reflecting the AI moment that we're all in. Maestro is a fundamental component of the example that you cited regarding the property management software company. And I think that one illustrates a consistent dialogue we're having with enterprises who are moving to the cloud. They have multiple vendors that they're either consolidating or trying to orchestrate. And the combination of Maestro and the network that we own and operate is really resonating. And again, that's reflected by a record number of large enterprise deals and then average customer spend continuing to grow at record pace. But let me turn it over to Daryl for the second part of your question. Daryl Raiford: Pat, it's nice to say hello. Back at the first part of '23 in our Investor Day, we set out our vision for the company over 4 years to drive us through the end of 2026, and we titled those our medium-term targets. We're driving for, and we believe that we're very much on track to achieve above-market revenue growth, 60% and greater gross margins, 20% and greater EBITDA margin and 15% and greater free cash flow margin. Patrick Walravens: Okay. So just as a reminder for everyone, so Daryl, you guide 15% to 20% in 2023 to 2026. That implies a range of $729 million to $827 million in 2026, $729 million at the low end. I've always thought that was probably too much of a stretch. So just where you really think you can get to the low end of that 15% to 20% CAGR? Daryl Raiford: We are continuing to focus on. We've guided to $753 million at the midpoint this year in terms of total revenue, and we're very much focused on above-market revenue growth. Operator: The next question comes from Joshua Reilly from Needham. Joshua Reilly: Maybe just starting off, I know you had some strong customer additions in the first half of '25. Curious how those have been ramping into revenue and going live now. And then you mentioned some strong customer additions here in Q3, $1 million-plus customers. Can you just speak to broadly like how long is the period transitioning from when you get the customer win to when you're actually getting them live? And how much is that compressing because of maybe internal processes that you continue to improve? David Morken: You bet. Deal cycles from initiation to close have been consistent, although the channel opportunities that we've enjoyed have compressed that deal cycle significantly in an exciting way. But as customers come on board, they have continued to ramp as we've projected based upon the systems that we have in place, the personnel that we have in place, the policies and practices that bring them aboard and allow them to move mission-critical phone numbers and sites and services in a way that preserves continuity. So, there's always a concern about making sure that services are uninterrupted, but we're very, very good at working with enterprises and have an extraordinarily high level of customer support that allows them to onboard elegantly and to scale in a way that we're really familiar with projecting. And so, the large number of significantly larger annual operating revenue deals or annual recurring revenue deals that we signed at the beginning of this year continue to contribute to the success and the solid results in this period and we will continue to do so into next year. Joshua Reilly: And then you highlighted a number of new products at the September customer event. Obviously, those tend to have a higher gross margin because they're more software-like margin structure. Curious how these have been layering into new deals for enterprise voice this year versus a year ago? And then how much are those also kind of bleeding into the global voice plan deals as well? Maybe give us a sense of how much is getting bought by Enterprise voice on the software side versus Global Voice. David Morken: You bet. Let me ask John Bell, our Chief Product Officer, to answer that one. John Bell: Yes. So, we're -- starting our launches with these products for enterprise customers, but they are immediately interesting to our GBP customers as well. So, we build them initially for that target market but do fast follows with releases to the GBP customers. The topics are very interesting both to the enterprises. And since our GBP customers are serving the same enterprises, they naturally are naturally adopted there as well. Operator: And the next question comes from James Fish from Piper Sandler. James Fish: On the digital commerce one, I found that one interesting. Are you seeing customers like this more and more in terms of deploying a DIY strategy? Or are you integrating more and more with some of these conversational AI tools that is leading to wins like this? David Morken: So, it's a great example of a very large at-scale e-commerce point-of-sale related customer allowing small business to take advantage of AI at a very local DIY level to enable food ordering and delivery. And we are seeing as one of the primary use cases for voice AI, scheduling, calendaring, ordering and fulfilling at the very front lines of small and medium business nationwide. So yes, I think, James, you're accurate in saying this looks like or sounds like a real reference implementation for a growing trend. And so, we are seeing conversations like this more frequently. James Fish: Right. My question though on that is, is it more the DIY approach? Or are you integrating with some of the other conversational players out there to help enable this? John Bell: So, this is John. Good to talk to you again. It really is both. And so, our approach has really been focusing more on the standards-based approach so we can help with more and more of those integrations, whether they are DIY or really reusing some of the do-it-yourself into turning them into prebuilt. That's really the pivot we've taken recently so we can support both because we do see a strong mix of different approaches customers are taking. James Fish: Okay. And then, Daryl, for you, gross margin did come in a little lower than we all had modeled. Can you just talk us through what you're seeing across the segment's gross margin, particularly on the messaging side, given there was some lower pass-through surcharges, as you pointed out? And how should we think about the international versus domestic mix this quarter? Daryl Raiford: Gross margin had some cross currents moving through it in the third quarter, and we were able to hold it at a 58% rate, which we're very happy about. On the headwind cross current, we had lower messaging primarily because of the missing political messaging last year. And that messaging is -- that contribution in gross margin is at a higher amount than our aggregate company gross margin. And we were able to offset that completely and overcome it with our growing software revenue contribution. And in fact, we're really, really pleased with the way that is developing from a relatively recent start, we expect to end 2025 with an annualized MRR exit rate on software greater than $10 million, and that's going to substantially be built upon in 2026. So, we're excited about that. We really think that, that's going to continue to propel the company along with our other pillars of software -- excuse me, of gross margin improvements that will take us into the 60% and above. In terms of international, international grew very nicely. It grew at 11% year-over-year and international is nearly all voice, and that was at the exact same rate as the overall company's third quarter organic growth rate of 11%. So very good in terms of that mix. Operator: [Operator Instructions] Our next question comes from Will Power from Baird. William Power: I guess maybe first question for either for Daryl or David, who wants to take it. But just on the 2025 revenue guidance, I think you suggested you were narrowing the range a bit or look like raising the low end a bit. And I think you cited stronger voice trends. So, I guess, a, it would be great just to get any further color on the upside in your voice calling plans versus enterprise voice or is it maybe both? And then maybe just any other color on what's happening on the messaging side. It sounds like a little somewhat weaker outlook there. David Morken: Okay. Yes. So glad that you asked me to clarify that. We are -- we tightened our range on the lower end with respect to revenue. Our midpoint is just with the decimal slightly above $753 million. Within that is 2 elements. In cloud communications, we've raised that guidance, the implied guidance that builds into the $753 million on the strength of voice. And within cloud communications, we've held messaging as we had fully expected already in line with what we had guided previously. The other component, surcharges, we've lowered that modestly just based in terms of the carrier pricing environment, carrier mix and the type of messaging mix as we're entering in a very large fourth quarter messaging seasonality with Black Friday, Cyber Monday. We have good line of sight to our customers' demand, and we see surcharges coming in a little lower. That lower surcharges, as you know, doesn't contribute anything to gross margin or EBITDA. And so, we are very enthused when it comes to being able to raise our cloud communications revenue. William Power: And then my second question, again, if we want to take David or maybe John, but this number of reputation management product really seems like a nice opportunity and good market fit. I mean, just given what a lot of us as consumers kind of see on a regular basis. So maybe just talk about the trends you're seeing there and kind of how you view that opportunity? How meaningful could that product addition be? John Bell: Yes, great question. The trends you see is the consumer, our customers see, and it hurts their business. They are trying to -- businesses are trying to reach consumers, and the consumers won't pick up the phone. So, it's a very basic value proposition, and it is something that we, with our owned and operated network can attack head on and there's immediate value in there. And so, as you did hear, we were -- it's driving customer wins now. We launched it with our direct enterprise customers. This week, we launched it to wholesale customers as well to address their unique needs. And so, we do see global opportunity for that product. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation's Third Quarter 2025 Earnings Call. [Operator Instructions] I will now turn the conference over to Dianna Higgins, Head of Investor Relations. Please go ahead. Dianna Higgins: Thank you, Josh. Good morning, and welcome, everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the third quarter are Tim Mattke, Chief Executive Officer; and Nathan Colson, Chief Financial Officer and Chief Risk Officer. Our press release, which contains MGIC's third quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under Newsroom, includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in-force and other information you may find valuable. As you remember, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results to differ materially from those discussed on the call today are contained in our Form 8-K and 10-Q filed yesterday also. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent events. No one should rely on the fact that such guidance or forward-looking statements are current at any other time than the time of this call or the issuance of our 8-K or 10-Q. Now with that, I now have the pleasure to turn the call over to Tim. Timothy Mattke: Thanks, Dianna, and good morning, everyone. We maintained our strong momentum in the third quarter, delivering solid financial results and meaningful capital returns to our shareholders. For the quarter, we recorded net income of $191 million, and annualized return on equity of 14.8%, once again demonstrating the durability of our business model and the rigor around our risk management and capital strategies. Our consistent performance reflects our leadership in the market and the ongoing support and confidence our stakeholders place in us. We remain focused on operational excellence, disciplined execution and sustainable long-term value for our stakeholders. Our solid operating results, together with our robust balance sheet, enabled us to grow book value per share to $22.87, up 11% compared to a year ago. During that same period, we returned [$980] million of capital to shareholders through dividends and share repurchases, and reduced outstanding shares by 12%. In the third quarter, we achieved another significant milestone in our company's history and an industry first, ending the quarter with more than $300 billion of insurance in-force. This milestone reflects our historical and ongoing leadership in the market. This achievement also reflects the dedication and excellence of our talented team, their integrity, adaptability and focus sets us apart from others and propels our success. We continue to be pleased with the credit quality and strong performance of our insurance portfolio. Our prudent risk management and underwriting standards remain key drivers in the quality of our portfolio. During the quarter, our NIW was $16.5 billion of high-quality business with strong credit characteristics. Shifting to capital management. Our strategy remains consistent and grounded on maintaining financial strength and flexibility to support our long-term success across economic cycles. Key objectives included supporting prudent growth through strong capital levels at both the operating and holding company, maintaining a low to mid-teens debt-to-capital ratio and maintaining a healthy liquidity buffer. Our adherence to these strategies has put us in a position to return excess capital to shareholders through share repurchases and common stock dividends. In the quarter, share repurchases totaled 7 million shares for $188 million. We also paid a quarterly common stock dividend of $0.15 per share, totaling $34 million. Taking a longer view, over the prior 4 quarters, share repurchases totaled $786 million and shareholder dividends totaled $132 million. Combined, this represents a 122% payout of the net income we earned in that period. This share repurchase activity reflects both our capital strength and excellent financial results. We continue to expect share repurchases will remain our primary method of returning capital to shareholders, while at the same time continuing to pay a quarterly common stock dividend. As announced on October 23, the Board approved a quarterly common stock dividend of $0.15 per share payable on November 20. Additionally, earlier this week, MGIC paid a $400 million dividend to the holding company, reflecting capital levels at MGIC that were above our target. This dividend further enhances our liquidity position and financial flexibility of the holding company. Our capital structure remains robust, with $6 billion in balance sheet capital, along with our well-established reinsurance program, which remains a core element of our risk and capital management approach. Our reinsurance program reduces loss volatility in stress scenarios while also providing capital diversification and flexibility at attractive costs. We were active in the reinsurance market in the third quarter, and Nathan will provide more detail on that shortly. At the end of the third quarter, our reinsurance program reduced our PMIERs required assets by $2.5 billion or approximately 43%. Now let me turn it over to Nathan to provide more details on our financial results for the quarter. Nathaniel Colson: Thanks, Tim, and good morning. As Tim discussed, we had excellent financial results for the third quarter. We earned net income and adjusted net operating income of $0.83 per diluted share compared to $0.77 per diluted share during the same period last year. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in our earnings release. In the quarter, our reestimation of ultimate losses on prior delinquencies resulted in $47 million of favorable loss reserve development. The favorable development this quarter primarily came from delinquency notices we received in 2024 and early 2025 as curates on recent new notices continue to exceed our expectations. For new delinquency notices received in the quarter, we continued to use the initial claim rate assumption of 7.5%, which is consistent with recent periods. Looking at delinquency trends, our count-based delinquency rate increased 11 basis points in the quarter to 2.32%, in line with what we expected and consistent with the seasonal trends we have discussed on past calls. We received 13,600 new delinquency notices in the third quarter, slightly less than the third quarter last year and 3% less than the third quarter of 2019, just prior to the onset of the COVID-19 pandemic. The delinquency rate at the end of the third quarter was 8 basis points higher than a year ago, and the number of new notices and delinquency rates continue to remain low by historical standards. As we look ahead, we continue to expect that the combination of seasonality and the aging of our large 2021 and 2022 book years will result in an increase in new delinquency notices received and the delinquency rate. Turning to our revenue. The in-force premium yield was 38.3 basis points in the quarter, remaining relatively flat during the year, consistent with what we expected at the beginning of the year. Investment income was $62 million in the third quarter, contributing meaningfully to our revenue again. The book yield on our investment portfolio was 4% at the end of the quarter. Investment income remained relatively flat sequentially and year-over-year as both the book yield and the size of the investment portfolio have also remained relatively flat. During the quarter, reinvestment rates on our fixed income portfolio continued to exceed our book yield. However, we anticipate the overall book yield will remain relatively flat for the remainder of the year. The unrealized loss position on our portfolio narrowed by $57 million in the quarter, primarily driven by a decrease in interest rates. Operating expenses were $50 million this quarter, down from $53 million in the third quarter last year. Through the first 3 quarters of 2025, operating expenses decreased 8.5% compared to the same period last year. We continue to expect the full year operating expenses to fall within our previously communicated range of $195 million to $205 million, but now expect it will be toward the higher end of that range due primarily to the pension settlement charges we discussed last quarter. As Tim mentioned, we have been very busy in the reinsurance market. We further bolstered our reinsurance program with a $250 million seasoned excess of loss transaction covering our 2021 NIW and a 40% quota share transaction that will cover most of our 2027 NIW. In addition, we amended the terms on our quota share treaties covering our 2022 NIW with most participants from the existing reinsurance panel. The amended terms will reduce the ongoing costs by approximately 40% starting in 2026. Because they are all effective in the future, none of these reinsurance transactions impact our reinsurance program at the end of the third quarter, but all set us up for continued success and are all consistent with our long-term reinsurance strategy and follow the same approach we have taken in recent years to managing our overall risk and capital positions. With that, let me turn it back over to Tim. Timothy Mattke: Thanks, Nathan. We are beginning to see some modest improvements in home affordability driven by easing mortgage rates and slower national home price appreciation. Housing inventory remains tight, but like affordability, it has improved since last year, and there's been a slow but steady increase in purchase applications. With that said, affordability challenges do remain, but private mortgage insurance continues to play a critical role in helping low down payment borrowers access the American dream of home ownership sooner. Last year, private MI helped more than 800,000 borrowers achieve their dream of home ownership. We are proud of the vital role private mortgage insurance plays in the housing finance system. We remain committed to working with FHFA, the GSEs and other industry stakeholders to responsibly serve low down payment borrowers and make homeownership more accessible for Americans, while also protecting taxpayers for mortgage credit risk. In closing, we delivered a strong quarter and continued to build on the momentum we have established over the past few years. We are committed to delivering high-quality offerings and solutions and best-in-class service to our customers. I remain confident in our talented team, leadership and position in the market and the ability to execute and deliver on our business strategies. With that, Josh, let's take questions. Operator: [Operator Instructions] Our first question comes from Graham Bundy with KBW. Bose George: This is Bose. This is -- in terms of your provision, what was your provision per loan on the new notices? And just from an accounting standpoint, does your provision for new notices for the quarter just net out the new notices that were -- new notices from the year that were also cured during the year? Nathaniel Colson: Yes. This is Nathan. From a new notice perspective, we had very similar assumptions for the provision this quarter. I mentioned in the prepared remarks, the new notice claim rate was 7.5%, and we followed a similar methodology for the severity on new notices, really tracking to the exposure. The total provision is inclusive of the favorable reserve development that we had, which was $47 million in the quarter. And we've got some details of that in our portfolio supplement that's on the website as well in terms of the kind of new notice, reserving assumptions and the full notice inventory. Bose George: Okay. Great. And then actually, I wanted to just ask about the debate on the credit scores that's going on. Can you just talk about how you're looking at it? And just -- in terms of PMIERs, does PMIERs just use FICO and what happens if Vantage score becomes part of what lenders are starting to use or at some point? Timothy Mattke: Yes. Bose, it's Tim. Obviously, we're paying close attention. I think it's safe to say that we try to be active in the conversations, but we know that we're just one part of the ecosystem. And so for us, it's really important to understand as an example how the GSEs are going to utilize it, what they're going to do? You referenced PMIERs right, will they make any changes with regards to that? We haven't heard anything definitive in that regard, but we stand sort of ready to incorporate whatever the industry sort of moves to and are very supportive of what makes the industry stronger. So again, I don't think we have a lot of exact answers at this point. We've had a lot of good dialogue and I think we're ready to sort of move as the rest of the industry moves. Operator: Our next question comes from Doug Harter with UBS. William Nasta: This is actually Will Nasta on for Doug today. And I guess just given some recent industry news about potential new entrants into the MI space, I was just curious your thoughts on how you guys are thinking about potential increased competition in this space and any real impact this could have on MGIC. Timothy Mattke: Yes. We're aware that someone is looking at potentially into the market. We've seen that in the past to varying degrees. The question I most often get asked is six too many. So whether another ultimately joins, they have all the PMI requirements, things like that and having to raise the capital and have all the operational requirements that we have. So again, I -- it's tough to say. I think at this point, speculation, but we're definitely aware of it. But I assume they'd be on the same playing field, et cetera. But again, I more often get asked, should there be fewer than should there be more. So I think that's something that might have to ultimately overcome on top of sort of GSE approval for PMIERs. William Nasta: Got it. And then I guess just moving to capital return. I know you guys mentioned 122% payout recently. I'm just curious about how you guys are thinking about that going forward? Then obviously the balance between repurchases and dividends within that payout? Nathaniel Colson: Yes. Will, it's Nathan. Thanks for the question. I think our approach has been pretty consistent over time, which is really around maintaining the right financial strength at the operating company. Once we've achieved that and have capital levels above our targets, using that to pay dividends to the holding company. And we did that again recently with another $400 million dividend. At the holding company level, we've been targeting payout ratios given the valuation of the stock, which we found to be attractive in recent periods and the strength of the financial results. The payout ratio has been a little bit elevated where the share repurchase level has approximated our net income over the last 4 quarters, and then the dividend is a little bit above that. So I think that's -- given these market conditions right now with very good credit performance, not a lot of growth in the in-force book, really strong capital levels at MGIC. This feels like a comfortable payout ratio given those conditions. But obviously, if those conditions change, we've maintained the flexibility to react to that as well. Operator: Our next question comes from [Meher Bhatia] with Bank of America. Unknown Analyst: This is Caroline on for Meher here. So it looks like persistency was actually modestly up quarter-over-quarter despite the rate cut. Is there anything to call out there? And then also with rates coming down prospectively, how can we think about persistency moving forward? Like how fast and how much can it come down? Nathaniel Colson: Caroline, it's Nathan. In the quarter, I would view it more as flat than up. I mean I think it was up maybe a couple of tenths of a percentage point, but I think that's -- we would view it as pretty flat over the year. And really, the impact of rates coming down, if you think about our NIW for the third quarter and then cancellation activity for the third quarter, that really would reflect the rate environment, say, in June and July, more than the rate environment in September and October. So we have seen a recent uptick in recent weeks and the number of refinance transactions that are coming through from a quote and application standpoint for us. So if there is some headwinds or persistency, it's likely to be at least somewhat offset by increased NIW or at least increased refinance volume in the third quarter and beyond. But in terms of the magnitude of the persistency change, I do think it's obviously very rate dependent, and we've had periods where persistency was much lower. We've been in a stable range for now. But I think our history shows that in the periods where persistency trends lower, they tend to be also the periods where NIW trends higher. Unknown Analyst: Okay. Awesome. That's really helpful. And then just are there any markets you're seeing good opportunity in and you're leaning in on? Or similarly, are there any markets that you're more cautious on and pulling back on? Nathaniel Colson: It's Nathan again. I think this is something that we're doing on a continuous basis. So the approach that we have, given the strong capital levels is really to try to find the places where we think there's the most economic value. And that's a combination of risk factors and kind of the market rate for risk for that opportunity. So we don't really have strategy to lean in or out of any one thing. It's more like kind of our models that our views of economic value dictate where we want to go without a lot of say, capital overlays on that just given the robust capital position that we've developed over the last few years. Operator: There are no further questions. I will now turn the call back over to management for closing remarks. Timothy Mattke: Thanks, Josh. I want to thank everyone for your participation in today's call and interest in MGIC. Have a great rest of your week. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for attending today's LKQ Corporation's Third Quarter 2025 Earnings Conference Call. My name is Ken and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Joe Boutross, Vice President of Investor Relations, to begin. Joseph Boutross: Thank you, operator. Good morning, everyone and welcome to LKQ's Third Quarter 2025 Earnings Conference Call. With us today are Justin Jude, LKQ's President and Chief Executive Officer; and Rick Galloway, our Senior Vice President and Chief Financial Officer. Please refer to the LKQ website at lkqcorp.com for our earnings release issued this morning. as well as the accompanying slide presentation for this call. Now let me quickly cover the safe harbor. Some of the statements that we make today may be considered forward-looking. These include statements regarding our expectations, beliefs, hopes, intentions or strategies. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. We assume no obligation to update any forward-looking statements. For more information, please refer to the risk factors discussed in our Form 10-K and subsequent reports filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and slide presentation. Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. And as normal, we're planning to file our 10-Q in the coming days. And with that, I am happy to turn the call over to our CEO, Justin Jude. Justin Jude: Thank you, Joe and good morning to everyone joining us on the call today. I am extremely proud of our performance this quarter, demonstrating both the resilience of our business and the impact of our strategic initiatives. With some positive operational performance and onetime tax benefits, we have confidence in our full year outlook to raise our midpoint and narrow the range. While I understand that most of you are interested in the financials, it's important to emphasize that our strong performance is a direct result of the relentless dedication and commitment of our teams across the globe who have enabled us to execute and succeed against our strategic pillars. Let me make some quick general comments on our markets before diving into specifics. We are seeing ongoing macro challenges, including reduced consumer spending and lower demand for vehicle repairs. As recent headlines have shown, other automotive companies are facing similar issues. However, our team has remained focused on controlling the things that we can control. In most areas of our business, we have outperformed the market and we're able to pass through costs. We are in execution mode. And as I mentioned on our last earnings call, we are focused on a multiyear transformation centered around 4 strategic priorities of simplifying our portfolio and operations, expanding our lean operating model globally with a focus on margin improvement, investing and growing organically and pursuing a disciplined capital allocation strategy. To that end, I would like to highlight certain notable achievements from this quarter. First, we completed the sale of our Self Service segment to Pacific Avenue Capital Partners for $410 million. We were very pleased to see strong interest in business. As a result of this sale, we have not only simplified our business but strengthened our balance sheet, which we believe is prudent to do in these uncertain economic times. The proceeds from the sale of Self Service have been used to reduce debt. We are prioritizing maintaining a strong balance sheet and our investment-grade rating to navigate market challenges, especially in these uncertain times. During the quarter, we had no acquisitions but to be clear, our strategic review process is active and ongoing and in coordination with the finance committee of our Board of Directors. We expect to continue our efforts to simplify our portfolio and operations as markets and opportunities avail themselves. Second, we continue to improve our lean operating model globally with a focus on margin improvement and are acting with urgency to correct inefficiencies. To that end and as we outlined earlier this year, we targeted an additional $75 million in cost savings for 2025. I'm pleased to share that we made meaningful progress since Q2 and achieved $35 million cost savings, well on track to meet the $75 million target. These gains have come primarily through our European business transformation driven from the leadership refresh in Europe earlier this year. Another important milestone under this initiative is our rollout of a common operating platform across Europe. We are on track to go live in early 2026 within a major market, which will put approximately 30% of our European revenue on a common system. Our recent migrations in smaller markets this year have given us confidence in our ability to effectively manage a larger implementation. Notably, the second migration had no operational impact, a direct result of the lessons learned from our earlier launch in the first half of the year. Having scale on a common platform will help us replace legacy systems that are at risk but more importantly, enable us to get back to profitable growth and faster integrations that will drive higher returns on invested capital. Lastly, turning to capital allocation. Our approach remains disciplined. We continue to balance share repurchases and dividend payments as part of a thoughtful return of capital program while also ensuring we maintain a strong balance sheet. Now moving on to our segments. In North America, repairable claims continued to experience downward pressure, though the rate of decline has moderated to approximately 6%. Service levels and inventory fill rates were maintained and not sacrificed during these temporary challenges, enabling results that exceeded the performance of repairable claims. Revenue decreased by 30 basis points per day, marking the smallest decline since Q1 of 2024 and outperforming repairable claims by nearly 600 basis points. Let me highlight a few other positive trends in the U.S. that we think should help improve repairable claims. At the end of Q2, a record of 46.5% of auto insurance policies were shopped in the past year and many of the top carriers filed for [ rated ] reductions boosting new business. These trends signal ongoing pricing pressure from carriers and should help insurance rates normalize. And our part offerings continue to help carriers immediately reduce costs to offset any lower premiums just as they did during the financial crisis. We are also seeing used car prices somewhat stabilized but with continuing volatility month-to-month, values haven't normalized yet. Our diversification into new products and services in North America is generating positive results. During the quarter, our Canadian hard parts business, Bumper to Bumper, posted organic growth improvement both sequentially and year-over-year in a market that is also facing a recession like economy. Additionally, our Elitek business, which provides technical repairs and calibrations, performed well with several key accounts achieving double-digit growth in the quarter. In Europe, organic revenue declined by 4.7% on a per day basis, reflecting a tough operating environment characterized by political uncertainty and weaker consumer confidence. We also decided not to retain certain less profitable revenue. And despite these market dynamics and overall volume pressure, the European team was still able to deliver double-digit EBITDA margins of 10% in the quarter, a 60 bps improvement sequentially as they drive toward a leaner operating model and Rick will dive deeper into margins shortly. The improvements from our Europe operations integration, as discussed at our September 2024 Investor Day will not happen all at once. However, our teams and new leadership are aligned with my approach focused on agile execution to create significant value for our company and shareholders. The challenges in Europe affect the entire industry but LKQ excels in such environments, as shown by our success in North America. Having integrated businesses in tough settings before, I am confident we can achieve similar results in Europe. We made additional progress in the quarter with respect to our SKU rationalization objectives. The SKU rationalization initiative in Europe is intended to decrease complexity and streamline the distribution network in all markets. More than 80% of revenue in the product brands portfolio have been reviewed, an increase from 70% in Q2. Completion of this review is required before further delisting actions can be considered to ensure a full understanding of both opportunities and risks are known. Since the end of 2024, 29,000 SKUs have been delisted. These products had minimal or no sales and remaining applications are still supported by existing SKUs. Additionally, we continue to build out our collision model in the U.K., similar to our model in North America. We have developed our U.K. collision model, particularly around crash parts and paint from a base of 0 into a GBP 200 million business. Today, the top 20 insurers in the U.K. have approved LKQ to supply new aftermarket crash parts to their respective body shop chains under our global Platinum Plus private label brand. Currently, approximately 30% of the estimates received via the collision [ estimatic ] systems are being processed and we expect this figure to grow following the introduction of the salvage model partnership with SYNETIQ. At present, 9 of the top 10 insurers have preapproved the use of recycled parts. Finally, we are very excited about the results in our Specialty segment, which delivered a 9.4% increase in organic revenue, marking the first positive organic growth in 14 quarters. This turnaround reflects the success of our targeted initiatives to sharpen focus, improve pricing and strengthen channel relationships. On our last call, I made some fairly in-depth remarks on streamlining the team across our global footprint and the talent that we now have in place. With another quarter under our belt, we are beginning to see the benefits of this transformation. A culture of execution is radiating through the organization and everyone is accountable to deliver. We've come a long way but there's still more to do. And I'm confident in the team's ability to execute, adapt and lead through cycles, supported by a clear strategy and a relentless focus on execution. Rick, I'll now turn it over to you to walk through the financial segments' results in more detail. Rick Galloway: Thank you, Justin and welcome to everyone joining us today. I want to begin by echoing Justin's remarks regarding our performance in the quarter and the significant progress we made on our multiyear transformation strategy to simplify the business by sharpening our focus on core segments. Executing on our strategic priorities has been challenging in a down market. But as you can see, we have the team that delivers on our commitments in any operating environment. Before I go into specifics on the quarter, I want to quickly explain the impact the sale of Self Service has had on our financial reporting. As mentioned in our 8-K, Self Service is reported as discontinued operations for financial reporting purposes, which means that its operating results are presented separately as a single line item above net income for current and historical periods and our balance sheet information has also been recast to separately disclose the assets and liabilities of Self Service. The net impact on our prior guidance for adjusted diluted earnings per share is approximately $0.15 per share for full year 2025. Under U.S. GAAP, allocated costs commonly known as stranded costs are not reported in discontinued operations. These costs have been recast to the Wholesale North America's segment and totaled approximately $5 million per quarter or around 30 basis points to their segment EBITDA margin for all periods presented. Additionally, because we used the net proceeds to pay down existing revolver borrowings, interest costs totaling approximately $5 million per quarter has been allocated to discontinued operations for all periods presented. To assist in understanding the impact on the historical income statement and segment results, we have included several additional schedules in the tables to the press release and earnings presentation that reflect the recast results by quarter on a comparable basis going back to the beginning of 2024. We have also restated our guidance to reflect the impact of discontinued operations. I will take you through those numbers in a bit. Now turning to Q3 results for continuing operations. As Justin said in his remarks, we are pleased with our results for the quarter. We reported total revenues of $3.5 billion, a 1.3% increase over the prior year. Diluted earnings per share were $0.69, a $0.02 decrease compared to Q3 2024. On an adjusted diluted earnings per share basis, we reported $0.84. As a reminder, this excludes the results of operations from Self Service, which are now reported as discontinued operations. Self Services's operating results contributed approximately $0.03 to discontinued operations. Prior year adjusted diluted earnings per share were $0.86 after adjusting for discontinued operations. Taxes provided a benefit of approximately $0.06 per share compared to the prior year. We updated our annual tax rate estimate and saw a reduction of approximately 50 basis points, primarily attributable to the shift in the geographic mix of income. Additionally, we benefited from several discrete items, which make up the majority of the year-over-year tax benefit. Execution on our balanced capital allocation strategy benefited earnings per share by $0.02 resulting from share repurchases and another $0.01 for interest. Foreign exchange rates added another $0.02 compared to the prior year. Free cash flow was strong during the quarter at $387 million, bringing the year-to-date free cash flow to $573 million. We returned $118 million to shareholders including $40 million to repurchase 1.2 million shares and $78 million for our quarterly dividend. We remain focused on deploying capital in a way that maximizes shareholder value while supporting growth. In Wholesale North America, we were pleased with our top line performance given the soft demand we faced throughout 2025. We are confident we are increasing our market share and we are cautiously optimistic our markets are stabilizing. However, our markets are competitive and our ability to pass along price increases at a level that maintains our margin percentage is constrained and expected to remain challenging in the near term. Wholesale North America posted a segment EBITDA margin of 14.0%, a 180 basis point decrease relative to last year. Gross margin contributed to approximately 70 basis points of the decline due to the dilutive effect of increasing prices to offset dollar-for-dollar higher input costs from tariffs and unfavorable customer mix effect as we continue to grow share with the MSOs. Overhead expenses were approximately 80 basis points higher as a percentage of revenue due to incentive compensation costs, professional fees and credit loss reserves compared to the prior year on flat revenues. In Europe, segment EBITDA margin was 10.0%, a 20 basis point decrease versus last year but a 60 basis point improvement sequentially versus Q2. Gross margin improved by approximately 40 basis points, largely resulting from the portfolio actions taken in 2024. However, the organic revenue decline put pressure on overhead expense leverage resulting in the decrease to segment EBITDA margins. Specialty's EBITDA margin of 7.3% is consistent with the prior year as higher revenue on lower margin product lines led to negative mix effect on gross margin but strong cost controls provided a positive leverage effect on overhead expenses. With organic revenue ticking up in the quarter, we are encouraged by these recent trends. Now turning to the balance sheet. We repaid approximately $262 million of debt in the quarter. As of September 30, we had total debt of $4.2 billion with a total leverage ratio of 2.5x EBITDA. On October 1, with the pretax proceeds from the sale of Self Service, we repaid an additional $390 million in debt, further improving our leverage ratio. We believe it's prudent in these uncertain times to maintain a strong balance sheet to deal with uncertainties and we remain committed to our investment-grade ratings. As of September 30, 2025, our current debt maturities were $537 million, an increase from the end of Q2 as the Canadian term loan is now due within 12 months. For our normal practice, we actively manage our capital structure and we are working through our options with our lending group regarding the Canadian term loan due in the third quarter of 2026. We have no significant concerns regarding our ability to extend the maturity date. Excluding the borrowings that were repaid on October 1 with the proceeds from the sale of Self Service, our effective interest rate was 5.1% at the end of Q3, slightly lower than Q2. Our variable rate debt of $1.5 billion at the end of September was further reduced by $390 million following the receipt of the proceeds of the sale of Self Service on October 1 that were used for debt repayment. I will conclude with our thoughts on the updated guidance for 2025. When we updated guidance last quarter, we anticipated macroeconomic factors in both North America and Europe will continue to drive an uncertain environment. Despite these ongoing headwinds, our operational performance in Q3 was slightly ahead of our expectations. We have now revised our full year outlook based on Q3 results and the sale of Self Service. Our revised outlook and assumptions are included on Slide 12. Let me start with earnings per share. Following our third quarter results and continued execution across the portfolio, we are narrowing our full year 2025 guidance to an adjusted diluted earnings per share of $3 to $3.15. This updated outlook reflects removal of Self Service, which was reclassified to discontinued operations and reflects the strength of our core business performance. Now let me walk you through midpoint to midpoint from the guidance we issued in Q2. In our prior guidance, our midpoint was $3.15. Adjusting for the sale of Self Service, the midpoint of our previous guidance would have come down by $0.15 to $3 even. With the better-than-anticipated