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Operator: Greetings, and welcome to the SiteOne Landscape Supply, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, John Guthrie. You may begin. John Guthrie: Thank you and good morning, everyone. We issued our third quarter 2025 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. I am joined today by Doug Black, our Chairman and Chief Executive Officer; Scott Salmon, Executive Vice President, Strategy and Development; and Eric Elema, Vice President, Finance and Corporate Controller. Before we begin, I would like to remind everyone that today's press release, slide presentation and the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black. Doug Black: Thanks, John. Good morning, and thank you for joining us today. We were pleased to achieve solid results during the third quarter with 4% net sales growth, including 3% organic daily sales growth and 11% growth in adjusted EBITDA compared to the prior year period, despite the continued softness in our end markets. Our teams are executing our initiatives well, yielding excellent SG&A leverage, good gross margin improvement and meaningful market share gains. We also benefited from a more favorable price/cost environment, yielding a 1% improvement in pricing for the quarter. Finally, we added three excellent companies to SiteOne during the quarter and one more in October, expanding our full product line capability in those local markets. Overall, with strong teams, a winning strategy and excellent execution of our commercial and operational initiatives, we are delivering solid performance and growth in 2025 despite softer end markets. Heading into 2026, we are confident in our ability to drive continued performance and growth in the coming years. I will start today's call with a brief review of our unique market position and our strategy, followed by some highlights from the quarter. John Guthrie will then walk you through our third quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Scott Salmon will discuss our acquisition strategy, and then I will come back to address our latest outlook before taking your question. As shown on Slide 4 of the earnings presentation, we have a strong footprint of more than 680 branches and 4 distribution centers across 45 U.S. states and 6 Canadian provinces. We are the clear industry leader, over 3x the size of our nearest competitor and larger than 2 through 10 combined. Yet we estimate that we only have about an 18% share of the very fragmented $25 billion wholesale landscape products distribution market. Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business with 65% focused on maintenance, repair and upgrade; 21% focused on new residential construction; and 14% on new commercial and recreational construction. As the only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition, further strengthens this balance over time. Overall, we believe our end market mix, broad product portfolio and geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers, while providing important resilience in softer markets like the markets we are experiencing today. Turning to Slide 5. Our strategy is to leverage the scale, resources, functional talent and capabilities that we have as the largest company in our industry, all in support of our talented, experienced and entrepreneurial local teams to consistently deliver superior value to our customers and suppliers. We've come a long way in building SiteOne and putting the teams and systems in place to fully execute our strategy at a high level across each of our product lines. In the current challenging market environment, we are making good progress in leveraging our capabilities to drive tangible results with consistent market share gains, improved SG&A leverage and steady gross margin improvement. Through our commercial and operational initiatives, we believe that we are delivering industry-leading value for our customers and suppliers, and solid performance improvement and growth for our shareholders this year. Importantly, we are gaining momentum for continued success in the years to come. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets and adds terrific new talent to SiteOne. Taken all together, we believe our strategy creates superior value for our shareholders through organic growth, acquisition growth and adjusted EBITDA margin expansion. On Slide 6, you can see our strong track record of performance and growth over the last 8 years. From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and 2022. In 2023 and 2024, we experienced significant headwinds as those commodity prices came down. In 2024, we also experienced further adjusted EBITDA dilution from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit, and from our other focused branches which resulted from the post-COVID market headwinds. In 2025, our pricing has transitioned from negative 1% in the first quarter to flat in the second quarter to up 1% in the third quarter as commodity deflation continues to dissipate. We expect to exit 2025 with pricing up 1% to 2%, setting us up for more normal inflation and price realization in 2026. Furthermore, we are achieving excellent progress with Pioneer and our other focus branches in 2025 and expect to continue achieving improvements over the next several years as we bring their performance up to the SiteOne average. In summary, we believe we are positioned to drive strong adjusted EBITDA margin improvement in 2025 and in the coming years as we execute our initiatives and as the market headwinds turn to tailwinds. Since the beginning of 2014, we have completed over 100 acquisitions, adding more than $2 billion in acquired revenue to SiteOne, which demonstrates the strength and durability of our acquisition strategy. These companies expand our product line capabilities and strengthen SiteOne with excellent talent and new ideas for performance and growth. Given the fragmented nature of our industry and our current market share, we believe that we have a significant opportunity to continue growing through acquisitions for many years to come. Slide 7 shows the long runway that we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, hardscapes and landscape supplies categories. We are well connected with the best companies in our industry and expect to continue filling in these markets systematically over the next decade. I will now discuss some of our third quarter highlights as shown on Slide 8. We achieved 4% net sales growth in the third quarter with 3% organic daily sales growth and 1% growth due to acquisitions compared to the prior year. Organic sales volume grew 2% during the third quarter, reflecting continued share gains, partially offset by end market softness in new residential construction and repair and upgrade. Pricing was up 1% in the third quarter, marking a meaningful improvement versus the prior year period. As expected, the growth in maintenance-related demand remained steady in Q3, and we achieved 3% organic daily sales growth with our agronomic products. The residential new construction end market was down during the quarter, especially in Texas, Florida, Arizona and California. The repair and upgrade market continued to be soft, but we believe this market is beginning to stabilize versus prior year, while commercial demand also remained stable. Accordingly, with the benefit of market share gains and more favorable weather, we achieved 3% organic daily sales growth with our landscaping products. Overall, we believe that we are consistently outperforming the market through our commercial initiatives, which in combination with the recovery in pricing, should allow us to achieve positive organic daily sales growth for the remainder of this year, even in a down market. Gross profit increased 6% and gross margin improved by 70 basis points to 34.7% due to higher price realization and gains from our initiatives. This outcome was higher than expected as our teams executed well and as the deflation in grass seed and PVC pipe was more than offset by stronger pricing and other products, which had a positive impact on gross margin. Our SG&A as a percentage of net sales decreased 50 basis points to 28.4% compared to the prior year period. For the base business, on an adjusted basis, SG&A as a percent of net sales decreased approximately 60 basis points versus last year, demonstrating our strong cost control and execution of our key initiatives, including continued improvement with our focus branch. We remain highly focused on achieving SG&A leverage through our initiatives, while benefiting from the impact of positive pricing on organic daily sales growth. Adjusted EBITDA for the quarter increased 11% to $127.5 million, and adjusted EBITDA margin improved 60 basis points to 10.1% due to higher net sales, improved gross margin and increased SG&A leverage. With pricing continuing to normalize and with our commercial and operational initiatives yielding stronger results, we are pleased to resume adjusted EBITDA margin expansion this year and expect to drive continued improvement in the coming years. In terms of initiatives, we are executing specific actions to improve our customer excellence, accelerate organic growth, expand gross margin and increase SG&A leverage. For gross margin improvement, we continue to increase sales with our small customers faster than our company average, drive growth in our private label brands and improve inbound freight costs through our transportation management system. These initiatives not only improve our gross margin, but also add to our organic growth as we gain market share in the small customer segment as well as across product lines with our competitive private label brands like Pro-Trade, Solstice Stone and Portfolio. Collectively, these three brands grew by 50% in the quarter and nearly 40% year-to-date. To further drive organic growth, we are leveraging our increased percentage of bilingual branches and executing Hispanic marketing programs to create awareness among this important customer segment. We are also making great progress with our sales force productivity as we leverage our CRM and establish more disciplined revenue-generating habits and processes among our inside sales associates and over 600 outside sales associates. This year, our outside sales force is covering approximately 10% more revenue than in 2024 with no additional headcount, which has allowed us to achieve higher organic sales growth at a lower cost. Our digital initiative with siteone.com is also helping us to drive organic daily sales growth, as our results have shown that customers who are engaged with us digitally grow significantly faster than those who are not. Year-to-date, we have grown digital sales by over 125% while adding thousands of new regular users of siteone.com, helping customers to be more efficient and helping us to increase market share while making our associates more productive, a true win-win-win. Through siteone.com and our other digital tools, we are accelerating organic growth, and we believe we are outperforming the market. With the benefit of DispatchTrack, which allows us to more closely manage our customer delivery, we are now able to improve both associate and equipment efficiency for delivery while more consistently pricing this service. We believe that we can significantly lower our net delivery expenses while improving the experience for our customers. So far this year, we have reduced our net delivery expense by approximately 30 basis points on delivered sales, which represent approximately 1/3 of our total sales. This is a major initiative, and we expect to make significant progress this year and in the next 2 to 3 years. Last year, we mentioned that we are intensely managing our underperforming branches or focused branches to ensure that they have the right teams, the right support and are executing our best practices to bring their performance up to or above the SiteOne average. As a part of these aggressive efforts, we consolidated or closed 22 locations in 2024 to strengthen our operations and better serve our customers at a reduced cost. Through the third quarter, we improved the adjusted EBITDA margin of our focused branches by over 200 basis points, and we expect to gain a meaningful adjusted EBITDA margin lift for SiteOne in the coming years as we improve the performance of these branches. To support further progress in 2026 in the face of potentially soft markets, we are planning to consolidate or close an additional 15 to 20 branches and serve existing customers from nearby branches at a lower cost. We will provide further detail on this later in the call. Taken all together, we are gaining momentum with our commercial and operational initiatives, which are improving our capability to drive organic growth, increase gross margin and achieve operating leverage. On the acquisition front, as I mentioned, we added four excellent companies to our family during the quarter and in October, and we have added six companies and approximately $40 million in trailing 12-month sales to SiteOne so far in 2025. As we have mentioned earlier in the year, most of our more advanced discussions are with smaller companies this year. And so we expect 2025 will be a lighter than normal year in terms of acquired revenue, even as we aggressively cultivate key targets for future years. In our fragmented industry, we still have plenty of high-quality targets, and we remain well positioned to grow consistently through acquisition for many years with an experienced acquisition team, broad and deep relationships with the best companies, a strong balance sheet and an exceptional reputation for being a great long-term home for companies in our industry. In summary, our teams are doing a good job of managing through the near-term market environment, leveraging our many opportunities for improvement, prudently adding new companies to SiteOne through acquisition and building our company for the long term. Now John will walk you through the quarter in more detail. John? John Guthrie: Thanks, Doug. I'll begin on Slide 9 with some highlights from our third quarter results. There were 63 selling days in the third quarter, the same as the prior year period. Organic daily sales increased 3% in the third quarter compared to the prior year period, driven by our sales initiatives and improved pricing. Overall, we saw 2% growth in volume and 1% growth from pricing. Pricing has improved from 3% deflation in Q3 2024 to 1% deflation in Q1 2025 to 1% growth this quarter. Price increases, due in part to tariffs, have now more than offset the price decreases we were experiencing with certain commodity products. We have positive pricing in almost all categories, while commodity products like grass seed and PVC pipe, which were down approximately 13% and 10%, respectively, this quarter, are becoming less of a headwind. Our outlook for price contribution for the fourth quarter is between 1% and 2%. And for the full year, pricing should end up flat to up approximately 1%. Organic daily sales for agronomic products, which include fertilizer, control products, ice melt and equipment, increased 3% for the third quarter due to solid demand in the maintenance end market and market share gains. Organic daily sales for landscaping products, which include irrigation, nursery, hardscapes, outdoor lighting and landscape accessories, increased 3% for the third quarter due to our sales initiatives, improved pricing and more favorable weather. Geographically, seven out of our nine regions achieved positive organic daily sales growth in the third quarter. Consistent with last quarter, we continue to see weaker sales in the Sunbelt states like Texas due to softness in the new residential construction end market. Acquisition sales, which reflects sales attributable to acquisitions completed in 2024 and 2025, contributed approximately $13 million or 1% to net sales growth. Gross profit increased 6% to approximately $437 million for the third quarter compared to approximately $411 million for the prior year period. Gross margin for the third quarter expanded 70 basis points to 34.7% due to improved price realization and benefits from our commercial initiatives like private label and small customer growth. Selling, general and administrative expenses, or SG&A, increased 2% to approximately $357 million for the third quarter. SG&A as a percentage of net sales decreased 50 basis points for the quarter to 28.4%. The SG&A leverage improvement reflects our actions to increase productivity and better align operating costs with the current market demand. For the third quarter, we recorded income tax expense of approximately $16 million, which is consistent with the prior year period. The effective tax rate was 20.4% for the third quarter compared to 26.2% for the prior year period. The decrease in the effective tax rate was primarily due to an increase in the amount of excess tax benefits from stock-based compensation. We continue to expect the 2025 fiscal year effective tax rate will be between 25% and 26%, excluding discrete items such as excess tax benefits. Net income attributable to SiteOne for the third quarter increased 33% to $59 million due to net sales growth, improved gross margin and SG&A leverage. Our weighted average diluted share count was approximately 45 million at the end of the third quarter compared to 45.6 million for the prior year period. We did not make any share repurchases during the quarter, but post quarter, we repurchased approximately 161,000 shares for $20 million under a 10b5-1 Plan. Year-to-date, we have repurchased approximately 656,000 shares for a total of approximately $78 million at an average price of approximately $118 per share. These repurchases reflect our continued commitment to disciplined capital allocation and returning value to our shareholders. Adjusted EBITDA increased 11% to $127.5 million for the third quarter compared to $114.8 million for the prior year period. Adjusted EBITDA margin improved approximately 60 basis points to 10.1%. Adjusted EBITDA includes adjusted EBITDA attributable to noncontrolling interest of $1 million for the third quarter of 2025 compared to $0.8 million for the third quarter of 2024. Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on Slide 10. Working capital at the end of the third quarter was approximately $1.06 billion compared to approximately $992 million at the end of the same period prior year. The increase in working capital was primarily due to higher inventory purchases ahead of tariffs and growth in accounts receivable due to increased sales. Net cash provided by operating activities was approximately $129 million for the third quarter compared to approximately $116 million for the prior year period. The increase in operating cash flow is primarily due to the improvement in net income. We made cash investments of approximately $16 million for the third quarter compared to approximately $21 million for the same period prior year. The decrease reflects lower acquisition investment compared to the same period prior year. Capital expenditures of approximately $10 million were flat compared to the same period last year. Net debt at the end of the quarter was approximately $423 million compared to approximately $449 million at the end of the third quarter of last year. Leverage declined to 1x trailing 12-month adjusted EBITDA from 1.2x a year ago. As a reminder, our target year-end net debt to adjusted EBITDA leverage range is 1 to 2x. At the end of the quarter, we had available liquidity of approximately $685 million, which consisted of approximately $107 million in cash on hand and approximately $578 million in available capacity under our ABL facility. Our priority from a balance sheet and funding perspective is to maintain our financial strength and flexibility so we can execute our growth strategy in all market environments. Before I turn the call over to Scott, I'd like to take a moment to share that this will be my final earnings call as CFO. As previously announced, I will be retiring at the end of the year. It's been a true privilege to serve SiteOne over the past 20-plus years, and I'm incredibly proud of the company we built and the progress we've made together. I'm also pleased to welcome Eric Elema, our incoming CFO, who will be stepping into the role beginning in January. Eric has been a key leader and partner in building our finance organization and has played an integral role in shaping the strategy and driving execution at SiteOne. I'll now turn it over to Eric to briefly introduce himself. Eric Elema: Thanks, John. I want to start by thanking you for your leadership and mentorship. You've built a best-in-class finance organization and have set a strong foundation for continued success. I'm honored to step into the CFO role and excited to continue supporting our teams in executing our strategy. From a financial and operational standpoint, nothing is changing. We remain focused on disciplined execution, driving performance and growth and delivering value for our stakeholders. I look forward to working closely with Doug and the leadership team as well as all our associates in the next chapter. I will now turn the call over to Scott for an update on our acquisition strategy. Scott Salmon: Thanks, Eric, and thank you, John, for your leadership and contributions to SiteOne. It's been a pleasure working alongside you. I'll now provide an update on our acquisition strategy. As shown on Slide 11, we acquired three companies in the third quarter and one more post quarter, bringing the total to six acquisitions year-to-date with a combined trailing 12-month net sales of approximately $40 million. Since 2014, we have acquired 104 companies with approximately $2 billion in trailing 12-month net sales added to SiteOne. Turning to Slides 12 through 15, you will find information on our most recent acquisitions. On July 24, we acquired Grove Nursery, a single location wholesale distributor of nursery products in Northwest Minneapolis, Minnesota. The addition of Grove Nursery now enables us to provide a full range of products to our customers in the Twin Cities. Also on July 24, we acquired Nashville Nursery, a single location wholesale nursery in Northwest Nashville, Tennessee. Joining forces with Nashville Nursery further strengthens our position as the leading wholesale distributor of nursery products in the Central Tennessee. On September 19, we acquired Autumn Ridge Stone, a single location hardscapes distributor in Holland, Michigan, expanding the range of products we provide to our customers in Western Michigan. And lastly, on October 1, we acquired Red's Home & Garden, a single location hardscape and nursery distributor in Wilkesboro, North Carolina. The addition of Red's allows us to better service our many customers in Western Carolina. Summarizing on Slide 16, our acquisition strategy continues to provide a significant growth opportunity for SiteOne by adding excellent talent and moving us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. As we've noted throughout the year, acquired revenue is expected to be lower in 2025, reflecting a more modest contribution from recent acquisitions. We have a large pipeline of potential acquisitions, and we are actively building relationships with many other companies. We have significant runway to grow and create value through our acquisitions in the years to come. As always, I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they joined the SiteOne family. I will now turn the call back to Doug. Doug Black: Thanks, Scott. Before we wrap up, I'd like to take a moment to thank John for his outstanding leadership and many contributions to SiteOne over the years. John has been a terrific partner and trusted colleague from the day I joined the company back in 2014. Over the years, he's been instrumental in building our strong company, executing our strategy and achieving excellent performance and growth. We wish him all the best in his well-earned retirement. I'd like to also congratulate Eric Elema on his appointment as CFO. Eric is a proven leader with deep knowledge of our business, and I look forward to working with him in his new role as we continue to execute our strategy and drive long-term value. Now turning to our current outlook for the rest of the year on Slide 17. With continued market uncertainty, elevated interest rates and weak consumer confidence, we believe that the softness in new residential construction and repair and upgrade demand will continue, more than offsetting growth in maintenance demand. With the benefit of positive price growth and our commercial initiatives driving market share gains, we expect to achieve positive organic daily sales growth during the remainder of the year. In terms of our individual end markets, we have seen a decline in new residential demand this year, especially in the high-growth markets across the Sunbelt. Accordingly, we expect the demand for landscaping products for new residential construction, which comprised 21% of our sales to be down during the remainder of 2025. Continued elevated interest rates, housing affordability challenges and lower consumer confidence are constraining demand, and we expect this end market to remain weak until some of these factors improve. The new commercial construction end market, which represents 14% of our sales, has remained resilient in 2025 so far, and we believe it will be flat for the remainder of the year. Bidding activity from our project services teams continues to be slightly positive. But with the ABI index remaining below 50, there is uncertainty in new commercial construction future demand. The repair and upgrade end market, which represents 30% of our sales, has been down this year. But in talking with our customers and monitoring our volume in specific products, we believe demand has begun to stabilize in the last few months. We expect this market to remain soft during the remainder of the year, but would be optimistic that we may have reached a foundation for future growth in repair and upgrade demand. Lastly, in the maintenance end market, which represents 35% of our sales, we have continued to achieve solid sales volume growth. We expect the maintenance end market to continue growing steadily in 2025. Taken all together, we expect our end markets to be slightly down for the remainder of the year. Despite this backdrop, we expect sales volume to be slightly positive in the fourth quarter with the benefit of our commercial initiatives. Coupled with modest price inflation, we expect low single-digit organic daily sales growth during the remainder of the year. With strong actions taken to reduce SG&A and continued focus on branch improvement, sales productivity and delivery efficiency, we expect to continue achieving improved operating leverage during the remainder of the year. We expect solid adjusted EBITDA margin expansion for the full year 2025. In terms of acquisitions, as mentioned earlier, we expect to add more excellent companies to the SiteOne family during the remainder of the year, though we expect to add less revenue for the full year 2025 compared to 2024 due to the smaller average acquisition size. As mentioned earlier, to proactively address the potential for continued soft market conditions and to further optimize our footprint and cost structure, we plan to consolidate or close 15 to 20 branches in the fourth quarter and incur a charge to adjusted EBITDA of approximately $4 million to $6 million. We expect to retain most of the sales from these branches. With all of these factors in mind and including the fourth quarter charge, we expect our full year adjusted EBITDA for fiscal 2025 to be in the range of $405 million to $415 million. This range does not factor in any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would like to also thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of David Manthey with Baird. David Manthey: First question, a simple one, just on the charge that you mentioned. Why are you not excluding that from adjusted EBITDA guidance? It seems like a nonrecurring item, just optically wondering why that's not being factored out. John Guthrie: We've always had relatively strict guidelines with regards to our adjusted EBITDA, and this is consistent with them. All of our adjustments primarily reflect acquisitions and the adjustments within the first year. So that's been our policy. We provide the information, so you and the investors can make those adjustments themselves. David Manthey: Yes. I appreciate it. That's great. And then the next line of questioning on pricing. If you could talk to us about the price you realized in agronomics versus landscape products. And then thinking about the fourth quarter and seasonality, the mix of the business, for example, grass seed, obviously lower in the fourth quarter than the third. How should we think about price realization as it relates to mix as we go into the season, the off-season? And then any thoughts about 2026 as that's going to evolve? John Guthrie: Sure. Price for the quarter, landscape products was up 1% and agronomic products was flat. I mean, it was actually down slightly, but round it -- we would round it flat. Going into the fourth quarter, grass seed, which is the largest component, still with negative price will be a smaller component of the business. And so we expect price in the fourth quarter to be between 1% and 2%. And then going into next year as kind of the deflationary items continue to diminish, we would think it would be kind of more of a normal pricing year with -- historically, we're around 2%. 1% to 3% would probably be a good range right now. But I think we would probably say we're at the midpoint of that range would be our outlook today. David Manthey: Perfect. John, congrats, all the best. Thank you. And Eric, we look forward to working with you. Eric Elema: Thank you. Operator: Our next question comes from the line of Ryan Merkel with William Blair. Ryan Merkel: My congrats to John and Eric as well. I wanted to start off on the fourth quarter, the outlook for low single-digit organic. Are you seeing this in October, is the first part of the question. And then the second part is you mentioned repair and upgrade stabilizing a bit. I'm wondering if you could provide a little more color there because that's a bigger ticket item usually, and I'm just surprised that you'd be seeing the stabilization now. Doug Black: Yes. So the comment on the growth first. We are seeing positive organic sales growth in October. Keep in mind that the fourth quarter is a tougher comp. Last year, we had 4% volume growth in the fourth quarter, which was quite strong. And the fourth quarter is highly impacted by weather. So -- but we are seeing that positive growth so far in October. In terms of the repair and upgrade market and talking with our customers and monitoring our product lines that are tied to that like hardscapes, lighting, we've seen that kind of stabilize. The performance there has been stronger. I think our customers, clearly, remodel is down this year, but I think it seems to have settled. We hope it's a bottom, if you will. Don't know that for sure. But certainly, the numbers there and discussions with customers, they don't have long backlogs, but they seem to be settled into a rhythm of work. So more to come later, but the numbers that we see and the conversations that we're having, we would -- we're more optimistic now than we would have been 3 months ago. Ryan Merkel: Okay. That's good to hear. And then on fourth quarter, on in-line sales with the Street, the EBITDA is coming in a few million dollars below, and that's if I back out the branch closures. So how should we think about gross margin and SG&A in 4Q? Just trying to square why EBITDA is a little below. And I realize fourth quarter with the weather can be, right, it's a small quarter. So I appreciate being conservative. John Guthrie: Yes. I think in the fourth quarter, our guidance does not quite have as strong an outperformance year-over-year on gross margin as we achieved in Q3. We still expect to achieve good SG&A leverage, and that to be the primary driver of performance is what's built into our guide. Operator: Our next question comes from the line of Damian Karas with UBS. Damian Karas: Yes. I was going to say that, obviously, the market environment for housing and homeowner spend isn't great right now. I'm just curious if you've been seeing any change in competitor behavior just given some of the demand softness out there. Doug Black: We operate in competitive markets, and I wouldn't say we're seeing anything unusual. Obviously, when things are softer, people -- things naturally get more competitive. Those are typically around the larger customers and around the commercial side of the business. But -- and so we've seen that, but we've been seeing that for the last couple of years. So nothing more than usual. And we have strong teams and with our initiatives and capabilities like siteone.com and our delivery capabilities and the way we're private label and going after small customers, we're able to combat that competitive activity and still, we believe, gain market share. Damian Karas: That makes sense. And then I wanted to kind of throw a little bit of a hypothetical your way, thinking about some of the additional store closures and footprint optimization that you're doing. If you were to see a comeback in housing and the demand environment sooner rather than later, would you still be in a position to fully serve the market? I recognize that's not an expected turn of events at the current moment, but just any thoughts on how you might need to respond to such a scenario? Doug Black: Right. That's actually a great question. Yes, we would be able to fully serve, let's say, a strong market with our current network. We have ample capacity. And of course, as things ramp up, we can add associates at the front line and our branches, et cetera. We have our DCs, and we have the capability to feed the system, if you will. And so the network optimization that we're doing with the store closures wouldn't prevent us from servicing a stronger market. We don't expect that to be the case. If it was, it would be a pleasant surprise. But we would be more than capable of serving that. And obviously, that would accelerate our SG&A leverage and our EBITDA expansion that we're planning for next year, but we're planning within a soft market. Operator: Our next question comes from the line of Keith Hughes with Truist Securities. Julian Nirmal: This is Julian Nirmal on for Keith Hughes. I think you talked a little bit about how inflation is going to look like for the rest of the year. Any outlook on what input inflation look like in commodities? John Guthrie: I mean, I think that's carried through in our guide for inflation for the year. We're not seeing fertilizers and stuff like that. We're not seeing necessarily kind of major swings. So all that really is embedded in the guide that we've given. Julian Nirmal: And then going back to the focus initiatives, I know you talked about you want to close 15 to 20 branches in '26. Do you have any idea of what the cadence of that would look like and kind of how that would contribute to margins going through the year? Doug Black: Well, if you take our focus branches in total, which represents about 20% of our revenue, as we mentioned, the EBITDA margin -- adjusted EBITDA margin for those sets of branches are up 200 -- over 200 basis points this year. And we would expect to continue that improvement trend. They're not up to the average, and there's a ways to go before they get up to the average. And so we would expect that improvement trend to continue into next year. And the new sets of closures and consolidations are really just part of making sure that we can make those improvements next year without a lot of help from the market, if you will. Operator: Our next question comes from the line of Andrew Carter with Stifel. W. Andrew Carter: Question I have is around the margin targets you've said before. I know you've put out there a double-digit near-term kind of margin. If we're in a soft volume environment for '26 and '27, do you have the internal levers to get there, whether it be focused branches, whatever, independent of volume meaningfully accelerating? Doug Black: Yes. Of course, the short answer is, yes, we have a lot of self-help capacity with our focused branches, with the productivity with our sales force, with the delivery productivity that we've mentioned. And then on the gross margin side with our private label growth, which we're driving quite successfully with small customer growth, et cetera. And so given that, we do need a base if there was a big falloff next year or whatever, obviously, that would interrupt that. But as long as we have a solid market, a stable market, call it, soft, stable, then we have the opportunity to continue to expand our adjusted EBITDA. Obviously, the stronger the market, the quicker we can make gains. But we do have the capacity to continue the gains that we're seeing this year on into the next year, next couple of years in a continued soft market conditions. W. Andrew Carter: Second question on the M&A landscape. You said that this is going to be a softer year, which you've done six to date. Do you see that meaningfully picking up in '26 given your pipeline? Are you going to be more focused going forward on the smaller guys? And I know you've said Pioneer was kind of uncharacteristic. Would you be willing to do something like that again given kind of the challenges ahead? I'll stop there. Doug Black: Yes. So we are having a lighter year revenue-wise this year with acquisitions. But if you look at the course of acquisitions, the size moves around. Every once in a while, we'll do a larger one like a Pioneer or a Devil Mountain and then you have the midsized acquisitions and then you have more small ones, right? And so we -- sellers sell when they're ready to sell, not when we're ready to buy. And so we're out there talking to all the companies that we would like to join. And any 1 year, you could have it be up, you could have it be down, et cetera. Given how it's falling this year, we would expect next year to be higher than this year just because of the law of averages. If you look at the 10-year period, $2 billion, that's a pretty good gauge of where we'll be going forward. In terms of would we do a Pioneer, I'll call it a fixer-upper. We don't look to do those. And I wouldn't know of anything in our pipeline, Scott, you can correct me that we have any more Pioneer. We had tracked Pioneer for a long time, so we kind of knew it was coming. But we much prefer to buy well-run companies. And I believe our target set going forward would be -- I mean, would be all well-run companies. Scott, could you confirm that? Eric Elema: Yes. To the extent we can know the performance of the companies, I would agree. We're not searching or tracking a larger turnaround or anything like that. Operator: Our next question comes from the line of Matthew Bouley with Barclays. Elizabeth Langan: You have Elizabeth Langan on for Matt today. I just wanted to start off asking on SG&A. Obviously, you've made some improvement into this quarter. I was wondering if you could dig into that a little bit and maybe speak on how you're tracking with your SG&A initiatives, and if you expect a similar magnitude of improvement through the end of this year and into 2026? John Guthrie: We expect -- we're still tracking. We would expect to continue the trend we've seen for the rest of the year. So obviously, we're -- in Q4, we are taking the charge, but we had a similar magnitude charge last year. So we would expect to continue to achieve the SG&A leverage in Q4. It's our plan to be without -- we're not giving guidance today on SG&A, but -- for '26. But certainly, that's -- SG&A leverage is foundational to what we're doing going forward. Elizabeth Langan: Okay. And then I had another question on the commercial end markets. Could you speak to what you're seeing in those end markets? And then also if you're seeing any regions that are having relatively lighter or more outsized demand on the bidding side? Doug Black: In terms of commercial, we're seeing that continue to be stable. It has been all year. We look at -- we have a project services group that puts together takeoffs for customers for commercial work. And so they're looking at all the commercial jobs coming down the pipeline. Their activity in terms of bidding is slightly up. And so that -- we take that as a positive. When we talk to our customers, the backlogs are less than they would have been a year ago, but they're seeing continued work coming down the pipe. So we would -- it's been stable. We think it will continue to be stable, flattish. And no, we don't see any outsized growth in any particular regions. It just seems to be kind of flat, stable going forward. Operator: Our next question comes from the line of Mike Dahl with RBC Capital Markets. Christopher Kalata: This is Chris on for Mike. Just shifting back over to pricing and your initial expectation of a more normal plus 2 price environment. I was hoping you maybe give some initial kind of puts and takes in terms of the drivers there, based on what you're seeing in commodity pricing, how you expect commodity pricing to play out relative to noncommodity? And should we think about -- given the easy first half comp, should we think about kind of trending towards the higher end of that 1% to 3% range and then settling out to something more normal, just the evolution of that based on where you see things today? John Guthrie: I think it will accelerate as we go just primarily because the grass seed probably won't -- that will be an overhang in the first half on the commodity side. The rest of the products are in pretty good shape from a commodity standpoint. Most of the PVC pipe prices decreases were, frankly, in 2024. And so that's been relatively stable in 2025. So -- and then we'll have -- really the uncertainty is we'll have to see what the price increases are coming from our suppliers in the first quarter of next year. Right now, kind of we're hearing low single-digit type numbers coming from those suppliers, but that's a little bit uncertain at this point, and we'll get greater visibility of that over the next 3 months. Christopher Kalata: Got it. Appreciate that. And just drilling in deeper into the SG&A outlook, I realize you guys aren't providing guidance, but just trying to get a better sense of magnitude of potential leverage next year given actions to date. Should we think about taking volume out of the equation and just the pricing expectation and the actions you're doing around branch closures that we could see kind of a similar magnitude of SG&A leverage as we've seen in the last couple of quarters looking to next year? John Guthrie: We're really in our planning process right now. That's our goal is to achieve it next year. I think it's a little premature to give too much guidance in Q4 since we're really having those discussions right now. Operator: Our next question comes from the line of Charles Perron-Piché with Goldman Sachs. Charles Perron-Piché: First, congrats on retirement to John and Eric, congrats on the new role. Maybe I could start with capital allocation. Maybe for John or Eric, if anything you have to add. Your leverage is now at the low end of the 1 to 2x range as of September. It's good to see that you guys were active on share repurchases in October. Against that, I guess, should the M&A market remains softer for longer, would you consider a higher focus on shareholder return going forward? John Guthrie: Yes, I think that's fair. Our guidance is to invest in the business first with acquisitions. Obviously, we will have some acquisitions in the fourth quarter. But in so much as we are at the bottom of our leverage range and that certainly lends itself to doing increased share repurchases. Charles Perron-Piché: Okay. And then second, just following up on pricing. I think in your prepared remarks, you talked about the benefits of commercial initiatives on pricing this quarter. Can you expand on that notion? And if you expect to see further mix benefits to results going forward on top of like-for-like pricing? John Guthrie: The benefit of commercial is really not -- I think that's two separate things. We benefited from stronger pricing. And then also, we also benefit from our commercial initiatives with regards to gross margin. So we're also -- some of the outperformance in what we've seen with regards to gross margin has been as a result of our private label and small customer initiatives. they're both contributing to our overall performance in addition to the price benefit. So those were the two drivers that we talked about that kind of helped us from a gross margin perspective this quarter. Operator: Our next question comes from the line of Jeffrey Stevenson with Loop Capital Markets. Jeffrey Stevenson: John, congrats on your retirement. So slight successful internal initiatives continue to drive 2% to 3% above-market growth and offset choppy end market demand this year. I just wondered how sustainable is the growth you're seeing in areas such as private label and small customers over the coming years? And do you expect share gains to continue to track above pre-pandemic levels? Doug Black: Yes. We've got quite a bit of runway with those two in particular. We're still significantly lower market share with the smaller customers than we are with our larger customers. And so we've got quite a bit of catch-up there that will take the next probably 3 to 5 years. And so that's a long-term play in terms of private label, same thing. We're at about 15% private label. We'd like to be 25%, 30% long term. And so we're continuing to drive initiatives. We mentioned the growth in the quarter. We intend -- we're already teeing up our forecast for next year, but we intend to keep pace and keep that percentage of our total sales growing as we move forward. And then the other initiatives is just our customer excellence initiatives, the work with our sales force and our CRM. We're -- we aim to be an above-market grower for many years to come. And so we are looking to keep pace, including adding adjacent product lines like pest control and erosion control and there's high growth in synthetic turf. So plenty of opportunities to outperform the market, not just this year, but in many years to come. Jeffrey Stevenson: Got it. And then pricing came in better than expected in the third quarter versus kind of original flattish expectation. And I wondered what the primary variance with your results compared with prior expectations? Was it tariff-related price increases, grass seed declines maybe not as severe as expected? Any more color there would be helpful. John Guthrie: I think we went into the quarter thinking probably that it was going to be a more competitive pricing than -- especially with grass seed and some of the other products relative to what it actually was from that standpoint. So it held up just a little bit better from that perspective. And so that was -- it was a pleasant surprise from that perspective, but that was the primary driver. Doug Black: And we are talking small -- we thought it would be flat and it was up 1%. John Guthrie: Yes. It should be relative. We didn't really put in a lot of price increases. It's more of the bids and quotes where things ended up. And it was -- we're probably within rounding, but it was slightly stronger than we thought. Operator: This now concludes our question-and-answer session. I would now like to turn the floor back over to management for closing comments. Doug Black: Okay. Well, thank you, everyone, for joining us today. We very much appreciate your interest in SiteOne, and we look forward to speaking to you again at the end of next quarter. A big thank you to our amazing associates for the great job that they do for us, also to our customers for allowing us to be their partner and our suppliers for supporting us. And then a final thank you to John, who's been such a terrific partner for these years. And congratulations to Eric. We're excited about our future, and we look forward to talking to you at the beginning of next year. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, everyone, and welcome to the United Therapeutics Corporation Third Quarter 2025 Corporate Update. My name is Jamie, and I will be your conference operator today. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Harry Silvers, Investor Relations Manager at United Therapeutics. Harrison Silvers: Thank you, Jamie. Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation Third Quarter 2025 Corporate Update Webcast. Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Forms 10-K and 10-Q, contain additional information on these risks and uncertainties. We assume no obligation to update forward-looking statements. Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products. These remarks are intended solely to educate investors and are not intended to serve as the basis for medical decision-making or to suggest that any products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products is available on our website. Accompanying me on today's call are Dr. Martine Rothblatt, our Chairperson and Chief Executive Officer; Michael Benkowitz, our President and Chief Operating Officer; James Edgemond, our Chief Financial Officer and Treasurer; Dr. Leigh Peterson, our Executive Vice President of Product Development and Xenotransplantation; and Pat Poisson, our Executive Vice President of Strategic Development. Note that Pat Poisson and I will participate in a fireside chat and one-on-one meetings at the UBS Global Healthcare Conference in Palm Beach on November 10. Additionally, James and I will be at the Jefferies Global Healthcare Conference in London on November 18, for a fireside chat and one-on-one meetings. And finally, Martine Rothblatt will present at the 44th Annual JPMorgan Healthcare Conference in San Francisco in January of next year. Our scientific, commercial and medical affairs teams will be present at Phenomenal Hope 2025 on December 5, in Boston and at the Pulmonary Vascular Research Institute Annual Congress in Dublin in late January next year. Now I will turn the webcast over to Martine for an overview of our development pipeline and business activities. Martine? Martine Rothblatt: Thank you, Harry, and good morning, everyone. United Therapeutics had a great quarter, helping more patients and earning more revenues than ever before. In addition, this past quarter, our pipeline made more progress than ever before. We fully enrolled three Phase III trials, and we've shared the unblinded results for pulmonary fibrosis. In fact, the best results for that condition ever reported by anyone, anywhere, anytime. We feel confident we'll be able to help tens of thousands of IPF patients live better lives. United Therapeutics is a public benefit company. And I'm sometimes asked, what exactly does that mean? Well, one thing that it means is to defy the odds and invest millions of dollars over several years to develop a historically unmatched product portfolio for pulmonary fibrosis. Being a public benefit company means providing a framework of trust for patients, doctors, payers, and employees. Being a public benefit company also means having shareholder interest as the hands on the helm. For example, we've repurchased millions of our shares, including quite a few this quarter at a bargain price. For example, we are now guiding that we'll be at a $4 billion revenue run rate not later than 2027. And finally, I'll point out that we are actively engaged in all manner of business development. In fact, I can predict that great companies such as Merck, J&J, Novartis with strong pulmonary disease franchises will be very keen to partner with us given our best-in-class data released for IPF this quarter with long-lived IP and also given the very near-term result of ralinepag with its 2040 patent life. Indeed, I'd love to see a trial of ralinepag combined with Winrevair, and I bet it would be super synergistic. Let's now give Mike Benkowitz a chance at the microphone so he can give us a deep dive into our great and better-than-ever numbers this quarter. Michael? Michael Benkowitz: Thank you, Martine, and good morning, everyone. Today, we are pleased to report another quarter of record total revenues of $800 million, representing 7% growth from the third quarter of 2024. This quarter's performance was driven by continued year-over-year growth in total Tyvaso and Orenitram sales, reflecting patient demand and the resilience of our commercial strategy and execution. Continued double-digit revenue growth for total Tyvaso demonstrates that we are realizing no material impact from the launch of YUTREPIA. Our continued revenue growth also reinforces our belief that competition drives additional disease awareness, which in turn increases the overall opportunity in the large addressable pulmonary hypertension market. We remain confident that Tyvaso DPI is the best positioned inhaled treprostinil product and can sustain long-term growth due to the convenience of our DPI device, its unlimited dosing potential, the thousands of prescribers and many thousands of patients who have experienced Tyvaso DPI since launch and the fact that there are no payer incentives to prefer an alternative product. On dosing and convenience, our Tyvaso DPI platform is driving a meaningful shift in treprostinil dosing behavior. Historically, patients averaged 9 breaths per treatment using nebulized Tyvaso delivery. With Tyvaso DPI, that average has increased to a 12 breath equivalent or 64 micrograms. I'm pleased to announce that we will soon be launching Tyvaso DPI 80 microgram cartridges to provide added convenience for patients being treated at higher doses. This new cartridge will allow patients to reach the equivalent of 15 nebulized breaths with 1 single breath as compared to 4 breaths for YUTREPIA. This is the highest dose ever delivered in 1 breath via 1 cartridge, offering a clear competitive edge in dosing flexibility and reinforcing the clinical and commercial value of higher dose treprostinil. This innovation positions us to provide greater patient benefit, capture greater market share and unlock new revenue potential in the growing pulmonary hypertension space. At the same time, we launched the 80-microgram cartridge, we will also be launching 96 and 112-microgram combination kits, which we believe will facilitate access and affordability for patients requiring even higher doses of Tyvaso DPI. On tolerability, we're looking forward to sharing abstracts at the PVRI Annual Congress in January that compare real-world data from United Therapeutics safety database to clinical trial evidence from YUTREPIA's INSPIRE study. These analyses show, among other things, a lower incidence of cough in both Tyvaso and Tyvaso DPI. Finally, on access, we have secured multiple favorable coverage decisions with major payers, supporting a clear validation that Tyvaso DPI is well-positioned in the marketplace. Our confidence in the growth profile of Tyvaso is further supported by the recent TETON 2 study, which, as Martine said, demonstrated an unprecedented treatment of benefit for inhaled treprostinil in patients with idiopathic pulmonary fibrosis. We are excited about the TETON 2 data, which have the potential to significantly broaden our therapeutic reach into respiratory disease and further accelerate our growth. Lastly, turning to Remodulin. We're pleased to have launched our new RemunityPRO pump during the third quarter, which we designed based on feedback from healthcare providers and patients to enhance the overall experience of our parenteral therapy. Our RemunityPRO pump is small and discrete and features a user-friendly remote with guided instructions, automated priming and easy filling. Additionally, its lower flow rates may enable more patients to initiate Remodulin therapy at home instead of requiring a hospital stay. In closing, we are extremely proud of our team's steadfast dedication, which has driven these remarkable innovations and results and enables us to offer critical therapies to our patients who rely on them. We are confident that our strong foundation positions us to maintain our momentum and continue delivering success for many years to come. With that, I'll turn things back to Martine. Martine Rothblatt: Michael, that was an amazing overview. Thank you so much for sharing all that information and for all of your leadership. Operator, you may now open the lines to any questions. Operator: [Operator Instructions] Our first question today comes from Lisa Walter from RBC. Lisa Walter: Congrats on the quarter. I'm just curious, given the TETON 2 results in IPF, are you perhaps seeing an uptick in diagnoses of IPF patients with PH? And if so, do you think this could positively impact Tyvaso sales over the next few quarters? Any color here would be helpful. Martine Rothblatt: Thanks for the question, Lisa. I'm going to refer that to Michael, under his overall leadership includes all of the different parts of UT that are interacting with physicians and patients, such as global medical affairs and our commercialization teams, our regional nurse specialists. So Mike would have a lot of input on that. Michael? Michael Benkowitz: Sure. Thanks for the question. Yes, it's an interesting question. It's actually one, I had the opportunity to attend both the European Respiratory Society, where we unblinded the TETON 2 data as well as the CHEST conference last week in Chicago. And it's actually -- every physician I talk to, I asked them that exact question, just to try and get a sense of whether that data would maybe create an incentive or prompt them to be more aggressive in screening for pulmonary hypertension in their IPF patients. And so they all said, yes, yes. Whether that plays out yet, I think it's still too early because we only unblinded the data just a few weeks ago. So I can't point to an uptick directly towards that or directly towards the TETON 2 study. But it's certainly something, I think, that we're chatting with physicians about and monitoring very closely. So I think it's logical that this will play out over time. Whether it does, when it does, to what degree, I think, remains to be seen. Operator: Our next question comes from Andreas Argyrides from Oppenheimer. Andreas Argyrides: Congrats on another solid quarter here. Martine, you mentioned in your remarks ralinepag and potential for combination. Can you just give us a sense of where you see the market opportunity for ralinepag and expectations for advanced outcomes next year? Appreciate it. Martine Rothblatt: Sure. Absolutely. Ralinepag is just blowing the doors off of expectations in everywhere we look. It's -- first of all, the enrollment of the outcomes trial, which is just the largest trial ever enrolled in pulmonary hypertension has gone extraordinarily well. And even the -- some of the open-label results have been announced by some doctors that for patients who have already exited the trial and the 6-minute walk distances that are maintained even a year after these patients have left the trial are best-in-class, 6-minute walk distances. Then as I mentioned, the long patent life for ralinepag is a very significant factor as well from a business standpoint. With the patent, I'm not going to be the expert on all the dates, but it's roughly 20/40. So it has a very, very long patent life. As you know, it's a pill that you just take once a day. It seems to be the most potent prostacyclin type of drug that has been identified yet. So patients have an opportunity to just take one pill once a day and be able to keep their pulmonary hypertension managed as well as could be the case with any other prostacyclin type therapy. Now on top of all of that, we were very impressed with the synergy that was shown in the data released by Merck between sotatercept and treprostinil. And we've continued to see that synergy in the marketplace. Subsequent to the sotatercept launch, our sales have just continued to grow. So there seems to be like a really nice synergy between those two drugs. And if one could leverage that synergy with a once-a-day pill, wow, that would be like even better. In addition to that, there turns out to be a tremendous formulation flexibility with ralinepag, which opens up a number of opportunities that are more in our stealth catalog, things such as combination, oral treatment and so on. So ralinepag is -- while IPF is a disease is front and forward for us, as an NCE, ralinepag is our #1 course. Operator: Our next question comes from Joseph Thome from TD Cowen. Joseph Thome: Congrats on the progress. Martine, in addition to that combination partnership potential, it sounds like you also mentioned some large pharma partnership related to -- or in light of the recent Tyvaso IPF data. So maybe if you could go a little bit more into maybe what you're thinking about there? What would an ideal kind of partner look like or partnership? And is this related to kind of European rights? Or just any additional clarity around that because that seemed like a little bit of an update from the prior quarter, obviously, given the recent data. Martine Rothblatt: Yes. It was only -- it's so funny that you say that because before we released this data, I would say that -- I don't know, these are just heuristic numbers, but like 90% of people seems like they didn't really believe that our drug would work in pulmonary fibrosis, which seemed odd to us. We have a computational biology lab, which has an extraordinary digital model of the lung and all of the key diseases that we focus on in the lung. We use a large learning model based on all of the previous studies that have been done in pulmonary fibrosis and pulmonary hypertension to develop this digital lung model. And then we are able to run new NCEs new drugs through this model to get the results of standard endpoint measurements. So for example, we ran the TETON 2 study the entire like 100 clinical trials modeled as the TETON 2 study, 100 clinical trials [indiscernible] hours. And compare that to the years and years that it takes like slugging around the world enrolling these trials. And the results of that digital clean trial were that by comparison to the roughly 95 milliliters improvement over baseline that we showed with the clinical trial, we had estimated our median estimate of these 100 trials was like 130 milliliters, which is fascinating because the difference between the digital trial and the physical trial was closer than the effect size from the pirfenidone and nintedanib trials. So what that tells you is that the digital trial very closely modeled the disease, like we know what we're doing here. And so I think that augurs really, really well for some companies that might have been a bit skeptical about the antifibrotic effects of treprostinil in pulmonary fibrosis, kind of waking up and paying a little bit of attention. Now United Therapeutics is very much of a United States company. It's not that we don't do things in other countries in the world. We do. In fact, the TETON 2 trial was enrolled throughout all of the rest of the world. But if you look at our financials, you'll see that the overwhelming portion of our revenues are derived from the United States. All of our medicines are manufactured in the United States. All of our devices for delivering our medicines are manufactured in the United States. So if there were partners in other parts of the world that wanted to help bring the amazing benefits of Tyvaso to patients in those other parts of the world, I think that would be a good thing for everybody concerned. Thanks for great question. Operator: Our next question comes from Olivia Brayer from Cantor. Olivia Brayer: Can you talk through some of the commercial dynamics you're seeing for Tyvaso over these last few months and maybe even into October? Really, I'm curious whether most of the share gains for DPI are in PAH versus PH-ILD. And then I have to ask the obvious question, but whether you're seeing any competitive impacts in either indication or if you are, maybe it's weighted more towards one versus the other? And then sorry to sneak this in, but Martine, I did just want to ask for a quick point of clarification. You're now guiding to a $4 billion run rate by 2027, which I think is well ahead of where some numbers are today. Does that mean you expect to hit $1 billion in a quarter sometime in 2027, just to kind of clarify. And I assume that's in light of the very strong IPF results. Martine Rothblatt: Yes. So we do expect to hit $1.5 billion in 2027. And we're very happy for you poking around all the different lines and workflows of our revenue growth. So no problems there. And Michael will take it away on that question. Michael Benkowitz: Yes. So thanks for the question. So I think in terms of what we're seeing over the course of the third quarter and then even early into the fourth quarter, as I said, I think we're confident in that there's really no material impact from the launch of YUTREPIA. And in fact, what we see -- and we've seen this in the past with other competitors launches is actually, it really kind of grows the pie of the addressable patient population because you now have like another sales force out there talking about these diseases. So you've got doctors thinking about pulmonary arterial hypertension Group 1 as well as PH-ILD in Group 3. And so that's a great thing for patients, and then it's a great thing for the companies that are providing these drugs. And invariably, what happens is I think we saw this even with the sotatercept launch. As Martine alluded to in the opening remarks, we continue to grow through that. And that's what we expect to happen here as we move into 2026 is continued growth in Tyvaso in both PAH and PH-ILD. And so when I look at really from, let's say, beginning of September through halfway through October, I mean I think the things I look at, right, the underlying metrics, patient shipments, prescriber breadth and depth, referrals and starts. And I think on the patient shipments, super strong and really heading into October, like exceptionally strong so far, a couple of weeks in. Prescriber -- the number of prescribers grew quarter-over-quarter, and we're still maintaining depth in those -- the 3-plus writers, which is sort of our key metric on depth. And then referrals and starts kind of bounced around a little bit in the quarter, but really, again, since September, a pretty consistent upward trend, and we're almost back at where we were pre-YUTREPIA launch. So this is, I think, played out about like we expected. There has been some trialing with their products. We've had some patients transition. A lot of those have come back. And as I said in my remarks, I think as we look out into 2026 and beyond, we think we're really positioned well for continued growth in both PAH and PH-ILD. Martine Rothblatt: Perfect, Michael. Thank you so much. Wow, that's a great covering of all of [indiscernible] of that question. Operator: Our next question comes from Roger Song from Jefferies. Jiale Song: Congrats for the record quarter again. Quick ones. One is on the PPF. So just curious about the data timing on the enrollment. And then more interesting question could be the -- given the TETON-2 data, how is the read-through to the IPF? Any new updated thoughts from physicians and scientists regarding the MOA? And then also quickly on IPF and the Phase II meeting, I believe you are having a meeting with the FDA around year-end. And then just curious about the potential outcome scenario, any upside case you can have earlier approval. Martine Rothblatt: Okay. So that's a whole pancake stack of questions you got there. So basically, I'm going to refer all three of those questions, and hopefully, she's been taking notes to Dr. Peterson, who would be the best person to opine in the first instance on the enrollment progress with the PPF or maybe we could call it TETON 3 trial and then walk through the mechanism of action that's increasingly being understood as she's attended all of the major chest pulmonary respiratory conferences and she's talked with all of the major KOLs. She's also right in the loop on the major top tier -- top of the top-tier type of peer-reviewed publication that's about to come out, and there's a lot of interest in the MOA question there. And then finally, she works very closely with our regulatory group and to give you some insight on the kind of cadence of what we can expect in terms of filing. So Dr. Peterson, could you take all those questions away, and that will probably make you the last answer because that was a lot of questions. Leigh Peterson: Thank you. Yes, I did take notes. For -- regarding TETON-PPF, we're about halfway through enrollment, a little bit more. And that study in design, as you well know, is very similar to those for the TETON 1 and TETON 2 in that there's a 52-week follow-up period. And so again, we can't really speak in detail about when we would expect unblinding, but that gives you an idea. And you all know that, that's being run in basically U.S., Canada as well as rest of the world. So -- and again, most importantly, really based on the similarities of the underlying fibrosis and disease progression between IPF and PPF, we -- I mean, these results suggest that inhaled treprostinil would potentially offer a treatment option for these patients with PPF. With regard to the mechanism of action, the specific mechanism of action, again, with the similarities in the underlying fibrosis and as we've discussed the -- both the in vitro results, the preclinical results, demonstrating an antifibrotic effect of treprostinil as it works through the various receptors, the IP receptor [indiscernible] all of that, in addition to having a vasodilation effect. We expect that to play out in both of these indications. So -- and as far as the regulatory path, so we had agreed with FDA that we will -- we're using both the data from TETON 2 and TETON 1. And you all know that we are expected to have the TETON 1 results, report those in the first half of 2026. And -- so in fact, we are meeting with the FDA before the end of this year and to discuss ways to potentially expedite that regulatory review process when the TETON 1 results are available. So all of that is really positive, really, really exciting, and definitely pointing in the right direction of consistent results among these various TETON trials. Martine Rothblatt: Thank you so much, Dr. Peterson. Great responses and you collapsed that so elegantly that we have time for one last question, operator. Operator: All right. Our next question comes from Roanna Ruiz from Leerink. Roanna Clarissa Ruiz: So I wanted to ask about the 80-microgram cartridge for DPI. Could you give a little bit more color on the launch plans for that? Any strategies to drive more durable patient use, possible switching from the prior cartridge, et cetera? Martine Rothblatt: Sure. Let me turn that question initially and perhaps comprehensively to Pat Poisson, who is our Executive Vice President for Technical Operations and has been keen in the design of that incredible Tyvaso product from the very beginning. Pat? Patrick Poisson: Yes, happy to. Thanks, Martine. I didn't catch the whole question. Could you just repeat it for me just to make sure I answer it correctly? Roanna Clarissa Ruiz: Sure. So for the new 80-microgram cartridge, just curious about launch plans for that strategies to drive patient use switching, et cetera? Patrick Poisson: Sure, sure. So with DPI, we've seen patients able to titrate higher. And really for their convenience, we've developed this 80-microgram cartridge to allow them to take 15 breaths in one single dose. So that will be added convenience whereas to get there before they had to combine two cartridges. So we're anticipating launching that very soon, certainly in the next, say, 30 to 60 days that will be out there. And so we're really just looking to add convenience and easier dosing for patients. Martine Rothblatt: Excellent, Pat. Thank you so much. I'm going to wrap up the call now. We've reached our allotted time, but I want to thank everybody for the congratulations that they've offered us on this best quarter that we've ever had commercially, clinically, really across the board. We're super excited about the UT product portfolio. Just if there are some newbies on the call, just to remember that the opportunity in pulmonary fibrosis is more than twice the size of the opportunity in pulmonary hypertension, and we're still continuing to go and grow like gangbusters in pulmonary hypertension itself. So it's truly best of times at United Therapeutics. Thank you for your interest. And operator, you can wrap up the call. Operator: Thank you for participating in today's United Therapeutics Corporation earnings webcast. A rebroadcast of this webcast will be available for replay for 1 week by visiting the Events and Presentations section of the United Therapeutics Investor Relations website at ir.unither.com. Again, that's ir.unither.com. We thank you for participating. You may now disconnect your lines.
Operator: Welcome to the Fiserv Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv. Julie Chariell: Thank you, and good morning. With me on the call today are Mike Lyons, our Chief Executive Officer; and Paul Todd, Senior Adviser and incoming Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I'll turn the call over to Mike. Michael Lyons: Thank you for joining us today. By now, you've seen our results and revised guidance for the year. While disappointing, the actions we are taking are driven by a rigorous analysis of the company conducted during the third quarter and represent a critical and necessary reset and a revitalizing moment for the company. We are capitalizing on this opportunity to refocus on the pillars that have long distinguished Fiserv, including exceptional client service, world-class execution, value-added technology solutions and cutting-edge innovation. Today, I will share with you our plans to build a sustainable, high-quality company that will make our shareholders, clients and employees proud. There are 5 key messages we want to deliver today. First, the results of our analysis highlighted Fiserv's outstanding SaaS and payment platforms and our robust portfolio of value-added services, uniquely positioned at the intersection of finance and commerce, 2 large, economically critical and rapidly evolving industries. At the same time, we also identified certain competitive and client service gaps, which we are actively working to fill and are confident that with focused investment, we can fully address. Second, we have established a new revenue and earnings baseline consisting of high-quality, structural, largely recurring revenues driven by meeting our clients' needs and aspirations. Going forward, we are shifting our strategic focus and our culture to prioritize sustainable client-focused opportunities for short-term initiatives. While this pivot will negatively impact near-term results, our team has embraced this change, and it will best position us for predictable and sustainable growth and margins. Third, we have a tremendous opportunity to use emerging technology, including generative and agentic AI, to enhance our mission-critical software solutions, ignite our gateways and orchestration layers, facilitate embedded finance and improve our operations. We are pursuing these opportunities and other performance-enhancing initiatives under a new action plan called One Fiserv. Fourth, we're building a world-class leadership team that is united in driving these efforts and establishing a culture that prioritizes integrity, fairness, execution, accountability and client service. Today, I'm excited to announce new Co-Presidents and a new CFO. We will also be welcoming 3 new Directors to our Board, including new Board and Audit Committee Chairs, all of whom bring tremendous experience and highly relevant skills to Fiserv. Fifth, as we move beyond 2026, with a supportable and transparent financial baseline and key investments in place, we are well positioned to return to Fiserv's roots of consistent mid-single-digit revenue growth with clear potential for further acceleration over time. When combined with operating leverage, significant free cash flow generation and highly disciplined capital allocation, this will ultimately support double-digit adjusted EPS growth and present an attractive constant compounder investment case. I am personally energized and excited to demonstrate what we can accomplish as the world's largest fintech. In terms of the agenda, I'll start with a summary of the analysis we have completed, which forms the basis for our One Fiserv action plan, and then Paul Todd, our incoming CFO, will cover the financial results in detail. During the third quarter, my first full quarter as CEO, I worked with the management team and several external advisers to conduct a rigorous analysis of the company's operations, technology, financials and forecasting, including thousands of client and employee meetings and external benchmarking. As the new CEO, it was natural for me to push our team to think critically about our businesses and objectively assess long-term value drivers, competitive strengths and weaknesses and ultimately, how we communicate with the investment community. The analysis was integrated into our annual strategic planning process, which starts every August and continues into the fall, with ongoing communication and interaction with our Board of Directors. One of the key takeaways from our analysis is that Fiserv's growth and margin targets need to be reset. This change is driven by a combination of 4 factors, including slowing cyclical growth in Argentina, the recalibration of optimistic growth assumptions in the original guidance, the impacts of certain deferred investments and the deprioritization of short-term revenue and expense initiatives. I will touch on each of these factors, starting with Argentina, where we have built a highly successful payments business. Fiserv's medium-term organic revenue growth target of 9% to 12% was originally set in 2023 amidst high interest rates and inflation in Argentina, which greatly benefits our anticipation business there and ultimately drove organic revenue growth in Argentina of 257% in 2023 and 329% in 2024. While we have previously sized the impact of excess Argentinian interest rates and inflation on our organic growth, today, we're providing a holistic view of how Argentina has impacted Fiserv's performance. Specifically, Argentina contributed over 5 percentage points to our 12% organic growth rate in 2023 and roughly 10 percentage points to our 16% organic growth in 2024. This is highlighted on Slide 9. Therefore, excluding Argentina, the company's overall organic revenue growth rate was in the mid-single digits in both 2023 and 2024. Year-to-date, Argentina's organic growth rate is 56%, adding roughly 2 percentage points to our overall organic growth rate of just over 5%. Notably, in addition to strong organic revenue growth, our Argentinian business comes with adjusted operating income margins that are roughly double overall Fiserv levels. The second conclusion is that while the company's original 2025 organic revenue growth guidance of 10% to 12% appropriately anticipated that Argentina's growth would slow some, it also assumed that to compensate for the slowdown, our non-Argentinian businesses would grow significantly faster than their historical mid-single-digit range. In July, as part of my transition to CEO, we revised down some of these elevated expectations with a specific focus on critical new product launches to better reflect what was achievable based on the work we had completed at the time. However, as we pursued a much broader and deeper full company analysis in Q3, it became clear that there were incremental assumptions embedded in our guidance, including outsized business volume growth, record sales activity and broad-based productivity improvements, all of which would have been objectively difficult to achieve even with the right investment and strong execution. The third major factor impacting our results is that over the last few years, decisions to defer certain investments and cut certain costs improve margins in the short term, but are now limiting our ability to serve clients in a world-class way, execute product launches to our standards and grow revenue to our full potential. The good news on this front is that these circumstances are entirely fixable. And with the actions we have taken over the last few months, along with today's announcements, we are making these investments and are on our way back to the highest standards. And the fourth and final factor is that Fiserv's recent results have increasingly relied on short-term initiatives. These initiatives place too much emphasis on pursuing in-quarter results as opposed to building long-term relationships by prioritizing business that both meets our clients' needs and comes with high recurring revenue. As a result, we have made the decision to deprioritize these short-term revenue and expense initiatives, which, of course, has some near-term impact on our growth and profitability. Our Q3 results, updated 2025 guidance and preliminary outlook for 2026 now all reflect current conditions in Argentina, the recalibration of assumptions embedded in our original guidance, all necessary investments and the deprioritization of short-term initiatives. Given the depth and rigor of our analysis, we believe we have addressed the most critical issues and have established an appropriate go-forward baseline. Another important takeaway from our analysis is that nothing at Fiserv is fundamentally broken. Our businesses are well positioned. The markets we serve are growing. We are expanding into new TAMs and our clients have a near insatiable appetite for innovative technology and payment solutions. This reset is about aligning structural versus cyclical growth and sustainable revenues and expenses versus short-term results, particularly as it relates to the company's original guidance. While there are certainly some areas where we are dissatisfied with our recent performance, we found that our challenges are largely driven by our own doing, not the result of a material change in our positioning. We know the issues, and we are already addressing them through investment, more intense focus on operational performance and client service and a significant cultural shift. Our confidence in addressing these issues was highlighted at the Fiserv Forum, our annual client conference, where we made specific delivery commitments to our customers. Our analysis also highlighted that we have some of the most innovative platforms in modern finance and payments, including Clover, Commerce Hub, Finxact, STAR and Accel, Optis, Vision Next and our ISV platform, which are all extremely well positioned, growing faster than market rates and continue to generate new client wins. For example, we recently agreed to bring the Clover solution to Japan through a partnership with a leading local financial institution. Together, we will go to market next year with our platform to drive digital payments transformation for the Japanese SMB market. A formal announcement will come in the following months. Earlier this month, we signed an exclusive long-term partnership with Nubank, which is one of the world's largest digital banks. We signed our largest health care deal ever in Q3, a key growth vertical for us with an agreement to provide value-added services to one of our issuing clients. Our Money Network prepaid card business won a significant program with the U.S. Treasury Department as a subcontractor to Fifth Third Bank on the Direct Express program. And finally, we recently showcased many of our leading products, services and exciting new innovations at Fiserv Forum, where we received fantastic feedback from a record crowd. The final conclusion from our analysis is that we need to change the way we forecast and communicate about our business and engage with the analysts and investors. Going forward, we will more clearly explain our growth drivers, enhance the rigor in our forecasting, which will allow us to provide high conviction guidance, be more active with the investor community. And along these lines, we look forward to sharing more details on our action plan and new medium-term outlook at an Investor Day that we will host in the first half of next year. With this comprehensive analysis under our belt, we are now laser-focused on execution. Before digging into our specific action plan, a couple of comments on our Q3 results. In the quarter, we reported total organic revenue growth of 1% and adjusted EPS of $2.04, both measures impacted by the various factors mentioned earlier, which Paul will further elaborate on. Total Clover Q3 GPV grew 8% on a reported basis and 11%, excluding the 2023-2024 gateway conversion. In the U.S., Clover GPV grew approximately 7.5%, excluding the gateway conversion, which marked a slight acceleration from the first half of the year. Relative to the Clover GPV growth expectations provided in July, our results were roughly in line, absent the impact of FX and higher-than-expected runoff from the gateway conversion. While we had assumed no material changes in FX when we made the projections, there was a significant deterioration of the Argentina peso in Q3, which was only partially offset by appreciation of the euro. Adjusted for these FX movements, reported Clover GPV grew 9% and 12% after excluding the gateway conversion. For full year 2025, we expect Clover revenue to be $3.3 billion versus the original guidance of $3.5 billion. Q4 Clover revenue growth is expected to be below recent levels at approximately 10%, reflecting the deprioritization of certain short-term revenue initiatives, including the elimination of certain fees in Q4 that were initiated a year ago and are no longer consistent with our business strategy. Adjusting for these, Q4 revenue growth would be in the high teens. The Clover story remains exciting as we pursue structural growth through 6 major areas, including vertical expansion, where we have seen significant interest in our new Rectangle Health partnership, and we continue to invest in new areas; horizontal expansion, where we are building a full small business operating system with partners like ADP where we continue to progress well; international expansion like Brazil, where we are tracking well against our forecast, operational excellence driven by a full redesign of our merchant and partner experience augmented by leveraging AI, expanding TAM by implementing Clover Invoicing and Clover Capital into embedded finance use cases and ultimately, integrating Clover into Commerce Hub; and finally, thoughtful back book conversion starting in 2026. Turning back to the full year 2025 for Fiserv. We now expect to achieve 3.5% to 4% organic revenue growth based on the revenue-related impacts detailed earlier. We expect full year 2025 adjusted EPS to be $8.50 to $8.60, representing a modest decline year-on-year. We will provide formal 2026 guidance with our Q4 results, but we felt it important to note that we expect 2026 will be a critical investment and transition year for us and will mark our new baseline for growth going forward as we take a series of actions, which I'll cover next, as part of our One Fiserv action plan. On a preliminary basis, we expect organic revenue growth to be in the low single digits and adjusted EPS to be down modestly versus 2025. And of course, we'll be going through the normal financial planning process over the next few months to refine this outlook further. Let me now turn to our One Fiserv action plan, which centers on investments in 5 strategic areas, including operating with a client-first mindset, to win new enterprise clients and grow average revenue per client, or ARPC, building the preeminent small business operating platform through Clover, creating differentiated, innovative platforms and finance and commerce, including embedded finance and stablecoin, delivering operational excellence enabled by AI, and finally, employing disciplined capital allocation for the long term. First, on ARPC, we are fortunate to serve a diverse and highly attractive client base, including FIs, merchants, SMBs and increasingly digital commerce platforms. Our ability to penetrate these clients and grow ARPC begins with exceptional client coverage, outstanding service and the consistent delivery of innovative value-added technology solutions. To support these objectives, we are expanding staff across sales, relationship management, technical expertise and service functions, in some areas growing, while in others building muscle that have been cut. Our recent acquisition of Smith Consulting Group exemplifies this commitment, bringing deep subject matter expertise to our clients as they look to deploy more technology. To further drive operational excellence, we are accelerating our tech platform optimization through targeted initiatives, and we are seeing strong results here so far. Second, as discussed earlier, we continue to invest heavily in Clover to make it the go-to operating system for SMBs, a massive critical market where we have the clear right to win. Next, we're investing in modern innovative platforms, including streamlining our banking cores from 16 to 5 and embedding real-time capabilities in AI, led by Finxact. We're building out our key merchant orchestration layers and payment gateways, including Clover for SMBs, CardPointe for ISVs and Commerce Hub for enterprise clients and platforms. We're accelerating our investment in issuing with the Optis modernization and the launch of our modern card core Vision Next. We're growing our stablecoin capabilities with the launch of FIUSD and the recent agreement to acquire a digital currency custody license through StoneCastle. And we're combining many of these capabilities to drive our fast-growing embedded finance business. Moving to operational excellence. We are excited to announce Project Elevate, a new multiyear transformation agenda powered by AI. We're executing this alongside our long-term partner, IBM, leveraging the same playbook and the same team that helped them successfully transform their own business and deliver significant value for their shareholders through AI. We launched the program in early September with a focus on 5 major processes, including sales, client onboarding, Clover client service, HR and finance. We'll expand the list of processes as we go and expect the program to last approximately 2 years. The goal is simple: become a higher quality, more productive business by embedding AI in everything we do, including providing a better experience to our clients. While our work is just beginning, early proof points demonstrate the program's strong potential, and we expect compelling returns on our investment. We will provide greater detail on Project Elevate, including associated costs and benefits with our Q4 results and our Investor Day. Rounding out our One Fiserv action plan is a commitment to highly disciplined capital allocation. While we look to fully leverage the unique construct of our company, sitting at the intersection of commerce and finance, we are working with McKinsey to optimize our business mix and allocation of capital to maximize execution and performance. As part of this effort, we plan to monetize certain smaller businesses that are not critical for us to own as we execute our go-forward strategy. To support our action plan, today, we are making changes to our leadership team. First, I am incredibly excited to announce 2 absolutely outstanding leaders as our new Co-Presidents effective December 1 with Takis Georgakopoulos, serving as the Head of Merchant Solutions and Technology, and Dhivya Suryadevara, joining the company as Head of Financial Solutions, Sales and Operations. Many of you have gotten to know Takis over the last few quarters. He joined Fiserv late last year after a successful career at JPMorgan, where he was most recently Global Head of Payments. Takis recently took over the Merchant business and is already driving impactful change. We were thrilled to attract Dhivya to Fiserv. She has deep experience in payments and financials and is one of the most talented leaders I've met. Dhivya was most recently CEO of Optum Financial Services and Optum Insight at UnitedHealth, where she was a Fiserv client. Prior to that, she was the CFO of Stripe, and she started her career at General Motors, eventually becoming their CFO. Dhivya will join us December 1. My expectation is with 2 high-caliber executives in collaboration across our central functions, we will see strong execution and additional synergies between our merchant and financial institution businesses, further supporting our long-term growth outlook. Second, we are excited to announce that Paul Todd, who recently joined as a senior adviser, will be stepping into the CFO role effective October 31. Many of you may know Paul from his time as the CFO of Global Payments and TSYS. Most recently, Paul was a partner at TTV Capital, where he pursued early-stage investments across fintech. Paul brings tremendous industry knowledge and a track record of strong execution, integrity and accountability. Among other things, Paul will lead Project Elevate alongside Guy Chiarello, our Vice Chairman and Former COO. Bob Hau, our current CFO, will move into a senior adviser role to support a smooth transition, and we'd like to thank Bob for his nearly 10 years with Fiserv. We have also made several exceptional hires at the SVP level, each bringing deep subject matter expertise, strong leadership capabilities and fresh perspectives, and we are very encouraged by the strong interest from the outside to join our team. As we enter our next chapter, our Board is making several important changes, ensuring we have the right skill sets and vision to position the company for long-term success. We are thrilled that Gordon Nixon will be joining the Board and assume the Independent Chairman role. Gordon was President and CEO of RBC from 2001 to 2014, with 13 years at the helm of a leading global financial institution and significant experience as a public company director. Gordon brings deep expertise, perspective and leadership to the Fiserv Board, and I look forward to working with him closely. I want to thank Doyle Simons, our current Chairman, who has been a valuable board member contributing significantly to the company's growth and long-term value creation. Also joining the Board as incoming Chair of the Audit Committee is Gary Shedlin, who served as BlackRock's CFO from 2013 to 2023 and is currently Vice Chair of BlackRock. Gary's experiences and distinguished career will bring valuable knowledge and oversight capabilities to our Board and Audit Committee. Gary will succeed Kevin Warren as Audit Chair. Kevin has been an outstanding Director, and we thank him for his contributions and guidance. And finally, Céline Dufétel will join the Fiserv board and be a member of the Audit Committee. Céline currently serves as CFO of Bridgewater Associates, one of the world's leading alternative asset managers. She brings a unique investor perspective from her current role as well as financial and operational experience from her prior roles as the CFO of T. Rowe Price and the CFO and COO of Checkout.com. We're excited for all 3 directors to join the Board on January 1. Steps we've taken today are representative of the culture, with which we will operate the company, emphasizing integrity, fairness, execution, accountability and client service. I'll close by reiterating my conviction in our assets, talent, strategy and ability to execute and innovate. We are exceptionally well positioned and know exactly what we need to do to reach our potential by leveraging our outstanding SaaS platforms, gateways, orchestration layers and value-added services across our unique combination of merchant and financial solutions businesses, we can deliver compelling, innovative solutions to our clients, addressing their most critical needs. We are only scratching the surface of our opportunity with low share of existing TAM today and new TAMs emerging. Against these opportunities, we are building a world-class team and creating a customer-centric execution-oriented culture with a high level of accountability. We have reset our revenue and earnings baseline to a level with high-quality, largely recurring revenues and a path to sustainable operating leverage. As we move beyond 2026, we are well positioned to return to Fiserv's historical consistent mid-single-digit revenue growth with a clear potential for acceleration over time. And as we execute on this model, generate positive operating leverage and employ highly disciplined capital allocation, we aim to deliver double-digit adjusted EPS growth starting in 2027 and established a durable compounder value proposition, company that year in and year out hits its numbers and generates compelling and predictable returns. Before turning it over to Paul, I want to recognize and thank our employees, who have been so dedicated to serving our clients. With that, over to you, Paul. Paul Todd: Thank you, Mike, and good morning, everyone. I want to first take a minute to say how excited I am to be part of the Fiserv team. I have known Fiserv for a long time. But after spending the last 2-plus years in fintech venture capital, I have a better appreciation for the unique construct of the company, the quality and depth of the assets on this platform and the differentiated value of its unique distribution capabilities. I look forward to working alongside the fantastic leadership team that Mike has assembled and playing a role in leveraging the company's unique strengths and market leadership positions to drive compelling, long-term shareholder value. While we have room for improvement, this is truly an exciting time to join an industry-leading company serving large and important industries, who are rapidly adopting new technologies. With that, I will now cover the financial results of the company, starting with financial metrics and trends on Slide 5. Total company third quarter adjusted revenue grew 1% to $4.9 billion and adjusted operating income decreased 7% to $1.8 billion, resulting in adjusted operating margin of 37%, a decrease of 320 basis points. Year-to-date, adjusted revenue grew 5% to $14.9 billion and adjusted operating income grew 5% to $5.7 billion, resulting in an adjusted operating margin of 38.2%, flat versus the prior year. Organic revenue grew 1% in the quarter, with 5% Merchant Solutions organic growth and a 3% decline in Financial Solutions. On a year-to-date basis, organic revenue for the company is up 5%. Third quarter adjusted earnings per share was $2.04, compared to $2.30 in the prior year, down 11%. There are 3 unusual dynamics impacting the company's adjusted EPS of $2.04 for the quarter. First, the company experienced a $53 million foreign currency expense or a $0.10 headwind to adjusted EPS. Revaluation of certain assets and highly inflationary countries such as Argentina is recorded through the income statement. During the third quarter, the foreign currency exchange rate in Argentina devalued significantly, resulting in this large expense. Second, Argentina interest rates jumped meaningfully during the quarter, which drove interest expense up about $31 million above last year or a $0.04 headwind to adjusted EPS. Finally, during the third quarter, Fiserv completed the mutual termination of a merchant alliance joint venture. This resulted in a tax-free gain of $89 million recorded in Merchant Solutions' operating income resulting in a $0.16 tailwind to adjusted earnings per share. We continue to provide services to this partner through a processing relationship. The net of these 3 factors is a slight benefit to adjusted earnings per share in the quarter. Year-to-date, adjusted earnings per share increased 6% to $6.65 compared to $6.29 in the prior year. Free cash flow for the quarter was $1.3 billion and $2.9 billion for the first 9 months of the year. For the full year, CapEx is now expected to be approximately $1.8 billion or roughly 9% of revenue. Given the revised outlook for earnings and a higher level of capital expenditures, free cash flow for the year is now expected to be approximately $4.25 billion. This higher level of CapEx is directly tied to the start of the One Fiserv initiative Mike mentioned earlier. Now turning to performance by segment, starting on Slide 6. Organic revenue growth in the Merchant Solutions segment was 5% for the quarter and 7% year-to-date. Adjusted revenue growth for Merchant Solutions was also 5% in the quarter and 7% year-to-date. The inorganic contribution from the CCV acquisition was offset by steep FX headwinds in Argentina. Moving to the business lines. Small business organic revenue growth in the quarter was 6%, while adjusted revenue grew 7% on 8% volume growth. This performance was largely driven by strong growth in Clover, in the North America ISV business and in anticipation revenue in Latin America. Clover revenue grew 26% in the third quarter and was impacted by approximately 100 basis points due to Argentinian FX headwinds versus expectations on reported gross payment volume or GPV growth of 8%. Revenue growth was driven by value-added solutions and solid GPV growth. SaaS penetration reached 26% due to strength in vertical software sales, Clover Capital and anticipation. As you can see on Slide 7, excluding the gateway conversion, volume growth in Q3 was 11%, similar to Q2 growth. Excluding the significant deterioration of the Argentine peso, Clover GPV growth would have been 1 percentage point higher on both the reported and ex gateway basis leaving us in line with our expectations, excluding the gateway conversion. In Enterprise, organic and adjusted revenue growth in the quarter was 9% and 4%, respectively, driven by transaction growth of 12%. Organic and adjusted growth would have each been 6 percentage points higher excluding the transitory revenue from network fees associated with a large PFAC client that went live in Q3 2024. While this client continues to drive transaction growth for us, the timing of these network fees will continue to pose a grow-over challenge to fourth quarter and first half 2026 enterprise revenue. And finally, in processing, organic and adjusted revenue in the quarter declined 8% and 6%, respectively. Processing results this quarter were impacted by more difficult comparisons to last year, which included professional services revenues from a processing client and lower hardware sales. Year-to-date, processing organic and adjusted revenue are down 4% and 3%, respectively. Third quarter adjusted operating income for the Merchant Solutions segment was up 3% to $962 million, and adjusted operating margin was 37.2%, down 50 basis points from the prior year. The largest detractor to margins in Q3 were higher sales and marketing and distribution expenses, along with higher data processing costs and depreciation and amortization expenses partially offset by a gain on the merchant alliance joint venture change I mentioned earlier. Year-to-date, adjusted operating income for the segment was up 4% to $2.7 billion with adjusted operating margin down 90 basis points to 35.3%. Turning to Slide 8 for the Financial Solutions segment. Organic revenue declined 3% in the quarter and grew 3% year-to-date. Our third quarter revenue was negatively impacted by lower periodic license revenue, which impacted the segment's organic growth by 2 points. Looking at the business line level, in digital payments, organic and adjusted revenue each declined 5% due to industry dynamics in the quarter, while the company experienced healthy debit processing, debit network and Zelle transaction growth. In issuing, organic and adjusted revenue grew 1% and 2%, respectively, in the quarter. Fiserv generated solid accounts on file growth. However, revenue growth was muted largely due to grow-over challenges in the output business. And in banking, organic and adjusted revenue declined 7% in the quarter, primarily due to lower periodic license activity. Third quarter adjusted operating income for the Financial Solutions segment was down 13% to $991 million and adjusted operating margin was 42.5%, down 490 basis points from the prior year. The adjusted operating margin decline results from lower, higher-margin periodic license revenue coupled with the ongoing investment in implementation and professional services and technology spend. Year-to-date, adjusted operating income for the segment was up 4% to $3.4 billion, with adjusted operating margin up 50 basis points to 46.3%. Now let me wrap up with some remaining details. The corporate adjusted operating loss was $131 million in the quarter and $380 million year-to-date. The adjusted effective tax rate in both the quarter and first 9 months was 18.4% and Fiserv continues to expect the full year rate to be approximately 19%. Total debt outstanding was $30.2 billion on September 30 and Fiserv's debt-to-adjusted EBITDA ratio increased slightly to 3x. Fiserv continues to target long-term leverage at 2.5 to 3x. During the quarter, Fiserv repurchased 7 million shares for approximately $1 billion and had 49 million shares remaining authorized for repurchase at the end of the quarter. In addition, aligned with the priorities of the One Fiserv action plan that Mike laid out, Fiserv announced 3 acquisitions during the quarter, focused on client service, value-added services and our stablecoin growth opportunity. The acquisition of Smith Consulting Group, which closed in Q3, brings deep subject matter expertise in-house to better serve our clients. The agreement to acquire StoneCastle Cash Management, which is expected to close by 1Q 2026, provides us with a digital currency custody license and unique investment and liquidity services for our merchants and financial institutions. And finally, we acquired CardFree, an all-in-one platform empowering merchants with customized order, pay and loyalty solutions. And with that, I'll turn the call back to the operator to start the Q&A session. Operator: [Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Lots to ask here. Just maybe, Mike, I'll ask it this way. How long was Fiserv over-earning with deferred investments and this focus on short-term revenue and expense initiatives that you called out? And of course, it's early. But how long will it take? And at what cost for Fiserv to reverse this and get back to what I call a hallmark of double-digit EPS growth, you did call that out double-digit EPS growth. And of course, I'm getting the question to you, given your analysis and over the last few months, is double-digit EPS growth, the right target? And why are you confident that that's the case? Michael Lyons: Yes, thank you. And I'll start -- I don't know how much history I can go back and give you, but in the 6 months I've been here, obviously, we've made some recalibrations last quarter, which were more focused on some of the big projects being relatively new in the seat. Some of the stuff we saw coming out of Q2 prompted the analysis that we did, which was a much broader and more rigorous analysis included a broader group of people here and external advisers, and we looked at every part of the company and as I said in the remarks, we've got a great company with great assets and great growth opportunities, and we want to run the heck of it. It is an unbelievable engine, and we got to go do it. As I said, there are 4 things that we found, obviously, [ noise ] from Argentina, which by the way, is an outstanding business. We're talking about clarifying our growth numbers for how good Argentina has been, but it's important to clarify that to understand the rest of Fiserv. We talked about the short-term initiatives. It just showed a short-term focus versus doing what our clients want, helping them achieve objectives and aspirations, some deferred investment, which we think is totally addressable, as I said in the earlier part, and then just making sure that we're accurately reflecting what the business is capable of when we give guidance to you all. So I think we're trying to give you a couple of different approaches to understand this, and we'll keep going through this with you, if it's helpful. But the first is if you take Argentina out, which we did in the slides, and you look at '23, '24 and year-to-date '25, it's 6% growth, 6% growth, 3% growth. Yes, there's a little bit of puts and takes in each of those numbers because of short-term initiatives and like, but I think it's representative of where we came out of the analysis that today, we have a mid-single-digit growth company as we are today, maybe at the low end of that mid-single-digit range. There's some stuff we identified in the businesses where we think we could do a better job, and we're attacking those already with investment. We went in front of 4,500 clients at Fiserv Forum, made specific commitments around those things. And we mostly found those to be self-inflicted type stuff, and we're all over it. We know what to do with it. But as I said, there were some areas, and we weren't thrilled with how the businesses were being run. So we made changes at the leadership level of the businesses. Now we have 2 unbelievable leaders over our businesses that will have both long great track records of execution. Obviously, subject matter expertise and the way we've set up the structure, they will collaborate heavily to bring together the best of both of these businesses. So our view is low end of mid-single-digit growth today, clear path through the investments we're making to get into the solid part mid-single digits and then a clear path to acceleration from there. We'll let you know what that new long-term -- medium-term guidance is when we do the Investor Day and do it appropriately, but you can sort of see the class in there. And then there's no change in the free cash flow generation capabilities of the company. And if it's run right for the long term, the conversion stays very, very attractive. There is absolutely no change in our capital management plan. We're going to invest organically if we see attractive acquisitions, and Paul mentioned a couple that we did this quarter. We'll add those to the organic growth of the business. And the rest will buy back. No change in our leverage guidance. And you put that together, as you know, you followed the company for a long time, Tien-Tsin, that the recipe there drives double-digit EPS growth. And that's what we're focused on, a company that year in, year out, guide sufficiently, runs the heck out of the business, high class execution takes care of our clients, runs with a long-term approach and produces results for our shareholders. So I think that's how I address it at the highest level. Tien-Tsin Huang: That covers it well. Operator: Next, we'll go to the line of Darrin Peller from Wolfe Research. Darrin Peller: And Paul, congrats and welcome. I guess, I just want to understand a little bit more in detail what changed specifically in the Financial Solutions segment from last couple of quarters of the growth trajectory, given that segment was one that we always thought it was more stable. And I know the banking side, you talked about consolidating your cores a bit more. But when we see that growth rate drop to negative 1% without the periodic from what was a mid-single-digit algorithm, it just brings questions of what's really going on under the surface and what you think that segment truly can be. And then just one quick add-on to Tien-Tsin's question around the overall algorithm long term. The merchant side, I know, Mike, you just mentioned a mid-single-digit growth rate. Do you -- are you confident that your experts and you guys have screened everything properly to ensure that any price actions or anything else that you needed to take is already done? Or is there more to go? Are you fully done with the review? Michael Lyons: Yes. I'll go with the last part first then work back, and then let Paul give you some specific numbers. We've completed our review. Obviously, you learn more every day, but the rate of learning has plateaued some time ago, and we're -- the numbers and the baseline we're giving you today, we are highly confident, reflect where the company is today. We're bringing in a leadership team to complement an existing leadership team where we feel we can execute on it. So I'm highly confident in the numbers we're giving you today. We've taken a great look at the company. We've gotten an outside perspective on that part of it. And it wasn't all -- it's not -- we're not saying everything is perfect. We're saying we have work to do. But structurally, today, we're take away cyclical growth. And certainly, obviously, we showed you with cyclical factors, Argentina highlighting a fine degree, we certainly could grow faster than mid-single digits. But if you take out cyclical and focus on structural long-term sustainable growth, that's where we are today. When you go into the 2 businesses, I think you have to look at different pieces of it. We have a world-class -- within banking, we have a world-class issuing business that continues to gain share and really has formed the basis when combined with merchant for how we go to market in the fast-growing embedded finance world, and we're incredibly excited about opportunities there as you take the issuing platforms the Finxact platform, the Commerce Hub platform, the Payfare acquisition with the orchestration layer, and we think we can offer something to digital commerce and payment platforms that really reflects how the world is evolving in payments. So you have that business in there. And then you go back to our core banking business, there are parts of our core banking business that are performing very, very well. And then there are parts, which we talked about at the forum, where we've not executed at the highest level. And in there, I'd say that we have to consolidate our cores from 16 to 5. It's the right thing to do for our customers in terms of modernizing technology, and we haven't executed that perfectly. We've course corrected that. But you're seeing some impact of that in there now, but that should be a low single-digit growth business for a long time. And then we see a great opportunity with our surrounds, both what we're building with XD CashFlow Central, some of our payments business, how we facilitate them, the, like to complement a core business that's low single digits with additional growth on top of that, but we've been slow to get XD to market. We've been -- CashFlow Central is proceeding well. And -- but as I said last quarter, these aren't products that don't have a lot of interest for clients. We have to execute better and get them to market. And part of the investments that we are doing right now is much stronger on the implementation side and the customer service side on that front. So if you think about banking, you've got the core business, which you know is going to grow. And I would say our core for business is going to grow in the low single digits. Finxact, we couldn't be more pleased with the progress we're making on Finxact continues to win new customers in the space, a little bit separate within the core world. The issuing business is very strong, in that low end to mid-single-digit range. And you put those together, and we think that's -- over time, we'll go through the details of it, but that's a mid-single-digit growth business, maybe at the low end of it with the size of course. And you go on the merchant side, we've got a fabulous business, obviously, in terms of card present, we were the leaders around the world in that business, and we're investing heavily in Commerce Hub to build the omnichannel global capabilities there. And then Clover, we've got an incredible asset. And we talked about -- to your other question, we talked about some of the pricing changes that we implemented, and we don't feel like they're appropriate for our business model now, we're reversing those. But they're not -- what we've taken in and around Clover today and what we've -- the other adjustments that we've made in both the fourth quarter guidance, the full year guidance and the 2026 preliminary outlook reflect all the changes we wanted to make to get us in a position to run a high-quality, sustainable business built for and driven by the needs and aspirations of our customers. Paul Todd: Yes. And Darrin, I would just add, I've spent a good bit of time on this financial side. Obviously, given my background, this is an area I know really well. And I would just say in the quarter, we had a lot of things happening across kind of the 3 businesses there. On the digital side, obviously, we had strong debit volume growth. We did take some actions to position us competitively for the longer term in that side. So that's reflected in kind of the quarterly results. On the issuing side, good account on file growth, fundamentally strong there. We had some comparisons to last year in the output services area that didn't repeat, and you know how those can be somewhat kind of project related in the output services area. And then on banking, and we called this out, we had a license compare that was pretty hefty for this quarter. But fundamentally, it's strong. We're going to -- in the fourth quarter, we expect kind of a similar -- it won't be as dramatic because of the sequential kind of change. But fundamentally, we'll kind of see a similar kind of result in the fourth quarter. On a nominal basis, it will be about the same. But on the longer-term outlook, is it fundamentally strong? Yes. The answer is yes. The volumes are holding. Each one of those businesses, we've taken actions to make sure that we're competitively strong. And I know the sequential quarter move kind of is bigger than you would have expected, but underneath that is a strong business. Michael Lyons: And I'd just finish that, we mentioned earlier that there are some businesses in there that aren't as well positioned. They're relatively small in terms of revenues that we're not going to be in any longer, and there's others in the market who want to be in those businesses. So again, part of the analysis and the actions we've taken from it. Operator: Next, we'll go to the line of Jason Kupferberg from Wells Fargo. Jason Kupferberg: Thanks for all the candor here. I did want to ask a little bit about Clover. I know you mentioned 10% revenue growth there for the fourth quarter, wondering if that's a decent proxy for next year until you anniversary some of these actions to deprioritize some of the short-term revenue initiatives. And then just as part of that, I mean, you can give us your latest assessment just your competitive positioning across merchant, both from a Clover and non-Clover perspective? Michael Lyons: I'll start with the second part. Paul, can go into the numbers. I think certainly, and I just mentioned it in the prior answer. But if you -- Clover is an unbelievable asset. We continue to feel great about our competitive positioning. There are great competitors in the market, but we continue to see significant opportunities to bring an all-in-one business operating platform to small businesses. There's a desire for that, there's a need for that. And so we continue to build Clover in the areas that talked about vertical expansion. We're traditionally very, very strong in core restaurants, in retail, build that out to health care, professional services, higher-end restaurants, a horizontal expansion, super excited about our partnerships in Homebase and ADP, and we'll bring on others there. International expansion is going well. Brazil is obviously the highlight of that. I think if there's a place that we were most focused on Clover and where Takis and his team are doing the most amount of work is really a full overhaul of the client experience as they engage with us. Operationally, we can be more excellent. And especially, we see just a tremendous opportunity across Clover and really across our platforms and gateways and orchestration layers to apply AI in an effective way, and that's really what the project with IBM is about. But that's probably the greatest area that we're doing work there. The opportunity to expand TAM, we continue to see. And then as we talked about for a long time now, we'll introduce a very thoughtful and paced back book conversion going into next year. On the enterprise side -- and I guess the other small business platform, we're very, very happy within our merchant business is our ISV business, which continues to grow rapidly. I think we're very, very well positioned there. And our customers need both -- in many times need both online and a physical presence to the ability to introduce Clover into that world or other of our assets. Super excited about that business. On the enterprise side, again, awesome core business continue to build out a global omnichannel integration platform with Commerce Hub, and there's a lot of ongoing work on that front. So overall, feel very good about the merchant business in terms of where we can grow at Clover. Obviously, the growth highlighted there along with the ISV business. I'll let Paul go through the numbers on Q4 and next year and then long -- some indication of longer term. Paul Todd: Yes. So Jason, yes, obviously, we highlighted what we expected in the fourth quarter. And we would see a tick up into kind of a low teens roughly range is our expectation is we're in the early stages of planning for 2026. So there is a little bit of kind of comparative dynamic that exist there. And then we would expect that to get better on the 2027 and beyond to kind of move up into the more higher teens kind of level as we get into the '27 time frame. So there's sales noise as a 2026 comp, but it is a pickup, an acceleration from the fourth quarter growth rate. And we do see, once we get past that compare in 2026 for an additional pickup going in '27 and beyond. Michael Lyons: And as I said in the prepared remarks, 10% in Q4 reflects the pricing reversal, that's high teens. Without it, a fair amount of noise, as Paul said, still going into 2026 as we rightsize the baseline and going from there, we continue to see similar to what we've seen, excluding the Gateway conversion, 10% plus GPV growth and mid- to high teens, closing 20% long-term revenue growth. And again, that can go back to the opening, that reflects a normalization of Argentina, a normalization of short-term initiatives and the appropriate levels of investment into the business, especially around the operational excellence thing. But Clover continues to be just an awesome asset and couldn't be more excited about what we can do with it for small businesses across the world. Jason Kupferberg: It sounds like Q4 is the trough. Got it. Michael Lyons: Yes. Operator: Next, we'll go to the line of Dave Koning from Baird. David Koning: I guess my question is on margins and how that works into the first half. When we look at Q4, it looks like margins will be down about 800 bps or $400 million of lower EBIT. Is that the peak investment quarter, that $400 million down? And maybe how does that progress through the first half of next year? And what's invested in? Like what are you doing in Q4? And then maybe how does that dissipate into the first half of next year? Paul Todd: Yes. So Dave, I'll start and Mike may want to add. But obviously, we -- you can kind of impute by our guidance what the fourth quarter looks like. And then we do trough out on the margin in the first half, particularly in the first quarter, where we've got the biggest kind of comp challenge there. And so we kind of -- if you're kind of saying the mid-30s is where we would expect to be roughly next year, right around that kind of, call it, 33% to 35% kind of percent range for next year. The trough would be the first quarter, and then we would continue to kind of build up to be back roughly at a run rate level by the end of next year kind of back to just roughly where we would end up this year. So we clearly have a plan to restore kind of the margin back to the levels that we would expect here in 2025 and then build beyond that in kind of a more kind of consistent way on a go-forward basis. So trough kind of in first quarter, it will kind of continue to then build as the comps get more kind of normalized as we progress through 2026. And then obviously, from there on, we would expect margin expansion to kind of more normalize. Michael Lyons: Yes. You're getting the double whack in Q4 because Q4 of last year was sort of peak in terms of short-term initiatives. And then we've reversed a lot of that taking the pricing changes. So again, I think it's -- we're trying to get you forward to a baseline rather than take the noise out of every single item for every single period in the historical numbers. And I think the guidance we've given you sort of sets that baseline. And again, it's baseline we're confident in. In terms of where we're going to invest, the really 2 things, the core investment in the company, which we talked about some, which is streamlining the cores, modernizing and getting to market our surrounds, again, which are getting unbelievable client interest and receptivity. We have hundreds in the pipeline for XD and approaching that on CashFlow Central. So we've got great things want to get those to market, continue to invest heavily in Commerce Hub. We talked about Clover and building the platform there and enhancing operational excellence. We're super excited on the issuing side, both in the modernization of Optis, our current platform and the introduction of Vision Next, which will be the platform for embedded finance alongside Finxact, and it's also the platform we'll go to market with internationally, totally modernized cloud-based API-driven issuing core, excited about what we're doing on the stablecoin front, including the acquisition -- pending acquisition of StoneCastle. And then the modernization and the enhancement and excellence of our core technology has been a huge focus this year and a bulk of where the incremental capital spend this year has gone. You take the project we're going to do with IBM, that will also dictate based on the returns and investments that we'll get there, that also dictate the nature of our spend next year. Again, we're early in that project, but are very, very optimistic about what we can do, not only from what we've learned in the first 5 or 6 weeks, but working with the IBM team, who did the same exercise for themselves in a very successful way, which you go through on almost every one of our business applications are primed for the use of -- we're already using it, but for the even greater use of AI and then taking a hard look at all of our internal functions and applying AI and modernization to structurally change the cost base and how we do business internally in both employee and client enhancing way. So those are the major areas. Most of what we've done this year, it's not like we've been just doing the analysis, we've been going after some of the footfall we've seen. Most of the stuff we've done this year, we covered at Fiserv Forum to address our clients' needs. Operator: And for our final question, we'll go to the line of Harshita Rawat from Bernstein. Harshita Rawat: Mike, I want to follow up on the Financial Solutions business. And I understand kind of the forward-looking expectations reset and kind of the deprioritization you talked about. But I want to ask about the third quarter. You trimmed the full year guide 3 months ago when you were 1 month into the quarter. At the time, I think we heard that the team kind of underwrote -- re-underwrote everything. So trying to kind of figure out, and I know you talked about many of the drivers here, like how could things change so dramatically in 2 months in a segment, which is by definition, somewhat of a recurring segment. So also trying to figure out kind of the -- why wasn't there like that much visibility into this level of revenue weakness intra-quarter? Michael Lyons: I appreciate the question and understand it. Obviously, this wasn't a reset I wanted or expected. But in July, roughly 10 weeks into the job, no excuses, but I focused on underwriting some of the major projects, we talked about those that were driving growth in the company's original 10% to 12% guidance. Some of the bigger projects we talked about, we successfully re-underwrote those and their performance since then has largely remained on track. As more financial surprises emerged over the -- in the start of Q3, that prompted not just the annual strategic planning process, but this much more rigorous review into our financials, and that was also driven by some of the stuff we're hearing from our clients. That analysis not only uncovered some additional assumptions that needed to be revisited either stuff that was either out of our control, is macro stuff, industry stuff, that we had assumed in the company's original guidance to go one way in a pretty deliberate manner. Then there were a whole bunch of embedded assumptions away from the major projects that even with strong execution would have been hard to do all of them simultaneously and successfully broad-based productivity initiatives, significant record -- embedded record sales activities and then stretch revenue numbers on top of it. And then there were a series of initiatives. Again, we've gone through it, but there were a series of initiatives that were -- clients, customers businesses always have these that were more short-term driven in nature that were a big part of the back half of the year to get to the guidance. And as I got a more fulsome understanding of those, that obviously prompted some dissatisfaction with the way we do the process, and we've made leadership changes around that and giving you today what we believe is a solid tangible baseline to grow from. So what was in the original 10% to 12% guidance, I've worked through it. It took me 5 or 6 months. But I'm confident today, the numbers you have represent who we are structurally as a company, and we've given you the outlook from which we can grow at and put together a team that's going to execute the hell out of the business, and it's a great business to run. Paul Todd: And I'll just add to that. As it relates to just financial, specifically, if you look at that business and you look at kind of the first half, at the 7% and kind of 8% growth rates, those are a higher level of growth rate for the collection of businesses here than you kind of typically see, given kind of the underlying fundamentals around some of the TAM growth rates for those business areas. And so I think when you kind of look at it on a full year basis, when you look at our expectations on a full year basis next year for this business, it's kind of in that more lower single-digit range at that kind of higher level, maybe of that lower single-digit range. But that's more of the normal kind of growth if you look at what accounts all file grow, what debit transactions kind of growing at the mid-single digit if you look at kind of what banking does. And so that's kind of a more normalized way to look at the business. We just have some variability because of all the things Mike just described that's presenting this kind of sequential move or first half versus back half move. We'll have the similar dynamic in the first half of next year as we kind of normalize everything. And then you'll start seeing that more normalized, stable growth that you would expect out of this line of business starting in the back half of next year and continuing throughout 2027. Michael Lyons: And then from there, we'll take -- we've got these incredible assets, Vision Next, Finxact, a core ledger system, deep systems of records for banks that we can expand to new sectors that grow much faster than that, whether it's embedded finance or something else. But you got to go execute on that. You got to invest in it. You got to be deliberate about how you operate on it. And that's the part we can't wait to get to. And with today, that sets the baseline and sets the starting point for that. So we're excited about the -- and that's the long-term structural growth rate we can drive. Operator: And that was our final question for this call. Michael Lyons: Thanks, everyone, for joining. I appreciate talking with you more of this quarter. Operator: Thank you all for participating in the Fiserv Third Quarter 2025 Earnings Conference Call. That concludes today's call. Please disconnect at this time, and have a great rest of your day.
Operator: Welcome to Community Healthcare Trust's 2025 Third Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2025 third quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be open for a question-and-answer session. The company's earnings release was distributed last evening and has also been posted on its website, www.chct.reit. The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, October 29, 2025, and may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's disclosures regarding forward-looking statements in its earnings release as well as its risk factors and MD&A in its SEC filings. The company undertakes no obligation to update forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. All participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company's Investor Relations website for approximately 30 days and is the property of the company. The call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. Now I would like to turn the call over to Dave Dupuy, CEO of Community Healthcare Trust. David Dupuy: Great. Thank you, Danielle, and good morning. Thank you for joining us today for our 2025 third quarter conference call. On the call with me today is Bill Monroe, our Chief Financial Officer; Leigh Ann Stach, our Chief Accounting Officer; and Mark Kearns, our Senior Vice President of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form 8-K, along with our quarterly report on Form 10-Q. In addition, an updated investor presentation was posted to our website last night. During the third quarter, the geriatric behavioral hospital operator, a tenant in 6 of the company's properties, paid rent of approximately $200,000. On July 17, 2025, this tenant signed a letter of intent for the sale of the operations of all 6 of its hospitals to an experienced behavioral healthcare operator and is under exclusivity with that buyer. Among other terms and conditions of the sale, the buyer would sign new or amended leases for the 6 geriatric psych hospitals owned by CHCT. The buyer continues to perform legal and business due diligence on the transaction. And while we can't provide certainty that the transaction will close, we will share more information as we move through the process. As it relates to our core business, we had a busy third quarter from an operations perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.7% to 90.1% during the quarter. However, our leasing team is very busy with a number of new leases signed so far in October. Based on leasing activity across the portfolio, we would expect our leased occupancy to increase by 50 to 100 basis points by year-end. Our weighted average lease term increased slightly from 6.6 to 6.7 years. We have 3 properties that are undergoing redevelopment or significant renovations with long-term tenants in place when the renovations and redevelopment are complete. During the third quarter, we acquired 1 inpatient rehab facility after completion of construction for a purchase price of $26.5 million. We entered into a new lease with a lease expiration in 2040 and anticipated annual return of approximately 9.4%. Also, we have signed definitive purchase and sale agreements for 6 properties to be acquired after completion and occupancy for an aggregate expected investment of $146 million. The expected return on these investments should range from 9.1% to 9.75%. We expect to close on one of these properties in the fourth quarter with the remaining 5 properties closing throughout 2026 and 2027. As it relates to our capital recycling program, we had one disposition in the third quarter, providing approximately $700,000 of proceeds and generating a small loss on the sale. In addition, we have 2 other dispositions in our program that we expect to close in the fourth quarter with anticipated net proceeds of $6.1 million. Also as part of this program, we expect to close on the sale of an inpatient rehab hospital in the fourth quarter with an expected gain of approximately $11.5 million and net proceeds expected to fund our fourth quarter acquisition through a 1031 like-kind exchange. The indicative cap rate associated with the property sale is in the high 7% range. We have other properties with similar expected cap rate ranges both in market and under review as part of our capital recycling program. We would anticipate utilizing a similar 1031 like-kind exchange to accretively reinvest proceeds to fund our pipeline on a leverage-neutral basis. We did not issue any shares under our ATM last quarter. However, we anticipate having sufficient capital from selected asset sales coupled with our revolver capacity to fund near-term acquisitions. Going forward, we will evaluate the best uses of our capital all while maintaining modest leverage levels. To finish up, we declared our dividend for the third quarter and raised it to $0.475 per common share. This equates to an annualized dividend of $1.90 per share, and we are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers. William Monroe: Thank you, Dave. I will now provide more details on our third quarter financial performance. I'm pleased to report total revenue grew from $29.6 million in the third quarter of 2024 to $31.1 million in the third quarter of 2025, representing 4.9% annual growth over the same period last year. When compared to our $29.1 million of total revenue in the second quarter of 2025, we need to consider that the second quarter was negatively impacted by the reversal of $1.7 million of interest receivables from the geriatric behavioral hospital tenant that Dave discussed earlier. Normalizing the second quarter for this, we achieved 1.1% total revenue growth quarter-over-quarter. Moving to expenses. Property operating expenses increased by approximately $300,000 quarter-over-quarter to $5.9 million for the third quarter of 2025. This quarter-over-quarter increase in the third quarter is typical with a seasonal increase in utility expenses during the summer compared to the milder temperatures in the second quarter. On a year-over-year basis, property operating expenses decreased by approximately $50,000. Total general and administrative expense was $4.7 million in the third quarter of 2025, which was flat quarter-over-quarter once you exclude the $5.9 million of severance and transition-related payments incurred within the second quarter's $10.6 million of G&A expense. On a year-over-year basis, G&A expense decreased by approximately $300,000 in the third quarter of 2025. Interest expense increased by approximately $500,000 quarter-over-quarter to $7.1 million in the third quarter of 2025 due to increased borrowings under our revolving credit facility early in the third quarter to fund the $26.5 million property acquisition as well as 1 extra day of interest in the third quarter compared to the second quarter. We benefited late in the quarter from the FOMC's 25 basis point reduction to the federal funds rate in mid-September, but the full benefit of that cut will be realized in our fourth quarter financials based on the approximately $180 million of floating rate exposure we have within our revolver borrowings. If there are any additional rate cuts by the FOMC later today or during their December meeting, we expect those cuts will reduce our interest expense further. Moving to funds from operations. FFO in the third quarter of 2025 was $13.5 million, a 5.7% increase year-over-year compared to the $12.8 million of FFO in the third quarter 2024. On the diluted common share basis, FFO increased from $0.48 in the third quarter of 2024 to $0.50 in the third quarter of 2025. Adjusted funds from operations, or AFFO, which adjusts for straight-line rent and stock-based compensation, totaled $15.1 million in the third quarter of 2025, a 3.1% increase year-over-year compared to the $14.6 million of AFFO in the third quarter of 2024. AFFO on a diluted common share basis was $0.56 in the third quarter of 2025 or $0.01 higher than the $0.55 of AFFO in the third quarter of 2024. I'll note that our third quarter 2025 AFFO dividend payout ratio remains strong at 85%. That concludes our prepared remarks. Danielle, we are now ready to begin the question-and-answer session. Operator: [Operator Instructions] The first question comes from Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Two questions, Dave. Just the first one, the acquisition pipeline -- well, I guess they're related. The first one is just on the acquisition pipeline, and we'll discuss the funding part on my second question. But it's the same now that it was in the second quarter. Obviously, you guys are balancing the stock where the stock is and your funding needs. But as you look at the opportunity set, would you say it's growing, meaning that if you had a more competitive equity source, that pipeline would have increased quarter-to-quarter? Or is the opportunity set basically this unchanged in which case, even if you had a better cost of capital, that acquisition pipeline would not have changed? David Dupuy: Yes. What I would say is if we are being highly selective -- and hey, Alex, good to talk to you. I appreciate the question. We're being highly selective. We know we have this pipeline of very good quality assets at great returns. We want to make sure that we have the ability to pay for those acquisitions that are coming up over the upcoming quarters. And we don't want to issue shares at these depressed levels. And so that's why we're doing the capital recycling to pay for them. But yes, I would say we are seeing opportunities that are generally attractive in this market in that 9% to 10% cap rate range that if our currency was different, if our share price was different, we'd be looking to make those acquisitions and they would be very attractive relative to risk return. So yes, we're being highly selective. We're very focused on making sure we get this pipeline of high-quality assets paid for and do that on a -- without increasing our leverage. So yes, you're reading that right. Alexander Goldfarb: Okay. And then just a second question when it goes to funding. If you're doing asset sales, I get it that it sounds like there's maybe 150 bps, maybe 200 bps of positive spread between what you're selling and what you're buying. But if you're basically trading one asset for another and taking on additional debt to help fund, isn't that raising leverage just by taking on more debt because you're swapping one asset for another and then you're incrementally taking on more debt, your leverage is naturally going to rise. So my question is, is there a limit to how much debt you'll take on as long as you're still in this current depressed equity situation? Or your view is you're fine running leverage higher than normal with the hope that once the geriatric situation is resolved, hopefully you have a better currency? David Dupuy: We really feel like based on the pipeline of opportunities from a capital recycling that we have that we are not going to increase leverage over the upcoming quarters. And so yes, we did not have any capital recycling to do ahead of the current acquisition that we did in the third quarter. But future acquisitions, we are very focused on matching up dispositions with acquisitions that are accretive to the company. And so we do not expect to meaningfully increase leverage. But Bill, I don't know if you want to jump in. William Monroe: Yes, Alex, just to clarify, the property that we have under held for sale, and we'll recognize $11.5 million capital gain. That will -- we expect that will fully pay for the next acquisition such that there will not be any incremental debt associated with that next acquisition. It will be completely paid for with the proceeds of this larger upcoming disposition. Operator: [Operator Instructions] The next question comes from Rob Stevenson from Janney. Robert Stevenson: In terms of the behavioral health tenants, so $200,000 paid in the quarter, can you remind us what that tenant was previously paying per quarter before they hit the wall? William Monroe: Yes, they were paying in rent approximately $800,000 per quarter. Robert Stevenson: Okay. That's helpful. And then what's the expectations for our timing in terms of the closing there of the acquisition if it occurs? Is that something that occurs before year-end, if it happens, given the deal was signed in July? Or could that stretch into 2026 from your understanding at this point? David Dupuy: We're very -- we'd love for it -- and hey, Rob, good to talk to you. But we'd love for it to close by year-end. Some of the due diligence process has taken a little bit longer than we would have expected. So it's probably more realistic to expect something to close in the first quarter. So yes, I think there's still a chance that it gets done by the end of the fourth quarter, but it's probably more likely to happen in the first quarter. But we certainly would love to provide additional detail as soon as we have that. Robert Stevenson: Okay. And to what extent are you guys actively pursuing Plan B, just in case the deal falls through? David Dupuy: Yes. You should expect that we are going down multiple paths simultaneously as we always have. And so yes, we're looking at multiple plans, multiple ways that we can move forward with the goal of ultimately getting paid more rent associated with those tenants. And so -- and look, I think all of this is upside, right, relative to our performance. The portfolio has been stable. We're growing. I think we're certainly motivated to get this resolved as soon as possible. And we think that it will, but yes, we are looking at all options. Robert Stevenson: Okay. And then last one on this topic. When you sit there and think about where they are in their life cycle, et cetera, what's the likelihood today of getting back any of the unpaid interest or rents, back rents going forward? Or is a similar couple of hundred thousand in the fourth quarter and a new lease with the buyer of these assets the best-case scenario for you guys today? David Dupuy: I would call that, that's probably consistent with where we're head is. And part of the reason we did the additional note write-off that we did because we did not deem that it was likely to be collected. So I think we're operating under that expectation, but we're certainly very focused on to the extent we do have the ability to get any back rent or back interest, we will. But we do not put a high likelihood on that. Robert Stevenson: Okay. And then just switching topics here. The 3 properties that are under redevelopment. How material is that? And then when do those leases expected to kick in and impact earnings? David Dupuy: Yes. So I think one is very significant and at least that was signed a while ago for a behavioral health care facility. That's a large investment by us with a very recognizable operator. My guess is that lease won't commence until sometime after midyear next year, but that's a meaningful one. We don't provide specifics as to what those numbers are but wouldn't start seeing any tailwind associated with the rent until after -- probably after second quarter. The other one is probably a late 2026 opportunity as well. And then there's one smaller one that will happen first part of 2026. Again, that should start contributing additional rent. But these are -- they vary in terms of their impact, and we haven't provided details relative to that. But we just -- it's just an example of how we're reinvesting in buildings and with strong tenants based on signed leases, so anyway. Robert Stevenson: Okay. Just trying to figure out just what type of earnings tailwind because it sounds like you said that you're expecting to see 50 to 100 basis points increase in occupancy in the near term plus this. Just wanted to figure out when that was going to start all hitting in terms of the earnings. David Dupuy: Yes. As far as the 50 to 100 basis points, we're seeing great leasing activity across the portfolio. There's always a delay between signing leases and having those leases commence. And so -- but I think it sort of speaks to the strong activity we're seeing across the portfolio, and I think it will be a tailwind for 2026 in terms of our ability to grow. Operator: The next question comes from Jim Kammert from Evercore. James Kammert: Obviously, I think the capital recycling shift is well received. And I was just curious, how are you sort of identifying which assets you would like or most likely to dispose? Is that a geographic concentration, tenant concentration? Just trying to understand the mix or how you're lighting upon the candidates. David Dupuy: Jim, thanks for the question. Yes. So as you sort of hit on, you would think about it around tenant concentration, weighted average lease term, size profile, markets. We're looking at all of those sort of criteria as we evaluate what we want to do from a capital recycling perspective. Obviously, with the key components associated with that of paying for this pipeline in a way that's accretive. So those are all the areas that we're focused on. And what I'd also remind everybody of is we sort of looked at our capital recycling program in 2 buckets. One is the bucket of smaller properties that are noncore that aren't going to drive a substantial amount of proceeds but they are going to get us focused on our better buildings and better markets. And so you're seeing a few of those sales occur and those sales are -- we expect to conclude in the -- at the end of the fourth quarter. And then the larger opportunities where we can have a very accretive cap rate sale to then reinvest in new very attractive buildings. So yes, you're thinking about it in the right way. We're looking at tenant concentration, WALT, size profile, et cetera, as we look to sort of push forward with our capital recycling. James Kammert: That's helpful. And a derivative question then I'll be done is you mentioned that one of the large transactions pending is a 1031, but I'm just trying to assess the depth of buyer interest. You're not restricting your capital recycling to just 1031 exchanges. I mean there is a depth of buyers presumably for stand up just traditional sales as well. William Monroe: Yes. Good question, Jim. The 1031 is more on our side than on the potential buyer side as far as we don't want -- we're deferring that capital gain associated with that sale by putting it into a 1031. And then we have within our acquisition pipeline and other properties that we have identified that will then be the replacement property as part of that 1031 transaction. But no, we're going to a very wide set of potential buyers to make sure that we're maximizing proceeds to us. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dupuy for closing remarks. David Dupuy: Thanks, Danielle, and thank you, everybody, for dialing in. Of course, call if you have any questions, I hope everyone has a good rest of the day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's third quarter result webcast. My name is Pekka Rouhiainen. I'm Vice President of Investor Relations. And with me today are President and CEO, Thomas Hinnerskov; and CFO, Katri Hokkanen. Thank you for taking the time to join us today. We will walk you through Valmet's third quarter. We will highlight our improving performance, key order wins and how we are navigating a market that continues to present both challenges and opportunities. Agenda is straightforward and the usual. So first, Thomas will present the Q3 highlights and discuss our strategy execution, and then Katri will go through the financials, and Thomas then conclude with the guidance and market outlook. And after the presentations, we'll open the lines for your questions, and there's also the possibility to post the questions through the digital platform. So thank you again for joining us and your interest in Valmet. But with that, Thomas, the floor is yours. Thomas Hinnerskov: Thank you very much, Pekka. And also a warm welcome and good morning from my side. Before we start, I do want to highlight that we've updated the interim report and this presentation to reflect our 2-segment structure in the new strategy, but also even more so making it more investor-friendly and easier to read. So, I hope you appreciate that and actually have noticed the change from last time. Let's start with the key highlights for Valmet's third quarter, a period that truly demanded our best as the market was challenging in some of our key areas. It's important to be clear while the process performance continued to benefit from a favorable market, Biomaterials faced real headwinds, and that's why I'm pleased with the achievements in this quarter overall. This quarter was defined by improving performance and some landmark wins achieved in a very challenging market. Next, I'll walk you through 7 highlights that together paint the picture of how Valmet is not just navigating, but actually leading in this environment. First, our Process Performance segment continued its strong growth track, delivering 11% organic growth in orders received. This is a clear signal of market trust and our team's ability to execute. The market environment was sort of a tale of 2 realities: continued good demand in Process Performance, but weaker conditions in Biomaterial. Our diversified portfolio helped us balance these forces. Despite the headwinds, we increased orders organically by 7%, reaching EUR 1.1 billion. That's a solid achievement in today's environment. A real milestone was the win of a record large tissue order from the U.S. that sets sort of a new benchmark for Valmet and it opens up for robust lifecycle opportunities going forward. Financially, we delivered our best third quarter ever comparable EBITDA of EUR 159 million and margin of 12.3%, slightly higher than last year and one step closer towards our 2030 financial target of delivering 15% comparable EBITDA margin. We've also started executing our Lead the Way strategy. And already we're seeing concrete benefits, especially through the savings from our renewed operating model coming through also here in Q3. Finally, our guidance for 2025 remains unchanged, both in terms of net sales and comparable EBITDA, are expected to stay on last year's level. That stability is a sign of solid execution and the strength of our lifecycle approach. With those highlights in mind, let's look at how our strategy is coming to life. When we launched our Lead the Way strategy in June, we set out more than just to change our operating model. It's a route to overall higher performance, more integrated customer service and increased shareholder returns. Since then, we've put the new operating model and reporting structure in place. Our teams are now aligning around lifecycle, value creation and supply chain excellence. Lead the Way isn't just a slogan. It's showing up in how we work together, how we serve our customers and how we deliver better results. Already, we're seeing concrete benefits. We are targeting, as you know, EUR 80 million in annual savings from the operating model renewal. And in Q3 alone, we realized EUR 15 million of those. We expect the full run rate from early 2026. However, it is good to note that partly we will reinvest some of that savings into growth and to capture future growth. Also we are strengthening our leadership team, especially in tissue business, where Jon joined us in August, and we made other key hires to support our execution. What's most encouraging is the feedback, however, from our customers. They're responding positively to our lifecycle approach and our regenerative purpose. It's clear that our strategy supports long-term value creation and performance. So, the Lead the Way strategy isn't just underway. It's already making a difference. We are building momentum and we are committed to delivering on our promise. And as we move forward with our new strategy, it's encouraging to see that our core strength and ongoing execution are already delivering results. While the full impact of our new strategy will unfold over time, the momentum we are seeing in orders received this quarter shows that Valmet is well positioned to capture opportunities in both favorable but also in challenging markets. In Q3, our orders received increased organically by 7%. This was the fourth consecutive quarter of organic growth. This achievement is a reflection of our team's ability to win business and deliver value even when the market conditions vary across segments. Process Performance continued its strong growth with 11% organic growth in orders received. At the same time, Biomaterial was faced with softer market condition. Our record-breaking tissue order from the U.S., however, demonstrates our capability to secure major wins in this segment. These results support a strong order backlog, provide a solid foundation as we move into the final quarter of the year and look ahead into 2026. Let's bring these numbers to life with a concrete example of how our solutions are making an impact in the market. Today, I want to show our automation platform wins outside of the pulp and paper space, which many people associate us with. We've been selected to automate a hydrogen fuel cell facility in Naepo in South Korea. The point here really is the versatility of the Valmet platform, solving problems in surprising areas even such as clean energy and fuel cells. Every new automation site expands our installed base and our opportunity for delivering this lifecycle software and services over time, delivering recurring revenue opportunities for us as Valmet. It is repeat business with Lotte Engineering & Construction, and it does introduce us to Naepo Green Energy alongside their existing LNG plant in South Korea. To sum up, this is a small win today, but a strong proof that Valmet automation platform is relevant far beyond pulp and paper. Let's now zoom in on the Process Performance segment, where our momentum has been especially strong. In Q3, Process Performance delivered another standout performance, building on the momentum we've seen throughout the year. Orders received increased to EUR 345 million with organic growth of 11%. That's, again, the fourth consecutive quarter of double-digit growth, driven by strong performance in a robust market. These figures do suggest that our market share has grown through acquisition, but definitely also organically. Net sales also grew organically, reaching EUR 361 million, but that's truly remarkable is actually our profitability. Comparable EBITDA climbed to EUR 79 million and the margin hit a record high at 21.9%. This does reflect our disciplined commercial execution, the benefit of our operating model renewal, but also improved performance in API, the acquisition or the business we acquired last year, as you will remember. With this level of performance, Process Performance is setting sort of the pace for Valmet overall. This quarter, we secured the largest tissue order in Valmet's history, a true milestone for our biomaterial business. This landmark U.S. orders expands our North American installed base, strengthening our leadership in the ultra-premium tissue segment and deepens our long-standing partnership with Sofidel. Financially, it's a record high order included in our Q3 results. Revenue will be recognized over the period of 2026 to 2028 with additional long-term growth expected from lifecycle services after the start-up. The project covers the tissue line, automation, flow control, digital solution, delivering efficiency and reliability for our customer. I would say wins like this set the stage for future growth and innovation in this segment. Moving on to the broader performance of Biomaterials segment beyond the landmark win we just discussed. This quarter, the segment operated in a notably softer market. The environment for larger projects has been subdued for some time. What's new is that the service market slowed down compared to Q1 and Q2 when our service orders grew at double-digit rates organically. Importantly, we saw the first sign of the softening already back in Q2 and communicated it also clearly at our previous webcast. We noted a more cautious environment emerging with customer activity expected to decrease throughout the year. In Q3, service orders were essentially flat 1% plus. We saw a slowdown in especially consumables and performance parts. Net sales remained at last year's level, but margin pressure was evident. Our comparable EBITA margin declined to 9.5% despite the cost benefit coming in from our operating model renewal. The margin was lower across the product portfolio, I would say. This does highlight the need for even tighter cost control. We're addressing this head-on through our new global supply unit, which is a key part of a broader strategy to strengthen cost competitiveness in the segment. This covers the operational and market development for our segment this quarter. To give you a bit more deeper look into the financial development, I'll now hand over to Katri, our CFO. The floor is yours. Katri Hokkanen: Thank you, Thomas. I will now take you through Valmet's financial development for the third quarter. I will cover profitability, cash flow, balance sheet and other key financials in my presentation. And as always, my aim is to provide a clear and transparent view of our financial position, and the drivers that are there behind our performance. Let's start with an overview of our net sales and comparable EBITA for the third quarter. Net sales for Q3 remained stable at EUR 1.3 billion. And organically, net sales were 2% higher than in Q3 last year, and this was due to currency headwinds of roughly EUR 31 million as euro strengthened against the U.S. dollar and other key currencies. Comparable EBITA reached EUR 159 million with a margin of 12.3%, as said, a record high for the third quarter. This increase was driven by a very strong performance in Process Performance Solutions and approximately EUR 15 million in cost savings from our operating model renewal. Our last 12 months comparable EBITA margin remained at 11.7%. Sequentially, it's flat, but still at record level. And actually these results show that we have ability to deliver a consistent financial performance even as market conditions fluctuate. Having covered our net sales and profitability, let's now look at our order backlog and what it means for Valmet's outlook. At the end of the third quarter, our backlog stood at EUR 4.5 billion, which is EUR 74 million higher than what we had at the end of 2024. And this solid backlog, together with healthy book-to-bill ratio this year, creates a good foundation as we move into the final quarter of this year and also to 2026. And based on our current delivery schedules, we expect that roughly EUR 3.6 billion of the backlog will be recognized as net sales in the fourth quarter as well as in 2026. And this provides us with good visibility and also supports our confidence in delivering it in line with our full year guidance. Next, I'll walk you through our cash flow and working capital development for the quarter. Cash flow from operating activities amounted to EUR 94 million in Q3 and EUR 569 million over the last 12 months. And our comparable cash conversion ratio was 92% for the last 12 months, and this is right in line with Valmet's long-term historical average. Strong cash conversion demonstrates the strength of our business model and also our ability to turn profits into cash even as market conditions fluctuate. Net working capital amounted to minus EUR 76 million or minus 1% of last 12 months' orders. Sequentially, from Q2 to Q3, we tied up EUR 63 million more working capital, but this was mainly due to timing effects, which reflect normal variation between the quarters. But to put this into perspective, if we compare with Q3 last year, we have actually released roughly EUR 100 million in net working capital. And this improvement comes from reductions in our inventories and also in our contract assets, which is a good achievement in the current environment. And if we zoom out even further at its lowest level about 5 years ago, our net working capital was EUR 0.5 billion lower than what it is today. However, it's very important to understand the underlying dynamics. So this shift reflects the growth of our Process Performance Solutions and Biomaterials Services business, which typically require more net working capital than CapEx-driven project business. As these segments have grown, while then the Biomaterial project business has been in a low cycle, our working capital profile has also evolved accordingly. And as always, payment schedule in our long-duration projects have a significant impact on net working capital development. Then year-to-date CapEx was EUR 81 million. This is representing 2.2% of net sales and it's also in line with our long-term average. I have to say that efficient cash generation, disciplined capital allocation remain our key priorities. It's supporting by both operational flexibility and also our long-term growth ambitions. Next, I will walk you through our balance sheet development and gearing. At the end of Q3, our net debt stood at EUR 945 million, and we reduced our gearing to 38%. This is a clear improvement from the previous quarter and well within our target of under 50% gearing. Our net debt-to-EBITDA ratio also improved now at 1.5. And the net average interest rate on our total debt remained stable at 3.6%. And net financial expenses fell to EUR 13 million in third quarter, and this is down from the EUR 17 million we had a year ago. And this improvement is driven by both a lower average interest rate and also a reduction of our total debt. For a context, a year ago, our average interest rate was 4.4%. It's also worth noting that the second dividend installment, EUR 0.67 per share totaling EUR 123 million, was paid in early October and it's not yet reflected in these figures. Our liquidity remains robust with a cash and cash equivalent of EUR 479 million at quarter end. So in summary, balance sheet is strong. Our gearing is comfortably below our target and our liquidity gives us the flexibility to invest in growth, support our long-term strategy even in a challenging market environment. Moving on to capital efficiency and EPS. Our comparable ROCE for the last 12 months was 13.1%. This is a solid level, but I want to be transparent. So our financial target is to reach 20% comparable ROCE by 2030 and we still have some way to go. The decrease in ROCE in recent years is mainly due to the acquisitions we have made. So these have increased our capital base and it takes time for the full earnings impact to come through. We are confident that these investments will support stronger returns over time and we have a clear plan how to get there. Then our last 12 months adjusted earnings per share was EUR 1.77, down 8% from full year 2024. And it's important to clarify that this is adjusted EPS, which excludes the acquisition-related adjustments, but includes items affecting comparability. It's sometimes assumed that these items affecting comparability are excluded from adjusted EPS, but in our reporting they are included. Even though our comparable EBITA is EUR 6 million higher year-to-date than last year, the decrease in adjusted EPS was mainly related to restructuring expenses from our operating model renewal. And these are, of course, one-off costs that support our long-term competitiveness. So we are taking the right steps to ensure stronger returns and sustainable value for our shareholders. Moving on to key figures to conclude my presentation. Most of these figures have already been presented today, but I'd like to highlight a few important topics. First, almost all key indicators have developed favorably in the third quarter. And this is a clear sign that our performance was strong even in a challenging market environment. Year-to-date net sales down 3%. This is still in line with our guidance of flat net sales for the year, so we remain on track. Items affecting comparability were minus EUR 10 million, and these are mainly related to a settlement agreement in the Biomaterial Solutions and Services segment following a delivery made 2 years ago. And the delivery required corrective actions led to a commercial dispute, which has now been resolved. And while unfortunate, incidents like this are rare but they do sometimes happen in the project business. Lastly, the effective tax rate was roughly 3 percent points lower in the third quarter and 4 percentage points lower year-to-date. While this change is rather large, it's important to note that the tax rate always reflects the geographical mix of our business. And last year, the tax rate was higher than typical. This year, it's lower. So going forward, we continue to expect a tax rate of roughly 25%. That concludes my review of the key financials. Thomas, over to you to go through guidance and our view of market outlook. Thomas Hinnerskov: Thank you very much, Katri. Let's look at the guidance and the short-term market outlook. Our 2025 guidance remains unchanged. We expect both net sales and comparable EBITDA to remain on previous year's level. This outlook is supported by our healthy backlog, our cost savings and that we are realizing from our renewed operating model. Looking ahead, our short-term market condition remains mixed. We continue to see a favorable environment in Process Performance, even though the dynamic tariff situation and the overall economic outlook does create uncertainty. The Biomaterials market overall remains challenging. The Biomaterials services markets softened clearly in Q3, and there is a risk of further softening there. One specific area of concern is consumables and performance parts, where orders have been trending down since Q1. This part of business reflects a more day-to-day customer activity and likely mirrors our customers' reduced production rates and to some extent, lower financial results. On a positive note, the tissue market stands out. We won a landmark order from the U.S. in Q3 and the pipeline looks healthy also going forward. The pipeline in our other capex-driven businesses is relatively stable. There are some mega projects in the pipeline, but as always, the timing is difficult to predict. We do remain open to work with our customers if some of these large projects move on to decision phase in 2026. For Q3, it's important to remember -- or Q4, it's important to remember that the comparison period includes in Q4 2024, a mega pulp mill order from Arauco, impacting the comparison figures, clearly also in the Process Performance and the Biomaterial Services. Despite the market challenge, I'm confident that our simplified operating model and focused strategy or strategic position as well will enable us to navigate near-term volatility, creating at the same time long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions for the Q&A. Thank you, Pekka. Pekka Rouhiainen: Thank you, Thomas and Katri, for the presentations. And we'll start from the digital platform here before opening the phone lines. So please remember that you have the chance to post the questions also through this platform. But there are a couple of questions here. First of all, strong margins in Process Performance during Q3. So are there some one-off items or something like that explaining the good result? Thomas Hinnerskov: Yes, great results in Process Performance in Q3 in terms of margin. Overall, I would say they did -- the margin was supported by the savings in the operating model. They were also ahead of the curve commercially on some of the costs that are coming in. So that will impact them later on in Q4, but we're happy to take that extra result in Q3. On top of that, I would also mention that we did acquire API last year, and that performance has really come up and also showing really good results. We are very happy with that acquisition. Pekka Rouhiainen: Good. Thank you, Thomas. And then another one here regarding the savings, so EUR 15 million saved in Q3 from the operating model related things, I guess. And how much are the savings that you're expecting going to Q4 and 2026? Thomas Hinnerskov: We expect roughly the same level of savings into Q4. No, it's not going to change much. I think maybe just important to note going into '26, we will -- and that's also what we communicated at the Capital Market Day back in June 5 when we launched the strategy. Part of this operating model is also to free up resources so we can invest part of that back into future growth and therefore, actually getting into a better trajectory in '26. Pekka Rouhiainen: Good. Thank you, Thomas. That's it for the platform right now. So now operator, handing over to you. Operator: [Operator Instructions] The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I would have a few. Firstly, starting on services and the outlook that you now gave. Could you kind of talk a bit more like where is this coming from, the weakness in services? And what is the magnitude of the kind of potential further weakening if you had orders declining 2% in Q3? Is this like 5% plus decline going forward or any indications of this one? And maybe on services, if the spare parts and consumables are down, is this the highest margin part of services that is declining currently? Thomas Hinnerskov: Yes. Good question. If we look at the services and Biomaterials throughout the year, Q1 consumable spare parts really, really strong. Q2, consumer spare parts came down, mill improvements came up, and we'd still have a good growth overall in Q2. Here in Q3, you can say that that trend has sort of continued consumables and spare parts down, particularly, I would say, in Europe and North America. And then where then mill improvement projects has gone up in China and in North America, in particular, where we've seen the biggest growth. I think it's important to note that the mill improvements really are important projects for us because that's where we really help the customer as well in improving their efficiency and their cost competitiveness. And we're very happy that we have seen a good track record of that. Clearly, of course, that's slower moving in the backlog or in the order portfolio, so that the sales comes out a bit later than if it was spare parts or consumables. Panu Laitinmaki: Okay. Then on the cost savings, how did the EUR 15 million split into the 2 divisions? And maybe on '26, so should we expect EUR 15 million to impact your EBIT if you kind of get EUR 30 million for this year? Or did you indicate that you aim to invest part of that to the business, so it will be like less than EUR 15 million support to the earnings or margins? Thomas Hinnerskov: Now you had 2 questions there. What was the first part? Just I couldn't really hear you coming through. Sorry. Panu Laitinmaki: It was how did it split, the EUR 15 million, into the 2 divisions? Thomas Hinnerskov: Okay. Yes. The split between Bio and Performance Solutions, think about it like 2/3 bio and 1/3 in the process performance because you also have to think about where we took the most complexity out was actually in the Biomaterial business. Pekka Rouhiainen: And then Thomas, about 2026. Thomas Hinnerskov: Yes, 2026, we will sort of have full run rate early 2026 of these EUR 80 million. We will reinvest some of that into growth, that I said. I would think of it like 80-20, where 80% goes into supporting the results and 20% maybe in the reinvestment. And of course, you also need to think about, I think we've also communicated that earlier, that it's split between white-collar COGS and white-collar SG&A. Panu Laitinmaki: My final one is on the Process Performance. So, you answered that there was maybe some commercial, they were ahead of the curve in -- so does it mean that prices were increased before the costs increased due to tariffs or so on, and that this will kind of go away or turn in Q4? Thomas Hinnerskov: Yes. Clearly, I mean, as you also have seen, the market has been very dynamic and also in particular in terms of the tariff situation. So we have needed to adjust our pricing according to that. And then some of that tariff has come through a bit later than was originally expected. Panu Laitinmaki: Can you quantify what is the magnitude of that in the margins? Thomas Hinnerskov: Not -- I don't think we supply that kind of level of information. But there was -- there was a good impact. But you also have to consider into that API was doing better, cost savings were coming through without the reinvestment into future growth. So lots of things sort of pointed or gave some tailwind into the margin development for PPS. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one I got is just coming back on the services outlook. I was just wondering, obviously, after Q2, you already gave a slightly weaker outlook for services into the coming quarters. I just wonder the outlook that you give today on the coming quarters, is that incrementally weaker than what you had in mind in Q2? Or is it the kind of same softness? That's the first one. Thomas Hinnerskov: Sven, thanks for joining. Overall, we've seen, as you can see, that the daily operating rates, consumables and spare parts has come down. We've seen in Q2 and Q3 roughly 9 million of tons of capacity coming out of the market where we roughly have 4 of those. So that's, of course, impact the overall consumption of these spare parts and consumables. So that has impacted. Now it is -- you can say that the situation is quite dynamic, can change positive-negative quite fast with our customers and depending on how their situation is with their customers. So it's a bit hard to say, but we do see a risk of further softening, I would say, going into Q4. Sven Weier: And is it that customers can still actually destock? Was there maybe also a prebuy ahead of the tariffs, and that's also weighing on the spare parts demand? Thomas Hinnerskov: That was probably back to Q1 where we saw spare parts and consumables coming up quite a lot and not happening really in Q2 and not in Q3 either. So I think it's more about prolonged shutdowns to actually manage the overall capacity, which then drive the consumables. Sven Weier: The other question I have was just on the Biomaterial margins and the -- which were a bit weaker than we expected. I mean, is it also that Arauco is a bit to blame here in terms of margin dilution? And is the project going according to plan? Thomas Hinnerskov: So Arauco is really going according to plan. I was actually visiting on-site there a few weeks ago. So I'm super happy that you're asking. I was there together with the CEO of Arauco, and we made a joint review of the whole project together. And it's great to see how it's progressing according to plan, and the team are really playing together to make this a success for Arauco as a customer. So very happy with the progress there, I have to say. Then just maybe to give you a little bit more flavor on the Biomaterial overall margin. We have seen -- we are seeing that sort of the overall product portfolio margin is lower than what it has been historically. But that we see more or less throughout sort of the year, and that will also go into Q4. Sven Weier: Understood. And the final question from my side, if I may, is just on the -- coming back to the cost saving bit. I mean, did you say there is an incremental EUR 15 million in Q4? Or is the run rate staying at EUR 15 million in Q4? Thomas Hinnerskov: So we've achieved -- so I'm more saying the run rate will continue like this. You can also see that in the number of people that have actually left if you sort of click on that, you will see that we have achieved actually most of the savings from a run rate perspective. Some will come during Q4, Q1, right? But most of it… Sven Weier: But you will be an EUR 80 million annualized in Q1, beginning of next year, you said, right? Thomas Hinnerskov: Yes, sometime early 2026. So sometime during Q1. Sven Weier: And did you use some of these savings then to win this major tissue project? Or do you need to invest these savings in other end markets? Thomas Hinnerskov: No. So these savings are not related to the tissue win at all. So these -- when we talk about these EUR 15 million, they are solely related to the operating model change. And that's why we're also saying in order to actually deliver on the strategy, we will reinvest some of that very sort of focused and tailored in certain markets to win more share. And then if you think about our global supply, the EUR 100 million that we talked about back in June, that's going into sort of 2 buckets. One is overall cost improvement and then, of course, also cost competitiveness. The cost competitiveness piece is a little bit of a longer game than just sort of a few quarters. Sven Weier: And then I guess tissue is not a market where you need to invest into market share gains because you are already strong. Thomas Hinnerskov: Yes. Exactly. Operator: [Operator Instructions] The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I have 2, if I may. Firstly, again, coming back to the service market. Just to be very clear here in terms of how to read your guidance. So should we see it, as you know, the market being down perhaps sequentially seasonally adjusted in absolute terms over the next 6 months? Or are you referring to kind of a year-over-year market trend, which might weaken from what we have seen now, for example, in Q2 -- sorry, Q3 with your orders being down by 2%? So just trying to get full clarity in a way on that so we don't misinterpret it how to read the guidance, please. Thomas Hinnerskov: Thanks, Mikael. I'm not sure -- I wasn't sure I understand the question, but the question is that when you -- when we say the guidance, it's -- are we comparing versus Q3 now for Q4? Or are we comparing with Q4 last year? Is that the question or? Mikael Doepel: Exactly. That's more or less the question. Yes. So trying to understand should we expect accelerating declines in demand year-over-year for the next couple of quarters? Or are you kind of looking at Q3 as a run rate and seasonal adjustment? Thomas Hinnerskov: Yes. Of course, I mean there's always seasonality in it. So we always think about sort of comparing versus the last year, not from sort of the starting point or the ending point coming out of the quarter. So I think you should think about it versus Q4, but you have to, in Q4, think about that that was impacted by the Arauco order in Q4. Not just in the capital side, but also in the Process Performance Solutions, but also in the Biomaterial Services as the service package comes through there as well. Mikael Doepel: Yes. That makes sense. Okay. And then secondly, on the U.S. market very briefly on the pulp market, in particular. Now I remember you have been talking about opportunities in that market. So you have a fairly old installed base on the pulp side, recovery boilers and all of that kind of expecting good opportunities there. I guess we haven't seen that much flowing through yet, at least in your orders. So I'm just wondering if you would like to give a bit of an update on how you see that market now. I mean, is the overall tariff or uncertainties putting things on hold? Or any color on that trend would be great. Thomas Hinnerskov: Yes. I mean North America market, a very good market. Overall, as you also alluded to, old installed base will eventually need to be upgraded and a lot of improvement projects will need to come through there. They are currently -- I would say, they've taken some capacity out during Q2, early Q3 as well to support sort of the overall situation there. However, they are running, I would say, close to optimal operating rates as we speak, right? And they are actually sort of being -- what can I say, they benefit from the current tariff situation, I would say, overall, but they still struggle with what sort of -- what's the direction when they're looking into the coming quarters and years. And therefore, I think that's also one of the reasons why you've seen quite silent CapEx market, not just in North America, but overall. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I wanted to ask about the EUR 10 million one-off costs. So if I understood correctly, this was a project settlement. So is this like the way you always treat this and so as an item affecting comparability? And how do you kind of define when it's a project loss test reported as part of normal business and when it's something that's taken out from the adjusted or comparable EBIT? Katri Hokkanen: Yes. Thank you, Panu, for the question. Actually, this was a delivery that we have done already 2 years ago. So in that sense, it has been delivered. And there has been a dispute with the customer, which required then corrective actions, and now we have settled it. So these are very rare, I have to say. Panu Laitinmaki: Okay. And if I may, another question. What about these large projects in pulp? So -- or the potential ones, what is like the timeline? When do you think the customers are making decisions? Is it '26? Any color on those ones? Thomas Hinnerskov: I mean, as usual, it is very, very difficult to predict when these comes out. They are very binary by nature. Of course, as you know, there are some of them in the pipeline, but question is when that decision is made. It's a bit about how the customers see actually the market for pulp developing into the future. And then -- so hard to give you sort of more insight on that one. But of course, we are working with the customers having to sort of help them out doing the solution engineering, figuring out how would actually the payback and the return on investment look like for them. Operator: The next question comes from Xin Wang from Barclays. Xin Wang: So my first question is on automation and flow control orders, which came at a very good level. Can you maybe talk about what's driving the demand, either by region or by customer groups? I think you mentioned hydrogen fuel and power in the release. And then you also talked about good pricing level being a driver. Is this across the sector or unique to Valmet? Thomas Hinnerskov: Very good question. I think if you look at our Process Performance Solutions, they actually also have customers that are in challenging situation with some overcapacity and some tough pricing in their markets. However, we do see that they are very committed to the future. They have done some CapEx investments in actually to driving their efficiency going forward or into the future. So we've seen, especially in automation, maybe we see more CapEx orders than what we've -- and then service orders or that mix have actually been a bit more heavy on the CapEx, which is great to sort of in terms of installed base and future businesses, right? Same go a bit with Flow Control. I think the pricing is more a Valmet specific thing than necessarily a sector thing. Xin Wang: Very good to hear. So maybe just a follow-up on this bit because when I look at your customer base in Flow Control, for example, I think there is 26% given out of your CMD slides being pulp and paper. For the other industries, what was the secret to gain pricing power in there in, I don't know, chemicals, renewable energy, metals and mining, et cetera? Thomas Hinnerskov: Yes. I think taking Flow Control is really about having a very strong solution offering that adds value to the customer more uniquely than any of the other competitor, having a very focused and specific commercial plan on how you're actually going to get this to market, what segments are you focusing on, not trying to go too broad, but actually being very specific on where does your solution offer a uniqueness into the market and then really pushing that. And that is actually quite a number of industries where we have -- as part of the solution where we have a uniqueness that -- where we can actually serve the customer better. Xin Wang: Okay. Great. Maybe if I can ask one more question. I think in Q3, you continued to benefit from China orders, although presumably at a far lower scale than Q2. Can you maybe comment on your expectations over there, please? Thomas Hinnerskov: Yes. So, what I also just said is that we saw several mill improvement projects in the Bio business in China, but we also had a -- also on the Process Performance Solutions, we also had some good orders coming in there. I mean I think you know the Chinese situation. It is, of course, a challenging market like it is also some other places. And you just need to be very, very focused in your commercial strategy when it comes to China in order to be successful. Otherwise, you end up getting lost and you end up getting marginalized because you're trying to do too many things for too many kind of customer segments. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me as well. I'll start with a clarification on the savings comment. So the EUR 15 million that you are flagging, am I correct to understand that this is the impact on quarterly EBIT and not any kind of an annual run rate number? So that would be the first one. Thomas Hinnerskov: That's correct. Antti Kansanen: So it's safe to assume that if -- and then I wanted to come back to the comment on reinvesting part of the savings next year. Was this originally the plan when you announced the EUR 80 million cost savings during the Capital Markets Day? Or has something changed since then? Thomas Hinnerskov: No, this was a clear part of the plan at the Capital Market Day. Antti Kansanen: Okay. Fair enough. Then the second question is on the outlook for… Thomas Hinnerskov: Antti, just to be clear, of course, we're not just flooding in resources, right? It is very tail -- it's back to the plan and the road maps we created for the strategy implementation and execution back, I mean, before the June 5, and that's where the investments are going into, in particular when it comes to certain sales forces where we do see that there are opportunities, but they're not necessarily done historically because the payback time is not within the year. Antti Kansanen: Okay. I mean that's very clear. But I'm kind of correct, assuming that this is basically the quarterly run rate of net savings that we should assume. I mean the EUR 5 million is roughly already close to 80% of, let's say, the gross number that you are talking about. So -- Thomas Hinnerskov: Not too far away. Antti Kansanen: -- repeated in terms of --yes. Okay. Good to have it correctly. But then I guess the bigger question that I had was on the service demand and on the consumables and parts side, obviously driven, as you mentioned, by the client production rates. So how do you look at it? Is this just a business cycle that you kind of have to suffer right now? Or are you seeing something more permanent happening within your existing service base that would maybe require actions that were not part of the ones that you outlined on the strategy and the CMD in June in terms of, let's say, permanent closures of shrinkening of installed base in some of your key service areas? Thomas Hinnerskov: No, I think it's driven by the moment. Of course, as I said earlier, the 9 million tonnes of capacity coming out. 4 million of those roughly is Valmet capacity or original Valmet equipment. That's, of course, a lot of it is quite old equipment, but anyhow it does, of course, drive demand. But then the lower operating -- I mean, as I also said, we're seeing very good operating rates in North America now. If they closed a few sites in Q2, in particular. Very good operating rates right now. Europe, I mean, struggling as you probably would imagine and know, and also in terms of the operating rates, right. So, it's basically sort of say demand side driven right here and now for the customer. Operator: The next question comes from Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have 2, please. Can you help me better understanding the margin profile of spare parts and consumables versus mill improvement projects and services, please? Thomas Hinnerskov: I think the right way to really think about it is that point one, we have a -- we set out an ambition for 2030 of having a 14% margin in our Bio business, right. That's sort of the aiming point. Secondly, that is then really about making sure we drive the lifecycle value for our customers, optimizing their outcome because we are the manufacturing equipment for the customer. In order to make them competitive, especially when it comes to older equipment, then these mill improvement projects becomes really important. And that then generates also then future service and consumable sales or parts and consumable sales. So I wouldn't try to sort of see it in isolation or the mix. I think that just clouds the bigger picture in terms of the direction of travel. I think the only thing is that it's more important to think about that it's slower turning in terms of the order book backlog that it doesn't come out tomorrow necessarily, right, with like a spare part would do. Christoph Blieffert: Okay. Understood. The second question is on 2026. Consensus expects some EUR 706 million of comparable EBITA for next year. I'm just wondering if you feel comfortable with the EUR 19 million year-on-year increase. Thomas Hinnerskov: I think -- I mean, a good question. And as you know, we do come out with our guidance for 2026 in connection with the Q4 results. I think we are standing on good grounds in terms of going into next year. We've got a good order backlog. We've got savings that helps us improve our profitability. So in that sense -- we've got PPS also having had some good growth during this year. So we are going into with some good things in the bag, but let's see back in after Q4, how that would play out and more specifically. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I just have a very small detailed follow-up on the 9 million tonnes of capacity that you're talking about taking out from the market. Are you referring to containable, consumable, pulp or everything together, just to be clear on that number? Thomas Hinnerskov: Yes, it's mainly in the paper and board segment. Mikael Doepel: Okay. But also pulp then or just that… Thomas Hinnerskov: Yes. No, I think that is -- I think you have sort of think about it as mainly a board thing. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: All right. Thank you. There seems to be no questions from the digital platform at this stage either. So it's time to start to conclude the event. And the Q4 report will be due on February 6 next year. And yes, I hope to see many of you in the various roadshows and seminars we are planning to participate still this year. But now I'd like to hand over to Thomas for any final remarks. Thomas Hinnerskov: Thank you, Pekka, and thanks to everyone who joined us today. To sum up, Valmet delivered a good performance and an improving performance in the third quarter, even as market conditions remain challenging. Our healthy order backlog and ongoing cost savings, like we also just talked a lot about from the operating model renewal, gives us confidence in our outlook. We remain fully committed to our strategy and to create long-term value for our shareholders and stakeholders. So on behalf of the entire Valmet team, thank you, and thanks for their continued trust and support. We are looking very much forward to keeping you updated on our progress. And then have a great and wonderful day. Thank you.
Operator: Welcome to Amarin Corporation's conference call to discuss its third quarter 2025 financial results. I would like to turn the conference call over to Bob Burrows, Investor Relations for Amarin. Unknown Executive: Good morning. Again, I'm Bob Burrows, Amarin's Investor Relations contact. For those that don't know me, for nearly 30 years, I've served as an in-house Investor Relations Officer at various public companies, and I've been a consultant for the Amarin team since August of 2024. Thank you for your time and attention this morning as we discuss Amarin's third quarter of 2025 financial results. Joining me with prepared comments are Aaron Berg, President and Chief Executive Officer; and Pete Fishman, Chief Financial Officer. Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments. Turning to today's agenda. Aaron will provide a state of the company, and Pete will walk through the numbers. In terms of important housekeeping, please take note of the following. Today's press release and related quarterly report on Form 10-Q are all available on the Investor Relations portion of the company website. An archive of this call will be posted on the Investor Relations portion of the company website shortly after the call. And finally, please be aware, during this call, we may make certain statements related to our business that are deemed forward-looking statements under federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. Additionally, we assume no obligation to update these statements as circumstances change. For a discussion of the material risks and important factors that could affect our actual results, please refer to our SEC filings, which are available either on our company website or the Securities and Exchange Commission's EDGAR system. And with that, I'd like to turn the call over to Amarin's President and CEO, Aaron Berg. Aaron? Aaron Berg: Thank you, Bob. Good morning, everyone, and thank you for joining us. My comments today will focus on 3 themes: what we've done to get to this point, how the business is operating today and most importantly, where we're going and why it's compelling as an opportunity for all our stakeholders. First, a recap of the series of critical strategic steps we've taken to solidify our core business and position us for the future. With the announced partnership with Recordati in June of this year, we transitioned to a fully partnered commercial model across international ex U.S. markets. We're now focused on leveraging a global syndicate of 7 reputable and well-established partners with significant geographic expertise covering a total of close to 100 markets worldwide. What's particularly exciting is the fact that we're still early in the life cycle in many countries, especially key European markets where VASCEPA benefits from extended patent protection until 2039, and there remains significant untapped potential for high-risk cardiovascular disease patients. Critically, the long-term partnership for the European business enables us to capitalize on the capabilities and synergies of Recordati in Europe to efficiently generate revenue and build on the great foundation our team built over the past several years. This was the right step at an opportune time with a very strong partner and the culmination of a series of strategic moves that have solidified our business foundation while also enabling the potential for a more accelerated expansion of the product to more patients. All of this has been done in direct alignment with our mission of doing all we can to reduce the cardiovascular disease burden for patients and communities around the world. In concert with partnering the European business, we took the painful but necessary step to implement an organizational restructuring that has resulted in rightsizing our operating footprint globally. As discussed previously, we look to realize aggregate OpEx savings of $70 million over the next year, the impact of which has begun to flow through in this latest reporting period, and we're now better positioned for the next phase of growth and value creation. As of today, the European transition with Recordati has progressed exceptionally well. During the quarter, the Amarin and Recordati teams completed the knowledge transfer and established working connections with all in-market country teams, resulting in what has been a very smooth handoff. We anticipate Recordati to be fully managing European commercialization and promotion in all launch countries by the end of 2025. Overall, since the signing of the Recordati partnership, momentum has been sustained throughout the commercial transition as both volume and demand continue to grow across all commercialized European markets. We remain extremely confident in Recordati's ability over time to accelerate the depth and reach of VASCEPA for patients across Europe who are at risk for cardiovascular event. And we look forward to providing a further update on this front when we report year-end 2025 results in early 2026. Pivoting to the opportunities across the rest of the world markets. We're continuing to actively support our partners' ongoing initiatives to expand patient access in these key additional growth geographies. Our partners are focused on driving patient uptake by highlighting the tremendous value and potential for VASCEPA in their respective markets and continue to make progress in commercialization and regulatory processes locally. Overall, success of our partners in both Europe and rest of the world is fundamental to our global strategy of making VASCEPA available to the millions of patients in need of cardiovascular risk reduction today. All our partners are leveraging their established infrastructure, capabilities, people and passion to drive growth in our core franchise and to maximize its global reach. The pieces are now firmly in place, and we're excited by what the future will bring as these initiatives continue to progress. Turning to the U.S. business. We continue to manage and maintain this important commercial arm of the company. Through the end of the quarter, VASCEPA stood at greater than 50% share of the IPE market, a remarkable achievement 5 years since the first generic product was introduced. In addition, we retained the major exclusive accounts. And as of July 1, we regained exclusive status with a large national pharmacy benefit manager. As expected, this shift positively impacted volumes with minimal revenue impact. Based on the current market dynamics and feedback from key accounts, we're confident we will retain our major exclusives at least through the end of 2025. Since our exclusive accounts deliver the majority of our U.S. product sales, we continue to work with payers to keep VASCEPA affordable and provide patient access to the sole branded product within a diverse competitive market. Overall, we have consistently and aggressively pursued a strategy to remain competitive. We'll continue to take the right steps to manage the VASCEPA brand moving forward, always with patients at the center of our strategy. Our focus remains on maximizing both the clinical impact of VASCEPA for cardiovascular risk reduction and the financial strength of the U.S. business. From a scientific perspective, we continue to demonstrate our commitment to advancing cardiovascular care through a sustained and consistent presence at major medical meetings. This quarter, we not only supported partners in their own efforts around medical meetings, but also marked our strongest presence ever at the European Society of Cardiology 2025 Conference. At ESC 2025, we had 5 accepted abstracts presented and importantly, VAZKEPA was again included in the 2025 ESC EAS dyslipidemia guideline focused update, which reaffirmed high-dose Icosapent ethyl as a Class IIa recommended therapy for high-risk or very high-risk patients based on the landmark REDUCE-IT results. These insights are a direct result of our sustained commitment to generate meaningful data that informs clinical practice and supports our mission to address residual cardiovascular risk, a persistent threat to millions of patients worldwide. Cardiovascular disease remains the leading cause of death globally and far too many high-risk patients remain vulnerable despite being treated with standard of care therapies. Given this reality, it's well understood that addressing cardiovascular disease is a complex challenge, one that many stakeholders across the health care ecosystem are working to solve. And as a result, the science related to heart disease is continually evolving. As a case in point and as we commented on Monday of this week, we're deeply appreciative of the FDA's recent action to revise the labeling of fenofibrates prompted by the HealthyWomen's Citizens petition. These drugs have been used for decades under the belief they reduce major cardiovascular events, leaving patients thinking they're receiving appropriate care. Yet multiple large cardiovascular outcome trials have shown that fibrates and another related fibrate compound failed to reduce those events even in high-risk patients on background statin therapy. The updated labeling now includes a clear statement on the lack of cardiovascular benefit, relevant safety data and a refined indication as follows: "Fenofibrate did not reduce cardiovascular disease morbidity or mortality in 2 large randomized controlled trials of patients with type 2 diabetes mellitus. Risk for rhabdomyolysis is increased when fibrates are co-administered with a statin, avoid concomitant use unless the benefit of further alterations in triglyceride levels is likely to outweigh the increased risk of this drug combination. Fenofibrates are now indicated for the reduction in elevated LDL-C in adults with primary hyperlipidemia when use of recommended LDL-C lowering therapy is not possible." This FDA action is crucial because fibrates remain widely prescribed with more than half of fibrate patients also on statins. The FDA concurs that there is no scientific justification for suggesting that statin-treated patients may benefit from the addition of fenofibrate. The FDA also supports updating fenofibrate labeling to reflect findings from the prominent cardiovascular outcomes trial, which evaluated another fibrate compound. This revision marks a critical step toward lasting reform in prescribing practices and a renewed opportunity to ensure patients receive the care they require by shifting clinical practice away from treatments that lack cardiovascular benefit and toward effective and safe therapies backed by robust outcomes data. As we've long advocated, cardiovascular risk reduction must be rooted in proven outcomes, not solely on improving biomarkers such as reducing triglycerides in patients with elevated triglycerides. The FDA's decision reinforces this principle, helping to correct long-standing misperceptions and guiding health care providers, payers and patients toward evidence-based care that truly provides cardiovascular protection. Our data continues to validate the role of VASCEPA in reducing major adverse cardiovascular events across diverse patient subgroups. These findings not only strengthen the scientific foundation, but also underscore the urgency of delivering proven therapy to those who need protection now. With that, let me finish with where this all leads and what we see for the company going forward. Looking ahead, we see significant untapped potential for the company. With patients at the core of our mission, VASCEPA stands as a globally differentiated and complementary asset, clinically proven to reduce cardiovascular risk and uniquely positioned to unlock significant value across underpenetrated markets. The partnership with Recordati initiated an entirely new phase for the company as we've now transitioned to a fully partnered commercial model across all international markets. Our syndicate of 7 partners across the globe are rapidly pursuing the expansion of the market for VASCEPA. We've continued to efficiently generate VASCEPA revenue in the U.S., successfully defended the brand in the U.S. via competitive pricing and expect that market to remain a significant contributor of cash and profit to the company moving forward. VASCEPA continues to garner strong support globally within the scientific community, particularly among key opinion leaders, clinicians and other influencers around the safety, efficacy and unique mechanism of action of IPE and EPA. And we're just getting started on realizing the full benefit of our newly rightsized operating footprint, including expanded operating margins and an accelerated path to positive free cash flow over the next year. In summary, we're confident in the strategic actions we've already taken, optimistic about the potential and future of our global business and actively working to identify value-building opportunities that capitalize on and leverage all our strengths. As always, we look forward to reporting on our future progress. And with that, I'll now turn the call over to Pete to take us through a review of the numbers. Pete? Peter Fishman: Thank you, Aaron. At the end of the third quarter of 2025, our business continues to demonstrate financial discipline with operating margin and cash flow trends positioned for steady improvement. The third quarter marked the first full quarter following the Recordati partnership agreement as we transition to a fully partnered model outside of the U.S. The results offer early indications that the strategic decisions implemented have positioned the company to enhance shareholder value, and we are optimistic about the path forward. I will now turn to the financial results for the most recent reporting period. Total net revenue was $49.7 million, an increase of $7.4 million or 17% versus the prior year period, primarily reflecting the impact of higher U.S. sales. Net product revenue was $48.6 million, an increase of $6.7 million or 16%. For the U.S. business, net product revenue was $40.9 million, an increase of $10.3 million or 34%, primarily driven by an increase in net selling price from a change in customer mix and an increase in volume by regaining exclusive status with a large PBM during the quarter. As of Q3 2025, we maintained a majority share of over 50% of the IPE market, further validating the resilience of our VASCEPA franchise now 5 years post generic entry, a track record we will continue to manage primarily through our commitment to competitive pricing. For the Europe business, as Aaron mentioned earlier, the transition of our commercialization operations to Recordati is progressing and remains on track for completion by year-end. Q3 2025 was the first reporting period with the Recordati licensing agreement in full effect. Product revenue was $4.1 million, consistent with the prior year period. Current period product revenue includes $1.7 million in supply shipments to Recordati and reflects the shift in our European business model. We are pleased by the continued end-market demand growth across all launch geographies, particularly as we navigate this transition phase with Recordati. It's important to note that by moving to a partnering model, consistent with our Rest of World business, product revenue will be variable quarter-to-quarter, reflecting the current scale of operations as well as the impact of launch timing, in-market demand and the structure of individual partnership agreements. For the Rest of World business, product revenue was $3.6 million, a decline from the prior year, but consistent with the second quarter of 2025. Licensing and royalty revenue was $1.1 million, an increase of $0.7 million, reflecting our partners continuing to drive in-market demand. We are encouraged by the potential of these international markets and remain committed to collaborating closely with our partners to unlock the full potential and reach of these evolving markets, while we continue to efficiently compete on volume and price in the U.S. We look forward to sharing continued progress in the quarters ahead. Turning to expenses. During Q3 2025, we began to realize the savings as part of our global restructuring that was announced in conjunction with the Recordati partnership. Specifically, SG&A was $19.7 million, a reduction of $17.2 million or 47% over the prior year period. This begins to give an indication of our rightsized operating footprint. R&D expense was $4.2 million, in line with our ongoing commitment to global regulatory support and the science underlying our global branded product franchise. We expect these cost savings to continue to flow through the income statement in future quarters. Restructuring expense was $9.4 million, bringing our total cost to date to $32.2 million, of which $17.2 million has been paid as of September 30, 2025. We expect these costs to trend lower going forward as we complete the operational transition. As a result, operating loss was $11.1 million, which is $14.1 million or 56% lower than Q3 2024, a clear indication of a path to more efficient and cost-appropriate operations. In addition, Q3 2025 operating margin was negative 22%, a substantial improvement from the negative 60% margin in the prior year period. Now turning to the balance sheet. We ended the quarter with $286.6 million in cash and investments, no debt and working capital of $446 million, supporting our confidence in the current stability of our capital structure as we move forward with our new business model in Europe. We remain focused on prudent cash deployment to support growth opportunities and drive shareholder value. To wrap up, our Q3 2025 results reflect the combination of elements, the first full quarter under the terms of the Recordati agreement, a new norm in terms of ongoing OpEx levels and the continued resilience of our U.S. business. These factors, along with growing in-market momentum across our international markets have positioned the company on solid financial footing, both now and for the future. We remain sufficiently capitalized to finance our operations while we continue to take steps to progress on an accelerated path to positive free cash flow, which we anticipate achieving in 2026. I'll now turn it over to the operator to begin the question-and-answer session. Operator? Operator: [Operator Instructions] Your first question for today is from Jessica Fye with JPMorgan. Jessica Fye: Two from us, or maybe 3. First, how should we think about the U.S. net price trajectory for the back half of '25 and ideally into '26, if you can comment there? Second, any framework for how we should think about future milestone payments from Recordati? Can you talk about what could trigger those payments? And then lastly, thinking about gross margin over time, I'm curious how you would advise us to think about the trajectory over the next few years in light of what seems like it could be a mix shift within product sales from U.S. sales towards a higher proportion of like supply sales to partners, if that makes sense. Aaron Berg: Sure. Thanks, Jess. Thanks for joining us. Thanks for the questions. I'll address the milestone question first, then I'll turn it over to Pete Fishman to talk about the net price trajectory as well as gross margin over time. As far as the milestones, the structure of the deal is based on sales performance. So as we -- they start off at $100 million in sales and as it goes up from there as Recordati surpasses that, then that's where we trigger the milestone payments. So they're focused on VASCEPA as a priority. They are moving very, very quickly. It will take some time for the growth, but we're confident. It's a long-term partnership. So we have confidence in their ability to drive sales and hopefully achieve those milestones. Pete, do you want to touch on the net price as well as the gross margin? Peter Fishman: Sure. Thanks, Aaron. On the U.S. side for the net price, as we look to the remainder of 2025, we do anticipate that it will be relatively consistent from what you've seen over the last few quarters of this year. As we look into 2026, we're still in early negotiations or conversations with the payers on our -- for our exclusives to determine what our rebate percentages will be. But if you look historically, you have seen a bit of a decline in the beginning of the year going into the next year based off of those contracts and agreements with our exclusives. In terms of the gross margin percentage, you're right. As we move to more of a partnered model, you're going to see a decline in the gross margin percentages going forward. That said, with a decline in our operating expenses moving forward, too, based off of this model, when we look at operating margin moving forward, we will start to see the benefit from these partnership agreements and lower operating expense. Operator: Your next question is from Mazi Alimohamed with Leerink. Mazahir Alimohamed: It's Mazi on for Roanna Ruiz. Just 2 from us. I guess, first, so Europe sales dipped slightly this quarter because of the transition to Recordati, makes sense. But could you outline the cadence of expected royalties or milestones from Recordati going forward and whether the -- I guess you just answered that. So really -- so most -- on this question, with the 4Q '25, does that mark like the trough of European contribution as the transition normalizes? And then a second question for me is, with the recent fenofibrate update, like how do we think about the split or kind of the use of fenofibrate in the U.S. versus rest of world? And how do you think about this update kind of impacting rest of world practices where there may be more fenofibrate use? Could this be like an added tailwind in those markets? Aaron Berg: Sure. Thanks, Mazi. Thanks for joining us, and thanks for the questions. As far as the trough, can you just clarify the European question? When you say Q4 and the trough, what -- can you provide a little bit more clarity on that so we answer it the right way? Mazahir Alimohamed: Sure. I guess I was getting at like do we think that in terms of the transition period and then some of the costs or the added kind of added expenses that would come with the transition period, do we expect that kind of that's now going to be at the end of the year? And then starting '26 and onwards, we expect that all the kind of issues or costs that were associated with that would be over and now we would just be moving forward is kind of what I meant with that first part, if that makes sense. Aaron Berg: Yes. Okay. So Pete, do you want to talk about the restructuring costs we had in Q3 and then into Q4? Peter Fishman: Yes. Sure. So as you've seen over the last couple of quarters, we have had the restructuring costs. It has trended downwards. We do anticipate additional charges within Q4 at a lower level and then moving into next year, seeing those restructuring charges and continuing to see that benefit on operating side of the expense side. As a reminder, what we talked about in our initial release, our restructuring charges in the range of $30 million to $37 million, and we are within that range and expect by the end of the year to remain within that range. And as we also look forward, the transition completing, you'll start to see that normalization of revenue more in line with our typical partnership model of rest of world with that variability on the supply side, but continued royalty stream as well. Aaron Berg: Regarding the question on fenofibrate, first, I'll talk about the U.S. and why it matters and then how that works or what our perspective is versus ex U.S. So the issue in the U.S. is fibrates are used extensively in combination with statins for reducing cardiovascular risk reduction and have been used as such for decades. There are more prescriptions written for fibrates in combination with statins than total IPE, that's VASCEPA plus generics combined. Yet the data continues to show that there is not a reduction in -- there's not a reduction in cardiovascular events when you add fibrates to statins. Yet there is an increase in the risks and certainly on the safety side, as noted in the label. FDA has reacted to that. And science continually evolves. It's good to see FDA step up and acknowledge that because there are a lot of patients at risk when it comes to that. So how that will work out for the U.S. and whether or not that drives the IPE category depends on whether or not there is change by providers and change by payers. They are cheap drugs, and there's a lot of apathy around it. It's a habit that's been instilled, but the science has evolved. And hopefully, all of those stakeholders will respond to how the science has evolved and they can do better for patients and patients need to have better therapies. And frankly, one of those therapies is VASCEPA because we have the cardiovascular outcomes and the FDA indication as such. In terms of the rest of the world, there's -- Europe and rest of the world, there's extensive fibrate use everywhere. There are some countries where it's more than others. They're used primarily to -- with the hope that they prevent cardiovascular events. Even though they're triglyceride-lowering drugs, which is why they're a direct competitor to IPE, to VASCEPA, VAZKEPA in Europe, bottom line is they're used in a way that really should change given that the science has evolved. And the hope is that while the label change from FDA is U.S.-centric, that the science has recognized the rationale for changing that is not a U.S. issue, that's a global issue. The fibrates don't work to reduce cardiovascular events anywhere. And hopefully, that's something that will make a difference in the business. If there's change, then -- and those patients that have elevated triglycerides that are on statins have controlled LDLs or fit the REDUCE-IT criteria, fit our label, fit our reimbursement in these countries, then the option should be VASCEPA. And hopefully, the providers and the payers where reimbursement is and for that matter, where we have regulatory activity going on for future approvals, hopefully, they all respond to that, and we see the benefit for years to come. Operator: Your next question for today is from Paul Choi with Goldman Sachs. Unknown Analyst: This is Daniel on for Paul. So we're curious about like why is the rest of the world revenue declining by half compared to 3Q 2024? If you could provide some colors on that. Aaron Berg: Pete, do you want to comment on that? Peter Fishman: Sure. So as we've talked about in the past, the rest of world revenue in this partnership model is based off of supply shipments to our partners. There is going to be variability within that based off of the end market demand, the timing of the launches and other factors. And leading into last year, there was additional supply purchases as a result of launch in end market with our different partners. We've seen kind of more of a steady state where there hasn't been any of those larger launches in this quarter, and we expect that variability to continue as we look forward in each of these markets. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Aaron Berg for closing remarks. Aaron Berg: Thank you. Thank you to everyone for joining us today. Thank you for the questions, and enjoy the rest of your day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everybody, and welcome to the Virtu Financial Third Quarter 2025 Earnings Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Andrew Smith, Head of Investor Relations. Please go ahead. Andrew Smith: Thank you, Elliot, and good morning, everyone. Thank you for joining us. Our third quarter 2025 results were released this morning and are available on our website. With us today this morning, we have Mr. Aaron Simons, our Chief Executive Officer; Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer; and Ms. Cindy Lee, our Chief Financial Officer. We will begin with prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are, therefore, subject to risks, assumptions and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available to the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release discourage you -- and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the Investor portion of our website, where you'll find additional supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information meaningful as well as how management uses these measures. And with that, I'd like to turn the call over to Aaron. Aaron Simons: Thanks, Andrew. Good morning. Let me begin by noting this quarter's prepared remarks are brief in order to leave more time for questions. As usual, all relevant performance data are included in our earnings release and supplemental material. Before I turn it over to Cindy to discuss our results, I just wanted to make a few high-level remarks to orient everyone as the company's direction moving forward. Over the past several years, we have completed major integrations, established trading in new asset classes and returned significant capital to shareholders. Our edge in the market is created by our technology, our risk management and our operational efficiency. Additionally, as a business, we carry over our attention to detail to expense management as well as our client relationships. None of that is changing. However, now we feel ready to focus on growing our trading results through investing in our infrastructure, acquiring talent and expanding our capital base. Importantly, this will not be limited to a small number of previously highlighted growth initiatives, rather an overall focus on growth everywhere in the firm. You may recall in the past, we have provided earnings scenarios at different levels of adjusted net trading income in the range of $6 million to $10 million per day, and our goal is to grow our business to trend toward the higher end of this range as a base case. Just on a personal note, I took over the role of CEO on August 1, almost exactly 17 years after first starting at Virtu. An unbelievable amount has changed since then and somehow now is always the most exciting time to be a part of this company. With that, I'd like to turn it over to Cindy for details on this quarter's performance. Cindy Lee: Thank you, Aaron. Good morning, everyone. Turning to this quarter's results. The firm reported normalized adjusted EPS of $1.05, adjusted net trading income or ANTI was $467 million or $7.4 million per day, predominantly driven by a positive operating environment, which has persisted for most of the year as well as a renewed focus on growth. Market Making reported ANTI of $344 million, were $5.1 million per day, driven by strong performance across all businesses, particularly global equities, cryptos and currencies and commodities. We're also seeing continued momentum in Virtu execution services and are excited about our work expanding the VES product set to include multi-asset class capabilities. VES reported ANTI of $123 million or $1.9 million per day, marking its best quarter since early 2021 and a sixth consecutive quarter of increased ANTI. Earlier this year, we noted goal of $2 million per day through the cycle for VES. We're encouraged by VES performance and consistent quarter-on-quarter growth regardless of the environment. VES offer market-leading financial -- market-leading financial trading products globally across the entire life cycle of a trade. Notable, VES has a suite of workflow and analytics products led by Triton which was recently awarded the top spot in Trade 2025 EMS survey for the third year in a row. These products represent a strong embedded base of revenue. On a trailing 12-month basis, the workflow and analytics business generated $137 million of ANTI. In terms of legacy revenue disclosures, we achieved strong results on our existing growth initiatives, which delivered ANTI per day that was slightly ahead of the prior quarter. Well, the areas included within the existing growth initiatives are important and represent businesses have grown meaningfully over the years. We will look to grow more rapidly in all areas of our business. While we will, of course, maintain our annual dividend, we will seek to grow our capital base to take advantage of the trading opportunities as they arrive. Now we can turn it over for Q&A. Operator: [Operator Instructions] First question comes from Patrick Moley with Piper Sandler. Patrick Moley: Welcome, Aaron. I'm really looking forward to working with you. So I have a 2-part question. First, I appreciate all the disclosure around the focus shifting to growth opportunities. I was hoping you could break that down for us a little bit more and maybe speak to some of the areas where you see the most significant opportunity for growth. How much of that is going to be expanding into existing areas where you already have a presence versus entirely new opportunities? And then as a second part, you mentioned in the deck that you'll look to dial back share repurchases in order to build more capital. I was hoping you could flesh out for us maybe how much capital you could potentially be looking to build and what that means for your longer-term capital return priorities? Aaron Simons: Sure. Thanks, Patrick. I think it's hard to predict in advance. We've always been a firm that reacts to the opportunity that's in front of us. So currently, I think there's a pretty good growth opportunity everywhere in the firm. I mean, obviously, the areas that we've highlighted previously, like crypto, options, ETF block continue to be fast-growing areas, especially given the environment. And so you'll probably continue to see growth there. In terms of the additional capital, I think we provided in the supplemental materials already in 2025 through retained earnings as well as debt financing, we've raised over $500 million of new trading capital, which has already been immediately deployed. I think in terms of a long-term plan, we want to significantly grow the P&L. So if you look at our return on capital rates, they've always been in the upper 60s to 100% return on capital. So if we want to double the P&L of the firm, we're probably going to have to double the capital base. But that's a long-term plan. It may take a few years. And if you look at the reports of the free cash flow that the business generates, I think there's pretty significant opportunity to just accumulate that organically over time. And we've always been incremental in our approach to growing, and we'll just continue to do that. Operator: We now turn to Alex Blostein with Goldman Sachs. Alexander Blostein: Aaron, a warm welcome to the call. I would love to get just a little bit more meat around those bones. Obviously, it sounds like it's a bit of a pivot in the strategy. And I guess a multipart question on this. But I guess first is why now what prevented Virtu in the past going after these opportunities that you feel like this is the right time to sort of do this today? And when you think about the existing asset classes, you spoke about, obviously, the newer things, whether it's digital and crypto or options, we know you guys have been on the past for a while. But when you think about the traditional kind of market-making businesses that you're already in, do you see an opportunity to accelerate market share gain within that as well? And what would it take, I guess, for you guys to do that? Aaron Simons: Yes, I can answer some of that. So as to the why now question, well, there's not like a step change, but there's been like a confluence of factors. So over the past several years, we've pulled off some pretty large integrations and a lot from a technical standpoint, some from a people, cultural standpoint, added significant new business lines. And now that we sort of have a handle on that and things are coming to an end, we're able to refocus some of our talent base on attacking new opportunities. So that's certainly part of it. The world hasn't gotten quieter. So there's definitely just been an uptick in overall external opportunity. And so we just sort of feel it's the right time. And I think the employees are excited about refocusing on growth. In terms of the areas, like obviously, the ones I highlighted, but yes, in our core businesses, there's definitely room to grow. So one of the things that we've always done, right, is that our platform is scaled. It operates the same way everywhere in the world. It's sort of easy for us to redeploy to new asset classes with flexibility. and compete technologically in any market. So when you say our core business, even that encompasses many, many different types of trades in different areas. So there's always like interesting new corners of the markets. There's always like sort of idiosyncratic opportunities in ETF trades or foreign markets or commodities. And we're always just going to try to adapt to what's in front of us and just focus on our processes. Joseph Molluso: Alex, I would just add to that. This is Joe. The areas that we always outlined is growth continue to be growth areas, right? So we've given that number but I think the pivot here as you describe it, is really to include options. It includes crypto, it includes ETF block, it includes rates. But it doesn't exclude other areas of our business, right? And I think we put in the supplement the capital management priority slide, and this is a little bit to Patrick's question as well, right? We have shown -- and this is the management team that's in here, right? We have shown a long-term track record that demonstrates that we know how to manage capital, right? So we've have a long-term track record of managing capital. We have a long-term track record of integrating acquisitions. We have a long-term track record of operating a scaled business. And we have a long-term track record of growing in select businesses, right? So I think with Aaron at the helm, there's a set of opportunities that are -- that we all agree are getting bigger, right? And that includes a lot of the things that I'm sure we'll talk about on this call. But we didn't want it to sort of look at it as being limited to just a handful of things that we've talked about in the past as growth initiatives. Alexander Blostein: Right. Right. And then as in addition to capital, do you guys anticipate there is a larger OpEx lift that this will be required? Or do you think you can largely leverage the existing footprint so the incremental revenues presumably will come in at a fairly high incremental margin?% Joseph Molluso: There should be -- you should still see very strong positive operating leverage in our business. That doesn't mean that we won't need to attract top talent, retain top talent. That doesn't mean that we're committed to a particular ratio of comp to net revenue that we've had in the past, but I think it will still be reasonable. It will look more like the past than not. But I think if it grows, it's going to grow because we're experiencing very high levels of positive operating leverage, good growth. And I think there's no big bang here. As Aaron said, right, we've always been incremental, and we'll continue to be incremental. Operator: We now turn to [ Elia Bud ] with Bank of America. Unknown Analyst: Aaron, congrats on the new role, Craig and I look forward to working with you. You highlighted options as an area where there will be a larger focus on growth going forward. I was wondering if you have a time line in mind for when Virtu can start customer market making in options. Is that a near-term 2026 objective or more of a 5- or even 10-year target? And then could M&A be part of your road map in options? Aaron Simons: Sure. So I don't -- we're not in the business specifically with the goal of doing customer market making 605. If we get to the point where our business is scaled and more profitable, then we have the infrastructure and the relationships where we'd love to get into that business. But really, our focus is on just being excellent at trading options, and we're focused on that and where it leads is where it leads. Joseph Molluso: Yes, [ Eli ] in terms of M&A, it goes back to the answer on capital management priorities. I think if you look at our history, we used leverage and our capital to execute 2 very highly accretive, important acquisitions to what Virtu is today. We used our capital to buy back our shares when we thought they were undervalued. And we're using our capital today to grow. And should an opportunity present itself where the returns that we can get from an M&A deal are superior to what we have looking in front of us, then we'll explore it. And I think we've got a track record of doing that prudently and not paying -- I think if you look at the acquisitions we've done, we've bought volatility at very low prices. And so I think the purchase price going in was attractive and the execution was excellent in terms of value creation and synergies. There's nothing that we're looking at today that competes with Aaron's plan to grow revenue. And so therefore, our incremental capital dollar is going to grow in the business, but we're always -- we're here to create shareholder value and allocate capital to do that. Unknown Analyst: Got it. And for a follow-up, can you hit on the revenue capture in the Market Making segment this quarter? Your 605 quoted spread opportunity declined 3% sequentially, but your Market Making revenue fell 26% sequentially. Like how should we reconcile that delta there? Joseph Molluso: It is always good to kind of look at that. I think there's a great focus on the retail business. Some very smart guys in a research report yesterday wrote that we sit downstream from a long-term secular trend in retail, and we agree with that. But the way we look at it is we performed well against the opportunity overall. Yes, those indicators were down, the volumes and volatility as well as the 605 reports showed declining activity, but we're very happy about how we performed. And I think I mentioned that focus on retail because if you look at our performance this quarter overall, there's always this hyper focus on retail, but our business is a lot broader, right? We have a global operation in multiple asset classes around the world. We did very well in crypto. We did very well in our proprietary Market-Making business in commodities, for example. We haven't talked about VES, right? So I think if you look at us, I think there's this hyper focus on retail for good reason, but there's a lot more there. Operator: We now turn to Chris Allen with Citi. Christopher Allen: I wanted to ask on the third quarter results. I think in general, people, the results were outperformed expectations given the environment realized volatility. I'm just wondering, obviously, you raised some capital during the quarter. You noted that it's been deployed, what impact that had? And then any color just on the sequential improvement in the organic growth initiatives or opportunities where there were the best tailwinds this past quarter. Joseph Molluso: Yes. Look, again, I think if you -- it's a difficult question to answer what impact did the new capital have. In terms of the debt raise, the debt raise was September 23. So that was pretty much towards the end of the quarter. Our -- on Slide 4 of the supplement, you see we earned a 95% incremental return on our capital. So my answer would be any incremental dollar that we deployed this quarter, we earned a 95% return on. And that includes the capital from the beginning of the year. In terms of the performance and what to highlight, I think we mentioned already, I think crypto was a standout, and we expect that to continue. We had a strong performance in options. We had a strong quarter in ETF block. I think all of the things that we've included as growth initiatives were above where we were in the second quarter, just a little bit. So it was all of the above, Chris. And again, I'll mention VES, right? VES is showing growth through different environments. And Steve Cavoli has done an amazing job there, and that business is set up for success. Christopher Allen: Got it. Just as a follow-up, when we think about capital -- increased capital deployment moving forward, are you thinking about developing new strategies for attacking some of the existing businesses? Or is this just putting capital to work with your existing strategies? Joseph Molluso: It's all of the above. I'll be make sure I want to point out and say that we're not looking at taking on more risk. I think everything is within the risk parameters that we've historically been comfortable with in terms of Virtu as a market participant, as a liquidity provider, as a service provider. You may -- it's mainly leveraging our existing infrastructure and connectivity. But we'll have more capital to deploy. We'll have incremental talent to develop strategies. And that's really how I'd describe it. Operator: We now turn to Dan Fannon with Jefferies. Daniel Fannon: So just wanted to clarify a few things. So as we think about Virtu's strategy over the last kind of couple of years, we've seen more consistent results and less kind of peak and trough. And given this change in putting more capital work, do you expect to see more variability in the quarter-to-quarter revenue and/or ANTI EBITDA, however you want to think about it, given -- as the opportunity set changes? Or is this going to drive more consistent results? I guess what's the goal here? Joseph Molluso: Well, the goal is, as Aaron stated, to move to the higher end of the range that we published in the past of different levels of net trading income, right? So that's always been a difficult question to answer for Virtu because you've got to give me a time parameter, right? If it's -- if you're talking about daily or weekly, maybe. If you're talking about monthly, maybe if you're talking about quarterly, it really depends, Dan. So I think Aaron stated it clearly, right? The goal is to move towards the high end of that range. It's a trend toward it as a base case, right? And there could be more variability, but I don't consider that being sort of less predictable or less volatile even, right? We're a volatile business, and we're going to remain a volatile business. And I don't think -- I really don't think of us in the past -- it's interesting to hear you say that. I don't think of us in the past year or 2 as being less volatile. I think we've just done good job growing the business, and now we're going to accelerate that growth. Daniel Fannon: Okay. And then just to clarify some of the other questions. So as we think about now you're deploying more capital today, you're going to obviously accrue more capital. Where do we think about the level of investment? So level of investment will go with the revenue opportunity. We don't need to invest today more based upon having more capital wanting to do more. So I just want to understand the timing of new investment in terms of people, strategies, all these things versus the revenue opportunity. Are those in line with each other or one comes before the other? Joseph Molluso: Mostly in line, Dan. There's no long-term lag here, I would say. Now that all being said, we are -- as I just answered your previous question, we're still a volatile business, and the environment is still going to have a big impact on our performance. So it's going to be hard to separate the noise there in terms of the environment versus the impact of incremental talent, incremental capital. But it's the age-old question for us, I think, long term, up to the right, moving towards the high end of that range. And there'll be noise quarter-to-quarter for sure. But none of it as a plan requires a multiyear sort of investment before you start seeing results. It's not instant, but it should largely be in line. Operator: [Operator Instructions] We now turn to Ken Worthington with JPMorgan. Kenneth Worthington: So the stock price has dropped a lot more recently. You've clearly highlighted routine earning growth strategies are the priority. How do opportunistic buybacks play into capital management when you see big declines in the stock price like we've seen more recently? Joseph Molluso: Ken, I think we have stated that the opportunity in front of us allows for the highest and best use of our incremental capital dollar. And the best way -- our jobs every day as managers of the business is to increase the stock price and maximize the value and putting dollars to work in the business, Aaron, and we all determined is the best way to get the stock price to where we think it should be. We -- for a very long time, we were trading at levels that we thought the incremental dollar was best spent on our stock. We're not ruling anything out publicly in terms of we still have dry powder under the buyback authorization and perhaps as we have vesting shares from compensation plans, we may look to just sort of neutralize the impact of that so that we don't have share creep. But the direction is clear that our incremental dollars are going to be spent growing the business and in our trading capital base. Kenneth Worthington: Okay. Perfect. made it crystal clear. The other narrative that was sort of going around was tokenization. So maybe how is Virtu positioned for an increase in tokenized assets moving on chain? Sort of what is your right to win? Will the infrastructure that you have need to change to support this sort of transition to tokenization? And if so, maybe to the prior question, what sort of incremental investment is required if the world moves to more tokenized on-chain assets? Aaron Simons: Yes, I can answer that. I mean I think it fits with our current business. So we're very active in many crypto markets around the world. A lot of them obviously are the centralized exchange model, but we do participate in some direct on-chain interactions. We're partnering with people in terms of various interesting initiatives like we're part of the [ PIT ] foundation, more part of the Canton network. So we're always active in developing new interesting trading infrastructure. And I think with regards to this and other sort of new opportunities, like everyone is talking about prediction markets, anything that is trading electronically and has sufficient depth of liquidity, we stand ready to make markets and our technology is adaptable to all of those opportunities. So we're excited about it. Operator: We now turn to Michael Cyprys with Morgan Stanley. Michael Cyprys: I recall in the past that we heard that doubling the capital base wouldn't necessarily double earnings. So curious what's changed in that regard? And what areas or what would be the top few areas that you anticipate allocating more capital toward? Like how might you rank order or prioritize that? And maybe you could touch upon some of the areas where you're looking to hire? Joseph Molluso: Yes. Again, Michael, I think we put a slide in the supplement. I think we have proven that we know how to allocate capital. We've proven that we're going to devote it to the highest and best use, whether it was acquisitions, integrating acquisitions, buying back our stock. And I think we -- in the past, we identified areas where we needed to grow and grew businesses that were 0 to $100 million-plus businesses and increased our capital base. So I think the markets evolved. And I think we're ready now. I think we probably weren't ready in the past, and we have the ability to do it given our infrastructure, our scaled infrastructure. And we've got the team in place, and we have a new CEO who wants us to pivot to growth, and that's what we're doing. Michael Cyprys: And just in terms of the question around prioritizing areas that you're hiring? Aaron Simons: I mean there's a lot of them, but yes, we're aggressively hiring what you would call broadly developers that's very important for our business. It's a vague term, which I hate, but we're probably hiring a lot of quants. We're hiring traders. So basically, any aspect of the business. I think just going back to the question, which I think Joe answered very well, but the previous comments, I think you have to take in the context. So it's not the case that we could just -- if someone gifted us double the amount of capital tomorrow that we could just turn it on and make twice the money. The comment is that yes, we can grow the earnings with more capital, but it requires a lot of hard work to do that. So it requires more people. It requires working on our strategies. It requires revamping and expanding our infrastructure. So it's not like a magic machine where we can just dump more money in and get more money out, but we're excited about doing the work and growing the business. Michael Cyprys: And what areas do you expect to allocate that capital to more meaningfully than others? How do you think about prioritizing that? And when you think about doubling the earnings, what areas you think will be meaningfully contributing towards that? Joseph Molluso: It will be flexible. It will be based in part on what is going on in the market. I think if you look at an area like crypto where we've done very well, crypto was a fragmented market, which necessitates the need for more capital intensity because there's no settlement utility, and there's multiple venues. ETF block is a big business that we've grown quite well, that by its nature is more capital intensive. So it really depends on the end market. It depends on the characteristics of the end market. It depends on the prime brokers. It depends on the venues. It depends on the participants, depends on the trading format. U.S. equities, 605 business is a very capital efficient business, right? So we think we're going to grow everywhere. But the capital usage is going to go to areas where we think we can -- where we need it -- where we needed to grow, right? So areas like commodities, areas like foreign exchange, they're all different, depending on the end market, depending on the market structure. So really, it just really depends on what is going on in the market and the sort of the nature of the end market. Operator: That's all the time we have for questions. I'll hand back to Aaron Simons for any final remarks. Aaron Simons: Thanks, everyone, for joining. Hopefully, this is informative, and we look forward to seeing you next quarter. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Hello, and welcome to CVS Health's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I would now like to pass to Larry McGrath, Chief Strategy Officer. Larry, please proceed. Larry McGrath: Good morning, and welcome to the CVS Health Third Quarter 2025 Earnings Call and Webcast. I'm Larry McGrath, Chief Strategy Officer. I'm joined this morning by David Joyner, President and Chief Executive Officer; and Brian Newman, Chief Financial Officer. Following our prepared remarks, we'll host a question-and-answer session that will include additional members of the leadership team. Our press release and slide presentation have been posted to our website, along with our Form 10-Q filed this morning with the SEC. Today's call is also being broadcast on our website, where it will be archived for 1 year. During this call, we'll make certain forward-looking statements. Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties, in particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our most recent annual report on Form 10-K, our quarterly report on Form 10-Q filed this morning and our recent filings on Form 8-K, including this morning's earnings press release. During this call, we will use non-GAAP measures when talking about the company's financial performance and financial condition. And you can find a reconciliation of these non-GAAP measures in this morning's press release and in the reconciliation document posted to the Investor Relations portion of our website. With that, I'd like to turn the call over to David. David? J. Joyner: Thank you, Larry, and good morning, everyone. This morning, we are pleased to report another quarter of solid results, once again reflecting the power of our diversified business and progress on becoming the most trusted health care company in America. In the third quarter, we delivered adjusted operating income of $3.5 billion and adjusted earnings per share of $1.60. In addition, for the third consecutive quarter, we are increasing our full year 2025 adjusted earnings per share guidance to a range of $6.55 to $6.65, up from our previous range of $6.30 to $6.40. Over the past 12 months, we have been intensely focused on executing against our commitments to our customers, partners, colleagues and shareholders. We are building momentum across the enterprise and feel a growing excitement about the opportunities ahead for CVS Health. We are incredibly proud of what we have accomplished so far this year. While we are encouraged by our progress, we maintain a disciplined and cautious outlook as we position our business for another year of strong performance in 2026. This transformation is clearly visible within our Aetna business where after a challenging 2024, there is renewed bigger and optimism about the future. Steve, Katrina and the broader Aetna team are well on the path to ensuring this business is best-in-class. The Aetna team continues to drive impactful and exceptional results. Aetna is once again the industry leader amongst national payers for 2026 Medicare Advantage Stars Ratings, even with CMS recently announcing that cut points for stars continue to become more challenging. Based on the current membership, we expect over 81% of our Medicare Advantage members will be in plans rated 4 stars or higher with over 63% of them in 4.5 star plans, nearly double the industry average. This result is not just a point of pride, but another proof point that our ability to effectively collaborate across the enterprise allows us to deliver exceptional quality and service, drive down the cost of care and remove friction from the health care system. We are still in the early stages of the 2026 annual enrollment period, but we remain confident that our thoughtful approach to our geographic footprint, benefit design and pricing positions us well for another year of recovery. In my first year as CEO, I have pushed our team to act with urgency and focus as we execute on opportunities to improve our business. This means making thoughtful and difficult decisions, such as exiting our individual exchange business or taking advantage of market opportunities like our acquisition of the Rite Aid assets. In a similar way, as we outlined last quarter, we are moving with urgency to address pressures in Health Care Delivery. During the quarter, we recorded a $5.7 billion goodwill impairment within Health Care Delivery. I want to be clear that this business' performance in the quarter was in line with our most recent expectations. However, our decision during the quarter to temper Oak Street Health Clinic growth over the next few years was the primary reason for recording this charge. Despite this update, value-based care remains a critical component of our strategy. The reasons to believe in this business have not changed, but the marketplace is evolving and we are adapting our strategy to get financial performance back in line with our expectations. We understand the challenges at Oak Street Health and have taken actions to improve performance in both the near and long term. We continue to strengthen our Health Care Delivery business through investments in technology, a new leadership team and a fair and equitable contracts with our payer clients. Turning to Pharmacy Services. We're incredibly proud of the meaningful impact we've had on drug cost in this country. As you've seen with our recently announced IVF initiative with the administration, we are strong supporters of President Trump's focus on lowering brand prices in America. This is important for our patients, our customers and for our business model. By tackling branded pharmas and equitable pricing strategies that have left Americans carrying the financial weight of global drug innovation, the government is helping to relieve a long-standing burden on U.S. consumers and businesses. We believe that over time, the administration's actions can create a new lower ceiling price in the U.S. in which PBMs will continue to negotiate and further reduce costs for their customers and consumers. This has been our job for more than 3 decades, and we have been tremendously successful at achieving durable results. We believe these actions are good for us, for our customers and for consumers, and we are encouraged to see the impact they may create for the industry. As the leading health care consumer company, we've been working diligently for years to lead with greater transparency and savings for consumers at the pharmacy counter. We were at the forefront of this transition with more than 25 million members who benefit at the pharmacy counter from our lowest net cost through point-of-sale rebates. This includes our Aetna fully insured commercial members who we transitioned in 2019 and the benefit design we offer our own colleagues. Two years ago, we continued our innovation leadership when we introduced our new TrueCost model, which guarantees a net cost for each individual drug, delivering drug pricing transparency for our clients and consumers. We are encouraged by recent announcements that others are following us on this path. We know that this is the transition that consumers want and is also important for the future of our business. We're incredibly encouraged by the path Caremark is on. However, we acknowledge there are near-term market dynamics from a few of our client contracts that have resulted in a revision to our guidance and will impact our near-term growth rate. While incorporating this, as Brian will discuss later, we continue to expect meaningful growth in enterprise earnings next year. We are working diligently to recontract over the next few years and resolve this issue. Importantly, clients, including the most sophisticated buyers of pharmacy benefit services, continue to see the tremendous value we provide, as evidenced by another strong selling season. We have achieved new client wins of nearly $6 billion and are closing out another selling season with retention in the high 90s. I am incredibly bullish about the road ahead and believe we will continue to lead this industry given our unique advantages and insights. Turning to PCW. Our leadership is clear in the retail pharmacy market as we work towards a more sustainable and transparent future. Our deliberate strategic decisions, intentional investments, best-in-class drug purchasing and superior customer service have meaningfully improved our differentiated position in the market. Once again this quarter, CVS Pharmacy delivered solid performance, including pharmacy share gains. This is a testament to the strength and scalability of our model as well as the commitment of our engaged colleagues. We play a critical role in improving the health of millions of Americans by providing convenient health services, including vaccinations. Our 9,000 pharmacies are the front door to our enterprise. They are a differentiator for our business and a force multiplier towards improving the health of the communities that we serve. For CVS Health, being the most trusted health care company in America means improving health, simplifying care and delivering a quality experience every day. We do not take this responsibility lightly and it is this team's firm belief that we must drive the evolution of health care forward in the U.S. We have unique capabilities to achieve all of those goals. The strength of our diversified businesses continue to set us apart, enabling us to deliver strong results even in this dynamic environment. The progress we've made this year is fueling momentum and our disciplined execution positions us for another year of strong performance in 2026. We are working to simplify health care and are bullish about the opportunities we see to lower the cost of care and drive innovation. Our future is bright because of the work of our more than 300,000 colleagues who take care of their friends, families and neighbors and communities across our country. We look forward to sharing more on our longer-term plans at our Investor Day on December 9. With that, I'd like to hand the call over to Brian. Brian? Brian Newman: Thank you, David, and good morning. I will cover 4 key topics in my remarks. First, an update on our third quarter results. Then I'll discuss cash flow and the balance sheet. After that, I will provide an update on our revised financial outlook for the remainder of 2025. And finally, I'll wrap up with a brief discussion on high-level headwinds and tailwinds as we look ahead to 2026. As David mentioned, we are pleased to report another quarter of solid performance and to deliver a third quarter in a row where we beat and raised expectations as we continue to focus on building a track record of consistent success. We improved our full year outlook for revenue, adjusted EPS and cash flow from operations and are building positive momentum as we close out the year. Let me start with highlights on our enterprise results in the quarter. Third quarter revenues achieved a new record of nearly $103 billion, an increase of approximately 8% over the prior year quarter driven by revenue growth across all segments. Adjusted operating income of approximately $3.5 billion, increased approximately 36% from the prior year quarter, primarily driven by an improvement in our Health Care Benefits segment. We delivered adjusted EPS of $1.60, an increase of nearly 47% from the prior year quarter. Finally, we generated year-to-date cash flow from operations of approximately $7.2 billion. Turning now to each of our segments. In Health Care Benefits, we generated nearly $36 billion of revenue in the quarter, an increase of over 9% from the prior year. This increase is primarily driven by our government business, largely related to the impact of the Inflation Reduction Act on the Medicare Part D program. We ended the quarter with medical membership of approximately 26.7 million, which was flat sequentially and decreased approximately 445,000 members from the prior year quarter. This year-over-year decrease is primarily driven by declines in our individual exchange and Medicare product lines, partially offset by growth in our commercial fee-based membership. Adjusted operating income in the quarter was approximately $314 million, a substantial increase from the adjusted operating loss recorded in the prior year quarter. Our medical benefit ratio was 92.8%, a decrease of 240 basis points from the prior year quarter results of 95.2%. The change was driven by the favorable year-over-year impact of premium deficiency reserves, higher favorable prior period development and improved underlying performance in our government business. These increases were partially offset by changes in the seasonality of the Medicare Part D program due to the impact of the IRA and the impact of higher acuity in the individual exchange product line. Our medical benefit ratio this quarter was impacted by approximately 100 basis points due to provider liabilities for matters dating as far back as 2018 and worsening individual exchange risk adjustment expectations based on the Wakely data. Each of these 2 items were roughly equivalent. Medical cost trends in the quarter remained elevated across all products, but were modestly favorable relative to our expectations, primarily driven by our individual MA book. Days claim payable at the end of the quarter was approximately 42.5 days, an increase of approximately 1.6 days sequentially, primarily driven by the partial release of premium deficiency reserves established in the first half of 2025 as well as an additional day in the third quarter compared to the second quarter. We remain confident in the adequacy of our reserves. Shifting now to our Health Services segment. During the quarter, we generated revenues of over $49 billion, an increase of over 11% year-over-year. This increase was primarily driven by pharmacy drug mix and brand inflation, partially offset by continued pharmacy client price improvements. Adjusted operating income in the quarter of approximately $2.1 billion decreased 7% from the prior year quarter, primarily driven by continued pharmacy client price improvements, partially offset by improved purchasing economics. Performance in our Health Care Delivery business during the quarter was broadly in line with our expectations. Total revenues grew approximately 25% compared to the same quarter last year, excluding the impact of our exit from our CVS Accountable Care business earlier this year. This increase was primarily driven by patient growth at Oak Street and increased volumes at Signify. During the quarter, we made certain strategic changes in our Health Care Delivery business, including the decision to reduce the number of new Oak Street clinics we expect to open over the next several years. These changes necessitated a quantitative assessment of the carrying value of goodwill in our Health Care Delivery reporting unit, which resulted in a goodwill impairment charge of approximately $5.7 billion during the quarter. We are focused on improving financial performance in our Health Care Delivery business. As discussed last quarter, we have and continue to take actions at Oak Street to enhance our operations. During the quarter, we completed a comprehensive review of our Oak Street clinic footprint. As David mentioned, this is core to our approach of evaluating each of our businesses, identifying strengths and making decisions to drive improved execution and performance. Following our review, we made the difficult decision to close underperforming clinics where we do not see a reasonable path to sustainable margins. To be clear, we view value-based care as a critical component to our Medicare strategy and expect the actions we are taking to support improved financial performance beginning next year. Our Pharmacy & Consumer Wellness segment delivered another strong quarter. We generated revenues of over $36 billion, an increase of nearly 12% versus the prior year quarter, primarily driven by pharmacy drug mix and increased prescription volume, partially offset by continued pharmacy reimbursement pressure. Revenues in the quarter increased over 14% on a same-store basis. Our retail pharmacy script share grew to approximately 28.9% as our emphasis on operational excellence and superior customer experiences enables us to benefit from pharmacy market disruption. Same-store pharmacy sales in the quarter grew nearly 17% compared to the prior year, driven by pharmacy drug mix and a nearly 9% increase in same-store prescription volumes. Same-store front store sales increased 150 basis points versus the prior year quarter. Adjusted operating income decreased approximately 7% from the prior year to approximately $1.5 billion. This decrease was primarily driven by continued pharmacy reimbursement pressure and increased investments in colleagues and capabilities. These items were partially offset by increased prescription volume. Shifting now to cash flow and the balance sheet. We generated cash flows from operations of approximately $7.2 billion year-to-date through the third quarter. We have distributed approximately $2.6 billion in dividends to our shareholders year-to-date, and we ended the quarter with approximately $2.3 billion of cash at the parent and unrestricted subsidiaries. We continue to meaningfully improve our leverage ratio, supported by our strong year-to-date performance and expect to make further improvement next year as we grow enterprise earnings driven by margin recovery in our Aetna business. Shifting now to our revised outlook for 2025. We are increasing our full year 2025 guidance for adjusted EPS to a range of $6.55 to $6.65, an increase of $0.25. This update reflects our third quarter performance and our revised expectations for the remainder of the year, which continue to maintain a prudent outlook on medical cost trends and macro factors. We now expect full year total revenues of at least $397 billion, an increase of nearly $6 billion driven by increases across all segments. In our Health Care Benefits segment, we now expect full year adjusted operating income of approximately $2.72 billion at the low end of our guidance range, an increase of approximately $300 million reflecting our performance in the third quarter and improved expectations for the remainder of the year. We continue to project our full year 2025 medical benefit ratio at the low end of our Health Care Benefits adjusted operating income guidance range to be approximately 91%. This outlook continues to maintain a thoughtful and prudent view on medical cost trends through the remainder of the year. In our Health Services segment, we now expect full year adjusted operating income of at least $7.1 billion, a decrease of approximately $240 million from our prior guidance. This update reflects our latest expectations for performance that David highlighted in his remarks. Importantly, we continue to make progress evolving our contracting and pricing models to respond and adapt to market dynamics. We are confident we're on the path to lead the evolution with our new TrueCost model, which guarantees a net cost of each individual drug, driving drug pricing transparency for our clients and members. The outlook for our Health Care Delivery business remains largely unchanged. Lastly, in our Pharmacy & Consumer Wellness segment, we now expect full year adjusted operating income of at least $5.95 billion, an increase of approximately $270 million from our prior guidance. This increase reflects our performance in the third quarter and our revised expectations for the remainder of the year, while continuing to maintain a prudent outlook for the rest of the immunization season and potential impacts to the consumer environment. In aggregate, we now expect full year enterprise adjusted operating income to be in the range of $14.14 billion to $14.31 billion. We are also increasing our expectations for full year cash flow from operations to be in a range of $7.5 billion to $8 billion. Additionally, we now expect our full year adjusted effective tax rate to be 25.3%, an improvement of 40 basis points. You can find additional details on the components of our 2025 guidance on our Investor Relations website. Before we open the call up to Q&A, I also want to provide an update on some of the key headwinds and tailwinds for 2026. Consistent with past practice, we expect to provide formal 2026 guidance at our Investor Day in December. Beginning with our Health Care Benefits business, we expect another year of meaningful margin improvement at Aetna. This includes another year of progress in our Medicare Advantage business, supported by our disciplined approach to plan design and footprint in individual as well as repricing opportunities in our group business. We also expect a tailwind from our exit of the individual exchange business. Although our conversations with our Medicaid state partners continue to progress and this business has performed in line with our expectations this year, we are taking a cautious outlook in light of the broader pressures across the industry. In our Health Services segment, we expect improvement in our Health Care Delivery business, primarily driven by Oak Street Health. In our Caremark business, we expect modestly lower growth as we continue our work to transition our contracts towards drug level pricing over the next few years. Altogether, we expect the segment to deliver low single-digit adjusted operating income growth next year. And in our Pharmacy & Consumer Wellness segment, we are encouraged by our strong performance this year and expect this momentum to continue into next year. While challenges, including reimbursement pressure and the impact of shifting consumer dynamics remain in this business, we currently expect the trajectory to improve relative to our long-term expectation of a 5% decline. I would also remind everyone that consistent with past practice, the impact of prior year reserve development and other out-of-period items should be removed when considering an appropriate baseline for bridging to 2026. As of the end of the quarter, these items contributed approximately $0.45 to our year-to-date results. Altogether and after adjusting for these items, we currently expect a reasonable starting point for our 2026 adjusted EPS guidance to reflect mid-teens growth. We will provide formal guidance at our Investor Day on December 9. Overall, we are encouraged by the year-to-date performance of our diversified enterprise and are confident we are taking the right steps to position us for both near- and long-term success. We recognize the importance of establishing credible commitments and expect to continue this philosophy as we establish future financial targets. With that, we'll now open the call to your questions. Operator? Operator: [Operator Instructions] Our first question will come from Lisa Gill with JPMorgan. Lisa Gill: I really want to start with some of the comments you made on the PBM side. So first, the $240 million that you talked about, as we shift more towards transparency, towards TrueCost, should we anticipate -- and again, this kind of goes to Brian's comments around '26 as well, should we anticipate as we see shifts in these contracts that we're going to continue to see headwinds as we make that initial shift? So that would be the first part of the question. Secondly, how do we think about future PBM economics around a TrueCost model, not only for you as the PBM, but we also get questions around the plan sponsor. So as we know, many plan sponsors use rebates to offset premiums, et cetera, so how does that future look on the plan sponsor side as well as your economics on the PBM side? J. Joyner: Yes. Lisa, great question and something that obviously we're prepared to address both today as well as where we see the marketplace evolving. But let me first start with, I think if you look at the headwinds that we're seeing specifically within the PBM, this does reinforce the strength of a diversified company. So this is the third consecutive quarter where we both exceeded and raised guidance. It highlights the focus and the commitment that we've made around building trust and credibility. So I think that is what I want to make sure is known that there's performance again across the broader enterprise. A couple of things as it relates to the PBM and specifically to your question about the future. Over the course of my 30-year career, Caremark has consistently driven innovation and been able to adapt to the changing market. The drive is not just changing the way in which our teams are working, but we've talked over the last couple of years about changing the PBM model. And part of this is the TrueCost transition to what I believe will be the pricing model of the future. So I remain confident that Caremark will deliver both on the strong earnings and cash flow for the foreseeable future. And I think it's going to be reinforced in what we've said about the selling season. Even in light of some of the challenges around the industry, we delivered $6 billion of new wins and had a high retention rate in the 90s. So I'm going to let Brian speak to some of the financials and some of the pressures, then I'll have Prem speak more broadly to the last question about where this is going from a PBM model. Brian? Brian Newman: Thanks, David. And Lisa, thanks for the question. I think if we take a step back, I think it's actually important to provide some context on the historical industry practices. Historically, the norm in the industry was to use an aggregate market basket-based approach to structure guarantees. And I think as we highlighted in our prepared remarks, throughout the year, we've observed a combination in mix of drugs, in utilization patterns that differed from our prior forecast. And given the market basket structure underlying the client guarantees, those dynamics are putting pressure on the contracts David actually mentioned in his prepared remarks. So we've been closely monitoring the trends. And I think we realize -- while we realize the impact that the market basket had on guarantees on a subset of our contracts, we actually believe we had a credible and achievable pathway to mitigate the rapidly emerging challenges. So as we closed the quarter, we realized the mitigations that we had identified. They didn't materialize as quickly or have the impact we had initially anticipated. And that's really the driver as a result that drove us to modestly miss our expectations in the third quarter. So we've also revised our expectations for the full year. That's captured in the guide I gave. And as I mentioned in my prepared remarks, it will have an impact on the near-term growth outlook as we recontract over the next couple of years. Prem, maybe you can talk more about the value Caremark delivers and the evolving model. Prem Shah: Yes. Lisa, thanks for the question. And just to answer directly on the future PBM economics, as you know, the PBM industry has been and will continue to be an extremely competitive space where we deliver tremendous value to our customers and deploy that value to them. If you think about our -- from my perspective, what Caremark has done over the course of the last many decades is we continue to focus on our clients' biggest problems, which is high cost of branded drugs. As we've said, 10% of drugs drive 88% of our pharmacy costs in this country. And we're going to continue to lead and be a leader in this space. You saw this 18 months ago, we launched Cordavis. We went after the largest specialty drug in the country. We delivered our clients over $1 billion in savings and we've interchanged and moved all the product to a lower cost, 81% lower WACC price than the originator, and we delivered $1 billion of savings. You saw it earlier this year with our addressing GLP-1s. GLP-1s are approximately 15% of our clients' cost. We were able to narrow our formulary in the weight loss category and our clients benefited from lower cost. And I would argue, the market benefited from the fact that we moved against one of the products. And we saw the list -- or sorry, we saw the net prices of the entire category come down. This is what PBMs do every single day. They create this competition. This is what they've done for the last 3 decades and will continue to do that. As it relates to the value and how the economics kind of pass through from us and our clients and how that plays out in the marketplace, at the end of the day, the problem in this country still is health care is unaffordable. And what you're describing is really kind of the spread of which is a member out-of-pocket or a planned premium. And from our perspective, what we're doing with TrueCost, which we launched 2 years ago, was very deliberate, and it was driving greater transparency and making sure that consumers and clients had the benefit of that transparency while, again, maintaining our ability to create the competition and lower the net cost of drugs. As David said in his prepared remarks, we have over 25 million customers and consumers that are in our point-of-sale rebate program. Aetna has launched point-of-sale rebates as far back as 2019. So this is something that we have been really focused on where we get the consumers the lowest possible price at the counter because we know medicines in this country help lower the cost of overall health care expenditures and it's critically important. And lastly, I'll say, as all the things have been happening with the administration, we're excited to play an active role in making medicine more affordable in this country. We think we will continue to play that role. And we love the fact that they are going after the inequity across countries that you've seen and the price disparities that exist. So more to come, but I would say the PBM business continues to be a very competitive space, continues to have durable margins and continue to be a very necessary component of how we deliver care and lower cost in this country. J. Joyner: And maybe just one final comment. I think it's important to note that we saw this trend several years back, which is part of what we're trying to do within retail moving to CostVantage and where the PBM was driving towards TrueCost. So we saw where the marketplace is going. We led the market. We're in the middle of that transition to the model of the future. And again, I think the near-term headwinds is not an implication on the long-term viability of the PBM model. Thanks, Lisa. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: I wanted to ask about the PCW business. It looks like 3Q was ahead of your expectations and you have about 3% growth assumed for the fourth quarter. I was hoping you could share some of the drivers around your confidence in that fourth quarter growth, particularly the headwind from vaccine -- lower vaccine volumes to OI and then the benefit of the 600-store file buy you got from Rite Aid for the fourth quarter and how that EBIT impacts into 2026. J. Joyner: All right. Thanks, Justin. I appreciate the question on PCW. So Prem, do you want to talk specifically about the growth rate? Prem Shah: Yes. Justin, thanks for the question. And as you recall from a few analyst days ago, we were very deliberate with our strategy and purposeful with how we were going to kind of get this business back to something better than minus 5%. But -- so a couple of things. One, I'm incredibly proud of the leadership team and the strong execution that we've delivered. We have the right strategy and we're focused on it, and it's a foundation of just health care engagement. It's one of the things we really believe. So we have over 9,000 community pharmacy destinations where we know we can service patients and members in a much better way to create differentiated services. At this point, I'm proud to say we are the best running pharmacy in the country. And it's operating nationally at scale. It has extremely strong consumer engagement and really good clinical expertise that we're delivering into the marketplace. And it's a very, very strong deliverer of trust for our consumers and we can then continue to create value in other parts of our enterprise. When you think about what's driving that, first, from a business perspective, we were very deliberate in our investments in technology and taking care of our colleagues. We have over 200,000 colleagues in 9,000 of these stores that continue to deliver best-in-class service. And then secondly, we were focused on how we can engage and better engage consumers in a differentiated way. So all in all, it's going really well. As it relates to the quarter, we delivered a strong quarter despite some of the persistent reimbursement pressures that we faced. If you look at the script growth, we had top line growth about 11.7%. And our pharmacy market share is now at 28.9%. Rite Aid was one of the drivers that was in that as we kind of moved that business into our operating model. But just remember, the strong foundation, the strong service enabled us to really be able to do that in a much more effective way. And then if you think about the immunization piece, we continue to be a trusted choice and a convenient option for those choosing to get vaccinated. The market demand is down year-over-year, but we've been able to offset that with a market share growth in our channel. We've seen approximately 400 basis points of market share growth inside of CVS. Secondly, if you think about our front store, we still have strong momentum. We're posting another positive comp for the second quarter in a row and improved from last year. We grew our customer base 2.6% versus last year. We increased trips 2.7% versus last year. And our retail market share on the front store has gained by 2 basis points versus last year. So we're continuing to focus on delivering the value being where consumers want us to be in the front store by driving loyalty and improving our value proposition. And I'd just say, all in all, we're incredibly proud of the results, incredibly proud of the leadership team and the focus that we have here, but we still have work to do to stabilize this business over time. And Brian, I'll hand it over to you for a couple more comments. Brian Newman: Yes. No, just, Justin, in terms of the outlook, the strong performance Prem talked about in the quarter, we lifted our guide for the segment and it's now sitting at a growth of 3% for the year. And I'd remind you, that's an 8% swing from our initial expectations of down 5%. So we're seeing that business improve, and we'll talk more about it come December 9 at Investor Day. J. Joyner: Yes. Maybe just closing out on the PCW conversation, this is a business that we've been investing in over the last several years. I think some of this has come to fruition in terms of the investments we've made in becoming best-in-class. So we've talked about this in the opening comments that the 9,000 stores is our front door to the enterprise. And when this business runs well, it does become the force multiplier to improving health and our focus on serving the community. So really excited about the performance, and we'll share obviously more, as Brian said, on Investor Day about the future direction of this business. Operator: Our next question comes from Stephen Baxter with Wells Fargo. We'll take our next question from Elizabeth Anderson with Evercore. Elizabeth Anderson: I believe you can hear me. I had a question in terms of the 100 basis points of provider liabilities that you called out. Can you give us a little bit more detail on exactly what those are? And is this a onetime item? Do we expect this to continue for a couple of quarters? Just any additional color there would be helpful because, obviously, with that, it shows that your MBR was much more in line than maybe it looked like from the first glance. J. Joyner: Yes. Elizabeth, thanks for the question. And you're correct in that assumption. So Brian, do you want to speak to the... Brian Newman: Yes. The -- I guess I'd lift it up from an HCB perspective, Elizabeth. We're really pleased with the performance in the third quarter. As you think specifically about the third quarter MBR, some of the noise I called out in my prepared remarks, we had about 100 basis points of impact, 2 things, provider liabilities. Those are from -- dating as far back as 2018 for kind of a 3-, 4-year period. And then a combination of that, that was roughly 50 basis points of the 100. And then worsening expectations for the individual exchange risk adjustment. We got the latest Wakely data that informed that. So those 2 factors really took a 92.8% as we printed. And if you back that up to get to a 91.8% roughly, it would say that the core outperformance on the MBR in the quarter was driven on an adjusted basis by individual MA. So that's how we think about the two drivers specifically to your question. Operator: We'll now take our question from Stephen Baxter with Wells Fargo. Stephen Baxter: Sorry for the difficulties there. Just to kind of come back to that point a little bit. I think with the first couple of quarters of the year, you sized in each quarter that, I guess, on a continuing basis, there was around $500 million core upside that you weren't taking through into the guidance. Wondering if there's an equivalent amount, if you think about kind of excluding the items that you called out around the exchanges and around the out-of-period settlements that you'd cite for Q3? And I guess how do we reconcile that versus the raise that you made? And I guess just one clarification as we're getting a lot of questions on it. This mid-teens EPS growth that you're framing for 2026, is that after taking the $0.45 out of the baseline? Or is that off of this year's guidance as you currently revised it? Brian Newman: Yes. To take your last question, Stephen, you take the midpoint of the guide, which is $6.60, back off the $0.45 and then you can grow mid-teens off of that. And the way we got to the $0.45, I think going into the quarter, we had about a combination of net both positives and negatives. If you take some of the out-of-period risk adjustments and revenue adjustments net of the upside, we'd be about $900 million coming out of the first half of the year. You take the $150 million of the provider settlements, that's how we get to $750 million roughly or the $0.45 as we adjusted, which I just walked you through. Operator: Our next question comes from Michael Cherny with Leerink Partners. Michael Cherny: I know Lisa had asked about the PBM headwinds that you had been discussing. I want to talk a little bit more about the PBM tailwinds. Beyond Cordavis, what are you seeing broadly from a specialty growth perspective? And can you talk about some of the strategic advancements you're making to continue to benefit from what has obviously been an extremely strong overall market growth? Brian Newman: Prem, do you want to take that? Prem Shah: Sure. Thanks for the question, Michael. Just a couple of things. So from a tailwind perspective, as we've said, we see a tremendous opportunity to continue to lower cost for our customers. And as you know, when we can lower cost for our customers, the PBM industry typically benefits from that as well. So a couple of things. One is if you think about the biosimilar pipeline, it still remains. There's $100 billion of biosimilars going -- biosimilar by the end of this decade or early 2030, 2031 time frame. So we continue to look at ways in which we can enable and drive down costs for our customers as it relates to biosimilars. We believe that there still is our ability to benefit from other specialty drugs as well in the generic pipeline that are going generic that will be an opportunity for us to deliver value for our customers. And let me just take a couple of seconds to talk about our CVS Specialty Pharmacy business. It continues to be a leading asset in the specialty pharmacy arena. It's a leader and a key overall performance driver of Caremark, and we expect it will continue to be helping to support the members that they serve. Remember, these 1% or 2% of the population that utilize specialty pharmacy benefits typically drive 50%, 60% of all of health care expenditure. And so our business continues to perform really well. And we have a strong track record of continuing to gain access of new limited distribution drugs in that space. We continue to build technology that makes it seamless to transition patients from branded products to biosimilars. And lastly, our operating platforms, a tremendous amount of credit goes to our leadership in this business is driving to a much more tech-driven AI native platform that's driving and really taking a lot of the work out a lot of operations and something that was one of the most complex parts of health care, which is effectively trying to drive these medications into the patients' homes. And so we continue really proud of those points as it relates to that. We also see opportunities in the PBM for what I would say is efficiencies and optimization over time, where we see the opportunity to leverage technology and other things to also play a role. And lastly, I think the PBM sales season is great evidence that we continue to focus on our customers. We're winning net new customers and delivering the value that they're asking for us. So we had over $6 billion of net new sales for 2026. So continue to be excited about this industry. It remains to be highly competitive as it always has been. And we continue to remain to be a leader in driving that competition and driving affordability for our customers and creating innovative solutions that they can deliver into the marketplace. So... J. Joyner: Thanks, Prem. Maybe just one additional comment on the PBM because there's obviously emerging models that we're seeing around the DTC. So 2 things I would point out. One is we were the first large provider to join the NovoCare program for GLP-1s. So that's again our push into lowering the cost of these obesity products in the direct-to-consumer market. And then the most recent announcement we made with the administration with respect to the IVF therapy, again, our specialty pharmacy playing essential or critical role in the rollout of that program as we serve consumers and our customers. Operator: Our next question comes from Eric Percher with Nephron Research. Eric Percher: I'd like to return to Caremark and ask you to clarify the extent to which you're seeing pressure from adoption of TrueCost versus change in mix. If it's TrueCost, how much of that was CVS? I'd expect you were ahead of that versus others or independents that you're enabling. And then if more change in mix, are you seeing that changes to GLP-1 formulary or biosimilar private label is having an impact on rebate guarantees? Prem Shah: Yes, Eric. Thanks for the question. First off, let me be clear, this is not from TrueCost. The TrueCost model is not what's driving this. As you know, in the legacy PBM models, in the PBM marketplace, we predict and try to drive rebate guarantees, which is a way in which we derive the value for our customers. In that case, we had probably 3 primary drivers of some of the pressure. One, the slower growth of GLP-1s that we're seeing in the back half, primarily driven from we expected a little bit more of the compounding volumes to come back into the benefit, which we're not seeing. Secondly, we had a couple of products on the autoimmune category not related to Cordavis, but drivers of a couple of products that we're driving that. So one is in the autoimmune category and one is in the HIV category. So this is not from TrueCost. It is something we're working with our clients actively adjusting our guarantees appropriately as we move forward, but create a little bit of pressure in the short term. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: I wanted to ask about the recontracting efforts at Oak Street and understand the room for improvement there. So first, can you share the pretax operating losses of that business today? And to the extent you had problematic external membership this year, did you see the needed changes made to benefits for the 2026 plan year? And if not, can you help us understand what contracting changes you're making, including how much risk is shifting back to your Medicare Advantage partners? Brian Newman: Thanks very much. I'll let Prem talk to the business and the evolution. We don't share the pretax loss, but I think we've been very focused on the Oak Street business. Once again, the impairment we took was at the HCD level. But we took a look at clinic growth and really by slowing the clinic growth, the terminal values, what drove the impairment charge. And we believe we're getting the Oak Street business in particular on the path to profitability. Prem, do you want to give a little color on the business? Prem Shah: Yes, sure. And thanks for the question. First off, just to be really clear, the performance in this quarter was in line with our expectations that we kind of -- as we adjusted the guidance from prior. So performance is in line. If you think about value-based care, and David mentioned this in the prepared remarks, it's still a critical component of our strategy. We recognize the significant impact it can have on the health care system, the importance to patients on experience and outcomes and costs. So there's 3 or 4 things that we're really focused on in Oak Street Health. Let me just talk specifically to the payer contracts. One, we won't comment on any specific contracts, but we're focused on ensuring that we have alignment with our payers on ensuring the sustainability of these agreements and having fair and equitable terms for the value that we provide. So we're continuing to work on that with our payers and continue to drive that forward. But the 2 other areas I think that are really critical is we are really proud of our clinical model that we have. We continue to enhance our technology and our operations to drive an enhanced model in which we'll ultimately lower cost and improve quality of our members. And lastly, on the center footprint, listen, at the end of the day, the world has changed in value-based care. So we're being very prudent and we've slowed the number of clinic growth that we had. And we're focused on growing membership inside of our clinics. And so from our perspective, those things are all the components that are driving. And we expect the Oak Street business to improve year-over-year. And lastly, as it relates to V28, it's in line with our expectations of the impact of that as we think about that business. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: David and Brian, my question is kind of focused on the retail pharmacy business. And you talked about how 2026 is going to show an improvement from the long-term guide. I guess I would ask if you can comment, how far are we away from like the long-term guidance of down 5% not being the case anymore? And given the PBMs are paying pharmacies more money and CostVantage is taking root across different payer segments, does earnings growth starts to look more like script growth in that segment? I'll stop there. J. Joyner: Yes. When we -- thanks, George, for the question. Maybe just high level, when we announced CostVantage, that was a long-term goal, which we are the largest purchaser in the country today. We believe we have the best cost of goods in the market. And as we perform better, the payers will get the benefit of that. And so that is, we are now going into year 2 of that in '26. So as we get to Investor Day, we'll have more clarity about how that business will be performing. But ultimately, we do see better alignment with the payers in terms of how the actual cost of goods align with the actual reimbursement for the services we're providing. And so, Prem, do you want to give any other color? Prem Shah: Yes. So George, remember, those 3 primary headwinds in the retail business, if you go back when we started CostVantage -- sorry, 3 tailwinds that were offsetting one big headwind, which was reimbursement pressure. So the 3 tailwinds were we would always drive incremental volume into our stores, right, script growth. We would have productivity initiatives that drove and lowered the cost of our cost basis of delivering those scripts. And lastly, there was cost of goods improvement. And all that netted out to a somewhat tailwind -- or a headwind that we're trying to cover. If you think about what CostVantage was doing and, as we mentioned, it was going to take a multiyear journey to get us to a place in which reimbursement erosion equaled our cost of goods improvement. We're making good progress towards that, but we still have reimbursement pressure in the underlying business that we continue to focus on. So just from a CostVantage perspective, as we said at the beginning, 2025 was a transitional year. We're proud that we moved all of our commercial and third-party discount card programs into our CostVantage program. We're making good progress in Medicare on transitioning to cost-based pricing models across our full look of business. We're more than 60% complete and targeting 100% of our eligible book by the start of 2026. If you compare our Medicare negotiations to our commercial negotiations, we're ahead of where we were last year. So we feel pretty good about where we are. And lastly, if you think about the impact of CostVantage, at this point, it's performing in line with our expectations. As I said, it's going to be a multiyear journey to get that back. And we're addressing one of the major pain points that existed in retail pharmacy, which was cross-subsidization of branded and generic drugs. J. Joyner: Yes. And George, maybe one final comment. Your thesis is right, which is our growth should be tied to script growth. And as we get CostVantage rollout across our payers, that will become part of the growth. The second part is the services we're going to provide inside the pharmacy. So if you look at the stars performance within Aetna, a lot of this was driven because of the collective enterprise effort and the services and the specific programs that have been delivered and launched within retail to engage and drive better performance around adherence and the other quality measures. So that is the next frontier, and this is how we're going to collectively drive the value across the enterprise. Operator: Our next question comes from Kevin Caliendo with UBS. Kevin Caliendo: I want to ask a little bit about what's embedded in your '26 comments for the Health Care Benefits around MA margin expansion. Can you get to be profitable next year? And also enrollment, I know enrollment is not over yet, but your sense of where your enrollment goes in individual MA next year. Brian Newman: Thanks for the question. As we think about the guide, which we'll really get into in December at Investor Day, but in HCB, which you asked about, I would say we expect another year of meaningful margin improvement. It will include progress in MA. I think that reflects our disciplined approach to the plan design and footprint. We have repricing opportunities in group with, I think, about half the book repricing as of January. As you think more broadly about HCB, we'd expect a tailwind from our exit of the IFP business next year. And while we're seeing good progress in Medicaid in terms of rate advocacy discussions, we are taking a cautious outlook in light of the broader pressures that are across the industry. Steve, do you want to provide a little bit more color? Steven Nelson: Sure. Thanks. Look, when we entered this year from the Aetna perspective and all of CVS together, we're focused on a couple of objectives. One is to return the business to target margins; second, to regain leadership position overall in the industry. And within those objectives, we rallied around 3 very specific priorities: to be exceptional to fundamentals, make sure that we are distinctive and we could offer distinct capabilities to our customers and build a really strong culture with top talent. And so we've been executing with discipline and rigor and urgency around those 3 priorities. And as you can see by the performance, and as Brian highlighted and David in his opening remarks, the plan is working. And so we are really encouraged by the progress across all of our businesses at Aetna. And we believe this momentum will carry into not only the fourth quarter, but 2026. So we're going to lean into that momentum. Having said that, we're obviously respectful of the high trend environment, and it's a first year of a multiyear recovery. So really encouraged by the progress. And maybe I'll just -- a couple of comments on Medicare and open enrollment as you asked. Look, obviously, early days, but it's going according to our expectations in line with those objectives of returning and continuing on the path to returning to target margins on this business. We made really great progress. It actually is a little bit ahead in terms of favorability, in terms of trends and the individual Medicare Advantage business in the third quarter. And so we're going to take that momentum. And the early signs in AEP is that we're on track to continue that momentum and keep the business on track to returning to target margin. With respect to just sort of overall competitive positioning, we like our position. Again, early days. We do have the ability and we've developed capabilities as we did last year during the AEP to continue to make adjustments and be nimble as we need to dial up and down products, geographies, other kinds of mechanisms that we have just to make sure that we continue on track in a really disciplined and rational approach. So so far, so good. And I would just say, we expect to exit AEP roughly flat in our individual Medicare Advantage membership. So very encouraged so far, early signs. Look forward to providing more color at our Investor Day. J. Joyner: Yes. Steve, great quarter, and congrats to you and your team. So this will conclude the earnings call for this quarter. So before I end the call, I just want to thank our dedicated colleagues across CVS Health for the work you do every day. The trust we earn comes directly from the commitment to caring for our customers. I'm very encouraged about the progress we continue to make and look forward to providing you additional updates at our Investor Day on December 9. Thank you for joining the call. Operator: Thank you for joining CVS Health's Third Quarter 2025 Earnings Call. This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, good afternoon, and welcome to the Teradyne Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, VP of Corporate Relations for Teradyne. Please go ahead. Amy McAndrews: Thank you, operator. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Greg Smith; and our CFO, Sanjay Mehta. Following our opening remarks, we'll provide details of our performance for the third quarter of 2025 and our outlook for the fourth quarter of 2025. The press release containing our third quarter results was issued last evening. The slides as well as a copy of this earnings script are available on the Investor page of the Teradyne website. Replays of this call will be available via the same page after the call ends. The matters that we discuss today will include forward-looking statements that involve risks that could cause Teradyne's results to differ materially from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the safe harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31, 2024, on file with the SEC. Additionally, these forward-looking statements are made only as of today, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, except to the extent required by law. During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures were available on the Investor page of our website. Looking ahead between now and our next earnings call, Teradyne expects to participate in the UBS Technology Investor Conference. Our quiet period will begin at the close of business on December 24, 2025. Following Greg and Sanjay's comments this morning, we'll open up the call for questions. This call is scheduled for 1 hour. Greg? Gregory Smith: Thanks, Amy. Good morning, everyone, and thanks for joining us. Today, I'll discuss our third quarter results, talk a bit about what is driving the business in Q4 and provide a general update on conditions across our businesses. Sanjay will then provide more detail on our third quarter results and fourth quarter guidance. As you saw in the earnings release, we grew sequential revenue 18% and non-GAAP EPS by 49% in the third quarter. This growth was driven by AI demand in semiconductor tests. Our other test businesses delivered on plan in the quarter. In Robotics, we continue a slow crawl up from our Q1 revenue trough in a challenging environment. The huge investments in cloud AI build-out drove our Q3 performance to the high end of our guidance range as our customers ramped production of a wide range of AI accelerator, networking, memory and power devices. An example of this AI strength is in compute, where our view of the second half of 2025 revenue is more than 50% higher than our expectations just 3 months ago. Some of this increase comes from us responding to customer pulling requests and some is demand increases. As design, process and packaging technologies for AI compute rapidly advanced, we expect that our growth will continue. Our UltraFLEXplus system has been architected from the ground up for high-performance processors and networking devices, which have demanding power, pin count and test data requirements. As AI devices become more complex, the UltraFLEXplus architectural advantages become more valuable to potential customers by enabling fast test development times and high-efficiency volume production. Our focused investment in R&D is also yielding new differentiated capabilities for compute tests, some of which have been already been announced in Q3. In memory, our Q3 memory test sales more than doubled from Q2 to $128 million, with the majority of those shipments supporting AI applications. In Q3, 75% of our memory revenue was driven by DRAM, nearly all of it from final test of DRAM and HBM performance test. 25% of revenue was from flash mainly for cloud SSD, another segment being driven by AI data centers. Our Magnum 7H product is differentiated in HBM performance test because it is a multi-generational product. It can cover the test needs of HBM3E and HBM4, and it provides upgrade headroom for HBM4E and HBM5. The Magnum 7H also supports HBM singulated stack performance test. In Q2, we won a design in for this insertion. And in Q3, we began volume shipments. So at this point, Teradyne participates in all major test insertions for HBM, memory die wafer sort, post stack wafer test and singulated stack test. Our results in memory test this year are especially satisfying in light of the composition and size of the memory TAM for 2025. Our best guess is that the total memory TAM for 2025 will be down low double digits, and the weakest part of this market is flash, our traditional strongest segment. Despite this, we expect our memory revenue will sustain at 2024 levels. AI-driven applications for power ICs were a bright spot in the auto industrial market segment. The Eagle Test platform has a leading position in the test of high-performance power conversion devices for data center applications. Volumes of these devices are forecast to grow over 50% between now and 2027. We expect the demand for VIP compute and networking to continue to grow significantly, and we have been investing in R&D, applications, sales, support and manufacturing capacity for this expansion. This includes investments to win new VIP and merchant GPU customers. We're making good progress on new design and opportunities and are cautiously optimistic about our potential success. But I would like to make it clear that our Q3 results and our Q4 guidance do not include any revenue from these types of new opportunities. For the deployed fleet of UltraFLEX and UltraFLEXplus testers, we see higher utilization and fewer system upgrades than in past quarters, which we believe means that customers are exhausting their inventory of underutilized systems. As a result, we now expect a more direct connection between inflection in end market demand and new system sales. Looking beyond AI and Semi Test, conditions in mobile and auto industrial remained somewhat weak. Now in our Integrated Systems division, our Q3 shipments were above plan as SLT customers accelerated deliveries for mobile processors and compute applications. We also saw increases in orders for both HDD and SLT systems. Now recall, lead times are generally measured in quarters for this business, so most of that order strength will translate into revenue in 2026 and beyond. In Robotics, we are growing slowly from our trough quarter in Q1 2025. If you go down 1 level of detail, we continue to see persistent weakness in our core indirect distribution channel as we expand our large customer and OEM channels. An important element of our robotics strategy is to establish UR cobots as the preferred platform for AI-driven work cell applications and to deliver superior performance for our AMRs by leveraging AI features. In the third quarter, over 8% of robotics sales were for AI-related products, up from 6% in Q2. Another element of our robotics strategy is to deliver value-added service to our installed base of over 100,000 robots. Service represented 14% of sales in Q3, up from 12% in Q2. As we noted in our July call, our Semi Test business has evolved to where the largest demand driver is AI data center investments rather than consumer end markets. We have aligned our R&D and go-to-market investments to capture the tremendous opportunities in test driven by this AI related demand. Our investments are focused on extending our product performance advantages with innovative R&D, while also expanding our engineering teams to help customers develop and ramp production of these fantastically complex devices on Teradyne platforms. Sanjay will describe how these investments translate into OpEx, but as we're seeing, the returns are well worth the investment. Looking at Q4, we expect AI-related demand for compute, networking and memory to be the primary engine of our growth, which reflects both industry trends and the result of our investments to align with those trends. Looking to the future, the long-term themes that we've highlighted in the past, AI, verticalization and electrification remain firmly intact. As we enter 2026, we expect AI and verticalization will be the primary growth drivers. We've said before that the AI market is both highly concentrated and highly dynamic. The timing of any one project can affect the delivery schedule for hundreds of testers. This can swing quarterly results significantly. So with that understanding, let me offer a few high-level comments about how we're looking at 2026. At the company level, 2026 looks stronger today than it did 6 months ago, and all indications suggest solid growth from 2025. We anticipate that business conditions for mobile, auto industrial and robotics will improve, but the timing and the intensity of that recovery is uncertain. But the real story in 2026 is AI and the investments that we have made to develop differentiated solutions in that space will drive our growth plan. I'd like to share a few specific examples. Massive investments in building data centers are translating into strong demand for UltraFLEXplus in VIP, compute, merchant compute and networking. In the memory market, AI will drive growth in HBM, DRAM and flash for SSD applications served by Magnum. Accelerated big growth in HDD is driving the demand for more HDD test. The deployment of AI-capable processors for mobile, client computing and cloud AI is driving the demand for more system-level test. We plan to give you a more detailed view as part of our model update in the January call. Now before I hand the call over to Sanjay, I would like to say a few words about the CFO transition that we announced last night. Michelle Turner will be our Chief Financial Officer effective November 3, 2025. She brings 30 years of financial and strategic leadership experience in the technology and manufacturing sectors, and she has a strong track record of driving growth, disciplined capital allocation and operational efficiency. She is looking forward to getting to know all of you in the upcoming quarter. I'm excited to welcome Michelle to the Teradyne team. Now Sanjay has been Teradyne's CFO since 2019, and he has offered to stay on as an executive adviser to operations as we expand capacity in 2026. I want to thank Sanjay for his excellent leadership and contributions over the past 6 years, and I'm grateful that we will have the benefit of this guidance. With that, I'll turn the call over to Sanjay. Sanjay Mehta: Thank you, Greg. Good morning, everyone. Today, I'll cover the financial summary of Q3 and provide our Q4 outlook. Now to Q3. Third quarter sales were $769 million and non-GAAP EPS was $0.85, both near the high end of our guidance ranges. Non-GAAP gross margin was 58.5%, above our guidance range due to favorable mix. Non-GAAP operating expenses were $293 million, up sequentially and year-over-year on higher R&D, sales and marketing investments tied to AI as well as increases in our variable compensation. Non-GAAP operating profit was 20.4%. Turning to our revenue breakdown in Q3. Semi Test revenue for the quarter was $606 million, with SoC revenue contributing $440 million, which was up 11% sequentially and 12% year-over-year. Memory revenue was $128 million, up 110% sequentially and down 15% year-over-year. Strength in SoC was driven by AI compute and AI-related power test. Memory revenue more than doubled from Q2 on HBM and AI-related LPDDR demand. IST revenue was $38 million, up 9% sequentially, 46% year-over-year driven by strength in SLT shipments. In product test, Q3 revenue was $88 million, up 4% sequentially and 10% year-over-year, driven by growth in defense and aerospace. Now to Robotics. Revenue was $75 million, flat quarter-on-quarter and down year-over-year. In the quarter, UR contributed $62 million and MiR contributed $13 million of revenue. As we noted in July, volume shipments to our large e-commerce customers are not expected to have a material impact on robotics revenue in 2025. Some other financial information in Q3. We had 2 customers that directly or indirectly, which drove more than 10% of our revenue in the third quarter. The tax rate, excluding discrete items for the quarter was 16% on a GAAP and non-GAAP basis. Our free cash flow was $2 million. Our net income was offset by our net working capital increases tied to accounts receivable and inventory, which reduced our free cash flow. Receivables growth was tied to increased sales, which were weighted to the second half of the quarter. Inventory growth was tied to the ramp in compute and memory driven by upcoming AI demand. CapEx of $47 million was reasonably consistent with Q2. We repurchased $244 million (sic) [ $246 million ] of shares in the quarter and paid $19 million in dividends. Through the end of the third quarter, we've returned $575 million or approximately 2.5x our free cash flow through dividends and buybacks to shareholders during the year. We ended the quarter with $427 million in cash and marketable securities. Now a little more detail on OpEx and our balance sheet strategy to help you with your modeling. In the second half of 2025, we're continuing to lean into R&D and go-to-market investments for AI opportunities that we expect will drive revenue in 2026 and beyond. OpEx in the second half of 2025 is also increasing tied to our variable compensation linked to increasing financial performance. At the midpoint of our Q4 guidance, we'll have full year revenue growth of 9% and OpEx growth of 7%. Long term, we target OpEx growth at approximately half the rate of our revenue growth. In 2026 and longer term, as AI revenue blossomed, we expect to meet our OpEx target. Regarding the balance sheet, we expect to keep our cash and marketable securities at roughly $400 million while also continuing our balanced capital allocation strategy. In 2025, we saw an opportunity to accelerate buybacks in the short term to further enable shareholder value. At the operational level, we expect to exercise our credit lines more frequently as we did in Q3 and expect to in Q4. From a modeling perspective, this means the interest and other line of the P&L will reflect higher interest expense. You should expect to see a couple of million dollars of net interest expense per quarter while we utilize our revolver. Now turning to our outlook for Q4. Before discussing the details of Q4 guidance, I'd like to remind you of some of the commentary from our July call. Specifically, we noted that we had large projects expected to ramp, which straddled Q3, Q4 or Q4, Q1. As we move through the second half of 2025, we saw projects accelerate into Q3 and are now seeing projects accelerate into Q4. These projects are AI-driven. In Q3, we were able to meet early ramp demands. In Q4, we are seeing demand ramp significantly. We continue to expedite our supply chain, and we are accelerating production capacity growth at factories in multiple geographies to meet the demand. Now the details. Q4 sales are expected to be between $920 million and $1 billion. Fourth quarter gross margins are estimated at 57% to 58%. This includes some onetime supply costs in the quarter to meet accelerated demand. Turning to OpEx. Q4 OpEx is expected to run at 31% to 33% of fourth quarter sales. The non-GAAP operating profit rate at the midpoint of our fourth quarter guidance is 25.5%. The Q4 GAAP and non-GAAP tax rate is expected to be 14.5%. Q4 non-GAAP EPS is expected to be in the range of $1.20 to $1.46 on 157 million diluted shares. GAAP EPS is expected to be in the range of $1.12 to $1.39. Summing up on Q3 results and Q4 guidance. AI is growing across the economy, driving exceptionally strong semiconductor test demand in the second half of 2025. This is evident in our Q3 sales, profit performance and our outlook for Q4. The acceleration of test demand in Q4 reflects customers' drive to pull AI projects in from Q1. We're optimistic about the AI-related market 2026, but we also know shipments can be lumpy. Now to my final remarks. After 6-plus years at Teradyne, it's clear that Teradyne is well positioned for significant growth over the midterm. Many environmental challenges have occurred during my tenure such as significant government regulations, COVID, tariffs, CEO transition, along with the strategic pivot of investments to AI in 2022. Through all of these opportunities, we have strengthened the company's infrastructure and processes. Our operational resilience is significantly stronger as we have derisked our supply chain, started the journey of multiple factories and multiple geographies to enable significant growth rooted in AI, strong management leads our diversified portfolio enabled through our variable business model, which has consistently delivered tremendous free cash flow through all of the changes and volatility we've experienced. Our balance sheet is strong with firepower to enable strategic investments, continue to deliver a balanced capital allocation and strong returns for our shareholders. I've had the opportunity to make New England my home and built many lasting relationships here internally and externally. I've enjoyed working with our shareholders and all of you in the investment community. With that, I'll turn the call back to the operator to open up the line for questions and soon hand the keys over to Michelle. Operator? Operator: We will now be taking questions from Teradyne's research analysts. [Operator Instructions] We'll take our first question from C.J. Muse with Cantor Fitzgerald. Christopher Muse: Sanjay, big congrats to you. I guess when you look at -- so short-term question, long-term question. So short term, roughly $150 million upside versus consensus for December. And I would be curious if you could kind of share how much of that upside is versus what you thought maybe 3 months ago is driven by HBM, VIP, networking, SLT or perhaps other? Gregory Smith: So CJ, it's Greg. When you look at Q4 it's really all in compute and memory is where the upside is coming from. If you look across the rest of the company, it's kind of not too different quarter-on-quarter, maybe a little bit stronger in our product test division, a little bit stronger in robotics. But the real story is in compute and memory. And I'd say it's kind of 2/3, 1/3 in terms of the like compute is kind of 2/3 of it, memory is about 1/3 of it, and HBM is really strongly represented in that memory up. Christopher Muse: Very helpful. And then I guess, longer-term question on the compute side. I would be curious, as you think about high-performance compute, leapfrogging mobility reports suggest that NVIDIA is going to be the lead customer for -- with Feynman A16. How are you thinking about compute intensity? How are you thinking about increased test insertions? And really, how are you thinking about kind of test time in a world where compute is driving leading edge? Gregory Smith: So the -- we're pretty bullish about it in general, that as the die sizes get bigger and the performance required from the devices sort of gets -- the performance goes up, the test intensity also has to go up. The other thing that makes us pretty optimistic in terms of sort of how this will affect the TAM for compute devices is that chiplet-based designs are becoming more and more of a thing. And when you get to the later stages of building up these complex multi-chip packages, the cost of -- sort of the cost of scrap really, really escalates. So that drives this sort of shift left adding tests intensity upstream. And then there's also the downstream effect, which is these chips are going into data centers. And as NVIDIA likes to say, they're being used as if they're like 1 gigantic GPU. And so like 10,000, 50,000, 100,000 nodes have to work perfectly for an entire training run. So there are tolerance for latent defects coming out in the middle of those kinds of training runs is very, very low. So those sort of environmental factors really make us think that the test intensity for the compute segment is going to continue to grow over the next few years. The other thing that's happened in compute is that because it's now the primary driver for the semiconductor industry that many of the strategies that we've seen in the mobile space for years and years around things like dual sourcing, are becoming much more important to the producers in this space, like the strategy that you need when you're a small portion of your capital equipment providers, overall shipments is different when you actually dominate those shipments. You start to feel a little bit more vulnerable. And so customers in this space are increasingly turning to this notion of dual sourcing their supply chain at every step. And since we're coming from a lower share position trying to gain share, that dual sourcing is actually a very good thing for us. Christopher Muse: Thank you, Greg. Appreciate it. Operator: We'll take our next question from Mehdi Hosseini with SIG. Mehdi Hosseini: Greg I want to double click on these structural changes that are happening at various test insertion. And I want to focus on wafer level test. How do you see your activity and design wins manifesting into increased penetration in this specific segment. And with the burn in on a wafer level be part of the those design wins? And I have a follow-up. Gregory Smith: Yes. So we definitely believe that SLT is a critical part for this sort of late-stage, ensuring that there aren't latent defects going into the data centers. So we think that there's positive effect there. The other thing is that there are new technologies that are coming along, like CoWoP where more complex modules are being built up and they need to go through a relatively extensive system test and burn-in. So we believe that -- so we look at this as sort of a contiguous market between burn-in and SLT because the burn-in is generally done with the devices fully operating, not in a sort of -- in the test state. Mehdi Hosseini: Okay. Maybe we could take this offline because there's so much technology. But when I look at your commentary that in your prepared remarks, none of the design wins have been embedded in your guide. I want to go back to your 2028 EPS target of $7 to $9.50. I imagine these design wins weren't factored in when you provided that target earlier this year. Would that be a fair statement? And how would you think about those targets in addition to the design wins that you highlighted in your prepared remarks? Gregory Smith: Yes. So we'll update everyone in January in terms of our long-term model. The thing that I -- like as we're thinking about it, the thing that is apparent to us is that the long-term destination is not all that different, but the composition of the market is. So we believe that we're well positioned to achieve the long-term model that we have published prior, but we believe that the composition of that business is going to be much more heavily dependent on the things that are being driven by the data center build-out. And that's across compute, networking, memory, even power that, that is far more important in the mix than the way we were looking at the long term before. Operator: We'll move next to Timothy Arcuri with UBS. Timothy Arcuri: Greg, so I assume Semi Test is up something like $200 million in the guidance for December. So I'm just wondering if you can give us a sense. I know that this stuff is all pretty lumpy. But can you give us a sense like it seems like it's maybe evenly split between memory and SSD. Is that a fair just general number to kind of think about in terms of the composition of the growth in calendar Q4? Gregory Smith: Yes. So -- the -- it's not quite -- it's not half and half. It's more 2/3 compute and networking and 1/3 memory in the up. Timothy Arcuri: Okay. Okay. Great. And then, Sanjay, can you talk a little bit about revenue shaping next year? I know memory tends to be pretty lumpy. I mean, in particular, memory. And I know that there's this big stuff shipping in Q4. So can you just maybe give us a little bit of a sense on Q1? I mean, is it -- should we expect it to be down a little bit? And how do you see next year from a loading point of view? Sanjay Mehta: Sure. I think in Greg's prepared remarks, we talked about the key drivers. And in my prepared -- key drivers going into 2026. And overall, we thought that the revenue would be up relative to 2025 tied to those drivers. And in my remarks, as well as Greg's, we talked about the acceleration of key projects that straddled Q3, Q4 and Q4, Q1 and the ones in kind of Q1 kind of accelerating into Q4. And so overall, we do see demand accelerating. I will share that from a seasonality, maybe if that's what you're getting to, is that the revenue mix has changed as we've noted in the second half, really tied to Semi Test driven by AI tied to compute and memory revenue. Historically, our business has been driven by the mobile launches where we've had significant demand in kind of Q2 and Q3. Business is no longer driven by that. If it comes in, sure, we'll have tailwinds on that front. It's more driven by compute projects. And those are lumpy, and they're really tied to customer launches. So I think overall, what you'll see is a little different shaping in the way of seasonality for our business going forward. And we'll give you an update in the call in January. Operator: We'll take our next question from Krish Sankar with TD Cowen. Unknown Analyst: This is Steven calling on behalf of Krish. Greg, first question for you related to the VIP customer demand as well as you mentioned of merchant GPU opportunities in the future. I guess first thing is in terms of the VIP customers, how much more expansion do you see in terms of the customer base from the larger CSPs and similarly for Tier 2 CSPs. Is there a direct relationship that you have also with those customers potentially? Or is that more of a foundry type relationship? And similar question for merchant GPUs, is that direct or more of a foundry type of testing relationship? Gregory Smith: So in terms of the VIP customer base, it is incredibly concentrated that there are a lot of design starts. There are a lot of chips that are being developed, but the vast majority of the tester demand in the VIP space is really being driven by 2 customers. And that's how that market is playing out right now. What seems to be happening is that each of the hyperscalers has their own chip development program, and they benchmark that against what they can do with merchant silicon. And if the merchant silicon provides a better sort of tokens per watt, then they don't tend to ramp their internal silicon to the same extent. So like right now, we see that market as concentrated and it's going to expand -- that base is going to expand pretty slowly because it's a very competitive environment. The thing that we see with VIPs is as those VIPs are growing there, the actual specifier, the chip developer, the hyperscaler itself is exerting more control over the whole supply chain. They are moving from aggregator to aggregator. They are forming different partnerships and they're taking more control over their supply chain. So sort of the way that people look at it in terms of the aggregator, the design partner as the one influencing the decisions, I think that, that is something that will fade over time, and we've seen it that occur in some of the VIP customers. In the merchant space, it is all at the specifier, not at the foundry. So the merchant GPU or CPU player is the one that is going to decide on the test platform. They're the ones that are going to control the test programs and all the test IP. So our efforts around gaining share in merchant GPUs is directed at the specifier themselves, not at anyone in the supply chain. Unknown Analyst: Great. And just for my quick follow-up, for hard disk drives, just some of the strength that you mentioned there from the cloud demand, I was just curious like for System Test, like are you expecting strong double-digit growth in that segment for Q4 as well? Or could it be higher than that? Gregory Smith: So the process of adding capacity in HDD is -- it takes time. The manufacturing process for HDD is a complex one, highly automated. It's heavily capital-intensive, and so we're definitely seeing an uptick in the orders associated with that. There's a lot of optimism in the space, but we would expect that to have a greater effect in 2026, then we would expect to see anything in 2025. 2025, I think, SLT is -- we're not expecting to see significant growth in the IST Group in Q4. Operator: We'll move next to Shane Brett with Morgan Stanley. Shane Brett: Let me ask a question in a bit more of a direct way. As of this moment, do you sort of expect SoC test to accelerate from this really strong December quarter into the first half where do you really kind of bake in a bit of seasonal decline or kind of a bit of conservatism into the March quarter? Sanjay Mehta: I'll just reiterate some comments and maybe, Greg, if you want to add to it. The second half of the year of '25, we talked about straddling and we talked about the projects accelerating, and we're seeing that continue to accelerate. Of course, there's projects in the pipeline in Q1 and Q2 of 2026. It's just going to depend on how those projects go. Generally, we're seeing projects accelerate though. Gregory Smith: Yes. I think as we talked about, there are things that are perched between quarters. The thing that I will say is Q4 was sort of a new high watermark for us in terms of capacity and shipping against our memory test and our SoC products. We expect demand to continue to be robust going into 2026. But like as an analyst, it would probably be a mistake to like look at the growth from Q3 to Q4 and draw a line straight up from there because there -- it's -- we're at a relatively high level, and we expect continued strength, but it is really lumpy and the timing continues to be uncertain, even between Q1 and Q2 of next year. Shane Brett: Got it. That's helpful. And for my follow-up, it's on memory. At a conference intra-quarter, you mentioned that on a go-forward basis, DRAM and NAND will grow, but NAND will grow faster because of how low it is right now. Just how low has NAND been this year relative to prior years? And what sort of growth are you expecting for the NAND portion of memory going forward? Sanjay Mehta: Yes. It's Sanjay. So NAND is really low -- really from a percentage standpoint. I think it's really going to tie to the growth driven in the mobile industry. And if we see that growth, then it will -- then it should take off. But right now, it's at a really low point. And where we see it -- where we see DRAM is strengthening, obviously, in the HBM environment. Gregory Smith: Yes. So our -- in the quarter, our business was 75% DRAM, 25% flash. And if you look at the results for our competitors, even more dominated by their DRAM shipments. Going into 2026, if there is -- so there's a couple of things going on in flash in 2026. There's likely to be a protocol shift in the mobile market, and that will drive some tester capacity purchase just to support those new standards. And then there's the X factor around SSD capacity required for AI data centers. And right now, I think that there's -- there are like rumblings in the end market that there's going to be demand increase for SSD. We haven't seen that translated in terms of increased forecast, but we're optimistic that, that market should be a bit stronger in '26 than it was in '25. Sanjay Mehta: And maybe just to add to my comments for a little bit more color. If you go back to 2020 or 2021, the DRAM and flash mix was more like 50-50 in rough numbers. But the flash view of TAM looking backwards was more than double than what it is now. And so it's really contracted. It's a much smaller component of the memory TAM. Operator: We'll move next to Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could maybe kind of return to your expectations for mobile SoC heading into next year, realizing that Q2 and Q3 are seasonally stronger quarters. Do you have any sense about what you might expect sort of directionally in terms of improvement next year? And maybe just remind us of the relative sort of either test time or content increase you expect moving to the N2 generation? Gregory Smith: Jim, so mobile SoC has been at a pretty low level for the past couple of years. Looking forward to next year, we don't know. I think the honest answer is we don't know exactly how big it would be. We're optimistic that it should be bigger than it is this year, but we're unsure of the magnitude of that. And let me tell you the why. So there are 3 factors in terms of how big the mobile TAM is really going to be. One is the complexity of the part. And with N2 and with new packaging technologies like WMCM, we expect that the test intensity per part is going to be higher, like double digits kind of higher. The next factor is like yield. For new technologies, sometimes yield is lower. We do not count on that because there's been sort of a pattern of execution at very high yields for these kinds of products. So we are not expecting that to be a particular tailwind. The one that's really the most important factor right now is in unit volume that if there is a significant upward inflection in handset sales, people are refreshing phones because new phones are doing something interesting, then that not only drives the whole mobile processor space, but it also drives RF and PMIC and everything else. So I think the big X factor for us is whether we see an inflection in unit sales in 2026. If we do, it could be a strong year. If we don't, it would probably be just a modest improvement from where it is. James Schneider: That's helpful, Greg. And then maybe from a sort of financial perspective, obviously, 2026 is saving up to be a relatively solid growth year for you, but maybe you can remind us of the OpEx leverage you expect to get in the model, in other words, for every dollar of revenue increase or every 10% of revenue increase, how much OpEx increase would you expect to flow through? Sanjay Mehta: It's Sanjay. So as I said in my prepared remarks, our growth in OpEx was a little bit higher relative to the leverage we wanted to have -- we have in our overall earnings model, and that's going to happen from year-to-year. But in 2026, and our operating principle is basically for every dollar of revenue, we want to have of growth, we'd see roughly 50% of that in OpEx growth. So kind of like a ensuring that we are driving OpEx leverage. We expect to be at roughly that rule going into next year or being at that target roughly in 2026. Operator: We'll take our next question from Samik Chatterjee with JPMorgan. Samik Chatterjee: Sanjay, congrats on the retirement. And Michelle, congrats on the role as well. Maybe for the first one, Greg, I'm curious, I mean, you're calling out the memory increase overall in 4Q. And clearly, it looks like a step-up for next year as well. How much of the improvement here is related to market share that you talked about market share wins that you talked about earlier in the year relative to sort of general industry purchasing patterns being better. And when you look at the overall portfolio, what are the end markets you would expect to sort of gain share and which are the areas you would sort of highlight as share opportunities as you look to 2026? And then I have a quick follow-up. Gregory Smith: Yes. So the way that we look at the memory market is primarily -- think of it as like a 2x2 grid. We think of DRAM and we think of flash memory and then the other axis is wafer sort and then final or performance test. And if you look at like within each segment, our share is like very high like flash final test and DRAM final test, HBM performance test. We have healthy share in the final test section of the grid. Our share overall in the wafer sort, excluding HBM performance test is significantly lower. And so when the market is dominated by purchases for final test, our share tends to go up. And when the market is dominated by capacity adds for wafer sort, our share tends to go down. Looking into 2026, we're expecting that it's going to be an expansion year for memory in general. And so we think it's going to be a good year for us, but we also think that there's going to be a significant expansion in the SAM for the wafer sort part of the market. So I don't know if we're going to see significant share increase but I'm pretty sure we're going to see revenue growth. Samik Chatterjee: Okay. Great. And then a quick one for Sanjay here, Sanjay, and I apologize if this has been addressed before, I jumped on a bit late. But the gross margin guide for 4Q relative to where you ended 3Q, given the volume leverage that you should ideally see a bit more sort of muted. Can you just walk through the gross margin driver for the fourth quarter? Sanjay Mehta: Sure. So obviously, volumes are going up, and that's a tailwind. And we're -- at the midpoint, our guide is 57.5% and the headwind is really driven by 2 factors. First, we are investing in factory expansion in multiple geographies. That's a bit of a headwind. But I think the larger headwind is really tied to the significant acceleration tied to projects and end market demand. And to meet our customer delivery requirements, we've gone out and we've sourced some -- think of it as onetime kind of supply that's had kind of onetime, a little bit of elevated cost tied to meeting kind of customer requirements. And so that's what's occurring in Q4. So 2 headwinds offsetting the volume tailwind is really the expansion of the factory and some supply chain kind of cost increase that's somewhat transitory or onetime. Operator: We'll move next to Brian Chin with Stifel. Brian Chin: Sanjay, definitely wish you the best. For the first question, on the AI accelerator part of the business, can you give us a sense of how significantly weighted that was the second half and maybe 4Q this year. And obviously, a lot of networking strength this year in SoC. For the full year, is AI accelerated revenue significantly above what you expected entering the year? Gregory Smith: That's -- it's an interesting question because our view of the year changed pretty dramatically between January and March. So in January, we were pretty optimistic about how 2025 would come out. By March, we were far more pessimistic because there was a lot of uncertainty in the market by the -- but leaving the year, like looking at it from the -- towards the end of 2025, I would say that our -- like sort of maybe this is at a higher level than you asked the question, but definitely significantly higher revenue in compute, both VIP compute and networking have worked out to be stronger than we expected coming into the year. I would say that mobile is weaker than we expected coming into the year and auto and industrial is a little bit weaker as well. But the up in the compute space is the thing that really kind of brought us back up to that level. Memory, I think, has strengthened from our perspective at the beginning of the year, but not as significantly as the growth in the compute space. Brian Chin: Okay. Great. And then for maybe just kind of a clarification and a question. In Industrial Robotics, do you expect Q4 to ship some positive seasonality Q-on-Q? Or could you even approach flat on a year-over-year basis? I know there's definitely some headwinds for the year and probably into the back half of the year. And then kind of maybe not that tied to it, but just very curious on the Titan SLT, just for any given accelerated shift, is it common to just win that insertion kind of towards the back end of that test queue? Or is it more common do you think to win multiple subsequent insertions as well? Gregory Smith: So in terms of SLT, once you have been designed in for a particular AI accelerator, then our -- the Titan system for these AI accelerators was designed with sort of significant upgradability. So going from part generation to part generation as long as it fits within the general power envelope that we can provide, and there's some headroom there, then you're able to do change kits and upgrades. So there is an incumbency advantage in SLT. Kind of it's similar to the incumbency advantage that you have in ATE, not quite as strong, but pretty strong. Sanjay Mehta: And then on the robotics front. Gregory Smith: Sure. Sanjay Mehta: Yes. So there is some seasonality that we are expecting. We do expect an increase from Q4 to Q3 and what we view as a weaker kind of automation market. And as you know, we're still working through the strategic shift to large accounts and OEMs, but we do expect a seasonal uplift. Gregory Smith: One comment on robotics is that we've seen through this year that our ability to predict our revenue is somewhat limited. We are -- it's a very high turns business. We see demand shifting and demand responding to sort of current events depending on where you are. So we're trying to be as cautious as we can in terms of predicting growth. We do expect that Q4 would be stronger, but we're not predicting a gigantic hockey stick or anything like that. Operator: We'll move next to Vedvati Shrotre with Evercore. Vedvati Shrotre: The first one I have is a follow-up to the HBM questions you had. So on HBM, you talked about a new test insertion, like a singulated die test and you're shipping volumes in 3Q. So I wanted to understand if that is the norm now? Has that increased the TAM? And are all suppliers expected to do this? [indiscernible] factors? Gregory Smith: Yes. So right now, only one major manufacturer is routinely doing this singulated stack testing. And I wouldn't say that it is even pervasive across all memory types. We're not sure. If there is a significant improvement in downstream yield, the device that the HBM gets put into, if yield of that device goes up and HBM-related faults go down as causes of problems downstream, then that will proliferate across multiple manufacturers. But right now, it's really only 1 of the 3 major HBM manufacturers is doing that for a high volume of devices. Vedvati Shrotre: Understood. Okay. And then my follow-up was on SoC. Have you -- can you provide any color on how much compute is as a part of SoC in second half '25? And then even as we think about 2028, I think your -- during the Analyst Day, the idea was the composition would be 1/3 mobility, 1/3 compute and 1/3 auto industrial market. So do you have an update to that now that compute is a strong driver? Gregory Smith: So do you want to take the compute second half? Sanjay Mehta: Sure. Look, I won't break out the specific numbers, it is a significant component, just as we've talked about. And in the second -- in mobile was more first half dominated tied to supply chain shift. And think of the second half of our business is very strongly driven by compute really tied to VIPs and networking. So a very significant component. Gregory Smith: So I did a quick math and like. So this is trying to understand AI driven. So it includes all of the memory-driven stuff and the SoC compute stuff. Just like from Q3 to Q4, like 50% of our total revenue in Q3 was coming from AI-driven stuff in those segments. It's up to like 60% in Q4. So this is -- it's a very different composition of business in 2025 and especially the second half of 2025 from where we were before. We'll update you in January in terms of what our long-term model is. But it's safe to assume that, that model is going to have a much heavier weight on the compute and the compute part of the market and the AI-driven parts of the memory market. Operator: We'll move next to David Duley with Steelhead Securities. David Duley: I guess, first, I had a clarification. You talked about strength in AI in Q4 coming from networking and hyperscalers and HBM. I'm assuming that you have not won any business on stand-alone GPUs yet, and that is not included in any of the guidance statements. Gregory Smith: Yes, that's correct. Look, we're making good progress, but we have not included that in our guide and there wasn't revenue for that in Q3. David Duley: Okay. And then as my follow-on, do you think you could update us on the size of the SoC TAM and then perhaps some of the major pieces like the high-performance computing piece? And then just one last question is, as far as your HBM4 ramp going into Q4 -- excuse me, HBM ramp going into Q4, is that mainly driven by HBM4 ramping up? Or is it driven by new test insertions or is it driven by something else? Gregory Smith: So let me take the second one first. So the HBM ramp that we're seeing in Q4 is probably half and half between new test insertion and additional capacity for -- and it's really like new test insertion singulated stack test. Additional capacity is for stack die wafer level test. So both of those are increasing, but it's all around capacity adds for HBM4 or like it's all driven by HBM4. Now we are not providing an update to the SoC TAM mainly because the SoC TAM is all over the place. And for both Teradyne and our competition, there is a lot of dynamic action between Q4 and Q1, that's going to have a significant impact on the ultimate size of the market and especially the size of the high-performance compute market. So we're going to stick with our overall guide, and we're going to watch how that turns out. Operator: This concludes the Q&A portion of today's conference. I would now like to turn the call back over to Greg Smith for closing remarks. Gregory Smith: Thank you, operator. I'd like to offer a quick final thought. I mentioned in closing the July call that AI was having a profound and positive impact on Teradyne's business. I'm encouraged by how quickly we're seeing returns on our investments to pivot to AI. AI is the dominant driver of our business for the foreseeable future and will continue to align ourselves to the outsized opportunities that it offers. We've made great strides so far in 2025 and while our progress is not expected to be entirely linear, we're more excited than ever about our prospects for continued profitable growth in the years ahead. Thanks for joining us today, and I look forward to updating you on our progress in January. Thank you. Operator: This concludes today's Teradyne third quarter 2025 earnings call and webcast. You may disconnect your line at this time. Have a wonderful day. .
Operator: Good day, and thank you for standing by. Welcome to the Kirby Corporation 2025 Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kurt Niemietz, Vice President of Investor Relations and Treasurer. Please go ahead. Kurt Niemietz: Good morning, and thank you for joining the Kirby Corporation 2025 Third Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer; and Christian O'Neil, Kirby's President and Chief Operating Officer. A slide presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our website. During this call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and they're also available on our website in the Investor Relations section under Financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's latest Form 10-K and in our other filings made with the SEC from time to time. I will now turn the call over to David. David W. Grzebinski: Thank you, Kurt, and good morning, everyone. Earlier today, we announced third quarter earnings per share of $1.65, a 6% increase year-over-year. In the third quarter, we delivered steady results in total, driven by robust customer demand in power generation and disciplined operational execution across all our businesses. With near-term headwinds in the inland market and softness in some parts of distribution and services, our teams demonstrated adaptability, ensuring service continuity and performance. These efforts underscore our ability to navigate challenging conditions while maintaining momentum. Overall, our combined businesses achieved another solid quarter, reinforcing the strength of our core businesses and positioning us well for sustained growth as the market conditions improve and normalize. In our inland Marine Transportation business, market conditions experienced near-term softness during the third quarter, primarily due to favorable seasonal weather, improved navigational conditions, a lighter feedstock mix for our refinery and chemical customers and fewer barges ongoing maintenance across the industry. At the same time, petrochemical customer activity remained muted. These factors contributed to our barge utilization averaging in the mid-80% range. On the pricing front, we observed temporary weakness in the spot market. Spot market rates declined in the low to mid-single digits, both sequentially and year-over-year due to previously mentioned headwinds. Term contract renewals were flat when compared to the prior year. The combination of pricing softness and lower demand conditions led to operating margins in the high teens. In the fourth quarter, we are already seeing market conditions improve and expect this trend to continue. We also continue to see constraints in long-term barge construction, keeping new supply in check. Coastal marine transportation fundamentals remained strong throughout the third quarter with barge utilization consistently in the mid- to high 90% range, which is supported by steady customer demand and a limited supply of large capacity vessels. This favorable supply/demand dynamic continued to drive meaningful pricing gains with term contract renewals increasing in the mid-teens year-over-year, underscoring both market strength and our leadership position. Our operations team executed exceptionally well, ensuring high service reliability. The combination of strong pricing, high utilization and operational excellence was reflected in the financial performance with operating margins for coastal around 20%. Turning to Distribution and Services. Our teams delivered another outstanding quarter, achieving solid year-over-year growth in both revenue and operating income with strong contributions across nearly all end markets. In power generation, revenues were up 56% year-over-year, driven by robust demand for data centers and prime power customers. Inbound order momentum continued, further expanding our backlog and positioning us well for continued growth into 2026. We secured additional project wins for backup and behind-the-meter power applications, reinforcing our leadership in this space. Power generation has emerged as the leading contributor to growth in both revenue and operating income within the Distribution and Services segment. In our commercial and industrial market, revenues increased 4% year-over-year, reflecting steady marine repair activity and an ongoing recovery in on-highway service. This performance highlights both the durability of our customer relationships and the effectiveness of our service platform. In oil and gas, operating income grew 5% year-over-year despite revenue declines driven by continued softness in conventional activity. This performance reflects strong execution, disciplined cost management and sustained execution in e-frac equipment, which remains the bright spot in an otherwise challenging oil and gas market. Overall, the segment continued to perform well, showcasing strength in power generation and our agility in responding to changing demand patterns with total segment operating income advancing 40% year-over-year. In addition, we remain focused on cost management, thereby enhancing operating margins, which reached 11% for the quarter. In summary, our third quarter results reflected fair performance for inland and continued strength in coastal and power generation. In inland marine, we encountered some near-term headwinds due to demand and supply chains, while long-term supply remained constrained. In coastal, market conditions remain favorable, enabling us to maintain strong utilization levels and secure significant rate improvements on term contract renewals. In Distribution and Services, robust demand for power generation, particularly from data centers and industrial customers, allowed the segment to deliver solid financial performance. We expect positive trends to continue into the fourth quarter, partially offsetting the normal seasonal slowdown. I'll talk more about our outlook later, but now I'll turn the call over to Raj to discuss the third quarter segment results and the balance sheet in more detail. Raj Kumar: Thank you, David, and good morning, everyone. In the third quarter of 2025, Marine Transportation segment revenues were $485 million and operating income was $89 million with an operating margin of 18.3%. Total marine revenues, inland and coastal together decreased $1.2 million compared to the third quarter of 2024 and operating income decreased $11 million or 11%. Sequentially, compared to the second quarter of 2025, total marine revenues decreased 1.5% and operating income decreased 11%. As David mentioned, light feedstocks, good weather, fewer lock delays and less barge maintenance in the industry exerted some downward pressure on utilization and spot market pricing. These effects were partially mitigated by strong execution and continued effective cost management. Looking at the inland business in more detail. The inland business contributed approximately 80% of segment revenue. Average barge utilization was in the mid-80% range for the quarter, which was down from the utilization seen in the second quarter of 2025. Long-term inland Marine Transportation contracts or those contracts with a term of 1 year or longer contributed approximately 70% of revenue with 57% from time charters and 43% from contracts of affreightment. Spot market rates experienced sequential and year-over-year declines in the low to mid-single-digit range, reflecting the impact of market conditions. Term contracts renewed in the third quarter at rates consistent with prior year levels. Inland revenues declined 3% compared to the third quarter of 2024, primarily reflecting lower utilization and a moderating spot pricing, which offset the benefits of improved weather conditions. Sequentially, revenues decreased 4% versus the second quarter of 2025. Now moving to the coastal business. Coastal revenues increased 13% year-over-year and increased 11% sequentially due to the combined impact of pricing and fewer planned shipyards in the quarter. Overall, coastal had an operating margin around 20% due to improved pricing and continuing efforts to leverage costs. The coastal business represented approximately 20% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid- to high 90% range, which is in line with the third quarter of 2024. During the quarter, the percentage of coastal revenue under term contracts was approximately 100%, of which approximately 100% were time charters. Renewals of term contracts were on average higher year-over-year in the mid-teens range. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the third quarter as well as projections for 2025. This is included in our earnings call presentation posted on our website. At the end of the third quarter, the inland fleet had 1,105 barges, representing 24.5 million barrels of capacity. We expect to close 2025 with a similar fleet size and capacity at 1,105 inland barges, representing 24.5 million barrels of capacity. Coastal marine is expected to remain unchanged for the year. Now I'll review the performance of the Distribution and Services segment. Revenues for the third quarter of 2025 were $386 million with operating income of $43 million and an operating margin of 11%. Compared to the third quarter of 2024, the Distribution and Services segment revenue increased by $41 million or 12% with operating income increasing by $12 million or 40%. When compared to the second quarter of 2025, revenues increased by $23 million or 6% and operating income increased by $7 million or 21%. In power generation, revenues increased 56% year-over-year, while operating income increased 96% year-over-year, driven by demand for backup and prime power as well as behind-the-meter power applications. Our orders from data centers and other industrial customers for power generation and backup power installation continues to show strong growth. This has contributed to a very healthy backlog of power generation projects. Compared to the second quarter of 2025, power generation revenues increased by 24% and operating income increased by 87%. Operating margins for power generation were in the low double digits. Power generation represented 45% of total segment revenues. On the commercial and industrial side, activity levels in marine repair remained consistent while we saw a modest recovery in our on-highway business. As a result, commercial and industrial revenues were up 4% year-over-year and operating income increased 12% year-over-year, driven by favorable product mix and ongoing cost savings initiatives. Commercial and industrial made up 44% of segment revenues with operating margins in the high single-digit range. Compared to the second quarter of 2025, commercial and industrial revenues decreased by 3% with steady activity in marine repair and some improvement in our on-highway business. Operating income was down 13% over the same period, driven by unfavorable product mix. In the oil and gas market, we continue to experience softness in conventional frac-related equipment as lower rig counts tempered demand for new engines, transmissions and parts throughout the quarter. This decline in conventional activity was partially offset by revenue from e-frac equipment, which remains a bright spot in the segment. As a result of this mixed demand environment, revenues declined 38% year-over-year and were down 9% sequentially. Importantly, despite the revenue decline, we achieved strong profitability gains with operating income increasing 5% year-over-year and flat sequentially. These results were driven by revenue in our e-frac business and the benefits of disciplined cost management initiatives. During the quarter, oil and gas represented 11% of total segment revenue, and the business delivered operating margins in the low double digits. Now I'll turn to the balance sheet. As of September 30, 2025, we had $47 million of cash with total debt of around $1.05 billion, and our debt-to-cap ratio improved to 23.8% and our net debt-to-EBITDA was at 1.3x. During the quarter, we had net cash flow from operating activities of $227 million. While year-to-date, we had working capital build of approximately $200 million, driven by underlying growth in the business in advance of projects, especially in the power generation space. We started to see some of this unwind in the third quarter as free cash flow improved to $160 million for the quarter. We expect to unwind more of this working capital during the fourth quarter and into next year. We used cash flow and cash on hand to fund $67 million of capital expenditure, primarily related to maintenance of equipment. During the third quarter, we also used $120 million to repurchase stock at an average price of $91 with an additional $40 million in repurchases since the end of the quarter. As of September 30, 2025, we had total available liquidity of approximately $380 million. We remain on track to generate cash flow from operations of $620 million to $720 million on higher revenues and EBITDA for 2025. We still see some supply constraints posing some headwinds to managing working capital in the near term. Having said that, we expect to unwind this working capital as orders ship in the fourth quarter and into 2026. With respect to CapEx, we expect capital spending to range between $260 million and $290 million for the year. Approximately $180 million to $210 million of CapEx is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. Up to approximately $80 million is associated with growth capital spending in both of our business. As always, we are committed to a balanced capital allocation approach. We will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities. I will now turn the call over to David to discuss the remainder of our outlook for the fourth quarter. David W. Grzebinski: Thank you, Raj. We've delivered strong performance through the first 3 quarters of 2025, and 2025 will be a record earnings year for Kirby. As global economic and geopolitical conditions continue to evolve, we remain vigilant in assessing potential volume impacts and are committed to proactive strategies that mitigate risks, safeguard performance and position us for long-term growth. Importantly, despite near-term challenges in the inland market, we remain confident the inland barge cycle still has years to go given the supply constraints. Our structural advantages in marine and growing backlog in power generation provide meaningful upside potential. With our strong balance sheet and robust free cash flow, we are well positioned to pursue strategic investments, whether through targeted capital projects, selective acquisitions or returning capital to shareholders. This financial strength provides us with the flexibility to manage near-term uncertainty while remaining focused on creating long-term value. In inland marine, we anticipate market conditions to remain stable with some early signs of improvement evident so far in the fourth quarter. Barge utilization has improved entering the fourth quarter and is now running in the high 80% range. Seasonal weather factors could work to further reduce barge availability across the industry, which should support higher barge utilization for the full quarter. Our team is closely monitoring for any softness in demand for refined products and chemicals, and we will continue to adapt to shifting market dynamics. But for now, markets appear stable. While term contract rates are expected to continue improving over the long term, driven by the slow pace of new build activity and tight vessel availability, spot market pricing could continue to face modest pressure in the near term if demand softness reemerges. However, thus far in the fourth quarter, we have seen a meaningful improvement in demand. Our team continues to exercise cost discipline in response to shifting market conditions, which has helped us preserve operating margins despite volatility. At the same time, we are selectively holding certain costs steady in anticipation of a robust market recovery, ensuring we remain well positioned to scale efficiently as demand improves. Overall, inland revenues and margins are expected to improve modestly from the third quarter levels, and that is assuming tighter barge availability holds in the fourth quarter. In coastal, market conditions remain robust, underpinned by limited large capacity vessel availability across the industry. This constrained supply side environment continues to drive pricing momentum and is supporting higher term contract prices. Steady customer demand is expected to continue through the rest of the year with our barge utilization in the mid- to high 90% range. With our coastal fleet fully committed under term contracts, we expect to offset any seasonal weather-related impacts and maintain both revenues and margin in line with the third quarter levels. In our Distribution and Services segment, our outlook reflects strength in expanding markets, supported by our team's disciplined execution and focus on growth opportunities. Power generation continues to be a key driver, fueled by strong sales and order activity from data centers and industrial customers. In commercial and industrial, demand for marine repair remains steady. The on-highway service and repair market has shown a modest recovery and is expected to continue its gradual improvement into 2026. In oil and gas, we anticipate revenues to decline in the low to mid-single -- mid-double-digit range, driven by the ongoing transition from conventional frac to e-frac technologies and continued capital discipline among the oil and gas customers. Despite the revenue headwinds, profitability has improved, supported by disciplined cost management and increased e-frac deliveries. Overall, we now expect total D&S segment revenues to grow in the mid-single-digit range for the full year with operating margins in the high single digit. To conclude, we delivered solid performance through the first 3 quarters of 2025, and we maintain a steady outlook for the remainder of the year. Our balance sheet remains strong, and we expect to generate significant free cash flow in the fourth quarter. In the absence of acquisitions, we plan to continue allocating the majority of that free cash flow towards share repurchases. With favorable market fundamentals in place, we expect our businesses to deliver solid and improving financial results for the next several years. We remain confident in the strength of our core businesses and the effectiveness of our long-term strategy. We are committed to capitalizing on growth opportunities and driving sustainable shareholder value. Operator, this concludes our prepared remarks. We are now ready to take questions. Operator: [Operator Instructions] Our first question comes from the line of John Chappell of Evercore ISI. Jonathan Chappell: David, I want to start with power gen. It's still relatively new to the business and to see the type of growth that you put up in the third quarter is pretty eye-catching. So just kind of help us understand, is this going to be a lumpy business going forward? I mean, obviously, I'm not asking you to underwrite 56% revenue or 96% operating income rate of change going forward. But are there going to be quarters where there's big lumpiness associated with contract wins? Or are you at the point now where the backlog starts to transition to revenue and you're going to see at least directionally, a continued ramp in this business, both from the top line and the EBIT contribution? David W. Grzebinski: Yes. There will be some lumpiness, but it won't be as bad as it has been. We -- you know this, John. We get different delivery schedules from different OEMs in terms of engine supply. And so that can make deliveries a little bit lumpy. But to your point, the backlog is -- well, frankly, it's a record backlog right now. I think it's up in mid-teens year-over-year and sequentially, by the way. So it will be smoother, but there will still be some quarter-to-quarter fluctuation. Keep looking at the full year versus the full year last year, and you'll see it continue to grow. The pace of orders we're seeing is really robust. We're getting orders from all of our customers, whether they're behind the meter or power modules, it's been very encouraging. We like what we're seeing. Jonathan Chappell: Okay. Great. And then to turn to inland, I know we don't like to focus too much on the short term, especially given your commentary that there's several years to go in the cycle. But can you help us just understand what's gotten a little bit better in the fourth quarter? I mean the weather is not there yet, but it should be coming. It looks like Venezuelan imports are really kind of spiking. I think crude slate was part of the reason that you got down to the mid-80s. But just any other comments from the chemical customers, line of sight on how we could potentially either maintain these high 80s utilizations or even get to the 90s as you maybe get a little bit of help from mother nature. David W. Grzebinski: Yes. No, look, you've heard us say the third quarter was kind of a confluence of a number of things. One, great weather, as you point out, very few lock delays, the refiners cracking -- although the refiners are very busy, they're cracking a very light feedstock. And then there's a RIN arbitrage that gets them to directly export a lot of refined products. So -- and then the chemicals, as you know, have been a bit weak. So all of that plus less maintenance in the industry kind of put a damper on the third quarter. I would tell you right now, look, we got our first cold front here today in Houston. The refiners are definitely trying to get more heavy feedstocks. So that's very positive. We are seeing a little strength in chemicals come back. Strength is probably too strong of a word. If things go well in China, it could actually get robust, which would be very meaningful for us. But you probably saw one of the major -- one of our major customers announced earnings today, and they had a pretty good chemical result. So that could come back. We are seeing utility come up. I don't know, Christian, what utility is doing. Give them a little more color. Christian O'Neil: So we definitely bottomed out in Q3. But today, we sit comfortably at 87.6% utility in the inland fleet. So we definitely see positive momentum, positive activity in the markets. The crude slate, the heavy crude is on the way. Our chemical customers, although still in austerity mode and under duress, sound a little more optimistic. And I think we're all waited with bated breath to see what happens this week with the executive branches negotiation. So some positive bobs on the horizon, feeling certainly better than we did in Q3. Operator: Our next question comes from the line of Reed Seay of Stephens. Reed Seay: Certainly encouraging to hear some positivity coming on the horizon. Also to kind of focus on the near term. Can you give us an update on how spot rates are trending in October maybe sequentially from September and on a year-over-year basis? I think last quarter also, you had noted that the spread between spot and contract was still maybe in like a 10% range. If you could give an update on what the gap between spot and contract is on the inland side as well? David W. Grzebinski: Yes, for sure. You saw in our -- or heard in our prepared remarks, spot pricing was down 4% to 5% in the third quarter. Term contracts were flat. As Christian said, we bottomed in terms of utility. Things are firming up now. We may see a little spot price pressure in the fourth quarter, but it's starting to firm up. And of course, we've got the fourth quarter renewals, which are important on the term side. We're pretty constructive. Christian can give you some numbers on new builds, but the market is very constructive right now. And we feel pretty good about where kind of the direction that pricing should take in the next few quarters. So Christian, do you want to add anything on the new builds and other comments? Christian O'Neil: Yes. Thanks, David. Thanks, Reed, for the question. Yes, I think we do see some positive momentum in the spot pricing as we get into the fourth quarter here. The first coal fronts here, we feel like we're going to get some momentum. We had a bellwether major term contract renewed recently at a slightly positive increase. And so we're feeling good. It might be a mixed bag as we go into the fourth quarter. But the really important thing is that the total construct for the industry is extremely positive still. In our numbers, we think there's 50 barges delivered this year and an order book of only about 30 next year. And it's a little subjective and hard to get to the exact numbers, but we think more than 50 barges have retired. So the supply-demand balance remains very positive, very constructive. The long-term outlook, very positive, very constructive. And so I think the industry is still in a really, really good spot for the long run and a good cycle. David W. Grzebinski: Yes. Just to cap it off, Reed, spot pricing is still above of term pricing. Reed Seay: Got it. All right. I want to ask about the guidance that you all talked to last quarter with earnings. I think you said the low end was still achievable if you had the softness that you were seeing in July continue through the rest of the year. We have definitely seen it continue in 3Q, and maybe some improvement here in 4Q would be great. Apologies if I missed it, but I didn't see any update on your guidance or your ability to hit the low end of that? I just wanted to get... David W. Grzebinski: Yes. We'll be around the low end. Yes, no real change. We didn't update it because there was no real change. We -- with the spot pricing coming down, we'll be in that low end of the range. Operator: Our next question comes from the line of Scott Group of Wolfe Research. Scott Group: So you said that utilization today is 87.6%. Do you have some sense of -- or can you say where it troughed in Q3? And then just bigger picture, I'm a little confused, right? You mentioned in the press release, conditions are stable, but you also said demand is improving meaningfully. And then just on the last question, you said about spot pricing, we're very constructive, but you're also saying it could be down sequentially. So I'm just a little confused at the messaging are things stable? Are they getting better? Are they getting worse? Just I'm hearing a little bit of both. So I'm just not really sure what's going on. Christian O'Neil: Yes, Scott, let me take a shot at sort of framing that for you. So to answer your initial question, the market troughed at 80% in Q3, and we are at 87.6% today. So we are seeing an improvement in utilization. Certain of our specialty fleets are fully utilized today. So there is positive momentum month-over-month, quarter-over-quarter when it comes to utility. And we're starting to see that get some of that pricing power, but we're very cautious about how optimistic we are about that. It is in a positive direction. It is moving in a positive direction. Utility is moving in a positive direction. But there's things beyond our control that we still -- the macro, the chemical market and some other things that we're trying to navigate. Scott Group: And so is spot price moving higher or lower? Because I guess I've heard both. Christian O'Neil: Spot pricing has moved higher since it troughed out in the 80s in Q3. Spot pricing has moved higher as I sit here today. Scott Group: Okay. I understand. And then I guess we got some like directional color on the power gen backlog. I know most companies that have this are sort of disclosing a backlog. I think it would be helpful. Like can you give us some sense of what -- how big that backlog is in power gen and maybe where it was last quarter, just so we have some sense of... David W. Grzebinski: Yes. I mean sequentially, we're up mid-teens year-over-year, up kind of mid-teens as well. Look, it's at a record. We just don't want to get into the quarterly backlog game, but it's between $0.5 billion and $1 billion kind of range. And yes, it continues to grow. So we're pretty constructive and excited about what's going on in the power gen space. The behind-the-meter growth is becoming more meaningful. Obviously, the power nodes that are being desired out there continue to grow. We have some low-power node stuff, but we're working on some high-power node offerings as well. And it's getting a lot of traction. Yes, I mean you read the news every day on the demand for power driven by AI. It's not abating. Our customers range from data centers to behind-the-meter bridging power to industrial uses. So it's been good. We will consider in the future, maybe disclosing backlog and our book-to-bill, but book-to-bill is well over 1. Raj Kumar: And Scott, if I can add, a lot of the things that we're doing in terms of execution with regards to power generation, all the lean manufacturing that we've done, you're starting to see the results of that play out in terms of the margins and how we're performing. Operator: Our next question comes from the line of Ken Hoexter of BofA. Ken Hoexter: David, if I look at results, right, you got $77 million or give or take, I guess, maybe it's my forecast for next quarter on inland, [ $20 million ] coast-wise, [ $40 million ] D&S. I mean you're almost half the business is now away from inland. So maybe a little more outlook on that power gen stability. I know you were talking about the fluctuations before. Is there less concern about ability to get equipment? Are you now major supplier? Is this one customer driving this? You mentioned a couple different customers, but is it -- we've heard of one large customer that's been sizably ordering from you. Maybe just delve into the power gen given the importance now to the company and the speed at which we're watching it grow. David W. Grzebinski: Yes. Well, first, let me -- your first comment. Inland is still a powerhouse in terms of earnings. And you'll see that it's not going away, and it's going to grow. And as I said in my prepared remarks, we see years left on the inland cycle. If anything, this little third quarter malaise, if you will, is going to extend the inland cycle. And we're generating huge free cash flow from the inland cycle, which is obviously very beneficial to the company. But to your other part of your question, the pipeline is huge in terms of power gen. And we used to have just a handful of customers, and I would tell you that the customer portfolio just continues to grow. We're doing more and more with the co-locator data centers. And unfortunately, we're on NDAs on a lot of these, so we can't even mention the customer names. And then you've got some of the hyperscalers where -- the hyperscalers like to go direct with the engine suppliers and -- but they still need some of our help. And so look, the portfolio is growing. It looks pretty robust. We're continuing to invest in it. Obviously, we have some capabilities around service, which many people don't have. The engine suppliers, they can go direct, but they don't have the service offerings that we do. So that's a big plus for us. It will be lumpy because of the engine supplies from the OEMs. They're trying to balance their load. They're -- I don't want to say sold out, but they're producing as fast as they can and those sales are happening. So we're -- we still have to manage that supply chain with the OEMs. Ken Hoexter: So should we look for like sequential growth in that mid-teens, if that's the order book growth? Or is it lumpy still? David W. Grzebinski: It's still lumpy. I would say you're going to see that mid-teens on average for the full year kind of grow. Maybe it could get up into the 20%. But it will be between 10% and 20% on a full year basis kind of growth. It will be quarterly lumpy based on deliveries. I mean, take a 60-megawatt type order, that's a lot of engines. We've got to get all those engines in delivered from one of the OEMs and then kind of package it and get it out. So it can be lumpy based on when we receive the engines. Ken, just remember that power gen is not just generators. One of the great things is in our e-frac business, we did a bunch of microgrids and that included what we call PDUs, power distribution units. When these customers need to gather all of that power that's being generated, they have to handle the power. We have a very robust offering in power distribution and the software that controls it. And so that is really helping us in our offering. Managing the harmonics, for example, of a bunch of natural gas recips running together and load balancing, that takes some sophisticated software and equipment and -- so it's not just the engines and the generation, the engine power, if you will. It's the whole ecosystem. And fortunately, we've developed that over the last decade with e-frac, and it's a natural extension into this power gen ecosystem. Ken Hoexter: So if I can switch -- it's helpful to understand the breakdown. So if I -- looking at inland, I think you mentioned contract rates flat. I think that's the first time since maybe 2021 that we've seen that backdrop. And I guess, maybe increasing concern as we move into the fourth quarter, given you renewed so much in the fourth quarter. So I want to follow up on Scott's question here where you're talking about up, flat, down and the state of that petrochem market. What's going to lead this? Is it -- if the weather has been fine, as you mentioned to John, is it now increasing flows, increasing demand from chems? Is it the market? Maybe just give a little bit more color on what gets that? And what's the status of the fleet, your fleet? Is it flat? Is it going to increase? Christian O'Neil: Yes. Thanks, Ken. Let me take a shot at that. I guess the overarching theme here is the market has stabilized going into Q4. We do have a slate of renewals ahead of us. If utility can stay up in that high 80%, 90% range, we'll just have to see how everything goes, but there's a positive opportunity there and some momentum there. As far as what the drivers are, the chemical market is a huge driver for us. The -- our customer base there has really slogged through some tough times. The macro markets around chemicals need to improve, and there's some optimism that they will start to improve, and they have troughed as well. So that, coupled with the crude slate changing and heavy up again, getting more heavy feeds will absolutely be net positive. How that exactly plays out, we're in the middle of those negotiations. We're in the middle of the fourth quarter, melee. In the early innings, we've got some wins. Hard to say exactly, but the macro is around the overall health of the chemical market. And again, refiners are very busy. That's a very good thing. They've just been running a very light crude slate, which doesn't throw off as many byproducts that we tend to feed on. So there's some positive optimism there for us, and we'll just have to see how it plays out here. I wish I could give you the definitive answer, but the macro things we don't control, we watch very closely. But there is positive momentum around utility going into these negotiations. The market has stabilized. Ken Hoexter: Great. And your fleet expectations? Christian O'Neil: Our fleet is in great shape, the best shape it has been in. Ken Hoexter: I mean are we staying stable at number of barges? Are we holding? Are you adding? Christian O'Neil: Yes. We're running about 1,100-some-odd barges today, and our fleet is at a very stable place. We're through the eye of the maintenance bubble and in a good spot. Operator: Our next question comes from Greg Wasikowski of Webber Research & Advisory. Gregory Wasikowski: So David, you mentioned the term book renewals on the inland side a couple of times. I think this is something that you've given us in the past. So I was wondering if you could remind us of the general percentage of your inland term book that does roll over in Q4 maybe versus Q3 or the rest of the year, if you're able to? David W. Grzebinski: Yes. Generally, it's around 40% of the term contract portfolio, right? So remember, we've got 30% of our book is spot, which means it's under a year. The 70% is over a year or a year or longer. Most of it is a year. Of that 70%, about 40% kind of renews in the fourth quarter towards the tail end of the fourth quarter, actually. And then sometimes what happens is those renewals will get pushed a week or 2 and may end up in the first quarter. But it is very fourth quarter heavy. And I would say a good number is around 40%. Gregory Wasikowski: Okay. Great. That's very helpful context. Okay. And then on data centers, I have a 2-parter, if you don't mind. Can you remind us what the revenue cycle is like for that business from timing from order and backlog to actual delivery and revenue recognition? I know it probably varies, but just generally, some color there would be good. And then second part of that is, what is your capacity to participate in chunkier orders for larger projects? I'm thinking maybe of the more gigawatt scale variety. Does Kirby have operational limits there for larger orders? Or is it more of an OEM supply limitation? David W. Grzebinski: Let me break it down a little bit. It could -- just the first part of the question, it could be 1 to 2 years depending on the engine supply. These are kind of 2.5 megawatt to 3.5 megawatt type increments on the engine side. And depending on the delivery time from the OEMs, it could be a year or longer, could stretch to 2 years depending on the backlog and the complexity. We -- on your second part of your question, the bigger ones, I alluded to it in one of the questions, we are working on a higher power node offering right now, not at liberty to discuss much of it, but the natural gas recip engines and the diesel engines are in that 2.5-megawatt stuff. We are working on stuff that could be up in the 15 to 20-megawatt kind of range per offering. I can't go into much more detail, but higher power nodes, power density, if you will, can get us to play in that bigger leak. And as you can tell, we have quite a bit of capability on the power side from our e-frac experience. So in the future, you'll hear us talk about it, but it's not ready for prime time. Gregory Wasikowski: Okay. Got it. And just timing on revenue recognition, maybe more of a question for Raj, but does that happen closer to the end of the cycle with delivery? Or do you... David W. Grzebinski: We don't generally use POC. It's pretty much as shipped. And that's why it contributes to the lumpiness. Don't get me going on why I don't like accountants, but... Operator: Our next question comes from Sherif Elmaghrabi of BTIG. Sherif Elmaghrabi: First, I'd just like to follow up on Ken's question about the fleet. Has the pocket of softness we're seeing in inland raised more strategic opportunities? Just thinking some operators might have less robust balance sheets or is it too small of a pocket? David W. Grzebinski: Yes. Short answer is a little bit. Yes, there are some people that maybe don't have as strong balance sheet. But look, it's still a pretty good time in the inland market right now. I mean we're at high teens margins. And the other industry may be a little lower than us in margins, but it's still a pretty good market. The cash flow profile of most of our competitors is probably pretty good. That said, these little dips and changes kind of make them reevaluate whether now is a good time to sell. So on the margin, maybe it's a positive towards acquisitions. Gosh, I wish there was a nice, easy formula, but acquisitions are hard to predict. I would tell you, we're more than ready to do 1 or 2 if they show the way forward on it. It's just hard to predict. I wish I had a better answer for you. Between Christian and I, we talk to basically everybody in the industry and know what opportunities are out there, and we're always looking. Everybody knows that Kirby is willing to transact. So we'll just have to see how it goes. Sherif Elmaghrabi: No, that's helpful. And then on the coastal side, that business has really progressed over the last couple of years. Given it's a longer cycle business, do you think the coastal market is sensitive to the crude slate similar to what we're seeing in inland? David W. Grzebinski: Not as much. No, not as much. The coastwise business is more concentrated in terms of capacity sizes. In the inland size, we have 10,000 barrel barges and 30,000 barrel barges and there's 4,000 of them. In the coastwise ATB market, there's probably less than 200 units. So it's a little more concentrated, a little more stable when there's no new capacity coming in. And Christian can share with you, but we are unaware of any new capacity coming in. And if some was to come in, I don't know how long would it take? Christian O'Neil: Yes, at least 2, 3 years for any meaningful new build capacity to hit the market. So the coastal cycle is in a great spot, extremely tight vessel supply. The shipyard capacity is constrained right now. There's a lot of those bigger shipyards that can build the offshore units are highly focused on some governmental projects as the U.S. desire to grow our shipping presence globally, continues, and you see momentum in the shipyards there. So yes, coastal is in a great spot. Those big assets that are in our customers' portfolios, they're going to keep those utilized, and it remains that way today. Operator: [Operator Instructions] Our next question comes from the line of Bascome Majors. Bascome Majors: David, to follow up on the last question on M&A. It sounds like this sort of blip in demand and spot pricing hasn't really adjusted seller expectations in any meaningful way. But when you look back at prior cycles and when you've had real opportunities, if this does go in the direction you don't hope it does cyclically and that gets worse and not better, how long of a downturn has really opened up sellers' eyes to the opportunity to perhaps look at partnering with Kirby? And is it cash flow stress? Or is it just kind of a peaky market and fear of what might be below that's really been that catalyst? David W. Grzebinski: Yes. It's actually been both. Sometimes it's cash flow. I mean we've got a few where in prior cycles, they were close to bankruptcy or close to insolvency, and we've stepped in. In the other cases, it's the cycle's doing okay. I'm not selling at the bottom. Let me go ahead and transact instead of waiting for the next real big problem. So it's a little of both. We bought them on both ends of that spectrum. So it just depends on the seller. I would just tell you, our balance sheet is the best it's ever been. I think our debt-to-EBITDA is 1.2x, 1.3x. As Raj said, our free cash flow is really strong. I mean this quarter, we should be north of $200 million in free cash flow. As you've seen in the absence of acquisitions, we've been repurchasing shares. I think we repurchased 1.3 million shares in the third quarter. And so far in the fourth quarter, we've repurchased over 400,000 shares. So we're buying a good barge company by buying back our shares. We'd be happy though to buy a competitor and consolidate a bit. But we'll be patient, and we've got the balance sheet to do whatever we need to do when the opportunity arises. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Kurt for closing remarks. Kurt Niemietz: Thank you, operator, and thank you, everyone, for joining us today. As always, feel free to reach out to me throughout the day for any follow-up questions. Operator: All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to the Clean Harbors Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Thank you, sir. You may begin. Michael McDonald: Thank you, Christine, and good morning, everyone. With me on today's call are our Co-Chief Executive Officers, Eric Gerstenberg and Mike Battles; our EVP and Chief Financial Officer, Eric Dugas; and our SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our Investor Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, October 29, 2025. Information on potential factors and risks that could affect our results is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our IR website and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to start. Eric? Eric Gerstenberg: Thanks, Michael. Good morning, everyone, and thank you for joining us. As always, let me start with our safety results. Through September 30, we were at a TRIR of 0.49, putting us on a track record for another record year. We are extremely proud of that performance. The only way you achieve this level of excellence is with constant operational focus from the whole team to protect themselves and each other. Safety performance delivers measurable benefits across multiple dimensions from enhanced operational efficiency and productivity to stronger employee retention and company reputation. For any team members listening, congratulations on these great safety results, and let's finish strong in Q4. Turning to a summary of results on Slide 3. Our Q3 performance reflected year-on-year growth from an increase in overall waste volumes into our network. Pricing gains and increased productivity even in an environment where softer conditions resulting from macroeconomic factors have impacted some customers. Our ES segment grew on strength in Technical Services and SK branch. Our Safety-Kleen Sustainable Solutions segment performed in line with expectations, mainly due to our charge for oil program and product mix. Driving margin growth continued to be a focus for us as we are -- we were pleased to see our consolidated adjusted EBITDA margin increased by 100 basis points from a year ago to 20.7%, demonstrating the effectiveness of our pricing, the leverage in our network of permitted facilities and cost-saving strategies. Within all of the underlying ES businesses, we drove pricing gains and improved productivity while lowering costs, driving better margin contributions. Corporate segment costs were up from a year ago, primarily due to higher insurance expenses and health care increases, offsetting partially by cost-cutting actions. Overall, Q3 results fell slightly short of our expectations due primarily to slowness in field services and industrial services, combined with some higher-than-anticipated employee health care costs. We remain optimistic with the continued growth and momentum in our waste collection and disposal assets. We believe that the productivity and margin enhancement initiatives undertaken throughout 2025 and across our businesses put us in a position to benefit as some macroeconomic conditions improve. Turning to our segments, beginning with ES on Slide 4. Segment adjusted EBITDA margin grew year-over-year for the 14th consecutive quarter, with revenue up 3% and adjusted EBITDA up 7%. Our waste volumes, PFAS work, remediation projects and pricing drove our revenue increase as that more than offset the slowdown in Industrial and Field Services. Looking at revenue by the segment components. Technical Services led this quarter with 12% growth as demand was steady. Incineration utilization remained high and our landfill volumes were up 40% from a year ago. Incineration utilization was 92% versus 89% in the same period of 2024. For comparison purposes, our utilization excludes the new unit in Kimball as we continue to ramp up. With Kimball included, our utilization rate was still high at 88%. As we've seen in the past several quarters, incineration demand has remained high due to the diversity of our end markets as well as projects underpinning our growth. Our sales teams have done an excellent job winning volumes in an environment where some of our customers have been impacted by current economic conditions. That sales effort includes our SK branches who have consistently driven significant containerized waste volumes into our network. In Q3, Safety-Kleen Environmental Services rose 8% through a combination of pricing gains and growth in our core service offerings. The number of parts washer services was 249,000 in the quarter with a larger average service ticket per stop. The consistency of that business has been a key element to our profitable growth over the past 5 years. Field Services revenue declined a 11% from a year ago, more than we anticipated in our guidance. This shortfall reflects the absence of medium to large response projects. While we responded to more than 5,900 ER events, demonstrating consistent baseline demand, the revenue impact came from having no substantial projects. Within Industrial Services, we continue to see customers in both the chemical and refining verticals limit their spending on turnarounds as they remain under significant cost pressure. As a result, revenue was down 4% from a year ago. In light of these market conditions, we focused on cost management, including workforce and equipment utilization. While we are hopeful that maintenance deferrals from IS customers we've seen for the past few years improves, we do not expect any meaningful recovery in revenue opportunities for chemical and refining customers before the spring turnaround season. Based on our service platform and extensive lines of business we provide, we are focused on growing our wallet share with these customers. Turning to Slide 5. We want to highlight our recent successful PFAS incineration study done in partnership with the EPA as well as the DoD. This study, which we completed in late 2024 in our Utah facility was a milestone achievement for the company. The study published by the EPA in September provided the type of scientific data sought by customers and regulators. The study was conducted using the EPA's most recent and rigorous emission standards. The study confirmed what we already know. Our RCRA-permitted high-temperature incinerators cannot only safely destroy these forever chemicals in various forms, but can do so at a cost-effective commercial scale. In addition, our total PFAS solution has continued to gain traction in the marketplace with offerings ranging from lab analytics to water filtration to site remediation to disposal. We are in active discussions with customers on projects across many of these fronts and expect PFAS to generate $100 million to $120 million of revenue this year, up 20% to 25% from a year ago. Moreover, based on our pipeline and our momentum in the marketplace, we expect PFAS-related sales to further accelerate in the years ahead. With that, let me turn things over to Mike to discuss SKSS and capital allocation. Mike? Michael Battles: Thank you, Eric, and good morning, everyone. Turning to SKSS on Slide 6. This segment delivered results in the third quarter that were in line with our expectations. Despite pricing headwinds in the base oil market all year, we effectively managed our re-refining spread and drove value from other initiatives. During the quarter, we dramatically lowered our waste oil collection costs versus a year ago as we advanced our CFO program. It is clear that our used oil customers understand that we are collecting a waste from them and providing value and reliable services. The team continues to manage costs while still collecting the volumes we need to run our plants. In Q3, we gathered 64 million gallons of waste oil, which is consistent with the second quarter. On the top line, our revenue decreased as expected. In terms of profitability, our adjusted EBITDA was essentially unchanged. The result was a 100 basis point margin improvement, largely stemming from the CFO increase, cost reduction initiatives and efficiency gains. We also increased our direct lubricant sales, which are among our highest margin gallons to 9% of our total volumes, which also contributed to that margin improvement. During the quarter, we continued our partnership with BP Castrol to support their more circular offering for corporate fleets. Additionally, we are growing our Group III production as those gallons carry a premium to our traditional Group II volumes, and we remain on track to add several million gallons of Group III this year. Turning to Slide 7. Today, we announced plans to construct a state-of-the-art processing plant that we refer to internally as the SDA Unit. By using an industry-proven Solvent De-Asphalting process and combining it with our existing hydrotreating capabilities, we can unlock incremental value from an everyday product, VTAE generated today in our re-refineries. This new plant will upgrade VTAE into a high-value 600N base oil. 600 neutral is a high-purity base oil that is typically used in heavy-duty industrial applications due to its durability and high-performance characteristics. Total spend on the SDA Unit is expected to be $210 million to $220 million with commercial launch anticipated in 2028. We spent approximately $12 million on this project year-to-date with a total of approximately $30 million expected in 2025. As a result of the project, we expect to generate annual EBITDA in the range of $30 million to $40 million, a 6- or 7-year payback on the investment once completed. Such return will rival what we've seen from similar sized incineration projects and represents an additional growth opportunity for SKSS. Turning to capital allocation on Slide 8. We remain active in seeking opportunities to generate strong returns for shareholders. We also remain well positioned to execute our strategy with record cash flows in Q3, low leverage and a terrific balance sheet. On the M&A front, we're evaluating both bolt-on transactions and larger acquisitions that would provide leverageable assets with high synergy potential that support our market position in a particular business or geography. We believe that in our space, it is best to be patient and prudent in pursuing the right transactions. We've also been evaluating a series of internal investments, including today's announcement of the SDA Unit. