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MA 2025 Q3 财报电话会议

Operator: Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Incorporated Q3 2025 Earnings Conference Call. [Operator Instructions] Mr. Devin Corr, Head of Investor Relations, you may begin your conference. Devin Corr: Thank you, Julianne. Good morning, everyone, and thank you for joining us for our third quarter 2025 earnings call. With me today are Michael Miebach, our Chief Executive Officer; and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Michael Miebach: Thanks, Devin. Good morning, everyone. We delivered strong results in the third quarter. Net revenues were up 15% overall, and value-added services and solutions net revenue was up 22% versus a year ago on a non-GAAP currency-neutral basis. Our solid performance is a reflection of our winning strategy, our market-leading innovation and focused execution. We continue to see healthy consumer and business spending in the quarter with the macroeconomic environment still generally supportive. Inflation levels have remained fairly steady and labor markets remain well balanced. Financial markets were near record highs, further contributing to the wealth effect, which helps stimulate spend. Given this backdrop and our diversified business, we are positioned well for ongoing success. In looking at the quarter, our drumbeat of wins continued. Our partnership approach, combined with our differentiated payments propositions and value-added services and solutions continues to drive wins. This quarter, we have multiple co-brand wins with large airlines and retailers, including Japan Airlines, the Comair in Mexico and Uni-President Group in Taiwan. We have also expanded our relationships with bank partners globally, a testament to the unique value we bring. In the Nordics, we have renewed our strategic partnership with Nordea on card issuance and services capabilities. And we're happy to announce that Mastercard will be neobank's exclusive network partner in the U.S. as that card program launches, this builds up on our extensive partnership across the Americas. Earlier this year, we unveiled the Mastercard World Legend card designed specifically for the ultra-high net worth individual. Also launched the Mastercard Collection, a set of globally connected premium benefits and experiences for our World, World Elite and World Legend cardholders. This combined differentiated value proposition helped us win several key affluent portfolios around the world, including First Abu Dhabi Bank in the UAE, Saudi Awwal Bank and Saudi National Bank and Doha Bank in Qatar. In Brazil, we are partnering with several banks, including Itau, Banco do Brasil, C6 Bank and BTG on new affluent portfolios, reinforcing our strong credit position in that key market. Moving on from our recent wins. We are focused on executing against our three strategic priorities to unlock long-term growth. I'll touch on each, starting with consumer payments. The consumer secular opportunity is tremendous with $11 trillion in GDV and 1.5 trillion transactions still happening in cash and check around the globe and even further opportunity with China and a counter account bill payments. We are targeting these flows by expanding our acceptance footprint across under-penetrated verticals and by opening closed-loop payment networks. Let's look at the rent vertical. The volume of rental payments globally is substantial. Today, most of the payments are paid through check or ACH are now are recurring in nature. So, naturally a focus for us. Through our co-brand and services capabilities, we have successfully unlocked acceptance at scale with partners. This quarter, we partnered with Renti, a rental management platform in New Zealand. This relationship both unlocks card acceptance and includes rich rewards for their customers who choose Mastercard. A powerful example of how we are delivering value across this ecosystem. Moving on to closed-loop payment networks. This quarter, we deployed new contactless acceptance across closed-loop transit systems in Italy, Japan, Chile and with the Chengdu and Guangzhou Metro systems in China. Altogether, we have digitized hundreds of systems across major cities around the globe. The simple tap and go experience is a great way to shift consumer behavior and we are seeing strong results. It also can be a transaction multiplier rather than buying one monthly metro card, we see a transaction for each ride. Volumes are up too. Through the third quarter of this year, Mastercard GDV on open-loop transit systems increased 25% year-over-year on a local currency basis. Not to mention the halo effect this can drive in everyday spend categories, and that is powerful. We're also driving incremental volumes from local stored value digital wallets over the Mastercard network through our partnership with Alipay+, a network of 36 e-wallets, we're now expanding cross-border payment enablement to Kakao Pay in South Korea, following earlier launches with AlipayHK and GCash. And in India, we are working with PhonePe to enable their consumers to transact in person and online using their Mastercard payment credentials. Digital wallets are increasingly partnering with Mastercard because of the value they see in our unmatched global acceptance across hundreds of millions merchant locations and digital access points. Agentic Commerce is here, and we're at the center of it. With our global acceptance reach, trusted brand and services capabilities, we're instrumental in creating the foundation for agentic commerce. We're now working with key players such as OpenAI on their agentic commerce protocol and with Google and Cloudflare to set industry standards, all to drive safety and security. To Mastercard Agent Pay, we're enabling agents to facilitate transaction over a Mastercard's payment network in a secure and scalable way. You already have agents registered and have tools in place for easy onboarding as others are ready. Our first agentic transaction took place on our network this quarter at pivotal moment in payments, and that's just the start. U.S. Bank and Citibank cardholders can now use Agent Pay. The rest of our U.S. issuers will be enabled in November with a global rollout to follow early next year. And the beauty of it all, we've made it easy for merchants across the globe to benefit on day 1 with the same trust and security they are used to do from us today. Our acceptance framework enables any Mastercard merchant to participate without significant development or integration, a no-code approach. For agentic payments, we bring trust and transparency and have the right capabilities and acceptance reach. We have strong partnerships with the players I just mentioned and many more, including Walmart, to accelerate the adoption of agentic commerce using cards through Mastercard Agent Pay. And our services play a big role both today but even more so as we look to the future. Players across the payments ecosystem are partnering with Mastercard and our dedicated consulting teams to ready themselves for agentic commerce. Agents through Mastercard's inside tokens can make agentic commerce even more personalized. By harnessing our proprietary data, we will be able to provide agents with predictive insights to help drive smarter decisions and recommendations. The shift we're seeing in commerce is creating further opportunity for our capabilities, more consulting, more loyalty, more security and so on. The runway for agentic focused services in consumer and business use cases is long, and we're well positioned to capture this opportunity. Like agentic commerce, we believe stablecoins are an attractive and growing opportunity for our network, believe in offering consumers and merchants the choice in how they transact. For years, our network has therefore enabled crypto and stablecoins to be purchased and spent across our acceptance footprint. We have approximately 130 crypto co-brand card programs in market with associated volumes and transactions growing at a healthy clip. We're expanding our partnerships through new deals with consensus on the MetaMask card in the U.S. and with Binance in Brazil. We also continue to see strong growth in the on-ramp as well with quarter 3 year-to-date transactions up over 25% with spend at crypto merchants. Moving on to commercial and new payment flows. The B2B opportunity is massive, and we are deploying a targeted strategy to capture it. Small business remains a top priority. Over the last year, we have increased small business Mastercard in market by more than 10%. Key to our growth has been working with our traditional issuing partners such as Carrefour Financial Services in Spain, but also through alternative distributors. This quarter, we partnered with Zaggle, a spend management provider in India. Biz2Credit, a small business financing platform in the U.S., and RTS, a transportation services provider in the U.S. to distribute commercial and small business cards to their customer bases. Similarly, we are working with Instacart in the U.S. to issue small business cards, offering rich rewards and instant payouts using Mastercard Move capabilities. Our virtual cards drive benefits across the ecosystem. Suppliers get paid faster with certainty and streamlined reconciliation. Buyers improved working capital and gain more control over spend, all in a simple and secure way. [ BBVR ] will now be issuing Mastercard virtual cards to their travel agency customers in Mexico and there are plans to expand the solution beyond to South America and Europe. We're making it easier for corporates to use virtual card capabilities within their existing workflows. Now with more than 10 global B2B and T&E platforms on board with several regional partnerships also in place. Working alongside issuers, acquirers and payment facilitators to embed card payment tools and unlock acceptance within the platforms that buyers and suppliers already use every day. And we continue to deliver value to the supplier through simplified reconciliation tools and flexible B2B economics. We have offered flexible rates in the travel space and in the U.S. for domestic business-to-business flows for years. Looking at the U.S. program, we have nearly doubled the number of customers participating over the last 2 years. Given its success, we are scaling flexible rate programs across the globe. Next, Mastercard Move. Our disbursement and remittances capabilities remain strong with over 35% transaction growth this past quarter. To further scale adoption, we are integrating Mastercard Move into leading core banking platforms, including Infosys this quarter. Penetrating key markets in EMEA through our partnerships with Worldpay and STC Bank. And in China, we've enabled more ways for consumers to make outbound remittances across our billions of endpoints. In June, we announced how we have embedded stablecoins into Mastercard Move capabilities to support disbursements, remittances and B2B use cases. This spans prefunding with stablecoins to sending stablecoins across the globe, which can be received in any local fiat currency or support a stablecoin. We continue to execute against this roadmap now with prefunding capabilities in place with customers in Europe, Middle East, Africa, including Pay Send this quarter. Moving on to our third strategic pillar, services. We have curated an expansive services portfolio featuring security, consumer engagement and business and market insights. Our services differentiate our payment network and drive meaningful value for our customers beyond the transaction itself. We're actively driving growth by further penetrating our existing customers, diversifying into new customer types, and through new innovations. Let's look at each of them. We have extended our reach and share of wallet across our bank customers. We now have strategic relationships with the retail bank as well as marketing, loyalty and security offers across several of our customers. A great example is how we're building on a successful partnership with the Rogers Bank in Canada. We expanded our collaboration with the parent company, Rogers Communications to provide fraud prevention security offerings, and payment gateway solutions. They are also an initial partner to use our newly announced Mastercard merchant cloud offering, which I will touch on later. And we're expanding our customer base across merchants, governments and digital players. A few key examples from this quarter include the Polish Ministry of Digital Affairs who will use Recorded Future's Threat Intelligence capability. Equifax in Australia. We will be using our open finance capabilities to help inform their customers' lending practices to underserved consumers. Beyond that, we are continuously innovating to further penetrate and grow the $165 billion serviceable market we outlined at last year's Investor Day. We continue to innovate within payments. Last month, we launched on-demand decisioning, a fully customize rules engine that gives issuers greater flexibility and control of payment authorizations. This is a great example of how our network can help issuers optimize payment portfolios and strengthen their user experience in a fast, efficient way. For the merchant community, we launched a merchant cloud offering, Mastercard's acceptance, gateway tokenization, fraud and insight solutions through a unified platform. Partners can now simply integrate these services into their propositions or resell directly to their customers. This is a great example of how we are delivering our innovation at scale. We're also extending our value beyond the transaction by leveraging insights from our rich and extensive data sets. By combining Mastercard's payment expertise and global network visibility with recorded future's leading cyber threat intelligence capabilities we were excited to recently announce Mastercard Threat Intelligence. Issuers and acquirers using Mastercard Threat Intelligence can proactively detect cyber attacks in order to prevent payment fraud. Mastercard Threat Intelligence complements our existing cybersecurity intelligence, fraud, scoring and defense functionalities. And to conclude, we recently launched Mastercard Commerce Media, a new digital media network that makes advertising more personalized, relevant and effective. Advertisers are under pressure to prove that every dollar spend drives real outcome. Mastercard Commerce Media uniquely helps advertisers serve tailored offers to the right consumer at the right time by using our proprietary spend insights. Once the offer has been served, we're able to measure the effectiveness of each ad by linking it directly to a purchase made. Building off our existing loyalty programs and technology, we're able to connect the 500 million enrolled in permission consumers and 25,000 merchant advisers -- advertisers on day 1. As you can see, we're relentlessly focused on delivering value to our customers, and that's why customers continue to choose Mastercard. So with that, I'll wrap it up. We delivered another strong quarter, a significant opportunity ahead. The fundamentals of our business are strong. I am very optimistic about the future of Mastercard. Our proven growth algorithm, differentiated solutions and continuous innovation positions us to deliver and win as we've demonstrated time and time again. It's an exciting time in payments, and Mastercard is at the forefront. Sachin, over to you. Sachin Mehra: Thanks, Michael. Let's turn to Page 3, which shows our financial performance for the third quarter on a currency-neutral basis, excluding replicable special items and the impact of gains and losses on our equity investments. Net revenue was up 15%, reflecting continued growth in our payment network and our value-added services and solutions. Acquisitions contributed 1 ppt to this growth. Operating expenses increased 14%, including a 4 ppt increase from acquisitions. And operating income was up 15%, which includes a 1 ppt headwind from acquisitions. Net income and EPS increased 8% and 11%, respectively, driven primarily by the strong operating income growth, partially offset by a higher effective tax rate due to Pillar 2 and a change in our geographic mix of earnings. The tax rate in the quarter was higher than expected due to a discrete tax expense. EPS was $4.38, which includes a $0.10 contribution from share repurchases. During the quarter, we repurchased $3.3 billion worth of stock and an additional $1.2 billion through October 27, 2025. Now turning to Page 4. Let's first look at some of our key volume drivers for the third quarter on a local currency basis. Worldwide gross dollar volume or GDV increased by 9% year-over-year. In the U.S., GDV increased by 7% with credit growth of 7% and debit growth of 7%. Outside of the U.S., volume increased 10% with credit growth of 10% and debit growth of 9%. Overall, cross-border volume increased 15% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. Turning to Page 5. Switched transactions grew 10% year-over-year in Q3. We continue to see an increase in contactless penetration, which in Q3 stood at 77% of all in-person switched purchase transactions. This is up 6 ppt since the same period last year. In addition, card growth was 6%. Globally, there are 3.6 billion Mastercard and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenue growth rates for the third quarter discussed on a currency-neutral basis. Payment Network net revenue increased 10%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value-added services and solutions net revenue increased 22%. Acquisitions contributed approximately 3 ppt to this growth. The remaining 19% increase was primarily driven by growth in our underlying drivers, strong demand across security, digital and authentication solutions, consumer acquisition and engagement services and business and market insights and pricing. Now, let's turn to Page 7 to discuss key metrics related to the Payment Network. Again, all growth rates are described on a currency-neutral basis, unless otherwise noted. Looking quickly at each key metric. Domestic assessments were up 6%, while worldwide GDV grew 9%. The 3 ppt difference is primarily driven by mix. Cross-border assessments increased 16%, while cross-border volumes increased 15%. The 1 ppt difference is driven by pricing in international markets, partially offset by mix. Transaction processing assessments were up 15%, while switch transactions grew 10%. On an unrounded basis, the 4 ppt difference is primarily due to favorable mix as well as some benefit from pricing and revenue from FX volatility. Other network assessments were $255 million this quarter. Moving on to Page 8. You can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 14%, which includes a 4 ppt impact from acquisitions. Excluding acquisitions, the growth of total adjusted operating expenses was primarily driven by increased spending to support various strategic initiatives, including investing in our infrastructure, geographic expansion, enhancing and delivering our products and services and advertising and marketing. Total adjusted operating expenses were lower than expected this quarter, primarily due to the timing of expenses between the third and fourth quarter. Turning to Page 9, let me comment on the operating metric trends. Starting with Q3, all our switch metrics are generally in line with Q2 and remained strong. As we look to the first 4 weeks of October, our metrics continue to remain strong, generally in line with the third quarter. Of note, U.S. switched volumes saw a sequential decline, primarily due to the expected Capital One debit migration as well as some tougher comps related to weather impacts in 2024. Overall, we continue to see healthy consumer and business spending. Turning to Page 10. I wanted to share our thoughts for the remainder of the year. The headline is that our business remains strong and consumer and business spending remains healthy. We delivered another strong quarter. The macroeconomic environment is supportive with balanced unemployment rates, wage growth continuing to outpace the rate of inflation for the most part and the wealth effect remaining intact. That said, there continues to be some ongoing geopolitical and economic uncertainty. We remain well positioned for the opportunities ahead, driven by a resilient and diversified business model, the significant opportunity for further secular shift to digital forms of payment and strong demand for our value-added services and solutions. We remain laser-focused on executing against our strategy and remaining at the forefront of payments and services as demonstrated by the innovative new solutions that Michael just highlighted. And we do all of this while also maintaining a disciplined capital planning approach. Now turning to our expectations for the fourth quarter. We assume continued healthy consumer and business spending. We expect year-over-year net revenue growth to be at the high end of a low double-digits range on a currency-neutral basis, excluding acquisitions. As mentioned last quarter, our rebates and incentives as a percentage of our payment network assessments is expected to be higher in the second half of 2025. We continue to see Q4 having the highest contra percentage relative to the other quarters, primarily driven by timing within the year and normal seasonality. For the quarter, acquisitions are forecasted to add 1 to 1.5 ppt to the net revenue growth rate, and we expect a tailwind of 4 to 4.5 ppt from foreign exchange for the quarter. From an operating expense standpoint, we expect Q4 growth to be at the low double digits range versus a year ago. Again, on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to add 4 to 5 ppt to this OpEx growth, while we expect an approximately 2 ppt headwind from foreign exchange for the quarter. Now turning to the full year 2025. We continue to expect net revenues to grow at the low teens range on a currency-neutral basis, excluding acquisitions. Acquisitions are expected to add 1 to 1.5 ppt to this growth rate for the year, and we estimate a tailwind of 1 to 2 ppt from foreign exchange. From an operating expense standpoint, we continue to expect growth to be at the low end of a low double-digits range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to increase the OpEx growth rate for the year by 4 to 5 ppt, while we expect a headwind of 0 to 1 ppt from foreign exchange. Other items to keep in mind on other income and expenses in Q4, we expect an expense of approximately $110 million. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. We expect our non-GAAP tax rate to be around 21% for Q4 and between 20.5% and 21% for the full year. And with that, I will turn the call back over to Devin. Devin Corr: Thank you, Sachin. Thank you, Michael. Julianne, you may now open up the call for questions. Operator: [Operator Instructions] This question comes from Bryan Bergin from TD Cowen. Bryan Bergin: Wanted to ask on U.S. payment volume growth. So, steady overall activity is evident here. But just curious on the surface, are you just seeing any evidence of trade down or differing consumer cohort behavior? And then just any early views on potential holiday spend? Sachin Mehra: Sure, Bryan. I'll take that question. Look, I mean, drivers continue to hold up really well. And you can see that in our metrics, true in the third quarter, continues to be the case in the first 4 weeks of October as it relates to different segments of the population, when we do our analysis based on looks of the various products we have out in the market, which serve the affluent population versus the mass market population as well as when we look at the amount of spend which is taking place across different categories of products that we have. What we're seeing is continued steady growth, both across affluent and mass market, true in the U.S., true across the globe. So overall, the consumer continues to spend. And really, everything we're seeing so far is manifesting itself in the drivers which we're talking about right here. Michael Miebach: And you can expect that consumers at different income levels make different decisions on their spend, discretionary versus non-discretionary. What matters for us is, it has to be carded and that plays in, and that adds up to the resilient trends that Sachin just talked about. Operator: Our next question comes from Darrin Peller from Wolfe Research. Darrin Peller: All right. Nice results. When I look at VASS at 22% growth, I think it was a few points from recorded future also, though, just -- if you could just remind us exactly, but just maybe revisit the underlying drivers that you're seeing really support that kind of sustainability. And if those are going to be sustainable throughout the year ahead of us in the next 12 to 18 months, what are they and what's driving it? How much of that could be tokenization that's driving into the agentic also going forward? And then just a quick follow-up also on the Capital One discover side. I know you mentioned you included it in the guide. I think that was the debit side. Is there anything on credit you're seeing? Or just a little more color on that would be great. Michael Miebach: All right. So Darrin, so let me start on the VASS side. We took great care in curating the VASS portfolio over the better part of the last decade. And we were very keen to find a portfolio mix that is anchored in underlying trends. So digitization, more data, more data, more need for security, more data, more need for insights to run a business in a better way. You've heard us say that a 1,000 times and it continues to be very true. So, when I look at the demand on cybersecurity with the rising fraud landscape and more fraud vectors out there, that just continues to power on. And we step right into that with a series of innovation. I mentioned Mastercard Threat Intelligence earlier in my prepared remarks. To your question about the Recorded Future, Sachin can talk about the points there. But that is our data coming together with the Recorded Future's Threat Intelligence that comes with a powerful combination. And there's a lot of companies out there that provide security solutions, but you can spend -- you cannot really outspend all the threat. So, what Threat Intelligence does allows you to be very, very targeted in your spending on cybersecurity. And that is really a very powerful proposition for our customers. Just to have one example. When I think about the whole piece about how we help our customers run their business in a better way, drive their top line, consumer engagement, personalization, data and business market insights matter more than ever before. And for us, we have the whole set of solutions. Earlier, when I was talking about our loyalty components, that is a business that today also matters even more. So, I feel we are sitting on the right trends. I don't see any discontinuity in terms of the demand breaking bound for that. I mean, the tall order for us is we need to continue to innovate. I just -- I think, I mentioned like six new innovations around that, and that is what we just have to keep powering on. So, the innovation muscle in the company is alive and well, and we keep training it. Sachin Mehra: Yes. And Darrin, I'll just add to what Michael just talked about on VASS, but I'll also speak to your Capital One question. First, your specific question around we had growth in VASS this quarter of 22%, 3 points of that was driven by the acquisitions in Recorded Future and Minna. So, you had underlying organic growth of approximately 19%. So, that's kind of one part of the question you asked. The second thing I'll just remind, the key drivers of growth on VASS come across the board, right? At Investor Day, we had shared with you that roughly 60% of our VASS revenues are network linked. So, underlying growth in drivers and underlying growth in tapping into that secular shift, which we got from a driver standpoint, contributes to the VASS growth, point number one. Point number two, back to what Michael said, with the steady drumbeat of new products which are being launched in the market as well as further penetration of existing products across security solutions, across consumer acquisition engagement, across our business and market insights. These are all contributing factors to the overall growth rate. And then, the last piece is pricing, right? And pricing is tied to the value we deliver. So, as we launch new products in the market, we can deliver and price for that. And so that's what we do. That's all adding to the overall kind of algorithm, which drives the services growth. I will say that and you know this as well, that services growth is something we look at as a long-term opportunity and we look at it certainly not only for this year but for years to come, but this is an important part of how we are driving the growth of our overall business. On your question on Capital One, look, I mean, the debit migration is underway. No surprise there. A few things to kind of just point out there. As you would expect, with the debit migration, which takes place, we will lose the associated revenue on this. I had mentioned previously in our prior earnings call that in 2025, we did not expect the net revenue impact from this Capital One debit migration to be material. Just a little bit of kind of context as we go into 2026. There will be further impacts, which will come through from an associated revenue standpoint as the cards start to migrate away from us and are migrating away from us. That being said, there are some contractual obligations, which will help offset some of this financial impact in 2026. Net-net, there'll still be an adverse impact from a net revenue standpoint. But I just wanted to make sure you guys had some context as we go into 2026 as to what that looks like. Specifically on credit, we continue to have a very robust partnership with Capital One on credit, and we don't see that changing as our partnership continues to grow and things are going well there as well. Michael Miebach: I think there was one other aspect in your rather long question, Darrin. And that was about tokenization. So, I just want to not answer that. So, on the tokenization front, we're in the billions per month, and that has totally scaled. We started to build out a set of services around tokenization, and we started to price for that because that comes back to Sachin's point of value that we provide, and it's in great demand. We see that's a massive differentiator for us as many of our other services versus local payment networks and local alternatives and hence, the demand keeps going. Operator: Our next question comes from James Faucette from Morgan Stanley. James Faucette: I wanted to ask about the evolution and enablement, the Mastercard is providing for agentic commerce. Can you talk a little bit about how not only Mastercard is helping accelerate that, it seems like, but any of the unique threat or risk and even legal issues that you're -- that need to be considered and how we should think about tracking the growth in agentic commerce and its contribution? Michael Miebach: All right. So let me start with that. So, this is a significant development. And I think there's two lenses to look at it. The first is, what we're seeing is behavioral change, driven and powered by generative AI and bots and so forth, where search behavior is changing. So, that's on the consumer side, if we start right there. So, consumers are migrating their search increasingly so to their favorite chatbot and they're asking their queries there, and they get potentially better answers, who knows. But that behavior shift is changing, but it still feels like you're searching for something and then you're going to some sort of a checkout. The other lens on this is, it's really quite a significant paradigm shift for the payment ecosystem, because in the payment ecosystem, what happens is there's no an extra party that has entered the realm, and that is the agent. So, that comes with a lot of those aspects you just talked about in your question, is there's legal questions, there's a security question. So, if I break it down and some of the things that need to happen in a world of agentic commerce is, the first is, is this a real bot? Is this a bot that we believe matches up to Mastercard's safety and security standards? So, we will certify and register bots out there. So that's what Mastercard Agent Pay does. That's what we do. That's what we do today with participants in the ecosystem. So, nothing really new from us on a perspective, but it's a new party. Not really visible to the consumer in that way, but certainly driving some complexity potentially for merchants, for issuers, for every other party because that is just a new flow for the transaction. I think the next thing to think about is, how will merchants deal with all of this. Earlier, I used the word no code approach. So, we have learned this during the day of the various wallets that were out there. It is not easy for merchants to consume this. So, what we have done here is we created a merchant framework that allows us to engage with merchants and with other parties that bring out protocols like Stripe and Open AI and so forth to make this very easy for merchants. So that is important. The merchant needs to know that the agent on the other side that we have certified is actually the agent. So, we have to pass through that information and ensure that the circle closes. We're doing that. Well, there's still the question of what is in focus today very much so is the consumer, the person they claim to be. So, consumer authentication needs to continue, but it now needs to flow through a somewhat more complicated transaction. So, all of this is happening. Now the tricky part is, if you have asked an agent to buy you something in a chat, and then in the end, you challenge that transaction, who can prove who's right. Is it the consumer? Is it the merchant? What happens? What do you do on return policies and various other things. Those are all complexities that we're pretty good at solving in today's world, and they were pretty busy solving in the future world, and that comes down to some of the aspects that you've talked about in your question. Where is the legal and regulatory framework on this yet? This is not something that's specifically contemplated, but that will evolve over time. And basically, it takes parties like us who focus on safety and security and not trust. Because only when there is trust, this whole space will actually evolve. Our set of services around this will assist in this effort that I have that I just described. I think, it's also important to note that this is an opportunity for us to drive our business forward. Because if we do this work better than anybody else, that's a tremendous opportunity for us. And some of the things that I see that we have built in our portfolio here to power agentic commerce. It's for example, on the point of challenging a transaction. We've bought a company a couple of years ago called Ethoca, and what they do is they provide transaction detail at the moment of a charge back to a consumer that says, "Hey, you actually did this transaction because you were here at this time doing the following." And the same can be done with this audit trail that would be capturing out of the chat that I talked about earlier. That is one example. There is identity solutions. There is merchant services, there's advisory, et cetera. The whole host of services will help us make this a safe and secure ecosystem and live up to the opportunity that we all think it could be. And everything I just said does not stop at consumer. You can transport the same logic into the B2B context for other use cases that will emerge over time. Operator: Our next question comes from Jason Kupferberg from Wells Fargo. Jason Kupferberg: I wanted to come back to the topic of opening new acceptance channels. On the consumer side, you mentioned rent. I feel like that's been targeted for a while, hasn't really taken off. I'm wondering what you see as some of the catalysts to unlock those volumes or the interchange models changing at all? And just any other newer acceptance verticals you see as emerging would be interesting to hear about. And then, Sachin, if you can just give us a quick word on M&A pipeline, I think it's been almost a year since the Recorded Future, that would be great. Michael Miebach: All right. So going into underpenetrated verticals where there's ingrained behavior for many years, it takes a little bit of time. But I feel we're starting to make some real progress here. Gave you an example from another part of the world, New Zealand, but here with Bilt, we've made a lot of progress here in the United States. A lot -- if you ask around in your circles and young kids who pay their rents, they're dying to pay on Bilt. There's -- our rewards loyalty programs, all that behind is an important differentiator. I really feel there is momentum there. We are very specific not to pick a whole host of different verticals, because they all have their intricacy. So, we focus on healthcare as well. We focus on tourism. We gave plenty of updates over the last couple of calls on that. So, it is trying to use our existing set of solutions, but then find the nuance that makes a difference and find those partners like Bilt and Renti in this case. So, I do say -- I do think we are making progress. It's a tremendous opportunity that we laid out from a target market perspective, and we're chipping away at it. Sachin Mehra: And Jason, on your question on M&A. Look, I mean, just stepping back, our philosophy on M&A remains pretty much unchanged. It's always been strategy led and it will continue to be strategy led, right? And so, when we have something from a strategy standpoint, which we need to accomplish, we kind of think, step back and think about, do we want to build, buy or partner. And to the extent we think it's appropriate to actually buy, that's where M&A comes in. The pipeline is robust. We are very, very deliberate about how we go about filtering through and funneling through on that pipeline to make sure it's on point and it's going to deliver the synergistic value that we expect to deliver as part of that. So look, I would say the focus areas will remain very similar to what they have in the past in terms of how we have gone about executing on M&A. It's been primarily focused on services that will continue to be the case on a going forward basis. And then on occasion, if there's areas around the payment network side that we need to do stuff, we'll certainly look at that as well. Operator: Our next question comes from Bryan Keane from Citi. Bryan Keane: I have two just kind of follow-ups. On agentic commerce, Michael, maybe you can help us understand how Mastercard maybe can take share in agentic commerce given your position and versus competition, what can maybe differentiate you? And who would you be taking share from? And then just a clarification for Sachin. On the Cap One migration, the debit migration, how much comes off in '25 versus '26. And then I guess, with the contractual obligations, then it's a very small headwind in '26 and maybe a little bit of a headwind in '27, if that's onetime? Just some quantification there. Michael Miebach: Right. Bryan. So on the share side, so first of all, I try to lay out that we have a differentiated proposition overall for agentic commerce. So, we hope to be positioned well with partners out there who look to get into the space and work with us. Now the share part that you were talking about is beyond services goes into the payment side as well. So, one thing that I think is a pretty obvious opportunity is, this is going to be very hard to do for local payment networks. So, if you look around various kind of local payment systems that exist in Europe, in Asia and so forth. Big markets for us is an opportunity for us to continue to drive up our switching ratio as we've done in years, and this gives us another, kind of, field to execute on. I think that's the first thing to say. There's another aspect here on where we'll have to see how it works from a share perspective, but the general nature of the agentic commerce driving more transaction is a good opportunity for us to drive share to start with, because what might have been one basket at one merchant might not be a very broader set of recommendations from a bot that gives us multiplicity of opportunity to get into the flow and provide the kind of solution that helps us get this over to us. I think, one other thing to keep in mind is, kind of, when you look at agentic and you think back about the days where everything was in store and what kind of services portfolio we had and the opportunities we had to apply services and drive differentiation for us versus others. And then it went online. There was a whole different set of solutions that were suddenly needed to keep the online transaction safe. And agentic, it's going to be even more opportunity for us to do that. So, those are all lenses on how we look at it. Most tangible near-term one would really be as this plays out, not near term as in the next month. But near term, as in the next year, possibly when agenetic commerce really gets momentum to compete versus local payment solutions. Sachin Mehra: Yes. And on Capital One, like I said, look, I mean, the conversion is underway. We expect the conversion to complete in 2026. I mentioned that there is an offset due to the net revenue loss as part of the conversion. You should not assume that the offset completely negates the impact of the lost net revenue. I'm not going to size for you exactly what the amount is that we're expecting in 2026. But it is fair to assume that the headwind in 2027 will be there, because you no longer have the benefit of that contractual obligation offsetting in 2027. So, if you're looking on a year-over-year basis, what you're going to see is, you're going to see an adverse impact in 2026 by virtue of this conversion. And then on a year-over-year basis, you will see in 2027 an adverse impact as well just because the contractual obligation is no longer benefiting us in 2027. Operator: Our next question comes from Harshita Rawat from Bernstein. Harshita Rawat: Michael, I want to ask about Mastercard Commerce Media. Can you expand upon the announcement? It looks like you're bringing together a lot of your assets across offers, loyalty, personalization. Maybe talk about the early feedback from advertisers who've received distribution channels, how will it work? And the release also talked about kind of like a high return on ad spend? Can it sustain at these levels of the scheme? Michael Miebach: Thank you, Harshita. So from the date of the plastered Times Square with Commerce Media, a lot has happened. So, we're out there with advertisers. We're out there with publishers. So, those are both kind of parties in this ecosystem. Today, how that industry works is, kind of the, one of the problems to solve is, can you really attribute the ad spend? And this is one of the problems that we can solve here. Because we can tie it to a specific transaction, a specific purchase that went through our network. So, that brings us a different -- gives us a different starting position for all of this. When you go and you want to enable somebody to place the right ad -- in the right ad at the right time, you need more data to do that. And we do have proprietary spend data and insights from our commission 500 million consumers that sit in our loyalty programs and 25,000 merchants. That is a very unique position that we are in. Other competitors having -- there are other players out there who haven't been in this business. We've been in loyalty for a long time. And we just started to look at this. This is a whole different approach for us to get into business that go straight beyond the payment transaction as I framed it earlier on. So, the initial reception is interested. We have a set of big players on both sides of the equation. And I mentioned advertisers and publishers who are engaging with us to drive this. But it's also pretty early days when we launched it. So, I can't really have anything to share from a numbers perspective, other than there is demand, let's go and do this because the proposition is pretty clear. Operator: Our next question comes from Tien-tsin Huang from JPMorgan. Tien-Tsin Huang: Nice results, of course. Just following up on a few of the questions asked already. Just thinking about this build versus buy for Mastercard. And Michael, your comment on carefully curating the VASS portfolio. On the build side, it feels like you've announced a few things, cloud platform, Harshita just asked about the Commerce Media Network. Are these the recent build projects, are they moving the needle in VASS in the near term from your perspective? And on the buy side, there were some press reports about Mastercard's interest in crypto infrastructure. Can you comment on that? And just your appetite in general for infrastructure versus services assets? Michael Miebach: All right. So, Mastercard has been -- you all know, I've been the Chief Product Officer before. So, I kind of know a lot about organic innovation and so forth. And we have been very good at that over time. But we've also been very focused on leveraging the acquisition lever whenever we could. And whenever it makes sense, strategy-led as Sachin talked about earlier. So, somewhere in the middle is where you find some of these recent announcements like Commerce Media, what Harshita just talked about. I see that as a pretty big bet for us. It's a really unique position that we bring to the party. There's clear interest in the market. So, we feel this is something that will make a difference. Otherwise, we wouldn't do it, but it's also early days. And there isn't just one big bet. So, there's a few things that we're given -- trying at any given point in time. They get some preferential funding in the company and so forth that we push forward. That's a discipline that we filled out over years on top of our everyday organic innovation. So, Commerce Media on-demand decisioning, as I talked earlier, and a few others that are coming. So, that's been a strong quarter. But we felt like rather than giving you a bits and pieces every quarter, we thought we'll take this quarter and put everything together to show you that the innovation muscle is all well and it's not just about buying companies out there. Now, we are not commenting on market rumors. You would have not expected me to say anything else. Yes, I saw that article as well. Operator: Our next question comes from Andrew Schmidt from KeyBanc Capital Markets. Andrew Schmidt: I wanted to ask on cross-border. Cross-border volumes have been remarkably resilient and very consistent here. Maybe just comment on the sustainability, the drivers of sustainability on a go-forward basis. And then, if we peel back the layers for both card-not-present and travel, card-not-present, card-present travel, if there's anything to call out in terms of verticals, corridors that's worth mentioning in terms of shifts you're seeing? Sachin Mehra: Sure, Andrew. I'll take that. So look, I mean, just to set the stage, for cross-border, right, the value prop on cross-border continues to resonate across the consumer base as well as across business, right? I mean cross-border is a combination of consumer spend as well as business spend, which has taken place there. And that value prop is alive and well and people are using it and leveraging it and they see some significant benefits as a result of that. That in combination with winning the right portfolios, which is what we focus a lot on, which is winning the right kinds of portfolios, which could be cross-border heavy, affluent portfolios. Case in point, Michael talked about Japan Airlines, right? Great example, when you win a co-brand portfolio or, for example, the renewal with American Airlines, these are important portfolios to win. Because they actually help sustain that growth rate on cross-border because when people buy -- take those products, they're actually using them in the cross-border environment. So, winning the right portfolios is important. Number two, it's the effort which goes into the daily blocking and tackling to drive cross-border volumes, right? We have a team inside of Mastercard, which actually spends a lot of time focusing on pulling the right levers to drive optimization of cross-border flows. Because it's not as easy as it sounds, right? And very often what happens is, you've got a stimulate spend in the acquiring corridor so that people pull out their Mastercard card when they're actually traveling overseas. So, we'll work across borders and our teams to ensure that we've got the right level of focus to drive spend across important corridors. Really important. So I'm going to just bring it together. Value prop works, winning the right portfolios, driving optimization across those portfolios. And last but not the least, being present across both card-present and card-not-present. Really important. You can see strong growth in card-not-present. It's been running at roughly 20% growth on card-not-present ex-travel for cross-border. Look, I mean, it's all the things that we do every day to execute on that to be present and have our acceptance available in those cross-border channels, which makes that come to life. That is partially also sustained by something which Michael talked about earlier. He talked about how Mastercard products are used in the on-ramp for stablecoins and for crypto. Well, that comes into card-not-present ex-travel, right? So when you have that kind of growth coming through there, that's coming through in these metrics as well. So overall, I would tell you, I won't give you a forecast. I know you're looking for that. I will tell you that the underlying fundamentals of what drives our cross-border volumes is very much intact. Operator: Our next question comes from Tim Chiodo from UBS. Timothy Chiodo: I want to talk a little bit more about that cross-border acceptance. So, when either Mastercard or maybe an attempt by another local or another competitor looks to build out that global acceptance I was hoping you could talk through what do you need to do that, right? Is it things like licenses, relationships with merchants and PSPs or acquirers, there's a branding aspect, there's customer awareness, there's probably a bunch of infrastructure investment. If you could just elaborate on just how much of a moat and how challenging that is? And then lastly, somewhat related to what extent do you think it's possible and some have done this that competitors could more partner on this rather than building out on their own? And what the difference is in the two approaches? Michael Miebach: Right. So, it sounds like you worked in our industry for a while because you just gave a good part of what it takes to do this. And if you take a step back and look at the list that you just talked about, it just tells you it's hard to do. It's difficult to do and it took a long time to build it. So, that's important. Different players have tried to replicate some of that, and it continues to be the better proposition that's out there. It's driving a lot of value because it -- with 100 whatever, 50 million acceptance points, whatever the latest number is, it is very hard to replicate. And for us, as a company, we are well positioned with our domestic license in China to continue to drive that footprint. The complexities that come in is, indeed, you have to be a global player and act local, understand the local regulatory system. You have to understand the local partners because remember, we are the global fabric that sits on top of this. We're not doing the last mile of this, and this is why it's really important for us to continue to build partnerships around the world and drive the cross-border acceptance. But you got to help them drive preference for us. You've got to ensure that the user experience that they provide to the consumer at the point of interaction is a compelling one. It's easy. It's all that, and it's delivering the standards that we put out for us to ensure that the Mastercard transaction actually comes through. And one of the most critical things about all of this is that in the end, you need to have to ensure safety and security, because as people worry that what happens if something goes wrong, where is my data going? What happens if this transaction is a fraudulent one, et cetera, et cetera. Those are all aspects of this. And by the way, they reflect a good chunk of our services portfolio that we also offer to those partners that drive that acceptance for us in markets. So, all of this comes together. So yes, I think it's hard to do. There will be others that come at it. And so far, I think this is just the most differentiated proposition that's out there. Earlier, there are different cross-border solutions for different types of payments that we're also active in, because it's not just B2M. There's Mastercard Move, where you have B2C disbursements and gig work payouts and so forth. So, we're doing that, leveraging our network in bidirectional ways to do the same thing to keep this resilient proposition. Can you just repeat the second part of your question? There was a particular angle you were after? Timothy Chiodo: Sure. It was around the ability to do this by partnering with other networks rather than building it on your own? And to what extent you thought there was maybe quality or other differences? Michael Miebach: Yes. So, there's other networks is an interesting angle. Let me talk about where we see partnership opportunity, and I talked about that with digital wallets. So, this is right now a particular opportunity. There's a clear trend that in some parts of the world, people love wallets for a range of reasons, the stored value digital wallets that I mentioned with Alipay+ and so forth out in Asia. That is a great partnership, because they provide a particular local solution, we provide global acceptance, the combination of that makes a great opportunity for partnership. General processors, acquirers, those are different types of partners. There occasionally we see competition coming in, but it's pretty clear, we -- that for us, we have a need to find ways to partner with people that can cover the last mile for us. So it's never an either/or. We always look for opportunities even for people where in certain pockets, we do compete, we'll find other ways to partner to drive the reach of our network. Sachin Mehra: Yes. And I'll just add, Tim, to that point, which Michael just made. Look at the end of the day, right, when we build out acceptance, we're building out acceptance, both for domestic and cross-border. It's not like you're exclusively building our acceptance for cross-border. So, back to your question around the sustainability and how difficult or not it is for others to compete. It's a question of what your global footprint is. To the extent, we've got thriving domestic businesses in many, many, many countries across the globe, where we built out the acceptance footprint, right? That serves us not only in the domestic volumes, but certainly serves us from a cross-border standpoint as well. Michael Miebach: Yes. Every transaction starts somewhere domestically. Operator: Our next question comes from Sanjay Sakhrani from KBW. Sanjay Sakhrani: So pricing, Sachin, you mentioned it as well has been a tailwind this year. I'm just curious can that trend continue in 2026 to a similar degree? I guess also when I think about it, that core payments business, like do you think there's still a decent pricing power there? And then, just I have one quick follow-up on the Capital One data disclosure. I'm just trying to think about the step down in volumes sequentially. That seems like a significant number given how early the Cap One transition is. Maybe you could just help us think about that. I know the revenues are separate. I'm not necessarily as concerned about that. I'm just thinking about the optics of the volumes. But maybe you could just speak a little bit about what we should expect as we move through fourth quarter and into next year in terms of the magnitude of impact on U.S. volumes? Sachin Mehra: I'll take both questions here. On Capital One, right? So remember, when I was talking about the first 4 weeks of October on U.S. volumes, right? It's certainly the Capital One piece as well as the lapping effect due to weather impacts we had in 2024. So, it's a combination of both of those, which reflects on the 8% number that you're seeing in Q3 going to 5%. But it's important to also look at what the growth rate in September was, because 8% is the average across all of Q3. So, it's kind of this step change, which takes place as cards migrate that you're going to start to see the volume come down. And candidly, I mean, the cards are migrating over, and they will continue to through the course of the fourth quarter and going into the early part of next year. So, I feel like at the end of the day, that's something which is just the reality, that's well understood. That's well contemplated in every bit of guidance that I've shared on 2025. I've kind of given you a little bit of a look into what the puts and takes for 2026 are as it relates to Capital One as well. Michael Miebach: Can I say one thing? There are a few questions on Capital One. And of course, that's Capital One is an important partnership. But it's not the only partner we have in the U.S. So, we keep winning on the other side. And if you zoom out and you look at it from a global perspective, it's a truly global company, like we have 27,000 bank partners. And we win a lot. Our share has been up, which we shared with you at the Investor Day. So, there's a lot of winning going on. And I think it's always good to keep that perspective. There will be shifts and puts and takes here and there. But overall, the trend has been pretty positive, and we continue to win. Sachin Mehra: Yes, Sanjay, your question on pricing. Look, I mean, at the end of the day, if we do our job right, there's no reason why we cannot price with the value we deliver. We continue to deliver new products in the market, we can deliver incremental value in existing products, and we price that. And so, if we continue to do our job right, as we've done this year, we'll do in ensuing years, we feel like there's an opportunity both across the payment network side of the business as well as value-added services and solutions. So, generally we feel pretty good around that. Devin Corr: Thank you. Michael, any closing comments? Michael Miebach: Yes, I'd love to continue to talk, but we're just slightly over time. So, thank you again for joining the call. Past hour, we covered a lot of ground together. We appreciate your support all the time, and this is always the opportunity to thank those people to make it all happen here at Mastercard, our colleagues. So, thank you to you all, and we'll talk to you again in the next quarter. Thank you very much, and take care. Bye-bye. Sachin Mehra: Thanks, everyone. . Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

200天前Insight Analytics约5分钟阅读

SNCY 2025 Q3 财报电话会议

Operator: Welcome to the Sun Country Airlines Third Quarter 2025 Earnings Call. My name is Marvin, and I'll be your operator for today's call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Chris Allen, Director of Investor Relations. Mr. Allen, you may begin. Christopher Allen: Thank you. I'm joined today by: Jude Bricker, our Chief Executive Officer; Torque Zubek, Chief Financial Officer; and a group of others to help answer questions. Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements. Our remarks today may include forward-looking statements which are based on management's current beliefs, expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially. We encourage you to review the risk factors and cautionary statements outlined in our earnings release and our most recent SEC filings. We assume no obligation to update any forward-looking statements. You can find our third quarter 2025 earnings press release on the Investor Relations portion of our website at ir.suncountry.com. With that said, I'd now like to turn the call over to Jude. Jude Bricker: Thanks, Chris. Good morning, everyone. Thanks for joining us. Our diversified business model is unique in the airline industry as demonstrated by our 13 consecutive profitable quarters. Due to the predictability of our charter and cargo businesses, we are able to deliver the most flexible scheduled service capacity in the industry. The combination of our schedule flexibility and low fixed cost model allows us to respond to both predictable leisure demand fluctuations and exogenous industry shocks. We believe due to our structural advantages, we'll be able to reliably deliver industry-leading profitability throughout all cycles. As discussed on prior calls, in 2025, Sun Country is focused on cargo expansion as we execute on the planned growth of the cargo fleet to 20 aircraft. Today, all 20 aircraft are in operation. Our third quarter cargo revenue for September is up 60% year-on-year, and we expect it to move to over 75% by December based on the current schedule. Consistent with our plans, cargo growth has displaced some scheduled service flying. The year-on-year cuts in scheduled service were largest in 3Q, and we'll be focused on recovering those levels in the next several quarters. I expect to be able to show positive year-on-year scheduled service growth by 3Q '26. For me, the most positive news in the quarter was the inflection in scheduled service TRASM. 3Q TRASM was up 1.6%. However, for September, it was up over 7%. Currently, we expect 4Q TRASM to be up over 6%, with 1Q 2026 it advances even stronger. Our revenue strength is across all regions of our network. And based on our current industry selling schedules, I don't see any reason that those trends shouldn't continue. I continue to expect to achieve $300 million of run rate EBITDA after the second quarter of 2027, operating the fleet we currently have on our balance sheet. The timing of full implementation may be delayed by many factors, some beyond our control. The aircraft that we lease out will be redelivered through the end of next year, and we project that utilization will continue to increase as we train crews to increase block hours. Another positive in 3Q was charter production. We had an all-time record volume while also growing revenue per block hour by 4% year-on-year. In the backdrop of a strong -- of strong demand for charters, we're able to allocate surplus capacity into this segment. This helps offset some of the underflying of scheduled service. Our ability to flex capacity between charter and scheduled service continues to be a competitive advantage, especially in this environment. Finally, and perhaps most important for our long-term success, we continue to execute a safe and reliable network with 3Q controllable completion factor of 99.3%. Operations as varied as ours are difficult. It's a team sport. I continue to be impressed by all our employees that make it happen for our customers every day. With that, I'll turn it over to Torque. Daniel Zubeck: Thank you, Jude. As Jude mentioned, this quarter marked the completion of our cargo expansion with all 20 aircraft now operating under the contract for Amazon. Adding 8 additional aircraft to our fleet was truly a team effort and represents a 14% increase in our total fleet. As such, we remain in a transition period while we begin to annualize our cargo growth and then begin to grow back our passenger service business to the pre-2024 utilization and expand our passenger fleet to 50 aircraft by mid-2027. During this transition, we have remained profitable thus far and as Jude mentioned, produced our 13th consecutive profitable quarter. Our GAAP EPS for the third quarter was $0.03 and while our adjusted EPS was $0.07. GAAP pretax margin was 8%, while adjusted pretax margin was 2%, our fourth consecutive quarter of year-over-year adjusted margin expansion. Third quarter total revenue was $255.5 million, a 2.4% higher than Q3 2024 on a 3.8% increase in total block hours. Revenue for our passenger segment, which includes our scheduled service and charter business, was down 3.2% year-over-year, primarily on a greatly reduced schedule and service operation as we completed our transition to the increased cargo fleet. Our scheduled service business strengthened throughout the quarter. August total fare increased 2.6% versus last year, while August load factor increased 2.7 percentage points to 87%, which was the highest monthly load factor this year. September saw an even better performance as total fare was up 4.5% versus last year and load factor increased 3.2 percentage points to 83%. Scheduled service ASMs were down 10.2% in the third quarter as we shifted resources to facilitate the dramatic growth in our cargo segment. While we will not be adding additional cargo aircraft in the fourth quarter, we will still be annualizing the new growth. Thus scheduled service ASMs are still expected to decline between 8% and 9% in Q4 2025 versus last year. Third quarter revenue continued to show strength. Charter revenue grew 15.6%, while charter block hours increased 11.1%. Excluding the impact of fuel revenue reconciliation, charter flying grew 16.7%. The flexible nature of our charter business was on full display as block hours dedicated to ad hoc charter opportunities grew 31%, which helped offset the slower build in the third quarter cargo block hours. Charters flown under long-term contracts still account for 77% of the charter block hours, which was down from 80% last year. Revenue in our cargo segment, [ 50.9% ] in Q3 to $44 million, which was the highest quarterly cargo revenue in our history. Cargo block hours grew 33.7% in the third quarter as all 20 cargo aircraft were in service by late August. This transition was a bit slower than we expected going into the process. As such, it drove pilot costs higher as we hired up for a greater level of block hours in the quarter. Cost. Now turning to costs. Our Q3 total operating expenses grew 3.6% on a 3.8% increase in block hours. If you exclude fuel and special items, our operating expense in Q3 was actually lower than it was in Q2 despite having 1.3% more block hours in Q3 than in Q2. CASM in the quarter was up 10.3% versus the same period in 2024, while our adjusted CASM increased 5.2%, both heavily influenced by the 10.2% drop in scheduled service ASMs. Salaries grew in Q3 15%, in large part driven by a 10.6% increase in employees, the increase in pilot contractual rates from the beginning of the year and flight attendant contracts ratified in Q1. Maintenance in the quarter increased 13.5% due mostly to the occurrence of unplanned maintenance events. Now regarding the balance sheet, at the end of the quarter, we closed on a $108 million term loan facility with a fixed rate of 5.98% per annum. This allowed us to pay off the March '23 term loan, which had a materially higher interest rate and refinanced our 5 737-900ER aircraft. We still have not drawn down the entire $108 million and expect to receive the remaining $54 million by the end of 2025. Our total liquidity of $298.7 million in the earnings release includes this amount. In addition, we spent $10 million for share repurchases in the quarter and have $15 million remaining in our previously announced share repurchase authority. Year-to-date, we have completed a total of $20 million in share repurchases. We have also spent $29.1 million through the year in CapEx and expect to spend between $80 million and $90 million for the full year of 2025. As a reminder, we do not expect to have meaningful aircraft CapEx until later in 2027 as we still have owned aircraft on lease to other carriers that will redeliver to us throughout 2025 and 2026. These 5 aircrafts will drive growth in the passenger segment for the next couple of years. Net debt at the end of the third quarter was $406.1 million, down from $438.2 million at the beginning of the year. Now turning to guidance. We expect the fourth quarter total revenue to be between $270 million and $280 million on an increase in block hours of 8% to 11%. We are anticipating our fuel cost per gallon to be $0.025 (sic) [ $2.50 ] for us to achieve an operating margin of 5% to 8%. Our fourth quarter is also burdened by an acceleration of some heavy maintenance costs that we plan to pull forward from 2026 to manage the maintenance of our fleet. Our business is built for resiliency, and we will continue to allocate capacity between segments to maximize profitability and minimize earnings volatility. With that, I'll open it up to questions. Operator: [Operator Instructions] Our first question comes from the line of Brandon Oglenski of Barclays. Brandon Oglenski: Jude, how do we think -- and I don't mean this to be a near-term question, but just given that cargo is going to be a bigger mix going into early 2026, how does that impact the seasonality of the business? Because traditionally, you guys get a pretty big margin in the first quarter with folks leaving Minneapolis. Jude Bricker: Brandon, yes. So I'll answer that a couple of ways. First is the ramp-up has been slower than we expected for cargo. We're rostering December in a couple of weeks, and we're planning a block hour production in the cargo fleet of over 5,000 hours. And that's about what we would expect the run rate to be on a permanent basis, subject to out-of-service time related to planned maintenance. So that's going to be the effect of the cargo operation through most months in 2026. We still will have a really seasonal operation because the value of cargo, whether it's -- the scale that it was last year or the scale that's going to be next year is that we can fly higher peaks. And the negative effects of the cargo implementation in the third and fourth quarters has been that we had to cut down peak period of flying in order to accommodate cargo growth, and that will be rebuilt in the subsequent quarters. And so we'll be repeaking the schedule, which will actually potentially increase seasonality of our business as we expand March -- into March '26 and March '27. So I don't think there's going to be much to change the seasonality of our business. Our first quarter is always going to be massive. Brandon Oglenski: Okay. I appreciate that. And Torque, congratulations on the new role here. I guess it'd be great to get your impressions being there for a while now. And also, I think you made some commentary around maintenance costs in the third and fourth quarters. So maybe if you could elaborate on that. Daniel Zubeck: Yes. We just -- when we talk about our maintenance cost, that's really driven by the fleet that we have. We've expanded fleet, and there's more maintenance required in there. I don't know, Steve, if you want to? Stephen Coley: Yes. It's an opportunity to pull it into 2025 to stabilize the maintenance demand and provide a more predictable platform to run our business. Jude Bricker: The lumpiness of maintenance will always be heavy checks, including engine repairs. And this is a relatively high period for us. Operator: Our next question comes from the line of Catherine O'Brien of Goldman Sachs. Catherine O'Brien: So you guys noted that fares and loads were strong in August, September accelerated from August. I guess is that continuing into the fourth quarter? I know, there's some pretty tough comps on an industry basis in late November and December, but you've got capacity down year-over-year. Just any color you can provide us on how you see RASM progressing through the months of your 4Q outlook? And any read on the holiday bookings would be great. Jude Bricker: Yes. I mean, certainly, listening to earnings calls across the industry, it appears we're on an island. And it looks really strong. I don't have any negatives. I mean we had over -- as I've mentioned earlier, we had over 7% TRASM improvement in scheduled service in September. Off-peak periods will be more responsive to capacity changes for TRASM impact. In other words, cutting down September has a greater impact on TRASM than it would in the peak period when all the flying is strong, for example. But we're moving into our winter peak season. Sales look really, really strong into the winter period. Our guide reflects an over 6% TRASM year-on-year improvement for the third quarter. I mean there's just nothing worrisome in advances right now across the network. I'm not seeing any competitive movements that give me pause or any year-over-year weaknesses. Minneapolis is becoming a 2-airline market, as we talked about in the past with the removal of Allegiant and Spirit from our home market. I don't know, it just looks really good. I don't have anything negative to speak of. Catherine O'Brien: Happy to hear. I'll take it. I guess maybe one for Torque or someone else, and welcome, Torque. On my math, CASM ex fuel is accelerating quite a bit into the fourth quarter. I'm getting to like mid-teens inflation, but then on a block hour basis, closer to 5% year-over-year. I guess, first, lots of moving pieces. So can you correct me if I'm wrong? And then give us some color on the impact of that maintenance pull forward is having in the fourth quarter? And then maybe just higher level, as cargo inductions are behind you and the start of service further behind you, any preliminary thoughts on what 2026 capacity and unit cost inflation could look like high level? I know last quarter, you mentioned you expected cost pressure to persist through first half. So sorry, that's kind of a twofer for my second one. Daniel Zubeck: Yes. Thanks. Well, I think when we look at our maintenance coming up, we've got $2.4 million of heavy maintenance forecasted in 2026 right now. So that's certainly going to... Stephen Coley: Okay. That's from '26. Daniel Zubeck: Yes, sorry, from '26 -- sorry, pulling that into Q4. Sorry about that? Jude Bricker: Yes. On capacity, we mostly think about capacity while we have more aircraft than block hour. So we're block hour constrained. So credit hour growth '26 over '25 will be about 10% -- now those credit hours consumed in cargo don't produce the same amount of block hours as those credit hours that are going to be consumed by scheduled service flying. So our block hour growth will be lower than our credit hour expansion because of the cargo expansion, if that makes sense. The real thing that I'm most focused on to try to get us back into the mid-teen annual operating profit margin is going to be the expansion of scheduled service flying in peak periods, which currently is constrained by our credit hour constraints. So as we hire pilots and continue to add and upgrade pilots, then those numbers will expand, and that's the highest margin opportunities that we have that we're not able to execute on with current staffing constraints. Operator: Our next question comes from the line of Tom Fitzgerald of TD Cowen. Thomas Fitzgerald: Just sticking with labor for a minute. I remember historically, there's been a kind of just more of a broader theme of having trouble getting captains upgraded or first officers upgraded from the right seat to the left seat and there have been discussion about maybe opening a base in Florida. I'm just wondering what the latest is there and what you're thinking is right now? Jude Bricker: There's a lot going on in flight ops here. We, for the first time ever, rostered our crews in October with PBS which drives a lot of efficiency. That was part of the 2021 deal that we did with ALPA and are finally able to execute on that. So that will drive efficiencies going forward. And we do intend to open a base. That process is ongoing. It's not going to be in Florida. It's going to be in Cincinnati in support of our largest cargo operation there. Both of those things, I think, will increase demand for captain upgrades. But you're right, it still is an issue here at Sun Country and captain upgrades are the limiting factors as we do long-range planning into '26 and '27. Thomas Fitzgerald: Okay. That's really helpful color. Just kind of curious in thinking about the balance sheet. I know there's still some left on the current authorized buyback program. But I'd just love to get your latest thinking on capital allocation and liquidity, just as [indiscernible] with Torque on board now and where you're thinking about as we move into 2026. Jude Bricker: I'll give you my initial thoughts and then throw it over to Torque. I mean, we have a lot of liquidity, and we're producing a lot of free cash flow. We'd love to be really opportunistic in buying metal, but we've been trying and there's not a lot out there that meets our price expectations. So I don't expect us to find a lot of CapEx opportunities. So this is going to be buybacks. That's where we are. Torque, anything to add on that? Daniel Zubeck: Yes. I just think when we have capital available and if there's opportunities to deploy that, we'll be looking for those. And as Jude had mentioned, it's really -- the market is tight for aircraft and engines, and those are our primary areas we're looking for investments. Operator: And our next question comes from the line of Michael Linenberg of Deutsche Bank. Michael Linenberg: I guess with respect to competitive capacity in your markets, I see that Spirit is actually going to bow out of the Minneapolis market in December. And I know even as recently as earlier this year, they were serving probably like a half a dozen cities. Does that free up any potential gate space? Or is there real estate there for you to take advantage of? And maybe any other airports that -- I know that they rejected leases at about a dozen airports. Are there opportunities there for you and -- as well as kind of answering the competitive capacity question in your key markets? Jude Bricker: The Minneapolis domestic capacity -- actually, North American capacity, which is a better comp for us through the selling schedule, which we just extended out through Labor Day 2026 is flat to down. And you pointed out airlines leaving the market and Spirit isn't -- sorry to see them go, isn't serving Minneapolis beginning here real soon. They serve out of T1 and it's not -- we have our own terminal. So it doesn't really change the dynamic here. I just want to point out, we're not capacity constrained in Minneapolis whatsoever. And that's one of the strengths of the business. We can park airplanes as many airplanes as we need to. We can -- we have plenty of gate space. There's really no constraints. We do have capacity constraints in some of our major busiest airports in out stations. So Boston Logan, we have trouble extending the schedule past 1 p.m. We serve Newark and JFK, both capacity constraints, LAX, et cetera. So I mean, some pullbacks from Spirit will be healthy there and might provide more opportunities. I think primarily the impacts of Spirit because we don't have a lot of direct overlap with them, will be secondary. In other words, Frontier will move into their markets and they have big operations in Detroit and Atlanta. Obviously, that's impactful for Delta and perhaps displace some capacity here in Minneapolis. So I consider it a secondary effect. We're not at the top of the list of airlines that are going to be the most beneficial from the cuts that we're seeing at Spirit. Michael Linenberg: Okay. That's helpful. And then just a second, this goes back to your initial comments where you talked about TRASM kind of running over 6% in the fourth quarter, and then you went on to say that the 1Q 2026 advances are even stronger. At this point in time, like how much are you booked up in the March quarter? Jude Bricker: With January is sold to 35% loads today. As advances go, our first quarter sells further in advance than the rest of our schedule. But it's not material enough to make a strong call on the first quarter. In other words, we're not sold enough to where we can be certain about the strength we're seeing, but we're selling ahead on load factor and fare, sold PRASM, which again, when we're looking out this far with low load -- relatively low sold loads can be very volatile, but we're up about 25% in January today. Now that's going to moderate because you can't you can't have a load factor increase of 10 points. I mean, it's just not possible. So I mean -- but we're going to be -- that's higher than it was for December and higher than it was in November. So it continues to get stronger. Michael Linenberg: That 35%, that's a bit higher than -- I realize that's your big quarter and it runs higher than your other quarters, but that is a bit higher than what it would be for any other carrier. You're probably 10 percentage points, 15 percentage points, 20 percentage points above your competitors. Jude Bricker: Yes, Mike, that gets to the core of the strategy. I mean we're relevant in this community. We're a small airline, but relevant to the community we serve, and we have a differentiated model. So if you want to go nonstop to Mexico, South Florida, Southern California, Caribbean destinations, we're the carrier of choice here in the Twin Cities. [ We're expected ] to be small and relevant and big and irrelevant everywhere. And I think [indiscernible] kind of playing that out. Michael Linenberg: Yes. That's right. One last one, just to squeeze in kind of a wonky question. I see the 900 ERs are now scheduled. Obviously, they give you more capacity, so it's going to work in markets probably like Orlando and Phoenix. But is there anything interesting or unique? I mean I know they have the range for Hawaii, which you used to serve. Is there anything that we could see with the 900 ERs that may be a little bit different than maybe what you've done in the past? Jude Bricker: Sure Mike, sorry to disappoint. I think those airplanes are just going to go on trunk routes. You can take a look at our largest markets by volume, and they're going to be 900 markets, either a mix of 9 and 8s or pure 900 markets. So just to call out a couple, Minneapolis, the Fort Myers, L.A., Vegas, MCO, Boston, Sea-Tac, those kind of markets. Operator: Our next question comes from the line of Ravi Shanker of Morgan Stanley. Katherine Kallergis: This is Katherine Bell on for Ravi. I was curious how we should be thinking about charter in 2026. I know you mentioned a bit on 3Q, but just curious what you guys are seeing for next year. Jude Bricker: Katherine, so charter comes in a couple of different flavors. I'll just kind of call them out. We have track programs that are committed contractual flying for counterparties, and that consumes about 6 aircraft. We have a VIP operation, casino operations and Major League Soccer. Separate from those, we have a military program that's a committed program and also a lot of ad hoc flying. I just want to point out that with the government shutdown, that flying has been unaffected. It continues to be strong. And then the third is ad hoc, which mostly is sports program. So this time of year, NCA Football. And that's hard to predict because it shows up close in. We set a record, as I mentioned, in the third quarter on volumes. There's been a lot of airlines that have left the market like iAero. And then there's a huge new customer to charters in ICE. We don't work for ICE, but they're consuming a lot of charter capacity. So there's a lot of demand growth, and there's fewer people providing that lift, and it's been a really good thing for us. We still look at ad hoc opportunities primarily as a way to offload available capacity. So we'd rather commit capacity to sched service. But if we have the excess capacity, then we bid on charter opportunities. And thus far, it's been really strong. I can't give you more material guidance though, into '26 because first quarter is always kind of a trough. There's not a lot going on, but the summer should be really strong if things continue the way they're going. Katherine Kallergis: Got it. That's really helpful. And just a quick follow-up. I think in your prepared remarks, you had said charter under long-term contracts came down from, I think it was 80% last year. I'm just curious why that became lower -- were some of those contracts just up? And do you go out and like look for contracts? Do people come to you? Just curious how that works. Christopher Allen: Ad hoc mix. Jude Bricker: Ad hoc mix? Christopher Allen: Yes. [indiscernible] Jude Bricker: Okay. Yes. No, our track programs continue -- they haven't grown much, except for the rate. Volumes for our casino programs, Major League Soccer and our VIP program were pretty flat. I think what's happening -- what Chris tells me is what's changed is that ad hoc grew faster and therefore, the mix of contracted flying is lower. Operator: Our next question comes from the line of Christopher Stathoulopoulos of SIG. Christopher Stathoulopoulos: Jude, just talk about the puts and takes around your operating margins for next year. So we have the maintenance pull forward into 4Q. You've given us a lot of color on how you expect cargo to move. I think December is when you really see that, I think, spooling up or hitting a run rate. Maybe talk to, I guess, for scheduled service, the puts and takes around costs and timing to kind of get back to those pre-Amazon margins. And also on the charter piece, there are some events. The question before, you referenced, I think Soccer World Cup next year, America's 250. So it would seem that there's some opportunity there. So at a high level and really but kind of focused on schedule puts and takes around op margins next year, I guess, net of this maintenance pull forward into the fourth quarter? Jude Bricker: Two primary inputs. First is going to be the TRASM continuing to improve in the rate that we've seen. I don't see any reason that, that should change. And then the second one is we should hit an inflection point on unit cost. And that's because we did a deal with our flight attendant union that's effective for this year. We have the final pay increase for our pilots effective this year. We don't have a lot open on labor. And so those rate increases will have good comps, and therefore, also our efficiency initiatives will start to take hold, like I mentioned earlier, PBS and incremental basing. So we should start to see an inflection point. And then you have the lumpiness of our maintenance programs, specifically heavy checks. We don't do engine overhauls here. We buy in lieu and replace in lieu of repair. So that should be pretty constant. Those costs flow through our D&A. We're getting a lot of cost pressure like all airlines from airports. I don't see that abating much. Everybody's massive capital programs just sort of everywhere. So that will continue to pressure us. But I think overall, what we're expecting year-on-year CASM ex to hit kind of a 0, flat level in the middle of next year, late next year and improve from there. So I feel really good about unit cost trends. We should finally start to see the post-COVID inflationary pressures kind of run their course and those to kind of stabilize. I think it's going to be really good. Torque, anything to add on that? Daniel Zubeck: No. Christopher Stathoulopoulos: It's so block hour dependent because there is the charter piece that you mentioned that is ad hoc. There's what Amazon is going to do peak season, of course. But do you think for the full year on a per block hour basis that unit costs could be down? Jude Bricker: No, because the mix is going to change, right? So it costs a lot more per block hour to fly scheduled service flying because fuel costs and ground handling and all that stuff is in there. So we're going to continue to have pressure on that because we're -- just a segment mix. Christopher Stathoulopoulos: Okay. And then as a follow-up on the Visa, I realize it's still early response thus far. And if you could remind us of any remuneration targets you've communicated. Jude Bricker: I've mentioned publicly that our credit card program produces about $20 million annually. That would be full implementation of the Synchrony contract. We're on pace. It's going to take us, I don't know, maybe a year to kind of to get the contribution per passenger up to where we want it to be. And then from there, it's just about scaling volumes. So Synchrony has been great. I've been really, really pleased with the technology outlay. Passengers -- I mean, our customers are picking it up really rapidly. So they're transitioning over to the new card. beyond what we expected. Everything is looking green on that program. Operator: Our next question comes from the line of Duane Pfennigwerth of Evercore ISI. Jacob Gunning: This is Jake Gunning on for Duane. It looks like you generated very strong free cash flow in the third quarter. Would you consider that normal seasonality? And if not, did the ramp in any other segments maybe contribute on the working capital side? Jude Bricker: Let me give you a general comment there. There's a lot of seasonality in our business, and therefore, there's a lot of seasonality in our ATLs. So a lot of our free cash flow by quarter is going to be based on ATL expansion. And as we talked about earlier, we're selling now into our winter peak season with higher volumes and higher fares. So there's a lot of ATL pickup in that. Torque, any other color? Daniel Zubeck: No, I think -- what we're seeing is very strong and the builds are where we expect them to be. So we'll be in good shape. Jacob Gunning: Great. That makes sense. And then just on the aircraft side, you alluded to it earlier, but are you seeing any movement in used aircraft values for the 737? Jude Bricker: No, we haven't done a deal in a long time. It's been pretty brutal. Fortunately, we did a lot of transactions coming out of COVID and buying out subleased aircraft. So to our commentary throughout the whole year, we have a 70 aircraft operation, 50 of those airplanes we own and are on the balance sheet, but 7 of them at the beginning of the year were leased out, and those redeliveries will fund our scheduled service growth, our passenger network growth going into '26 and '27. So we don't have to buy anything, and we can kind of hold the line on price. But it's been tight out there. Boeing was here yesterday. We were talking about their rate increases. I think the NG availability is going to be mostly dependent on MAX production rates. which unfortunately have been slow to kind of pick up. So I mean, we're not sitting on our hands here. We're looking at hundreds of airplanes literally. And right now, owners of airplanes have better options than to take the Jude Bricker price, I guess. Operator: Our next question comes from the line of James Kirby of JPMorgan. Jamie Baker: This is actually Jamie Baker filling in for James. So first question is. Yes, it feels a little weird. So just looking at the fourth quarter schedule on the West Coast, it looks like the capacity cuts there are a little bit steeper than the overall domestic average. Anything to read into West Coast fundamentals from that? Or is that just how it played out as you're pivoting more towards cargo? Jude Bricker: Not really much to read -- I mean, we talked earlier about -- in past calls about Minneapolis, L.A. being kind of a weak -- weaker market than the rest of our network that kind of continues. But as you look at the West Coast broadly, as we look at it, it also includes Palm Springs, San Diego and San Francisco, Portland and Sea-Tac, which aren't operated in the wintertime. But those Southern Cal markets that aren't L.A. are doing really, really well. Palm Springs in particular, I'd call out. So this is like the leisure market is strong, and there's not a lot of capacity growth, and so it's materializing in higher fares. It looks really good to me. Jamie Baker: All right. And then I also had a Boeing question since you brought up the Jude Bricker price Again, I recognize that you guys are not panning the pavement, but you obviously have your ears to the ground. So how would you describe having that with Boeing, where do you think the market is today relative to however you calculate on an age-adjusted basis, the values that you were able to get coming out of COVID? Because from a timing perspective, it does seem like the uplift on MAXs will provide some relief on the used side by the time that you guys are really out there actively shopping around. Jude Bricker: Yes, Jamie, possibly -- yes, so indulge me to ramp for a second. We have kind of always looked at an airline has a core bit of like a bucket of parts, right, that are at the end of the life realization. That number has been about $2 million for the airframe and $2 million for each engine. So let's call that $6 million. And then there's the maintenance value that's transferred over from the prior operator from new. And that can be full life to 16 or 0. And then there's an operator premium kind of availability metric. And so all 3 of those metrics kind of go in. Now the residual value, that $6 million has been pretty constant. It's higher than it was during COVID, but it's not out of whack. I mean we're selling airframe, we part out our airframe. We sold it for about, I think, [ $2.75 million, ] something like that, and we sold a couple of cores probably $3.5 million relative to $2 million. So it's up, but it's still kind of, I don't know, ballparkey. Where we've really seen a massive value expansion is in engine maintenance value transfer. And that's because shop visit costs are just through the roof. I mean, probably twice what they were at the bottom of COVID. To give you a sense, we did an engine in the middle of COVID, so we had a lot of leverage. It was $500 a cycle, no monthly fees, nothing like that. We don't usually lease, but they just really wanted this lease to happen. Now when we're valuing engines, the inherent cyclic value is over $1,000, say, $1,100 or so. So that value metric has almost doubled, and that's the largest proportion in the value of a used airplane. So it really has challenged the market. Operator: Our next question comes from the line of Scott Group of Wolfe Research. Ryan Capozzi: This is Ryan Capozzi on for Scott. So just kind of harping on some previously asked questions. But I guess with the reduced scheduled service capacity in MSP, have you seen any degree of backfilling from your competitors in some of your markets? Jude Bricker: No. No, we haven't. I mean there's been -- God, I can't even think of a single market that we serve that has capacity increase in the first quarter. I can't think of a single one. No, no, it's been -- it looks really good. I don't have anything else to add. Ryan Capozzi: Okay. No, that's helpful. And then I guess maybe just building off that, right? As you start to add back some of the scheduled service in 2026, just curious kind of what does that capacity growth look like exactly? Is it just adding back frequencies? Or is there any sort of change to the network strategy next year? Jude Bricker: Yes. So if we bring fleet utilization, passenger fleet utilization up to 7.5 hours per day on an annualized basis and induct all the leased airplanes to get to 50 aircraft in passenger operation. That operation is about 30% bigger than we are today. So we're going to expand next year into kind of what we had already lost and then we'll expand beyond that. So I mean, what's most important and what I think, really exciting is that, that growth can be realized in peak periods. So we cut down September massively to support cargo growth. Our September scheduled service block hours in 2025 is smaller than it was in 2017 when we had 40% of the fleet. And the reason is there's just not that much opportunity in those periods of time. So when we think about growth, what's exciting is that we can expand because of more aircraft and having a larger cargo operation that buffers peaks and troughs, we can be adding into June, July, August, December and most importantly, March. And that's going to keep -- our growth will pressure naturally unit revenues, but it's not going to -- it's going to be pretty muted because we're going to be focused on peak periods where there's excess demand. And so, it just looks -- it's setting up really nicely for us. Operator: Our next question comes from the line of Catherine O'Brien from Goldman Sachs. Catherine O'Brien: I just was thinking about some of your comments on margins and seasonality you've made over the course of the call as they pertain to the first quarter. Schedules are showing capacity down year-over-year in 1Q. So I'm guessing that will put pressure on margins year-over-year, to your point on taking peak flying down as a margin drag. But you're also talking about a lot of momentum on the demand side. I guess, will the capacity cuts just be too difficult to overcome from a year-over-year margin perspective? Or based on what you're seeing today, understanding that could change on the demand side, do you think you could be potentially setting up for margin expansion? Just any [indiscernible] Jude Bricker: Absolutely. No, I want to be super clear. Absolutely. Yes. I mean there's inputs like fuel and all that stuff that's normal. But the maximum impact on our scheduled service was in the third quarter of this year. So it's behind us. So now we're kind of continuing to expand. And we'll be -- as I mentioned, in December, we're fully implement it on our cargo. And then from there, all incremental credit hours will be allocated into sched service growth. And yes, we should be -- I think we're going to have a tailwind into '26. It looks pretty good for [ 4Q. ] Catherine O'Brien: Just to be clear, 1Q margin year-over-year is absolutely comment. Jude Bricker: Yes, I get it, we're not ready to guide, but you know how to look at it today. [indiscernible] I'm pretty bullish on 1Q. Operator: Thank you. I'm showing no further questions at this time. I'll now turn it back to Jude Bricker for closing remarks. Jude Bricker: Thanks for joining us today. We're really excited about where we are and where we're headed, and we'll talk to you guys in about 90 days. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

200天前Insight Analytics约5分钟阅读

BLDR 2025 Q3 财报电话会议

Operator: Good day, and welcome to the Builders FirstSource Third Quarter 2025 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by management and the question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead. Heather Kos: Good morning, and welcome to our third quarter 2025 earnings call. With me on the call are Peter Jackson, our CEO; and Pete Beckmann, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call. The results discussed today include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. You can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures were applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings and presentation. Our remarks in the press release, presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the Forward-Looking Statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. With that, I'll turn the call over to Peter. Peter Jackson: Thank you, Heather, and good morning, everyone. Over the past several years, we have transformed into a stronger organization powered by our leading network of value-added solutions, our relentless focus on operational excellence and superior capital deployment. These strengths, combined with our scale and a team dedicated to exceptional customer service, have driven margin expansion, reinforced our industry leadership and extended our track record of success. By focusing on the factors within our control and leveraging our competitive advantages, we are competing effectively today and are well positioned to outperform our competitors as the market recovers. Let's turn now to Slide 4. Our third quarter results reflect the strength of our strategy and disciplined execution in a weak housing market. We continue to execute effectively and sustain healthy profitability despite a low-starts environment, underscoring our operational discipline and improvement since 2019. Let's take a minute to step back and talk about the market. Single-family construction remains soft as builders manage the pace of starts given affordability concerns, consumer uncertainty and elevated new home inventories. Demand remains tempered despite Fed rate cuts in 2025. As a reminder, Q4 is one of our slower quarters due to seasonality. Our builder customers have addressed these challenges by offering smaller and simpler homes as well as incentives such as interest rate buydowns. That creates an environment where there are less sales dollars per start, and every start is more competitive on the affordability front. We are working closely with leveraging our broad product portfolio and bundled solutions to drive cost efficiencies while upholding the highest quality standards. In the multifamily market, activity is expected to remain muted through year-end, in line with our previous thinking. However, we have seen green shoots and quoting activity as our customers see improving financing costs. As a reminder, our first sale tends to lag a multifamily start by roughly 9 to 12 months. We continue to view multifamily as an appealing and profitable business for us, supported by a substantial mix of value-added products and attractive fundamentals. On Slide 5, we highlight some of the key initiatives under our strategic pillars. In the third quarter, we invested more than $20 million in value-added solutions to expand our product offerings in key markets. This included opening a new millwork location in South Carolina and expanding our upgrading plants in 7 states. We remain disciplined in how we deploy capital. Our consistent strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A and return capital to shareholders. This capital deployment is strengthening our competitive position and driving long-term value creation. Operational excellence is crucial to how we run the business, as we develop talent, improve agility and embed technology into our operations. We generated $11 million in productivity savings in Q3, primarily through targeted supply chain initiatives. Turning to Slide 6. We are prudently managing discretionary spending and maximizing operational flexibility. In response to lower volumes over the last year, we have taken steps to align capacity across our facilities, manage headcount and control expenses. We are reducing variable costs today while also investing in needed capacity to ensure we are positioned to scale quickly with the expected recovery in demand. Year-to-date through September, we have consolidated 16 facilities, including 8 in the third quarter, while maintaining an on-time and in-full delivery rate of 92%, with our industry-leading scale, experienced leadership team and a track record of operating proactively through the cycle, we are confident that we can continue to deliver exceptional customer service. Moving to Slide 7. Our disciplined capital allocation strategy focuses on maximizing shareholder returns through organic growth, M&A and share repurchases. In the third quarter, we deployed over $100 million toward return-enhancing opportunities aligned with those priorities. Drilling into M&A on Slide 8, we remain focused on pursuing acquisitions that expand our value-added product offerings and advance our leadership position in desirable geographies. We have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration. In the third quarter, we acquired St. George Truss Company, a truss manufacturer serving builders in Southern Utah and Southern Nevada. In October, we acquired Builders Door & Trim and Rystin Construction. Together, the 2 companies formed a leading provider of door and millwork capabilities in the Las Vegas area, closing a key product gap in the region and strengthening our ability to deliver comprehensive solutions to our customers. We have made 38 acquisitions, representing over $2 billion in annual sales since the BMC merger in 2021, the equivalent of a top 10 LBM player, demonstrating our ability to execute and integrate seamlessly. And with the industry still fragmented, we see significant opportunity ahead. We remain confident that inorganic investments will remain an important driver of long-term growth. Let's now turn to Slide 9 and discuss the latest updates on our digital and technology strategy. We are accelerating the adoption of our digital capabilities in deploying scalable customer-centric solutions that will strengthen our operational agility and support long-term growth. Our BFS Digital Tools deliver meaningful benefits to our homebuilder customers and align BFS as a key technology partner in the industry. Despite the weak market, we have seen continued adoption with our target audience of smaller builders. Since launching in early 2024, our digital tools have processed over $2.5 billion of orders and over $5 billion of quotes, representing increases in excess of 200% year-to-date. Importantly, we're seeing that digital is not just about incremental sales, it's a catalyst for a broader company growth. The efficiencies and capabilities enabled by our digital tools, including artificial intelligence, accelerate the pace and elevate the precision of our quoting and sales operations. While it's evident that our initial business case around digital did not predict the timing of our outcomes very well, we remain convinced of the tremendous shareholder value that the digital tools will unlock for us. Continuing on the technology front, I'm pleased that we continue to make steady progress on our comprehensive implementation of SAP after the launch of 2 pilot markets in July. We've gained valuable insights from these initial pilots, and we'll be applying those learnings as we prepare for the next phase. During Q3, we also successfully converted to SAP for our centralized accounting functions as well as for all of our internal and external financial reporting. Although these conversions are never easy, we are working through the details and are excited about the growth and efficiency opportunities to come with this new software. Recognizing one of our incredible team members each quarter is one of the best parts of my role. Today, I want to spotlight Harold Fuqua, driver at our Lebanon, Tennessee yard, who recently celebrated 40 years with BFS. Harold is known for his dependability, strong work ethic and love of the Tennessee Volunteers. The dedication shows in his commitment, he's often at the yard before 4:00 a.m., and in the way he shares his experience, having trained more than 100 drivers over the years. He's also earned a reputation for driving over the region's toughest hills with skill and care. I'm honored to recognize Harold and so many others across BFS, whose hard work and commitment continue to move us forward. I'll now turn the call over to Pete to discuss our financial results in greater detail. Pete Beckmann: Thank you, Peter, and good morning, everyone. We continue to execute our strategy in a down market, responding to near-term challenges and carefully managing costs, while preserving our ability to invest for the future. Our financial agility, supported by a healthy balance sheet and strong free cash flow through the cycle, enables us to deploy capital prudently to fuel organic growth, pursue strategic M&A and return capital to shareholders. These investments are bolstering our competitive position as we invest for the future. Let's begin by reviewing our third quarter performance on Slides 10 through 12. Net sales decreased 6.9% to $3.9 billion, driven by lower organic sales and commodity deflation, partially offset by growth from acquisitions. The core organic sales decrease was driven by a 12% decline in single-family due to lower starts' activity and value per start as well as a 20% decline in multifamily, in line with our expectations amid muted activity levels against stronger prior year comps. Additionally, Repair and Remodel decreased 1% given consumer uncertainty. As we've noted on recent calls, there were a few key factors reconciling single-family starts through our core organic sales. First, as a reminder, there is a roughly 3-month lag from a start to our first sale. Second, the value of the average home has fallen as size and complexity have decreased over time, creating in additional sales headwind. Third, margins remain pressured throughout the supply chain as affordability concerns continue to be paramount. Based on this, we believe our third quarter share was flat to up slightly as we continue to be the industry leader and a trusted partner to our customers. For the third quarter, gross profit was $1.2 billion, a decrease of 13.5% compared to the prior year period. Gross margin was 30.4%, down 240 basis points, primarily driven by below-normal starts' environment. Compared to an approximately 27% gross margin in 2019, our Q3 gross margin reflects the substantial investments we have made in value-added solutions and our continuous improvement. Adjusted SG&A of $790 million increased $7 million, primarily due to acquired operations, partially offset by lower variable compensation due to lower sales. As Peter touched on previously, we are focused on carefully managing our SG&A and are well positioned to leverage our costs as the market grows. Adjusted EBITDA was $434 million, down approximately 31%, primarily driven by lower gross profits. Adjusted EBITDA margin was 11%, down 380 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Our ability to maintain a double-digit EBITDA margin in a weak market is a testament to the strength of our transformed business. Adjusted EPS was $1.88, a decrease of 39% compared to the prior year. On a year-over-year basis, share repurchases enabled by our strong free cash flow generation, added roughly $0.10 per share for the third quarter. Now, let's turn to our cash flow, balance sheet and liquidity on Slide 13. Our third quarter operating cash flow was $548 million, a decrease of $182 million, mainly driven by lower net income. We generated free cash flow of $465 million. Our trailing 12-month free cash flow yield was approximately 8%, and our operating cash flow return on invested capital was 15%. Our net debt to adjusted EBITDA ratio was approximately 2.3x, while our fixed charge coverage ratio was roughly 6x. We have no long-term debt maturities until 2030. Our maturity profile enables us to remain operationally and financially disciplined while preserving a flexible balance sheet for accretive capital deployment. Moving to third quarter capital deployment. Capital expenditures were $83 million, and we deployed $19 million on acquisitions. We currently have $500 million remaining on our share repurchase authorization. We remain comfortable with our net debt levels, and we'll continue to execute our capital allocation priorities in a disciplined manner on the path to maximizing value creation. On Slides 14 and 15, we show our 2025 outlook and assumptions. On a year-over-year basis, our latest forecast assumes single-family starts down 9% for the year, multifamily starts down mid-teens and R&R end market to be flat. The 2025 multifamily headwind to sales of $400 million to $500 million and EBITDA of less than $200 million has largely been digested and remains on track. As a result, we are guiding net sales in the range of $15.1 billion to $15.4 billion. We expect adjusted EBITDA to be $1.625 billion to $1.675 billion. Adjusted EBITDA margin is forecast to be in the range of 10.6% to 11.1%. We expect our 2025 full year gross margin to be in the range of 30.1% to 30.5%, reflecting our strong execution in a below-normal starts' environment. We expect free cash flow of $800 million to $1 billion. Our revised guidance assumes average commodity prices in the range of $370 to $390 per thousand board foot versus the long-term average of $400. Moving to Slide 16. We recognize that 2026 is coming into focus as we approach year-end. Like we did last year, we have laid out a scenario analysis to demonstrate how we are positioned to generate resilient financial performance across a range of potential housing market and commodity conditions. As you can see, we have included a new scenario that provides a perspective on our performance in a normal housing environment. I want to emphasize that this is not guidance, but these scenarios should help clarify our range of performance expectations for 2026 and demonstrate the strength of our best-in-class operating platform. In closing, we are closely monitoring the current environment and remain agile to mitigate downside risk in the near term while also investing strategically for the future. I am confident in our ability to drive long-term growth by executing our strategy, leveraging our exceptional platform and maintaining financial flexibility. With that, I'll turn the call back over to Peter for some final thoughts. Peter Jackson: Thanks, Pete. I want to close by emphasizing the transformation of BFS, as illustrated on Slide 17. Today, we are an exceptionally improved organization, one powered by our value-added solutions and digital tools, our relentless focus on operational excellence and a disciplined capital deployment strategy. These improvements, combined with our scale, have positioned us to accelerate growth as we return to a normalized starts environment. By controlling what we can control and leveraging our competitive advantages, we will continue to deliver exceptional long-term shareholder value. Thank you again for joining us today. Operator, let's please open the call now for questions. Operator: [Operator Instructions] We'll take our first question from Matthew Bouley with Barclays. Matthew Bouley: So I want to start on the framework, the scenarios for FY '26. If I'm looking at it right, it seems like you're implying kind of maybe a mid- to high 9% EBITDA margin at the midpoint versus this year, obviously, 10.6% to 11.1%. Is that because you're, I guess, implying exiting this year between '29 to '30 on gross margin, and the expectation is that, that should continue kind of given builders negotiating back with suppliers? Or is the SAP implementation part of that? Just, I guess, what are some of the moving pieces behind that margin outlook in 2026? Peter Jackson: Matt, it's Peter. I think you're right, for the most part. It's not an SAP thing. It is a sense of both where we have gotten to at the exit of '25, but also our read on the competitive environment and what the dynamics are. It's basically a leveling out. We're about to the bottom. We're thinking based on everything we're seeing on the margin side. But that question is out there in terms of which way the market will go as we signaled with the sort of up and down version of the scenarios. So try to give a middle-of-the-road view on where we think it's going to end up. Overall, I think we're being successful. We're seeing the stabilization. I think we're getting close to the bottom. The real question comes when does the turn happen, the sooner the better, we're ready to go, but we need a little cooperation. Matthew Bouley: Yes. No, absolutely. Makes sense. So then the other one, I guess, just sticking with that slide, I wanted to ask on the normalized EBITDA guide. So obviously, it jumps out a little that it's a different number than what you gave at the Investor Day a couple of years ago. I guess, the revenue number would look to be the main difference there. So I'm wondering if that's a comment on sort of the market share growth that you're assuming at that time, maybe the starting point on market share is a little bit different because of the decline in the market we've just had in the past year? Or just anything else you can kind of give us on what you think may be a little structurally different leading to that level of profitability at $1 million to $1.1 million? Peter Jackson: Yes. It's a good question, although I guess I'll start by pointing out, it's a bit of apples and oranges. So Investor Day, obviously, we're laying out our plans for the future based on where we were in the day, but initiatives, productivity, I mean, all the things that we outlined in that meeting, this is simply an attempt to say, based on where we are in 2025 and some basic level assumptions about what we think is going to play out over the next year in terms of back -- if we saw -- if we magically made this thing go back to normal over the next year, what would the numbers look like? So in light of that big differences, the market, as you pointed out, dramatically different, the average size of the home, the average content of the home is markedly different. Your point about share, that's a fair comment, and I think the impact on deleveraging the business, given some of those dynamics in terms of the overall size of the market, that's in play in here, too. But don't forget, I mean, this is not apples-to-apples in terms of the end year of Investor Day either. So there's a time line, just a metric snap the line difference here. Hopefully, this is a good reference point for you to see -- look, this market is weak. It's not normal for us to be at the level we are today. And it doesn't take much in terms of recovery to get us to the numbers that are meaningfully better based on the outputs of what this business is capable of. We're ready for that turn. We're excited about it to come, but that's maybe the best summary of the differences. Operator: We'll take our next question from John Lovallo with UBS. John Lovallo: The first one is, the midpoint of the outlook implies 4Q sales of about $3.42 billion, adjusted EBITDA of about $341 million, which would imply a sequential quarter-over-quarter decremental of only about 18%. I think year-over-year, it would be about 38%, but both of these are better than what we've experienced over the past few quarters. So can you help us just understand what's driving the improvement there? Peter Jackson: John, thanks for the question. It's -- I would say the general -- the essence of your comment is reasonable. We don't disagree with it. I think that there's a couple of factors at play. You've got a little bit of a lapping effect where the comps year-over-year are less dramatically down, but we're still in a market that's challenged. Pete, I don't know if you have anything to add on that. Pete Beckmann: Yes. And as Peter said in his prepared remarks, Q4 is a seasonally lower quarter for us. So sequentially, we will see a step down from Q3 that's expected. As Peter mentioned on the lapping in the year-over-year, we are closing the gap. So we saw Q4 last year starting to compress, and we're now lapping -- getting closer to that lapping period. John Lovallo: Okay. Understood. And then the $3.42 billion in implied fourth quarter revenue would be down about 11% year-over-year. Can you help us just kind of bridge that 11% in terms of organic sales, M&A, commodities? And within the organic piece, what are the expectations for single-family versus multifamily versus R&R? Pete Beckmann: So the M&A will continue to be a good boost for us, as we've shared in our sales growth really every quarter and in our assumptions. It's roughly 5%. So that will continue. The margin pressure and headwinds that will show up in the form of pricing will continue to be a headwind in Q4, but as we outlined, maybe a little less significant, and we were getting closer to what we feel is a bottom. And then, on the organic side, we still have a starts' assumption out there that's 920,000 single-family starts, which has step-downs on a quarterly basis. So still mid-teens double-digit decline in the fourth quarter. So that's really the big makeup and the headwind that we're seeing in the numbers. Operator: We'll take our next question from Charles Perron-Piche with Goldman Sachs. Charles Perron-Piché: First, I just want to go back to the scenarios. I just want to understand how multifamily plays in it. I think multifamily starts are up 17% year-over-year, year-to-date through August. So I think the mix is skewed towards the larger building, which are -- I think are outside of your scope. But more broadly, how do you think about this multifamily recovery? How is it embedding in your scenarios for next year given the green shoot noted in your prepared remarks? And what could that mean for the margin considering the larger amount of value-added content in that segment? Pete Beckmann: Yes. Multifamily right now is 8% to 9% of our sales. We don't have a, call it a, swim lane or a row called out for multifamily. But in 2025, we were going down mid-teens for multifamily. In 2026, we're looking at a flat environment for us, even though the overall starts number is showing a recovery. It's just that lag and expectation of the market that we participate in. In that 4 stories, wood structures and below, it's going to be more of a flattish because of the time it takes to transition that start into a first sale for us. So that's the expectation of multifamily for 2026. Charles Perron-Piché: Okay. That's good color. And then understanding the market dynamics are outside of your control, but you've done a great job in the last few years to adjust your cost structure to protect profitability. Against the scenarios that you presented today, are you considering incremental productivity actions as an asset? And maybe taking a step back, can you talk about your ability to service demand should we see a faster-than-expected pickup in start activity going forward? Peter Jackson: Yes. No, good questions. The storyline around our business is one of day-to-day management, week-to-week, quarter-by-quarter at the location level, right? Yes, we're a national player. We coordinate as a team, but we run this business in a very entrepreneurial way based on the local market demand. So what you've seen us do over -- well, over the long term, but particularly in the last year, where we've seen headwinds on the sales line, we've looked at it at the local market, how do we make sure we're able to meet our customers' needs and leveraging our existing footprint in the best way possible. That means really managing the variable portion of the spend, making sure we're aligning the hours and the location footprint and the trucks and all of it to what our customers really need that, that won't change. That will continue to be executed, meaning we will continue to react at that local market, and you'll continue to see that. We have kept our foot on the gas when it comes to productivity. The teams are engaged in a lot of different actions to try and make this business incrementally better this year than it was last year. Some of that candidly has been overwhelmed by the deleveraging. Even though we're more efficient on a per unit basis, the lack of units and the overhead that we sustain as a business of our scale means that some of our productivity numbers have gone red, even though the teams were doing good things. And that goes, I think, to your last part of your question, which is we are going to be exceptionally well positioned to take advantage of growth because what we've been able to do in terms of the work that we do at local level is protect the capacity availability. Yes, of course, we'll have some rehiring to do, but making sure that we have kept our ability to serve at a higher level, while at the same time, scaling operations in the near term. It's something that we're very good at, and I think is going to be evident, was evident during sort of the COVID spike, where we were better positioned and better able to respond than everybody else. I think that's even going to be more true as we make this next turn because of the thoughtful investments we've made around those markets, where we knew we ran out of capacity last time, right? We've learned from those situations and made sure that we're going to be ready in the next turnaround key markets and key opportunity areas, so excited about it. I think it's going to be really good for this business. Like I said before, we just need a little momentum coming our way. Charles Perron-Piché: Good luck for the next quarter. Peter Jackson: Thank you, Charles. Appreciate it. Operator: We'll move next to Mike Dahl with RBC Capital Markets. Michael Dahl: Peter, it's really actually impressive how stable the gross margins have been year-to-date, obviously, step down versus last year about 30.5%, 30.7%, 30.4%, pretty remarkable stability above 30%. I guess I've got a 2-part question here on the margin. I guess, it seemed like the margin came in better than your expectations in 3Q. So can you comment on what drove that? And then, with your fourth quarter guidance still at the midpoint, implying kind of 100 basis point sequential step down, is that something you're already seeing in your exit rate into the fourth quarter? Or is there kind of a buffer against the market softening, it's competitive, maybe things continue to weaken through the quarter? If you could address both of those, that would be great. Pete Beckmann: Thanks, Mike. Good questions. So with respect to the margin performance in Q3, we did outperform what we had outlined. We did see a sequential step down. It just wasn't as significant as what we had originally thought and shared on the last call. Some of the outperformance is due to us buying better and us managing through our supply chain initiatives that has really helped in bolster. So we have a professional team that continues to look for the way to maximize and improve our bias. So that was what we're contributing to the outperformance in Q3. With respect to Q4, we're still outlining that, I'll call it, a step down for the, call it, exit quarter rate. We are seeing continued pressure across a weak market that we're operating in, but the team across the business is doing exceptionally well, managing pricing and being extremely disciplined and getting the sale at a level that we feel is appropriate for what we're providing from a service standpoint. It is a weak market that we're operating in. So that competitive dynamic is real, and we're operating and navigating extremely well. Michael Dahl: Okay. That's helpful. My second question, just understanding your position that what you're putting out there today is normalized, is not necessarily apples-to-apples versus Investor Day, I wanted to drill down on there, still seems to be an implication that there's kind of that lower revenue per start dynamic happening. And I think there's kind of a debate on over some period of time is the content and size of home at least, is that a cyclical dynamic? Is it a structural dynamic? If you're calling this kind of normalized, are you taking a different view on you think that some of those pressures you've seen in the last couple of years that, that is kind of -- that is the new normal, even in kind of a recovery, you'd still expect those headwinds to persist? Peter Jackson: Yes. So I guess maybe the -- if I understand the question correctly, we're not trying to advertise or predict or bounce back to the old size and complexity of the home. We're just sort of acknowledging it where it is and drawing the line out from here. Could there be some recovery? Sure. Yes, yes. No question. I think the challenge today, though, to be honest, Mike, is affordability is a real thing, right? It's not a made-up media headline. It's what people are feeling, and that's going to take some time to recover back to maybe where it was 5 years ago. So with that in mind, I think the step-off point on the normalized within that scenario chart is a real good sense of where we are today. I think there's potential upside on the starts number. I think there's realistic expectation that we should see upside on the commodity number. I mean, you look at the results of some of these mills, boy, they're suffering right now at these prices. So I think there's a lot that would indicate we can do better than normal. But I'd also don't want to -- I don't want to signal the wrong message to the broader investor community about what that says. That is just historical averages and kind of based on where we are today. And to your point, where we are today is really size and complexity of the home. That's what's in there. Operator: We'll move next to Rafe Jadrosich with Bank of America. Rafe Jadrosich: You commented earlier that the market share was flat to up slightly in the quarter. I'm wondering if you could sort of just remind us on what you saw in terms of market share through the year, and then, the just broader competitive environment? And then what are you -- like what's embedded in the 2026 sort of outlook or scenarios in terms of the market share assumption? Pete Beckmann: Yes. Thanks for the question, Rafe. So with respect to the market share, and we've provided in the past a bridge of our sales versus starts on a lag basis. And in the prepared remarks, we remind everyone that it's roughly a 3-month lag. So when you look at the quarter, as we talked about, flat to up a little bit from a share standpoint. If you look back to Q2 starts, they were down year-over-year about 8%. We're still seeing a little bit of headwinds from smaller home and complexity. It's pretty modest, but a little more on the cost basis side of things. And when you factor those structural adjustments in, we're at a flat to up slightly. When we zoom out for the year-to-date, where we are year-to-date, it's pretty flat. It's pretty neutral. Starts are down about, I would say, 5% on a lag basis versus our 8% on sales, and then, taking into account some of those same structural adjustments, it comes out pretty flat. So again, a testament to the team and how well we're managing our price in this weak market and maintaining a share level that we feel is appropriate. Peter Jackson: I think that's really the basis for why some of our comments are around -- we think we're getting to bouncing around the bottom here because of that combined sort of output. We see stabilization in margins, stabilization in share, which sort of, in my mind, indicates this is kind of where it wants to be right now. Now that has tremendous opportunity for us, obviously, as the market starts to pick up a little bit, especially given our available capacity and scale, but that's sort of the logic around that. Rafe Jadrosich: That's really, really helpful. And then just on the value-add, on a year-over-year basis, has been down by more than lumber over the last few quarters. That spread, is that just the different end market exposure that's driving that? Is that competitive dynamics? And I think the longer-term goal is to -- for value add to sort of outpace commodity. Like when could that start to get back to a point where value add is outpacing? Pete Beckmann: Yes. I think what you're seeing mostly in the value-add is from the multifamily side of the business and that year-over-year lapping that we have outlined. Remember that multifamily is much higher indexed towards the value-added products. We saw the truss stepping down, and that's been known, and we've been communicating. But the millwork is also now feeling at later in the build cycle from a multifamily standpoint. And so that's also in the value-added products. So you'll see both of those from a year-over-year basis is the largest contributor to that down percentage. Peter Jackson: There's no question there's pressure across the board. I want to be real clear about that. And taking sales volume out of any of our value-add facilities by virtue of what it is that we do, right, we've installed -- we've invested in overhead in order to create efficiency when you put product through the factory. That's a tough environment when it comes to the competitive world and making sure those facilities are full. I think we're doing an exceptional job. I'm very proud of the team, but there is definitely a headwind there. And by the way, there is some pass-through product, right? There's some engineered wood in there that they've also faced a very similar situation in terms of headwinds on the top line. Operator: We'll take our next question from David Manthey with Baird. David Manthey: You really opened the floodgates here with this '26 scenario data, I would just say. But as we look at that data, if we go from the 2025 midpoint to the normalized midpoint, it looks like a contribution margin of a little over 20%. And I just wanted to check with you, if we think about long-term kind of secular, are you still thinking contribution margins on volume would be something in the high teens long term? Pete Beckmann: Well, I think the contribution margin also depends on what margins are doing and where we're seeing margins go. When you jump right to the normalized, we move that up to the midpoint of our long-term normalized margins. So it looks like a bigger step up in contribution from where we are today. As you look at the midpoint in 2026, that's an opposite scenario where we see a lot of that margin headwinds and pressure continuing. But a lot of it is the lapping effect of what we're seeing on the slope through 2025. So that flow-through in contribution margin is largely dependent on which way our margin is moving. David Manthey: Right. And said another way, there's probably -- to normalization, there's some tailwinds that push that number up. But what I'm asking is just secular. If you think about the model growing volume, I think in the past, you said high teens. Is that still in play? Or has that changed? Peter Jackson: I'm actually drawing a blank on when we said that. I trust that what you said is right. I would say mid- to high teens is what we've -- what the way I think about it. I don't -- let me say it a different way. We're not intending to change any of our prior messaging or change our tune on this. I think this is just an attempt to give a reference point as we think about what 2026 looks like. David Manthey: Yes. Okay. And so staying on this theme, I guess, as we're looking forward, when we look from the '25 midpoint to the flat scenario of '26, the contribution margin is actually, I think, slightly negative. But I think, Peter, as you said, you're taking 2025 as a whole as opposed to 2026 as a starting point of sort of where we are today or year-end 2025. But just so as we think about moving from here to there, could you talk about the major buckets of puts and takes in the model, meaning you get productivity savings, you get some glide path from acquisitions, and then, the offsets there would be, what, labor inflation, occupancy, freight? Could you just talk about the moving parts that will flex that up and down into 2026, even on a flat start scenario? Pete Beckmann: Yes. I mean, you started rattling off most of them. So with the flat environment, we are jumping off of a lower point for 2025 than what the whole of the year is. I mentioned that. That was part of my other comments that I made on the margin and where are the margin movements. We are going to expect lapping of acquisitions. So acquisitions completed to date would be reflected in that number. So there's a stub year period that would contribute. There are assumptions around inflation on costs, as you can imagine, every year that we would have that, and some productivity to offset it, but it's still in an environment where it's flat, and we're focusing a lot of our resources on the ERP deployment. So it's not going to be as strong as what we had shared a few years ago. So that all contributed to what we're seeing for 2026. Peter Jackson: Yes. I think that -- Dave, that's one thing I'll emphasize is that, yes, the market is weak, but as we think about what we're doing as an organization, the transformation continues. Our investments in digital and technology are going to have tremendous payoff for the business. There's -- it's obvious that we're going to be able to empower our teams to grow, grow efficiently, to do things that, first of all, others can't do, but to give us -- that gives us an advantage as a partner and as a provider that we're committed to doing. There's certainly an investment associated with that, and we've been very transparent about it, I think. And really, that will continue in '26. It's just a thing to keep in mind as you think about those numbers. Operator: We'll take our next question from Keith Hughes with Truist. Keith Hughes: You may have addressed this, but I just wanted to be clear. If we look at the scenario analysis for '26, the middle scenario of flat single-family, most of the numbers in that range are below what you're reporting for this year. Is it the flow-through from the start to the end of the year that will be affecting that EBITDA? Is there something else going on? Peter Jackson: Yes. It's similar to some of the comments already. I would say that the biggest difference is around the exit margin levels and where that's going to result for the full year of '26. So it's not that things are necessarily going to get a lot worse from where they are, but just recognizing that they got worse through '25. Keith Hughes: Got it. And just a longer-term question, you always considered multifamily a lower -- definitely a lower ticket for you just given the smaller unit. And you're doing so much truss work and things now. As multifamily gets back to a growth vehicle, is that necessarily an inferior start or less of an inferior start in single-family versus what it was maybe 5, 6 years ago? Peter Jackson: That's a great question. I don't know if I know off the top of my head dollars per start splitting multifamily versus single-family. What I would tell you is it's very -- it's appealing for us because of the value-add exposure. Obviously, a lot of truss and a lot of millwork. But it's also a growth vector. We see that there's opportunity for us to do more in that space, particularly as we've been able to build our relationships with contractors, with developers. We think that will continue to be a source of strength for us. But it is -- it's a tricky one when we talk about communicating it to you guys because everybody wants to look at the multifamily headline number. And given our sort of subsection of that that's been a little bit of a disconnect. But we like the business, we like the profitability. And I think it has not just a good profile, but also the potential to grow quite well. Operator: We'll move next to Trey Grooms with Stephens. Ethan Roberts: This is Ethan on for Trey. Just going back to some earlier comments about share. Historically, you guys were able to take share at maybe a couple of hundred basis points above the market and obviously recognizing the current affordability challenged environment. But how should we think about Builders' long-term ability to continue to take share, maybe both in a flat market and on a longer-term time horizon? Peter Jackson: Yes. Thanks, Ethan. Good question. So I'm still a strong believer in our ability to take share. I think that the reality, if you go back over the past couple of years, we talk a lot about it, right? I think we've lost some share on the pure commodity side of the business. I think that we've gotten to the point where we're saying no to any more of that. And I think we've leveled that out. I think on the side where we've gained the most share, it's primarily in the value-add space. We have had and have better capacity, better capabilities, a better competitive position than anybody else in the space. And so when the market is running healthily, but also when it's running aggressively, we are an obvious source of relief for builders who are trying to solve problems. And I think that's the storyline in the long run. We are still in an industry where skill trades, good labor is hard to find and increasingly retiring and becoming harder to find. And that's where our product portfolio or our offering is uniquely suited to meeting the demands of the future. And I think that gets accentuated when you think about digital. The magic of technology in our space is that it helps to take out waste, and it helps to enhance efficiency while sort of protecting the quality and the craft of what homebuilders do. We can assist. We can be a support structure for that. And I think it positions us exceptionally well to be part of what is ultimately the maturing of an industry to meet some of the challenges that we face right now. And that, to me, that's share wins. I absolutely believe that we are positioned to do that. We're certainly better positioned to do it in a growth environment. That's evident in our performance over the last decade. But I think, as you see and even in this tough market, we can hold our own, we can do well. And there are certain categories where we're doing very well. I'd say install continues to be a bright spot. There are certain aspects of value add, there are certain markets in value add, where we're continuing to outperform the competition in the market. It's just a little tough to see with all the headwinds right now. Ethan Roberts: No, that's super helpful. And maybe diving more into the tech piece that you spoke on at the end of your comments there, can you talk more about the tech investments that you're making in the business? And how -- specifically how these could provide maybe outsized incremental returns when demand recovers versus prior cycles? Peter Jackson: Absolutely. Yes. So the 2 main investments we're making right now are in the digital and technology space. So that one we've been working on for quite a while now, that's Paradigm, increasingly AI. I think there's 2 aspects to it, right? One is just the capability that it delivers our team to be the preferred partner, right? So if you think about the speed at which we can turn around an estimate, the accuracy, the reliability of our delivery, all of that is really dependent on high-quality communications internally and with the customer, clarity around what it is that the customer needs and our ability to provide it. That comes more easily when you have a wonderful tool and a structure around managing it, like we have with Paradigm, the 3-dimensional digital twin, the capabilities that we're building around that. Those will increasingly empower our team to win head-to-head in the marketplace. So I see that as share gains, is what it boils down to. And then there's the second piece of that, and that's obviously the significant investment we're making that gets dialed out in your adjusted EBITDA number around SAP, right? The Elevate -- Project Elevate, as we call it internally, is an initiative around introducing more modern software solutions into our field operations. So the management at the location level. It's a challenging project, right? All ERP implementations are. But hopefully, you've seen, right, we kicked it off this quarter. It didn't materially impact our numbers at the consolidated level. But what it will do over time is accumulate in meaningfully improved efficiency. We see the opportunities for our folks to be more -- again, more capable, more insightful, more able to partner with vendors, more able to manage the costs, more able to provide consistent and high-level on-time and in-full performance. Those are the things that will, over time, contribute to productivity. We talk a lot about continuous improvement. Peter, where are you going to get all this money from? Well, there's your answer. We see it. We see the opportunity. We have targets that we're going after. It will take some time to deliver it, as it always does with these types of large-scale initiatives. But I'm as confident as I ever have been that there is a pot of gold at the end of that rainbow. And there are advantages that sort of derive from that capability technologically that will have a halo effect on the broader business as well. Operator: We'll take our next question from Phil Ng with Jefferies. Philip Ng: Relative to your guidance last quarter, good to see strong 3Q results, better than expected, and you revised the outlook higher, particularly on single-family. So you believe last quarter, you had some insights on how perhaps your customers were pursuing land development and how they're managing production and whatnot. I guess, what new insights have you kind of picked up from your builder customers? And how much input they provide for your base case scenario for 2026? And then just to dig into that a little bit more, how do you kind of envision the shape of the year unfolding in your base case for next year? Peter Jackson: Thanks for the question, Phil. So I won't be able to go down into the details about the shape of next year and that sort of thing. I can tell you what you're seeing in the results for this quarter from the publics, in particular, that's what we've been hearing. It's a mix. It's a struggle out there. There's certainly struggle from a bunch of different directions. Obviously, the political climate has gotten trickier because housing is continuing to be a high-profile political discussion. The good news, I would say, is that the Road Act and some of the stuff that's out there, good bipartisan support. People are trying to come up with solutions to take away some of the barriers that have restricted our ability to build affordably, that I would argue have sort of crept into American society. That's good. But any time you've got a political discussion, I think it's tough for the builders. They've talked about that. I think that the affordability profile for them still continues to be a challenge. You see that they're still dealing with very elevated incentives on their side of the fence. You've seen a couple of key players acknowledging how hard that is being forced to maybe even get more aggressive than they even want to be to clear some of the inventory. That new home inventory is -- it's not problematic in terms of the overall amount of inventory available in the market, but it's certainly high for new. It's certainly high for new. And if not for, I would say, the depressed existing, we would be paying even more attention to it. What you're seeing, I think, in the behaviors is a real pullback in the starts' pace in order to make sure that those new homes -- that new home inventory is being managed. That's our results, right? That's what we saw come in. That's what we've signaled to you. I think we've seen some stability at this low level. But I think all of us are wondering about the uncertainty. The uncertainty variable is something I hear from the builders a lot. Their consumer, their customer is uncertain. They don't know what to make of where tariffs are going to be, where jobs are going to be, what this AI thing is going to do. And I think those are the themes that we hear that basically underpin some of these, what I would characterize as, market numbers for the last half of '25 and the early part of '26. There's still a lot of optimism about where the market is going to go, about what we're capable of doing, about the value that's being offered. And with a little bit of help on a couple of areas, I do think there's room for growth and based on what we talk to the builders about. Philip Ng: Okay. Super. And I appreciate that you guys want to be prepared and ready for a recovery from a supply standpoint capacity. When we kind of look at your normalized situation, call it, 1 million to 1.1 million starts, what type of capacity utilization does that imply? I know you guys kind of built this up during the pandemic. So in a muted demand environment, which we're seeing right now, is there more work to do on the capacity front? Because if I look at your deck where you show single-family starts over a 10-year horizon, I mean, 3 out of the 10 years, we're actually below your normalized level. So how do you kind of balance that dynamic going forward in terms of capacity and headcount and just costs going forward as well? Peter Jackson: Yes. No, that's a great question. So the short answer is that the high-level averages, I would describe as useless effectively because you get small markets with low capacity and big markets with no capacity, looks like an average capacity, but neither is true. What I would tell you is this, the way we think about capacity is very local market driven, meaning as we looked at the results and what happened during the last 5-year window or kind of 5, 6 years, so 2019 through today and seeing the arc of utilization of some of these facilities, the -- we never got, in my opinion, to a dramatically high level of production, but we still struggled. And so what that revealed, I think, were the opportunities for us to enhance capacity to recognize where over time, the shift has occurred in terms of where the starts are and where the starts need to be and then where in those markets do we need to have a better footprint of capacity. That's what you've seen us invest in. It's sort of a rifle shot approach to capacity additions in response to where we got pinched versus, oh, well, there's a need, we'll just add it. We'll add it across the country or we'll peanut butter it. That's not how we think about it. So in light of that, we have definitely filled in some of those holes. I would say where we had the biggest issues, we've moved the most aggressively. We're best positioned. There's a handful of stuff that we'll continue to do. But I do see it being less than it has been, certainly over the last 3 or 4 years, as we move forward until we get better clarity as to what the next leg of growth -- where the next leg of growth is going to be. Operator: And we'll take our next question from Collin Verron with Deutsche Bank. Collin Verron: When you look at the factors that have made BLDR track below lag single-family starts in your markets, do you think that that's fully stabilized at this point so you'll track more in line with lag starts in 2026? Or are you anticipating more headwinds in '26? And if so, can you help quantify what those might look like as we look at BLDR single-family sales versus starts? Pete Beckmann: Yes. Thanks, Collin. I think what we've tried to outline for you is that we are tracking with lag single-family starts at this point, taking into consideration the structural adjustments. If you're thinking about when on the face of the financial that will come true without having to do the additional adjustments, I think it depends on that stabilization of the home size and decontenting, which we're starting to see more of. But what's a little more difficult right now is some of the cost basis and inputs that we're seeing from our manufacturers and suppliers that are being challenged with given different market dynamics and affordability items. So we're going to continue to do our analysis the way we have, and we'll be happy to share with you on future calls. But we think that we're getting to a point where those structural adjustments are starting to get a little bit less impactful, but they're still in there for our reconciliation. Collin Verron: Great. That's helpful color. And then, I think you quickly mentioned some branch consolidation actions that you guys have taken. Any color as to like what the annual cost savings from these actions are? And just given the current demand environment, do you anticipate any further actions? Pete Beckmann: Yes. So we've taken out 16 facilities this year, 30 last year, so 46 over the last 21 months. So it's something that we do as part of the fabric of who we are, and we talked about that last quarter. We're constantly evaluating where we have excess capacity. So we just talked about capacity with Peter on the prior question. But we look at where we're -- we have excess, and we're rationalizing that and keeping in mind first and foremost our customer, trying to make sure that we're taking care of our customer. So where we have additional facilities in a market that we can service more effectively from a single location versus multiple locations, we are going to continue to make those decisions. The capacity is across the board. So it's multifamily truss plans where we saw multifamily pullback. So we've talked about that, locations that are down in -- from a starts' standpoint, and we just don't need as much fixed cost. We're going to continue to evaluate this on a go-forward basis all the time. It's just part of what we do. And as we integrate acquisitions, and we look at the best way to service our customers from the right locations, where we have overlap. So I hope that answers your question, but it's going to be something we will continue to bring up and address as we move forward. Operator: We'll move next to Min Cho with Texas Capital Securities. Min Cho: Just 2 quick questions. So it's nice to see the good progression on sales and bids through your digital tools. Can you provide any update on the pilot? Have you expanded homebuilders into the pilot, and just kind of what they're using the most or getting the most value out of, and your expectations for the pilot kind of going into 2026? Peter Jackson: Yes. No, I'm happy to talk about it. So we have today is -- because it's an end-to-end platform, the participation rates in different aspects of the tool is pretty varied, as you might imagine. So I would say every piece of it is being used. That's good. Adoption levels, obviously, for the easy stuff are sky high. We have -- pretty much everybody is using it for invoice review, delivery, photos and payments. There is a subset of that, that's using it for things like estimates and quoting. There's a subset that's really engaged on the home configure aspect, so the visualization tools. Customers are working through actually an expansion of what is in the catalog within home configure for the consumer to select from. So we've got a couple of customers that are leaning into that using it as a virtual model home type of a tool set for rendering and drafting. Certainly, scheduling has been an interesting piece because it's an included functionality. Builders are taking advantage of it when they're scheduling trades and the pace of the build. So I would say those are some of the bigger, more common pieces of utilization. What we talked about in the past, and that I'll reemphasize on this call, is a big piece of this is also making sure we've got the training and the comfort level with our internal staff. The people are -- and that's why we emphasize that both the quoting and the sales that are flowing through the tool. The people within the BFS 4 walls are increasingly seeing the value of a centralized repository because remember, it's a library really. It's a place for the builder to store their plans and for us to be able to access them to do the work that we need to do. That's where we've seen really dramatic increases. And I think that's an indicator of where we expect the pilot to continue to build momentum. We'll have another nice booth at the IBS show this year, so you'll be able to see some of the latest things we're working on in terms of the development side. It's really leveraging increasingly the AI capabilities that we've been developing to increase 2 main things, right? It's quality and accuracy and ease of use. Those are things that we think we have tremendous opportunity to improve. We've had some really nice team member adds internally that have been working on that. And I think we're going to continue to deliver some really powerful tools for the space, both internally to empower our team and enable our team, but also very importantly, obviously, for the customer and for their experience for them to battle this affordability challenge and to build these higher quality, more efficiently constructed homes. Min Cho: Great. And then lastly, just you've mentioned insulation, your insulation business in the past, and you mentioned it today as one of your value-added services. It seems like labor has not been that big of an issue for homebuilders right now. Can you just talk about the longer-term outlook for this business? Peter Jackson: Yes. No, you're right. In install, the labor side has certainly been a bit of a relief. It's -- the real question, I think, that nobody really -- nobody that I've talked to yet, at least, has clarity on is what is the impact of immigration. So there's been actually a reasonable stability in the labor market, certainly pressure -- downward pressure on cost per hour and perhaps an increased availability, but not perhaps as much as one might expect given how far down we are from the peak. And the sense that I've heard from folks is that there's a meaningful drag from the immigration work that's been done. So the real question comes on the turn. When the turn comes, and we start trying to build more homes, how much labor is actually going to be there and be available to do some of this work? Don't know. I think it's too early to say at this point because I think the reverse immigration and where people have sort of backed out of the market, hard to see. So we'll see. But I do think that it is likely to be a reinforcing characteristic or a reinforcing factor as to why our value-add is more valuable to builders over time. The more we can do to maximize the use of skilled trade labor and do it in a way that is reliable and high quality for builders, I think the more successful we're going to be. And we've got a lot of experience doing that. Operator: We'll take our next question from Reuben Garner with Benchmark. Reuben Garner: I'm going to squeeze 2 into one quick question. The specialty building products category has been pretty steady of late. I don't think there's been a lot of acquired revenue in that space. Are the install and the digital initiatives large enough or growing fast enough that that's driving the bulk of that? And then in the same vein, for '26, would -- do you view the digital initiatives, the install initiatives as the biggest growth above the market drivers for you guys? Or is there some other initiatives that you would point to that's likely to be what helps you grow above the market? Pete Beckmann: Yes. Thanks for the question. On the first part, in that specialty products, just real quick on the digital, the digital software sales will flow through that. That hasn't largely changed. Our focus on digital sales and the pull-through is really going to be in the product categories. So the digital software sales isn't really influencing that per se. The install, however, as Peter mentioned, is a good growth driver for us. Yes, it may be down a little bit year-over-year, largely driven by the multifamily, but it's not down near as much as the overall market from that standpoint. So we are outpacing the market with install, and the labor portion goes through that specialty and other category, whereas the product categories will be in the natural product categories. So that's what you're seeing from that install and other. We haven't materially bought anything that would influence that specialty bucket otherwise, but it is performing well. It's been more stable from a cost standpoint, and it's been stable from a sales standpoint. Peter Jackson: You can imagine that the specialty is something that has a strong correlation to a lot of our more R&R and other focused markets, which are more stable in general than the single-family space. So that's a component of why it does that. In terms of thinking about the future and where we see continued growth, again, I think that our ability to provide a superior product within both the value-add space, if you think about what READY-FRAME offers, what truss and doors offer, that's still very impactful. We think that over time, that will continue to grow faster than market. The install, and what we're able to do in candidly a variety of product categories just to create ease of doing business for our builder customers, we think that's an offering that has been and will continue to be well received. I think you'll see in '26, some consistency in our areas of focus. We'll certainly -- we'll be leaning in, in a lot of areas because we're a pretty broad company. And depending on which market we're in, we may have different priorities. But I think those components still will bring through in '26. Operator: We'll move next to Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: So truss pricing continues to be pressured in a challenging residential demand environment, and -- I wondered if you've seen any improvement in industry supply-demand imbalances as we move through the back half of the year? Would you expect truss pricing to continue to trend lower as we move into 2026? Peter Jackson: Yes. No, I think it's a good observation. It's certainly been an area of pressure, and I alluded to that earlier. We are seeing some stability. I think the market broadly has moved aggressively. I think all of us have seen the opportunity to be part of the solution in the affordability space by being that partner to customers. The return on investment question, I think, is what is important when you're thinking about truss, right? There's -- that's not an EBITDA metric, right, because there's depreciation associated with it. So I think what has happened is the market has made some aggressive moves and gotten some stability and some clarity around what a good return on investment is. It's always hard to predict where it's going to go, but our sense is that it's gotten to where it should be and where it's going to get to for the time being. And it will have an opportunity to improve from where it is. But obviously, we're going to stay close to it. I think our competitive position and our cost position vis-a-vis the productivity work we've done over the years makes us the decider at the end of the day, do we want the business or not? Allows us to do that in a way that others can't compete with. So we're interested in being a responsible market participant. We think an appropriate margin and return on investment is the right way to think about it from a shareholder perspective. But ultimately, we are going to win this battle, and we're going to stay in the space in a way that maintains our leadership position. Jeffrey Stevenson: Great. And earlier this year, Peter, you mentioned there's some slowdown in the M&A pipeline due to macro uncertainties, but you've continued to make strategic bolt-on acquisitions in important value-added categories such as door and millwork. And I wondered if the M&A pipeline has started to see some improvement as the year progressed. Peter Jackson: Yes. It's a good point. There have been some ebbs and flows. And I think we've been fortunate that a few of the flows were with assets that we really thought were great additions. I'm super excited about the acquisitions in the Nevada market, right? That Las Vegas door and millwork category has been kind of an eyesore on my tracker for a while now. I don't like seeing a blank in that category because it's such a good one for us. And we picked up 2 fantastic businesses. I'm really excited about what we're going to be able to do working together to be that preferred partner in that market. It's a market where we already do very, very well and seeing how much better we'll do with that additional category. That's an example for us of where those opportunistic tuck-ins can be very impactful and important to us. And we continue to see them. I think we saw a little bit of a boost there in businesses that were sort of in market, but it ebbs and flows depending on the uncertainty around the space. That's true within the M&A space, just like it's true for consumers at this point. Operator: We'll take our last question from Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: I think you had mentioned some procurement savings, which probably helped margins a little bit. Can you maybe talk about where you saw some better cost positions there? Pete Beckmann: No, we're really not going to get into the details. What I can tell you is that our team is well organized, and our communication with our operations has put us in a good position to really be able to identify those opportunities and take advantage of them in a way that has really helped us in the short term, so I think that's... Peter Jackson: Yes. The only bit of color I'll add is we're advantaged by virtue of our scale and who we are. If you're a vendor and you want something to go away that's a problem for you, we're a very quiet customer. We like helping people have problems go away. And sometimes that creates opportunities for us. So we're committed to being that type of partner for our vendors and helping them. And I think this is an example of where we were able to do that. Operator: And this does conclude the question-and-answer session, and also, will conclude the Builders FirstSource Third Quarter 2025 Earnings Conference Call and Webcast. You may disconnect at this time, and have a wonderful rest of your day.

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What the US-China trade truce means for markets and the economy, plus Big Tech's massive AI spend

Market Catalysts anchor Julie Hyman breaks down the latest market news for October 30, 2025. The United States and China reached a trade truce.

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Goldman Sachs CEO David Solomon worried about mounting US debt: ‘There will be a reckoning'

"We should be concerned about this, not sounding an alarm bell," he said. "But I do think over time, this is an issue.

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Mortgage rates jump 20 basis points following Fed cut

The average rate on the 30-year fixed mortgage jumped to 6.33% Thursday. Markets had already priced in a cut from the Federal Reserve, but they weren't expecting the Fed chairman's commentary.

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Senate votes to overturn national emergency Trump used to justify global tariffs

CNBC's Emily Wilkins reports on news regarding Congress.

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