performance in Q3, we are increasing our midpoint to $3.07, so a $0.07 increase on a like-for-like basis. We also narrowed the range, putting our updated range of $3 even to $3.15. Please note that our Q4 2024 results included a onetime net benefit of approximately $0.08 per share within our Wholesale North America segment attributable to a favorable legal settlement, partially offset by the impact from a brief cyber incident in Canada. Moving on. We expect reported organic parts and service revenue in the range of negative 200 basis points to negative 300 basis points, a narrowing of the range provided last quarter. Free cash flow is expected to be in the range of $600 million to $750 million, overcoming a roughly $75 million headwind from the sale of Self Service. In the fourth quarter, we expect to make an approximately $60 million payment for taxes on the sale of the business and an additional $15 million of lower cash flow from the loss of Self Services Q4 segment EBITDA. We are mitigating the $75 million headwind by reducing our anticipated capital spend by approximately $50 million and making up the remaining $25 million through improved trade working capital. As noted last quarter, tariffs continued to be a headwind and we expect that the year-end inventory balance will include a full inventory turn inclusive of tariffs. Thank you for your time. And with that, I will now turn the call back to Justin for his closing remarks. Justin Jude: Thank you, Rick. In summary, we delivered solid Q3 results. We beat on adjusted earnings per share, raised the midpoint of our full year guidance and narrowed the range. We generated strong free cash flow and maintained our disciplined capital allocation strategy. I said I was going to simplify the portfolio. And while it's still ongoing, we were able to divest our Self Service segment to a solid buyer for a sale price that exceeded our expectations. North America posted a strong quarter, outperforming the market despite weak repairable claims environment. Under new leadership, the Europe team continues its progress with our integration objectives and delivered double-digit EBITDA in a low demand market. And our Specialty segment posted robust revenue growth for the first time in over 3 years. And none of this would have been possible without our 46,000 team members who drive this performance on a daily basis and I want to give them a huge thank you. We are all committed to continue to improve our results, which will ultimately reward all our stakeholders now and over the long term. Operator, we are now ready to open up the call for questions. Operator: [Operator Instructions] We have our first question from Craig Kennison from RW Baird. Craig Kennison: Wanted to talk about Europe. Can you help us understand the competitive landscape in Europe? And then maybe quantify the low-margin business that you're choosing not to chase? Justin Jude: Yes, Greg -- Craig, thanks for the question. From a competition standpoint, I would say it's really no better, no worse. Most of what we're seeing over there is just the demand across Europe with some of the customer -- consumer sentiment being down, some of the political unrest in certain markets. Some countries are doing good. Some countries are not doing so well. You've probably seen the headlines where there's many suppliers and manufacturers in both the OEM and aftermarket side are downsizing. But look, LKQ, we are a premier distributor across Europe. We've got the best overall value proposition. The cars are aging. Consumers aren't buying new cars. This trend will be good for us in the long run. The market will rebound. And we're not sitting idle, right? We're accelerating our integration, as I talked about in the script and really what we've done in North America -- as we've done in North America to make ourself a leaner model over there to drive more profitable revenue growth in the future and better returns for our shareholders. On your second question on some of the revenue, if there was high service levels or customers were price shopping us and we were the third call, we walked away from some of that. It was -- I mean, it wasn't that many customers overall but -- go ahead, Craig. Craig Kennison: No, that's very helpful. It's what I wanted to follow up on. And then I know there's been significant sort of leadership change in Europe. And I imagine it takes time for traction to build for each of those leaders. I'm just wondering if you can give us an update on how you feel about the traction they're gaining. Justin Jude: Yes, it does take time. I mean they don't know our industry but the talent that we brought on, the skill set, the mindset is very strong. They see a lot of opportunities. They understand the real -- 1 LKQ Europe transformation plan that we have. They've done it before in many other situations in different industries. They're realigning their teams, in some cases, replacing team members if they need to. So they're on board and they're helping drive and pull it through versus us pushing them. So it's been very positive with the new leadership over there. Operator: We have our next question from Jash Patwa from JPMorgan. Jash Patwa: Just a quick one to start. Could you share what you're seeing lately in terms of alternative parts utilization and total loss frequencies in the third quarter? And any color on repairable claims trends quarter-to-date would be helpful as well. And I have a follow-up. Justin Jude: Yes. So if you look on the APU side, I would say, quarter-to-quarter, it's sequentially pretty flat as well as total loss. A lot of that's driven by -- we've talked about in the past, used car pricing. We're still seeing volatility month-to-month within the quarter. So that necessarily hasn't stabilized. But we saw improvements but then it dipped again in the quarter with used car pricing but then it dipped again in September. So a lot of that is not allowing what I would call total losses start to improve. But APU was flat, which is still positive for us that it isn't declining and we still see opportunity with many carriers to grow that APU number. Jash Patwa: Understood. That's super helpful. And just as a follow-up, another strong quarter with North America parts and services organic revenue growth outpacing repairable claims. Could you maybe break down how much of that 30 basis point decline was driven by ticket versus traffic? Just to help us better understand the underlying like-for-like volume trends at LKQ compared to the rest of the industry. Justin Jude: Jash, to make sure I understood, you said ticket versus volume? Or what was that comment or question? Jash Patwa: Yes, just the price versus volume. Justin Jude: Okay. Yes, price we probably had with tariffs being pushed through, that was in that circa 1, maybe 2 -- let me get the exact number here. Rick Galloway: We have roughly $35 million of pricing coming up just related to tariffs. Justin Jude: Yes. Okay. I don't know what that translates to exact percentage-wise. We're seeing ranges from like 1% to 3%, I believe. We've been able to -- we've been very fortunate to pass on tariff dollar for dollar. We haven't made any margin on it but we've been able to pass that tariff on. The volume is still overall down. A little bit of it is price, obviously, but we're way outperforming the market, which is positive for us. The MSOs at this time are gaining share and we're growing with the MSOs I do believe when the repairable claim starts to rebound or improve more, we'll start to see more of the independents come back and get more of the volume. But right now, MSOs are winning more of that share. And -- but once again, we're winning with them. Operator: We have our next question from Bret Jordan from Jefferies. Patrick Buckley: This is Patrick Buckley on for Bret. Could you talk a bit more about what's driving Specialty growth? Are there any signs that this is a transition back to more of a growth cycle for the segment? Justin Jude: The industry still is down, both on the RV side, we're seeing and on the automotive side. One thing that we're doing across all of our segments is we're not cutting service levels, we're not cutting inventory levels. I feel that we're gaining some share at this time. It's not really a market recovery. But I do see the market starting to show signs of good improvements. But I would not say the market is necessarily positive. So it's more share gains right now. We want some more share of wallet with some of our larger customers. So we feel pretty good about when the market does rebound, we'll be even stronger on that. But once again, we did not cut service levels or inventory and I think some of our competition did. Patrick Buckley: Great. That's helpful. And then looking at leverage ratio and capital allocation. I guess could you talk about at what levels do you expect you'll start to focus a bit more on allocating a more significant amount of capital to share buyback? Rick Galloway: I can take that one. Yes. So we finished the quarter at 2.5x levered on our math. Keep in mind, on October 1 is when we got the proceeds for Self Service. And that proceeds -- pretax proceeds, roughly $390 million went to pay down debt. So that further improved our overall leverage. Ideally, we'd like to eventually get down to 2x or below. But that could be a slow walk down. So we're pretty comfortable with where we're at as far as the leverage goes. And then as we obviously delever a bit more, it gives us a little more flexibility to put more towards share repo. So constantly balancing the amounts to make sure that we have a balanced capital allocation approach. Operator: We currently don't have any questions. [Operator Instructions] I can confirm there are no further questions and I will hand back over the call back to Justin Jude, the CEO, for any further remarks. Thank you. Justin Jude: Thanks, operator and thanks for everyone joining the call this morning. We appreciate it and we look forward to speaking to you next February when we report our fourth quarter. Operator: Thank you very much. This concludes today's call. Thank you for your participation. You may now disconnect your line.
Operator: Good afternoon, and welcome to Garanti BBVA's Third Quarter 2021 Financial Results Webcast. Thank you for joining us today. Our CFO, Mr. Aydin Guler; and our Head of Investor Relations, Ms. Ceyda Akinç, will be presenting today. [Operator Instructions] With that, I would now like to hand over to management for their presentation. Ceyda Akinç: Hello, everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance, let's, as usual, go over the [Audio Gap]. Turkish economy grew by 1.6% Q-on-Q in the second quarter. And for the third quarter, we nowcast 0.5% to 1% Q-on-Q growth. This implies a slowdown on a quarterly basis, yet it could still generate 4% to 4.5% annual growth. Therefore, we view risks to our full year GDP growth forecast as balanced and keep our forecast at 3.7% for '25 and 4% for '26. In terms of inflation and monetary policy, following September inflation reading, we revised up our year-end inflation expectation to nearly 33% and policy rate assumption to 38.5%. Pace of rate cuts will depend on disinflation gains and we evaluate the ex-post 6, 7 percentage points real rate can be required due to sticky service inflation and uncertainty on pool inflation. We expect CBRT to maintain gradual rate cuts with ongoing reliance on macro prudential measures for longer. In terms of current account deficit, we assume private consumption staying much lower than its long-term trend, thus keeping current account deficit moderate in short term. We forecast current account deficit to be 1.2% of GDP in '25 and 1.5% of GDP in '26, which can be easily financed. Led by moderating noninterest spending below inflation trend and still strong tax revenues, cash primary deficit to GDP came down to 0.6% of GDP in September. We observed an increasing effort on fiscal consolidation since April, resulting in a negative fiscal impulse. Accordingly, in our current macro baseline, we assume 3.6% of budget deficit to GDP in '25 and 3.7% in '26. Now moving into our financials. I will start with the headline figures. At Garanti BBVA, we could sustain the quarterly growth in earnings also in the third quarter. With a 9% quarterly growth, third quarter net income reached a new record level of TRY 30.9 billion. This brought our 9 months net earnings to TRY 84.5 billion, which translates into 31% ROE with relatively low leverage. During the quarter, strong NII improvement and stellar fee generation more than offset the increase in net provisions. Earnings outperformance once again enabled by core banking revenues. Moving on to Page 7. We delivered consistent growth for 7 consecutive quarters in core banking revenue. As we will discuss in the following slides, recovery in core margin was better than expected on the back of opportunistic liquidity management and well-managed spreads. Trading income increased supported by securities trading and the absence of derivative transactions, mark-to-market losses that paid on second quarter base. Net fees also held up well, growing 11% on the back of payment systems and strong lending activity. As a consequence, our core banking revenues to assets reached 7.8% in 9 months, which suggests the highest level among peers. A big part of this success comes from our asset mix. Now moving on Slide 8. Our asset growth continued to be fueled by customer-driven sources, namely loans. Performing loan share in assets remained strong at 57% and lending growth was across the board. In securities, we had opportunistic foreign currency security additions and realized some gain from TL fixed rate security portfolio. Moving into Slide 9 for further insights on loan portfolio. In the third quarter, we recorded 10% growth in TL loans. Credit cards and consumer loans were the front runners with 15% and 12% growth, respectively. Our market share in TL loans increased further to 22% with outperformance in consumer GPL and mortgage loans. Our SME focus remains intact, and we preserved our market position in micro and small enterprises with around 24% market share among private banks. We continue growing in profitable way, focused on segments where we see more value. Now let's look at the evolution of our asset quality. In the third quarter, there was retail restructuring-related increase in Stage 2 loans. As you may know, in line with our prudent provisioning strategy, once loan is restructured, we classify this loan under Stage 2. Due to the respective regulation, restructuring in consumer loans gained pace notably in the third quarter, and thus, our restructuring loans under Stage 2 increased. However, please also note that as of October, this regulation has been terminated. Our Stage 2 coverage ratio declined due to improved repayment performance of some individual assessed firms. While our Stage 2 coverage is now 9%, if we look at TL and foreign currency breakdown, our foreign currency Stage 2 loans coverage remains healthy at 18%. Now let's walk through the evolution of NPLs. Our NPL ratio rose modestly to 2.8%, in line with the expectations. We are witnessing the national consequence of robust consumer and credit card growth that sector registered in the last couple of years. Retail and credit card portfolio still accounted for around 70% of net NPL flows. If we move on to the net cost of risk on Page 12. In the third quarter, net provisions increased Q-on-Q, mainly due to the exceptionally low base of second quarter, which has benefited from large ticket provision reversals. Yet on a cumulative basis, net provisions continue to perform better than expected. As a result of this trend, we also revised down our net cost of risk expectation for this year-end, which I will explain in more detail in final slide. Now moving to the other side of the balance sheet, how we are funding our balance sheet growth. Not only in assets, but also in funding, we rely on customer-driven sources. Total deposits make up 69% of total assets and remain TL heavy. This quarter, in TL time deposits, our growth was flattish due to cost optimization to support spreads. On an average basis, TL deposit growth was strong, and we continue to meet the required regulation in TL deposits rate. Growing demand deposit base in line with our expanding customer base supported TL deposit growth. On foreign currency side, deposits increased by 14% due to gold price increase and flow from maturing KKM deposits. Excluding subsidiaries impact, foreign currency deposit growth was 10% and 40% of quarterly increase was purely coming from surge in gold prices. Our active funding management is also visible in net interest income on Page 14. In the third quarter, our core margin recovered better than expected by 44 basis points with the support of opportunistic liquidity management. Let me elaborate on this. In the third quarter, we created excess TL liquidity with utilizing more repo and swap funding and then placed this TL liquidity to depo facility at better yields. On spreads, as you can see on the right-hand side of the slide, our TL loan to time deposit spreads remained flat in the third quarter. We managed to fully reflect 300 basis points July rate cut to our funding costs. However, in September, pace of decline in TL time deposits was more gradual than expected, mainly due to the impact of TL deposit regulations. In the fourth quarter, on average, we expect spreads to progressively improve. We are expecting another 100 bps cut in December, which may bring down fourth quarter average TL time deposit cost to below third quarter average. Another component of NIM was swaps. You may notice the increase in swap costs as we utilized more swaps in the third quarter due to its funding cost advantage relative to TL time deposit costs. Lastly, in terms of CPI linker income, CPI rate used in the valuation increased to 30% from 28% following September inflation data, yet CPI linker income contribution to NIM remained flat due to redemptions from the portfolio. Here, I would like to mention that October CPI reading will be announced in the coming days, and we are expecting October CPI rate to be around 33%. If it realizes at this level, we will once again adjust our CPI linker income valuation and reflect the full year adjustment into the fourth quarter. Putting all this together with the help of lending growth, we were able to register 20% growth in NII base. As you can see on the left-hand side, with 5.3% net interest margin and TRY 46.5 billion NII, including swap, we have the highest net interest margin and NII level among Tier 1 private peers. And our balance sheet positioning lie at the heart of this unmatched performance. We would like to present this slide every quarter in order to underline that our margin reliance is rooted in high share of TL loans and TL deposits. First, TL loans make up 62% of TL assets. In a current environment where loan yields are about 2x higher than securities, this presents a sustainable revenue advantage. Please also note that while our securities share in assets is the lowest among peers, when we look at the components, it's mainly because of low share of CPI linkers. We are not lagging behind peers in terms of fixed rate securities. CPI linker share is only 38% and in a disinflationary environment, yield gap may widen further. And 58% of TL securities are fixed rate securities at attractive rates, which will again serve as a hedge in a declining interest rate environment. On liabilities, TL time deposits represent 69% of TL liabilities. And here, we continue to preserve our funding cost benefit versus repo in the 9 months. Here, I would like to underline that, as you know, there are 3 main funding sources for us: customer deposits, repo funding and swap funding. On a daily basis, we manage our funding sources by taking into consideration margin and risk metrics. As our track record shows, we have operational agility, and we are well positioned to respond. Now let's move on to the other P&L items, fees. Our fee base remains robust, up by 54% year-over-year. On an annual basis, payment system fees continued to lead to growth. On a quarterly basis, strong cash and noncash loan growth, which supports lending-related and insurance fees, followed by increasing wealth management fees. Digital engagement continues to rise and number of active -- digital active customers reached 17.6 million. Moving to our operating expenses. Our OpEx base growing in line with expectation. OpEx base increased by 70% in the 9 months due to planned investments to fuel sustainable revenue generation streams. As we have been communicating, we have been investing in customer acquisition through salary promotions and to enhance customer experience and to increase customer penetration, we have been leveraging the power of artificial intelligence and digitalization, which in return supports our revenue generation capability. Hence, our OpEx base is largely covered by fees, and we continue to have the lowest level of cost/income ratio among peers. As per our capital strength, in the third quarter, our solvency ratios improved with strong support from profitability and Tier 2 issues we had in July. As you know, in October to support our capital base for future growth, we successfully issued $700 million Tier 2 in October, which will provide 92 basis points uplift to our capital adequacy ratio and reduce currency sensitivity by 5 basis points. Let's now summarize our performance before closing. We sustained our unmatched leadership in earnings generation capability. Backed by our customer-driven balance sheet growth, we defended our NII well. Remarkable fee performance enabled us to cover 84% of operating expenses, better-than-expected net cost of risk trend sustained with exceptionally high provision reversals. As a result, we ended the first 9 months with 30.9% ROE while maintaining sound capital ratios. Now let's look briefly at what's ahead. In terms of guidance, our message remains fully aligned with what we communicated in the second quarter call. In this quarter, to enhance transparency, we quantified the underlying impacts and formally revised our guidance for select PL items. Yet our ROE guidance remains unchanged. Let's take a closer look at what we revised. We lowered our year-end net cost of risk expectation to below 2%, given exceptionally high provision reversals recorded during the year. Due to the change in policy rate expectation and the impact of TL deposit regulations, we revised our NIM expansion guidance down to 1.5% to 2%. Please note that in the beginning of the year, our policy rate assumption for this year-end was 31%, which we now revised upward to 38.5%. On a year-to-date basis, we were able to increase our margin by 1% on a consolidated basis and by 1.3% on a bank-only basis. In the fourth quarter, we expect TL spreads to improve Q-on-Q, while the contribution from CPI linkers is also increased. Taken together, this gives us confidence that we will achieve NIM expansion within the revised range. Lastly, we revised up our fee growth guidance, and now we expect fee coverage of OpEx to be 90% to 95% on a [Audio Gap] better-than-expected trend in net provisions and fees will mitigate headwinds on net interest margin. As a result, ROE is likely to settle near the lower bound of the guided range. This concludes my presentation. Thank you for listening. Now we can take your questions. Operator: [Operator Instructions] We have first question coming from [indiscernible], HSBC. Seems like there's a problem with the line. So now as we have no further questions, this concludes our Q&A session. I would now like to hand the floor back to our management for their closing remarks. Aydin Güler: I think Ceyda probably explained everything very clearly. So we don't have any written even questions, right? So let me conclude the meeting by saying thank you all for joining us today. We are pleased to close another strong quarter that reflects our solid fundamentals and disciplined execution in a dynamic environment. So numbers speaks for themselves. That's what we are saying. During the third quarter, we managed our margin effectively, strengthened our leadership in Turkish lira loans and continue to expand our deposit base as well. Clear indicators that we remain our customers' primary bank. We also continue to advance our digital transformation and sustainability efforts, consistently creating long-term value through innovation and operational excellence. With our strong capital position and focus on balanced TL-driven growth, we are confident in our ability to continue delivering sustainable value for all our stakeholders. Thank you once again for your participation. Have a nice day. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Baxter International's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcasted without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Mr. Kevin Moran, Vice President, Investor Relations at Baxter International. Mr. Moran, you may begin. Kevin Moran: Good morning, and welcome. Today, we'll discuss Baxter's third quarter 2025 results, along with an update to our full year 2025 outlook and newly issued fourth quarter 2025 guidance. This morning, a press release was issued with our preliminary earnings results and updated outlook. The press release and investor presentation are available on the Investors section of the Baxter website. Joining me today are Andrew Hider, President, Chief Executive Officer; and Joel Grade, Executive Vice President and Chief Financial Officer. During the call, we will be making forward-looking statements, including comments regarding our financial outlook for the fourth quarter and full year 2025 and matters related to future dividend declarations, the anticipated impact of the Kidney Care sale, including our ability to eliminate related costs, the anticipated impact of various regulatory and operational matters, including ones related to our infusion pump platform, what we believe to be continuing fluid conservation and heightened inventory levels and commentary regarding the global macroeconomic environment, including tariffs and proposed mitigating actions. Forward-looking statements involve risks and uncertainties, which could cause our actual results to differ materially from our current expectations. Please refer to today's press release, the forward-looking statement slide at the beginning of our investor presentation and our SEC filings for more details. In addition, please note that on today's call, all our comments will be on a non-GAAP basis unless they are specifically called out as GAAP. Non-GAAP financial measures are used to help investors understand Baxter's ongoing business performance. GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release and in our investor presentation. Finally, as a reminder, continuing operations excludes Baxter's Kidney Care business, which is now reported as discontinued operations. Now I'd like to turn the call over to Andrew. Andrew Hider: Thank you, Kevin. Let me welcome you officially as the new Head of Baxter's Investor Relations team, and good morning, everyone. I am pleased to be here for my first earnings call as CEO, and look forward to getting to know everyone here better as the quarters progress. As I've said in many settings over the last several weeks, it is an honor to have the responsibility to lead this new chapter at Baxter. Our company is essential to health care with an iconic brand that is valued and trusted by caregivers and patients globally. Since joining the company, I've immersed myself in Baxter's business, leading teams around the world. 14 site visits across 7 countries and counting, working side-by-side with employees, speaking directly with customers and gaining a more detailed view of the opportunities and challenges we face. I have learned a great deal in a short period, but I want to reflect on 2 things that clearly stand out. First is that we are building from a fundamental position of opportunity. I have been struck by the commitment and pride this team brings to Baxter's mission to save and sustain lives and to serving our customers. This is a business whose portfolio has proven resilient over its almost 100-year history, one that has delivered significant revenues and attractive operating margins and generated solid cash flow over the years. The strength of our business, the critical role we play in health care and the talent and dedication of our people who are committed to win should position us well to deliver lasting value. Second is that we are proactive and clear-eyed about what needs to improve and change at the company, so we're better positioned to deliver on our potential. Let me be clear about that. We are not satisfied with our current performance. There is a recognition that challenges must be met head on with both immediate actions as well as real long-term solutions. I am also very realistic about the road in front of us as we work to prioritize our areas of focus, improve execution and business performance, deliver sustained growth and improve profitability and cash flows. Turning briefly to this quarter's results, which Joel will speak to in detail. Our third quarter top line performance came in lower than our previously issued guidance and exceeded expectations on the bottom line due to a favorable tax rate. These results reflect challenges in 2 divisions: the Infusion Therapies and Technologies division within the Medical Products & Therapy segment and the Injectables and Anesthesia division within the Pharmaceuticals segment. Importantly, Baxter's Healthcare Systems & Technologies segment demonstrated improved performance. Before I turn it to Joel to discuss financial results in more detail, I want to give you a better sense of how I'm approaching the first several months of my time at Baxter and to give you some context on the decisions and actions that we have taken to date and will take in the coming months. We will have more opportunities to discuss long-term strategy down the road. But in the near term, you will see us take actions and decisions designed to support 3 areas: first, stabilizing the areas of the business that require increased focus; second, strengthening our balance sheet; and third, driving a culture of continuous improvement and enterprise-wide efficiency. Let me share my initial thoughts on each. I'll start with stabilizing the business. Baxter already has undergone significant transformation in recent years and is now a more streamlined and focused enterprise. But of course, there have been challenges in certain areas that have hampered growth and consistent execution, and we expect our growth algorithm to continue to be pressured in the near term. With my background in operations, I am bringing a keen eye to people, process and performance of Baxter, along with what we call uniform value creators, standardized metrics that we are focused on value creation. One critical area of focus and attention right now, for example, is related to the pause we've taken on deliveries and installations of the Novum IQ Large Volume pump. While we're disappointed that we expect the current hold to remain in place beyond year-end. We are working tirelessly to evaluate and test potential corrections to fully resolve the flow rate issues. In parallel, we will continue to closely support current Novum IQ LVP users. We will also continue to offer Baxter's Spectrum IQ LVP, a long-standing and well-known product used in more than 1,500 facilities across the U.S. and Canada, as a leading option for infusion therapy, one that Baxter continues to invest in. The Spectrum IQ LVP now operates on a shared gateway with Novum IQ syringe, creating a cohesive user experience and is built for the future with EMR interoperability, enhanced software and innovative analytical capabilities. A second area of focus will be improving Baxter's balance sheet. It is from the basis of a strong balance sheet that we will be better able to invest in the business, support innovation and deliver and return increased value to our shareholders. This means focusing on improved cash flow and taking a consistent approach to our capital allocation objective. The first step in addressing our balance sheet is taking decisive and clear steps to reduce our leverage. It is in this context that we and the Board intend to reduce the quarterly dividend to $0.01 per share, beginning with the dividend to be paid in January 2026. This will free up cash to accelerate deleveraging, consistent with our prior commitments. Joel will provide more details on that in his section of the call as well. The last area you will continue to see us prioritize is building enterprise efficiency into everything we do at Baxter. Earlier this month, we rolled out Baxter GPS, our new growth and performance system, aimed at driving continuous improvement and a growth and performance mindset. This data-driven system is inspired by best-in-class models from organizations known for strong cultures of continuous improvement and represents a positive change in how we work. It also adapts in real time, helping to ensure we are moving toward greater efficiency, stronger performance and impact. Ultimately, this will help build the habits and discipline across the enterprise that will define our future success. I've led this type of system successfully at several other companies, and I'm confident it will lead to improved performance of Baxter over the long term. In closing, I want to step back and reflect on what makes me confident and excited about Baxter's future. Yes, there is work ahead. And the coming quarters will require significant focus, discipline and execution. But I see a company with a strong foundation, a clear path forward and the ability to turn challenges into opportunities. You can expect us to work with urgency and focus to accelerate growth, improve margins and cash flow and drive enhanced innovation. We are on a journey to build a better Baxter that is more resilient, more agile and more capable than ever, a Baxter with a more consistent execution, what I like to call a higher say-do ratio, a Baxter that will work to redefine health care delivery and in doing so, continue to deliver meaningful impact for customers, patients and long-term value creation for shareholders. I look forward to keeping you updated on our progress and getting to know you all better in the coming weeks and months. With that, I will now turn it over to Joel. Joel, over to you. Joel Grade: Thanks, Andrew, and good morning, everyone. Let me also take a moment to welcome Kevin Moran as our new Vice President of Investor Relations. Many of you already know Kevin from his prior IR roles at other companies in the space. Kevin brings valuable finance, IR and, importantly, health care experience to the team. We're excited to have Kevin on the team and look forward to his leadership in continuing to strengthen our relationships with you all. Before I begin the sales discussion, a reminder that results discussed on today's call will reference operational growth, which excludes the impact of foreign exchange, MSA revenues from Vantive and the previously announced exit of IV solutions from China. Third quarter 2025 global sales from continuing operations totaled $2.8 billion and increased 5% on a reported basis and 2% on an operational basis. Performance in the quarter reflects growth across nearly all divisions. On the bottom line, total company adjusted earnings from continuing operations were $0.69 per share. Results in the quarter reflect positive pricing in select segments, receipt of Kidney Care TSA income and lower nonoperating expenses, including interest and tax. Now I'll walk you through results by reportable segment. Commentary regarding sales growth will reflect growth on an operational basis. Sales in our Medical Products & Therapies, or MPT segment were $1.3 billion and declined 1% in the quarter. Performance in the quarter reflects softness in Infusion Therapies & Technologies or ITT, slightly offset by strong demand for advanced surgery products. Within MPT, third quarter sales from our ITT division totaled $1 billion and declined 4%, primarily reflecting lower infusion pump sales due to the previously discussed ship and installation hold of Novum LVP and ongoing softness in U.S. hospital IV solutions, which we believe is due to continuing post-Hurricane Helene fluid conservation efforts. Sales decline in Infusion Systems includes lost sales, Novum LVP customer returns and certain customers electing to transition to our Spectrum IQ LVP. We expect sales across our Infusion Pump portfolio to remain under pressure as we work with our customers to complete the necessary corrections to fully address the outstanding field actions and lift the shipment and installation hold on Novum. While we see continued interest in our Pump portfolio, we recognize that the timing and nature of the resolution of the Novum LVP hold is leading some customers to evaluate alternative solutions. We are actively supporting Novum customers with both initial and eventually additional corrections as well as offering Spectrum IQ as an alternative. We remain focused on minimizing disruption and maintaining strong relationships across our installed base. Within IV solutions, U.S. demand remains below pre-Hurricane Helene levels. Based on our current expectations, we expect further recovery in demand, though at a more moderate pace and some level of fluid conservation is likely to remain in 2026. Over the medium and longer term, we remain confident in the strength of our IV Solutions business. Sales in Advanced Surgery totaled $306 million and grew 11% globally. Results in the quarter reflect solid demand for our portfolio of hemostats and sealants, strong commercial execution across all regions and steady procedure volumes. MPT's adjusted operating margin totaled 20.5% for the quarter, increasing 50 basis points over the prior year period and reflecting positive pricing in the quarter, partially offset by lower sales volumes and increased manufacturing and supply costs resulting from the factors previously discussed. R&D expense declined in the quarter, primarily due to onetime items, while underlying investment remained unchanged. Kidney Care TSA income contributed to positive performance in the quarter as well. In Healthcare Systems & Technologies or HST, sales in the quarter totaled $773 million, increasing 2%. Within HST, sales of our Care and Connectivity Solutions or CCS division were $473 million and grew 3% globally. Performance in the quarter was driven by 4% growth in the U.S. for CCS, reflecting double-digit growth in our Surgical Solutions business and continued momentum across our Patient Support Systems and Care Communications portfolios. Total U.S. capital orders for CCS increased 30% compared to the prior year, driven by broad-based strength across Patient Support Systems, Care Communications and Surgical Solutions. We continue to believe our order pipeline remains strong. To date, we have not observed a slowdown in U.S. hospital capital spending. However, given the broader macroeconomic uncertainty, we continue to closely monitor the situation. Front Line Care sales in the quarter were $300 million and increased 1%. Performance in the quarter reflects increased demand in our Cardiology portfolio. HST adjusted operating margin totaled 13.5% for the quarter, decreasing 460 basis points compared to the prior year. These results reflect higher costs related to tariffs, increased R&D investments and increased corporate allocation expenses following the sale of Kidney Care. TSA income partially offset these increased expenses. Moving on to our Pharmaceuticals segment. Sales in the quarter totaled $632 million, increasing 7%. Within Pharmaceuticals, sales of our Injectables and Anesthesia division were $333 million and grew 3% globally. Performance in the quarter reflects high single-digit growth in our Anesthesia portfolio, driven by increased volumes in certain markets outside the U.S. Injectables growth benefited from a favorable comparison to the prior year period, which was negatively impacted by the timing of certain sales and supply constraints impacting international sales. We continue to experience softness in certain premix products, largely consistent with the dynamics discussed last quarter related to IV infusion protocols and increased use of IV push in select hospital settings. Our teams remain focused on reinforcing the clinical value of our Premix portfolio and driving improved commercial execution. Drug Compounding grew 11% and reflects strong demand for our services outside the U.S. Pharmaceuticals adjusted operating margin totaled 8.9% for the quarter, decreasing 100 basis points compared to the prior year. These results reflect the unfavorable product mix, increased procurement costs and increased corporate allocation expenses. These expenses were partially offset by Kidney Care TSA income. Finally, other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain manufacturing facilities were $16 million in the quarter. MSA revenue from Vantive totaled $85 million. As a reminder, these sales are included in our reported growth; however, they are not reflected in our operational growth for the quarter. Before moving on to the rest of the P&L, an important reminder on our continuing operations reporting. Following the sale of the Kidney Care business, certain corporate costs that did not convey with the business are now allocated across our segments in both cost of goods sold and SG&A, along with income from the TSAs, which is currently recognized within other operating income. In addition, as previously discussed, we reclassified certain functional expenses from SG&A to cost of goods sold beginning earlier this year. These costs support manufacturing and are now treated as indirect expenses, subject to inventory capitalization and recognized in cost of sales when sold. Therefore, as a result of these cost shifts across the P&L, we believe it is most appropriate to focus on operating income expansion. Importantly, operating margin on a continuing operations basis was 14.9% in the quarter, improving 40 basis points compared to the prior year period. Results reflect disciplined expense management and the benefit of TSA income, partially offset by softer volumes and mix. Third quarter adjusted gross margins from continuing operations were 39.4%, a decrease of 430 basis points compared to the prior year. The decline reflects the factors I just discussed. Third quarter adjusted SG&A from continuing operations totaled $629 million or 22.2% as a percentage of sales, a decrease of 240 basis points from the prior year period. Results reflect disciplined expense management and the benefit from the reclassification of functional costs. Adjusted R&D spending from continuing operations in the quarter totaled $115 million or 4.1% as a percentage of sales, a decrease of 70 basis points from the prior year period. Results reflect the timing of certain R&D expenses currently expected to shift into the fourth quarter and certain onetime items and, therefore, do not reflect our anticipated level of R&D spend going forward. Kidney Care TSA income and other reimbursements totaled $85 million in the quarter and came in line with our expectations. As previously discussed, the associated expenses related to this income are reflected in other lines of the P&L, including cost of goods sold and SG&A. Altogether, these factors resulted in an adjusted operating margin of 14.9% on a continuing operations basis, improving 40 basis points compared to the prior year period. Net interest expense from continuing operations totaled $58 million in the quarter, a decrease of $29 million versus the prior year period, reflecting lower interest expense following the paydown of existing debt with proceeds from the sale of Vantive. Adjusted other nonoperating income totaled $7 million, reflecting lower losses from foreign currency translation compared to the prior period. The continuing operations adjusted tax rate for the quarter was 5.1%, driven primarily by the release of reserves withholding taxes and discrete benefits related to mix of earnings across jurisdictions. And as previously mentioned, adjusted earnings from continuing operations were $0.69 per share for the quarter and increased 41% versus the prior year. Contributions to earnings growth included positive pricing, the receipt of Kidney Care TSA income as well as lower nonoperating expenses, including interest and tax. Before turning to our updated outlook, I want to comment on cash flow and liquidity. Third quarter free cash flow was $126 million, bringing year-to-date free cash flow to roughly flat. As we close out the year, we expect continued free cash flow generation in Q4. We remain focused on strengthening cash flow generation through improvement across all areas of working capital. As Andrew mentioned, to prioritize and accelerate our deleveraging, we anticipate reducing the quarterly dividend to $0.01 per share beginning with the next payment scheduled to be made in January of 2026. This action is expected to free up more than $300 million in annual cash flow. Given our year-to-date business challenges, we now expect to achieve our 3x net leverage target by the end of 2026. Once achieved, we will look to expand our aperture for capital deployment. We recognize the importance of improving our balance sheet and are continuing to prioritize deleveraging in the near term, including with cash made available from the proposed reduction in our dividend. Let me conclude my remarks by discussing our 2025 outlook for the full year and the fourth quarter, including some key assumptions underpinning the guidance. For full year 2025, Baxter expects total sales growth of 4% to 5% on a reported basis. This guidance reflects current foreign exchange rates, which are expected to contribute approximately 50 basis points to top line growth for the year. In addition, our reported sales guidance includes the contribution of approximately $320 million of anticipated MSA revenues from Vantive. Excluding the impact of foreign exchange, the MSA revenues and the exit of IV solutions in China, Baxter now expects operational sales growth of 1% to 2% for 2025. This reflects a reduction from our prior expectations of 3% to 4% as we have updated our outlook to better reflect the evolving dynamics across select parts of the business. Operational sales guidance for the full year by reportable segments is as follows: For MPT, we now expect sales to be flat to 1%, reflecting the uncertainty around the Novum situation as discussed previously. We continue to expect sales in our HST segment to increase 3% to 4%. Performance reflects sustained momentum across the portfolio, supported by a healthy order pipeline and strong execution. We now expect Pharmaceuticals to increase approximately 2%, which reflects the continued softness in select premixed products, which we continue to work through. Turning to our outlook for other P&L line items, beginning with tariffs, we continue to estimate the net impact to our results is approximately $40 million in 2025. TSA income and other reimbursements are expected to range between $170 million to $180 million. We now expect full year adjusted operating margin from continuing operations between 14.5% and 15%, which reflects the top line sales reduction and the associated impact on our integrated supply chain costs from lower volumes flowing through our manufacturing facilities. We expect our nonoperating expenses, which include net interest expense and other income and expense to total between $210 million to $220 million. On a continuing operations basis, we now anticipate a full year tax rate of approximately 15%. We expect our diluted share count to average approximately 515 million shares for the year. Based on all these factors, we have adjusted our outlook for full year adjusted earnings per share on a continuing operations basis to $2.35 to $2.40 per diluted share from the prior guidance of $2.42 to $2.52 per share. This reflects our updated adjusted operating margin and tax rate assumptions. Specific to the fourth quarter of 2025, we expect continuing operations sales growth of approximately 2% on a reported basis and declined approximately 2% on an operational basis. For the fourth quarter, foreign exchange is expected to positively impact the top line by approximately 100 basis points and MSA revenues are expected to total approximately $80 million. Note that we have now mostly lapped the China IV solutions exit and is not expected to have a meaningful impact to top line growth in the fourth quarter. On a continuing operations basis, we expect adjusted earnings per share of $0.52 to $0.57. With that, we can now open up the call for Q&A. Operator: [Operator Instructions] I would like to remind participants that this call is being recorded, and a digital replay will be available on the Baxter International website for 60 days at www.baxter.com. Our first question comes from Robert Marcus from JPMorgan. Robert Marcus: Great. Welcome, Andrew and Kevin. I'll ask both of mine upfront. They're sort of intertwined. Andrew, you've been there for 2 months, almost 2 months, making some pretty important and bold moves on capital allocation. Maybe you could just help us understand your vision for Baxter, what you've learned, what you've seen, how you feel about the health and trajectory of the business and any other changes we should be expecting in the future as you look to right the ship? And then part 2, obviously, fourth quarter is coming in well below the Street. Third quarter EPS probably would have been a lot lower without tax. With that lower jumping off point into 2026, how do you want people to think about their models as we extrapolate into next year? Do you think there's still a potential you can grow on the top and bottom line next year? And maybe any early thoughts on puts and takes? Andrew Hider: Great. I'll take the first part and then, certainly, we can dig into the second and make sure I don't miss any of the part of the question. But look, first and foremost, as you're well aware, it's still early in the journey, yet really gained a lot of insight, and I've been most impressed with our people, deep commitment to building the best Baxter and advancing our mission to save and sustain lives. And I'll tell you, and I outlined this in my initial kind of highlights in the quarter. Look, our focus is on 3 areas: First, stabilizing the areas of the business that need focus and really driving our business around execution, and I referenced this say-do ratio. Second, strengthening our balance sheet and really aligning to enabling this for future investment back into the business and long-term shareholder value. And you're going to hear me say that quite often, how we think about capital allocation as our guide to long-term shareholder value. And then third, driving a culture of continuous improvement. And we've launched GPS, which is our growth and performance system. It's early in our journey, yet the excitement on the team is aligned around how we monitor, track and improve every day as we move forward. Now these journeys take time, but our team is committed and aligned to this is becoming the future of Baxter. And we often reference building the best Baxter. It will be underpinned with our continuous improvement journey, our GPS. And lastly, and I'll just highlight around strategy. And look, we do anticipate an Investor Day in 2026. We'll give a lot more insight around the long-term strategy, our portfolio focus and deeper insight into our financial outlook. But as we sit today, we are obviously not providing guidance for 2026, and we'll continue to update as the year unfolds, but we'll -- certainly, we will be providing that as we go into next year. Robert Marcus: Maybe if I could just ask, do you think Baxter can have positive growth in '26? Are you willing to comment on that? Andrew Hider: What I'll say, Robbie, is part of my standard work as a CEO is I go and visit customers on a frequent basis, and I visited several customers. Our customers really value Baxter. They value the products we have, the solutions and our ability to help them in their focus on patients. And so certainly, markets will do what markets do. We look to outpace the markets we participate in. And so I would anticipate a growth. But again, we are not providing guidance today. Operator: David Roman of Goldman Sachs is on the line with a question. David Roman: Andrew, nice to meet you. I look forward to working with you. Kevin, welcome to Baxter. I wanted just to start a little bit more. I understand you're going to have an Analyst Day meet that you just referenced to ultimately lay out the long-term strategy. But Andrew, as you come into the company now, the business has spent the better part of the past, call it, 5 to 7 years focused on cost rationalization and balance sheet required capital allocation moves up to the point of cutting the dividend today and potentially further moves beyond that. So as you think about the forward identity for Baxter, is this a med-tech company in your eyes? Is this a diversified manufacturing company? And what decisions are you going to make that ultimately align to supporting how you see the business? Then I had a follow-up question. Andrew Hider: Yes. David, so first and foremost, as you're well aware, I'm going very deep on the business, assessing, understanding our value story to our customers and then how we turn it into long-term shareholder value. If I do a step back for a minute, look, you will often hear me talk about capital allocation as the framework for our success. And that is how we utilize and really drive investment back in the business to really outpace and continue to add high value for our customers, our employees and then, ultimately, our shareholders. And so you're going to see us continue to focus on that. Again, I will go into a bit more color around where we sit in the markets, how we're utilizing innovation to drive expansion to really align to the needs of our customer base, and how we continue our trajectory in our growth story at Baxter. But to give additional color today is a bit early in the journey, yet we will go into that in 2026 as we lay out our view of the markets, our position and where we're going to invest and also where we're going to continue to drive improvement in our operating system. David Roman: Okay. And then maybe just on the businesses more specifically, Joel, if you look across the different growth drivers here, whether that's in pharma or parts of MPT, you are seeing a lot of the growth come from, I think, lower-margin segments like compounding versus anesthesia and injectables. Can you maybe help us think about the implications from the drivers of top line growth down the rest of the P&L and how that's factoring into your Q4 and updated guidance for 2025? Joel Grade: Yes. Thanks, David. A couple of things. And first of all, I'll just make one comment. And you're right, one of the challenges we have had and had this quarter was around mix. The one thing I would like to call out, though, is our Advanced Surgery business in MPT, which certainly is on the positive side of mix, continues to have strong performance. And so again, while I agree with your general thesis, just I did want to point that out. Look, there's a number of things I would say that are really factoring into some of the -- both the challenges we've had and sort of the forward look. It's not just one thing. It's a number of different areas. Certainly, we expect the sales across our Infusion Pump portfolio to remain pressured as we work with our customers to fully address the outstanding field actions in order to lift -- to ultimately lift the shipment and install hold on Novum. And so as we sort of think about where we are and where we're headed, our updated guidance reflects the uncertainty around the Novum situation, including the potential impact from various customer responses. I think within IV solutions, the demand in the U.S. certainly remains below pre-Hurricane Helene levels and certainly below our expectations. And I'd say based on our current expectations, we do expect further recovery in demand, although the pacing and the timing of that, I would say, is at a pace that's -- a pace on a time that's less than we had originally expected. And so there's some level of fluid conservation we're anticipating is likely to remain into 2026. From a pharma standpoint, you're right, we certainly grew our compounding at a high rate this quarter. The main challenge really there is in our injectables business in the U.S. We continue to experience softness there in certain premix products, which is fairly consistent with what we -- the dynamics we discussed last quarter related to IV infusion protocols and the increased use of IV push in select hospital settings. Again, some of this is also kind of a follow-on to some of the challenges we've had with IV solutions. But all in all, there, our updated guidance reflects the continued softness in select premixed products, and we continue to work through that. And so from a -- that's really sort of the top line discussion, David. And then as it flows through to the bottom line, the real story there really is around just the volume. For the most part, our pass-through has been pretty predictable and consistent. And in fact, had we actually -- even excluding the tax item, actually, we would have ended up on the lower end of our guidance without some of the tax benefit on an EPS basis just operationally. However, the impacts as we think about our forward look really are truly related to volume and the impact that has on our supply chain. So I'll pause there and, hopefully, that answers your question. Operator: Travis Steed of BofA Securities is on the line with a question. Travis Steed: Welcome, Andrew and Kevin. I look forward to working with you both at Baxter. I wanted to ask a follow-up on the Novum. First, why is it kind of taking longer? Kind of do you need to redesign the product or refile with the FDA? And you also mentioned, I think, customer responses because of Novum in the last answer. So I just wanted to kind of follow up on that and how much of the guide change is based from the Novum impact? Andrew Hider: Yes, Travis, thanks for the question. So let me basically maybe take you back and just for a second and remind that our hold is in place to support our customers' safe use of the device, while we seek to develop additional corrections of the field actions. We're working with urgency with our customers to complete the necessary actions in order to fully address the outstanding field actions and, ultimately, and lift the shipment. But certainly, we see continued interest in our Pump portfolio. I want that to be very clear. It's one of the takeaways I want certainly to have here, and that is -- but we do recognize the timing and nature of the resolution of the Novum LVP hold is leading some customers to evaluate alternative solutions. Some of that is they've already initiated returns, some have initiated exchanges for Spectrum. Obviously, we're actively supporting our customers in this way with both initial and, obviously, additional corrections eventually, but also offering Spectrum IQ as an alternative. And certainly, we all remain focused on minimizing disruption and maintaining strong relationships across our installed base. From a timing standpoint, again, at this point, we're unable to commit to specific timing around the shipment and install for Novum LVP. We do anticipate this though being in place beyond 2025. And I would just say, again, we are certainly working closer with our regulators while implementing field actions any kind. We'll continue to do so and look forward to providing updates on proposed corrections and timing when they become available. Travis Steed: Okay. And Andrew, I know in your past roles, you've done M&A to transform the portfolio. At what stage do you think Baxter is willing to start doing more acquisitions and willingness to take on margin dilution from those acquisitions? And Joel, in terms of free cash flow, how do you anticipate to improve free cash flow in this business and to kind of help fund some of those acquisitions? If I'm looking at this right, it doesn't look like there's been a lot of free cash flow generation at least over the last 9 months. I don't know if there's any kind of onetime things to kind of point out there and underlying free cash flow is better, but kind of wanted to kind of touch on the free cash flow aspect as well. Andrew Hider: Yes. So -- and I'll hit the first part here. Look, we're pretty clear on -- as we think about capital allocation, our first priority right now is to strengthen our balance sheet, which means obviously, the drive to delever. While we're going through that, we're continuing to invest in innovation. And just to highlight one area we -- in our business, we did launch a product, very excited about our product in our FLC business. And we're seeing strong uptick in customer excitement around that product around the Connex 360. So first and foremost, delever our balance sheet, continue to invest in areas around innovation. And then to be specific on M&A, this will be part of our journey in the future. We're going to continue to cultivate, build our portfolio. And then when we're in a position to be able to pounce, we'll move forward. That said, we've got our focus around the first 2, as I've said earlier. Joel Grade: Yes. And I'll take the cash piece and just what may want to add to Andrew's piece, the one thing to be clear on, certainly, as he said, that would eventually certainly be part of our growth story. Think about that as fold-in tuck-in opportunities versus something that would be larger and strategic, clearly. I just wanted to make that clarification. From a free cash flow perspective, so the good news is we had a really strong September. We did have positive free cash flow of $126 million in the quarter. And I certainly do anticipate having continued positive free cash flow as we head into the fourth quarter. It's typically our strongest quarter of the year. And so I certainly do anticipate that. As we go forward, maybe just a broader comment. I mean the main issues we've had with cash this year fall into a couple of categories. One, as you probably expect, is operational performance. You'll recall, we did have a fairly large outlay of cash in the first quarter related to Hurricane Helene expenses and the expenses occurred in the prior year, but the payables got paid for the most part in Q1. There's certainly been a tariff impact. And then from a working capital perspective, the payables and receivables are in a pretty decent place. The main issue has really been around inventory. That's been driven really by some of the challenges with the Novum fluid conservation as well as tariffs and a few last time buys. I do think some of the things, again, I do anticipate as we head into next year, continuing improvement in those areas. We're putting a lot of work and focus around all areas of working capital. But -- and -- so as we head into next year, I do think that's going to improve. And I've talked in the past about a cash conversion of 80%. I think, again, that's something that I think ultimately, this company should aspire to. I look forward to making continued progress towards that target as we head into next year. Operator: Larry Biegelsen is on the line from Wells Fargo with a question. Larry Biegelsen: Andrew Kevin, welcome. Andrew, given this is your first call, I wanted to ask you 2 high-level questions. First, you came -- many of us on this call don't know you from your prior experience, and it was a nonmedical device company that you came from. So help us understand how your experience at ATS will help you turn Baxter around. And I had one follow-up. Andrew Hider: Yes. Larry, a couple of things. First, having launched and driven a continuous improvement culture at several businesses, look, it takes time, yet it drives impact at every level of the business. And we've launched GPS to really align around that. And it's more an empowerment tool than a disablement. And so it's really aligning to putting the power in the business units, driving and enabling our teams to have impact. And I'm excited about the passion this team has for Baxter and for our shared future. And that's usually an area that aligns well with continuous improvement. As far as my experience within medical tech and med devices and roughly our space, you got to remember, not only was Baxter a customer, many of our areas and peers were customers as well. So clearly understand the space, and we have a leadership team that has deep insight around our area and where we have a key focus on enabling our customers. So getting comfortable in where we are in the journey, yet we have some work ahead, and you're going to see us continue to highlight where we're making progress and where we need to have laser focus to improve. Larry Biegelsen: That's helpful. Andrew, I'd also love to hear your thoughts on the Baxter portfolio. It's still a diversified company with call points in the hospital and physician office. Do you think all the pieces fit together? Or could we see you focus more on the hospital setting, less on the office setting? Andrew Hider: Yes. So again, and I'll default to 2 months, yet, I've been able to meet with many customers and -- or several customers. And their focus on Baxter and their feedback on Baxter has been very positive. Now certainly, there's work to do. And I want to be very clear around what that looks like and how we need to drive operational execution. And so where we sit today, we believe our portfolio is a strong portfolio for the future. Of course, we're going through the assessment. And we've also done some reassessment of that before my time. And we've become more streamlined, more aligned to our higher-value areas of focus. And so I would say it's early days yet, really, really pleased with the feedback I've received. And as I mentioned, one of my standard works as a CEO is I'll be visiting with customers frequently to gain insight to drive impact into our ability to execute in the markets we serve. Operator: The next question comes from the line of Joanne Wuensch of Citi. Joanne Wuensch: I look forward to working with you. Two quick questions upfront. I'm a little confused about IV fluid conservation this far after Hurricane Helene. At what stage is this just sort of a more normalized adoption or utilization rate and not a recovery rate? And then my second question, I'll just toss it out there. You guys are always closest to the hospital environment and understanding CapEx and procedures and everything else that's going on there. What are you seeing? And do you anticipate any change or changes given -- I don't know how to word this, politics, we'll just put it at that. Andrew Hider: Thanks for the question, Joanne. So I'll start with the fluid conservation piece. Certainly, look, this has been an ongoing issue, as you said, the demand remains below the hurricane Helene levels. Again, we do expect recovery in demand, Joanne. But certainly, what we -- the best estimate and the best information we have available today from our customers, from market insights, we certainly believe our customers' buying patterns still continue to reflect fluid conservation. It's more of a, I'll say, buying pattern issue. Interestingly, recently, there's been also articles that have come out on this from various interviews with hospitals where they've seen -- they've said, hey, look, there's -- hospitals have reinforced this focus on the fact that they really are focused on conservation. And I would remind you, I mean, again, back in 2017, we did have, again, not directly related, but somewhat similar experience to this and some of the return to buying patterns did take even up to the better part of 2 years in order to recover. So I think the thing I would leave you with is that over the medium and long term, we certainly remain confident in the strength of our IV solutions business. Clearly, our teams are actively focused on working closely with our customers to make efforts to improve utilization given certainly the improved supply of fluids that we have and, obviously, the clinical benefits of our products. And so that's -- I guess I'll leave you with that as far as the conservation. And then as it relates to your other question from a hospital CapEx, obviously, since certainly I'll just face some of the uncertainty that's been going on in -- coming out of Washington, it's generally been -- we've certainly been looking carefully for signs of hesitancy from a capital spend perspective. And that's just -- it just hasn't been something we've seen at this point. Our order book in our capital business has been -- in our HST business has actually been quite robust. It continues to be. In fact, our year-over-year growth from -- for this quarter, our orders were up around 30%. And so I think we haven't seen that yet, certainly being looking for it, paying attention for that purpose. But at this point, we really haven't seen a slowdown in hospital CapEx, just kind of crimping those buying patterns. Operator: Vijay Kumar of Evercore is on the line with a question. Vijay Kumar: Andrew, welcome to your inaugural earnings call. I guess my first one, perhaps for you, Joel, Q4, I just want to clarify, is the implied injectables something like down mid-teens on the pharma side? What drives that? And I think guide implies operating margin declines. I just want to make sure we're thinking about the right way. Joel Grade: Yes. Thanks, Vijay. So for pharma, I mean, it really truly is, as I've kind of talked about, it's somewhat of, I'll say, a change in the marketplace that we're working through. Again, there's been softness with some of our premixes. Again, there's always competitive pricing in the space. That's something that's kind of always been a thing there. And so I don't know that there's something new, although there is some shift. Again, we talked about using IV push. IV-related protocols have been different where there's some, again, more purchasing of vials versus premixes. So I think there's really, to me, has been some shift that is mostly in the U.S. Our business outside the U.S. primarily has, for the most part, been quite good. I think one of the things that maybe I would focus on here too is kind of -- so what are we doing about this as opposed to here's some of the things that are being done to us, so to speak. And one of them is just really remaining focused on reinforcing the clinical value and the value-add of our premix portfolio in order to continue to drive commercial execution of our new product launches. We've taken a real comprehensive kind of cross-functional look at this portfolio to kind of assess the current state of it and identified some areas for improvement in terms of including like really focused teams on how to drive out even more effectively our product launches, active territory management and just a real end-to-end review process. And then on the -- from an OI perspective, how do we think about the ways that we're making investments in that space to optimize our OpEx spend and really to make sure, again, prioritization is the key there. And so that's the best -- that's what I can tell you from a pharma perspective. From an OI, I'm taking your question to be an overall OI as it relates to our guidance, that really truly is an impact to, say, of volume declines as we think about the guidance. Again, it's -- our business right now really is a bit of a top line story from a softness perspective. The drop-through really does reflect the -- just the impact of volume on our overall operations. Vijay Kumar: Understood. And then maybe, Andrew, one for you. Look, Novum is such a key topic for the story right now. What is the issue, Andrew, that you've been able to identify, has Baxter been in touch with the FDA? When was the last communication? What has the FDA asked you or asked Baxter from a remediation perspective? Joel Grade: Yes. So Vijay, let me take this one. Look, we described the specifics of our field actions. Those have been out there. Obviously, we're working closely with our regulators. And when implementing field actions of any kind, we're going to continue to do so. And our focus team is working really closely both with regulators and customers as it relates to these field actions, again, and those are all out there. I would say for this audience, the thing I'd like to reinforce as much as anything is we remain confident in our Novum, Spectrum infusion platforms. And as we continue to work through the ship hold, we've been duly focused on supporting our current customers, continued use of the device, determining appropriate additional corrections to fully resolve our field actions. And as I said earlier, we look forward to providing updates as decisions are made as we continue to support our customers, including ramping up production to increase our available Spectrum inventory as, again, as a great alternative as part of our pump portfolio. Operator: The next question comes from Matt Taylor of Jefferies. Matthew Taylor: I guess I wanted to follow up on your comments regarding some of the near-term and long-term actions. I realize you're not going to provide any quantitative guidance, but I'd love to hear from you what you think could happen, what could go right near term with some of these immediate actions you're taking and maybe qualitatively describe the range of possibilities over the coming quarters if things do go your way? Andrew Hider: Yes. Look, if I just walk through the journey, first, and I aligned around stabilizing and our focus on areas of the business that need support. We've launched GPS. It's called Growth and Performance System for a reason. Our business is aligned to not only monitoring, but then also how do you improve. And so while we've stated what we're going to be aligning to from a guidance perspective in Q4, we'll be updating as we go into next year on what that would look like. Our business has a key area and position with customers, and we want to fully unlock that potential. When we look to future and how we hold ourselves accountable, we'll be driving at or above market performance. And again, as we step back and look at our journey, GPS is early, yet we see real strong followership from the early engagement. And it takes time, but we're excited about the future and where that takes us. Operator: And unfortunately, we are at time for today's call, and this will be our last question. Matt Miksic with Barclays is on the line. Matthew Miksic: Welcome, Andrew and Kevin. A lot to cover. So I'm just going to keep it to one question. I'm getting a lot of questions on this issue of IV demand. I guess just zooming out for a second. You maybe can appreciate that investors are having a little difficulty reconciling what's been a pretty strong procedure, surgical quarter for med-tech generally and some sense of like slower demand. So is there a competitive factor here, marginal or significant that's worth mentioning or a mix of procedures shift to outpatient or something else that would explain -- help reconcile that disconnect between pretty strong surgical volumes in Q3 and the ongoing demand around IV solutions that you mentioned? Joel Grade: Thanks for the question. Look, I guess all I could do is kind of reinforce what I said before. I mean we spent a lot of time with our customers. We also spent a lot of time gaining market insights. And again, as I referenced earlier, there's been some recent external articles probing on this topic, where actually hospital CEOs and others have talked about their focus -- continued focus on fluid conservation. And so again, I'll just continue to reinforce a couple of key points. Number one, we do believe over the medium and longer term, this will continue to recover. And the -- we're very confident in the strength of our IV solutions business. And again, the second point, again, I just -- we're -- our teams are actively and with urgency working with our customers to continue to help improve their utilization because this is not an issue of product availability from our perspective. And so I think that's just reinforcing that it's available and reinforcing the clinical benefits of those products. There's no question that the recovery to some degree has come in below our expectations. It's taking longer. And again, it's certainly been made that difficult to predict. At the same time, again, our guidance reflects our best expectations of that. And so I'll leave you with that. Operator: And at this time, I'll hand the call back over to Andrew for some closing comments. Andrew Hider: Thanks, operator. As we close, I want to reinforce my confidence and excitement about Baxter's future. We're building on a solid foundation with a clear mandate to drive continuous improvement, strengthen execution and accelerate our shared performance. And we are committed to delivering long-term value for our shareholders. I look forward to sharing our progress in the months ahead. Thanks, and stay safe. Operator: Ladies and gentlemen, this concludes the conference call with Baxter International. Thank you for participating.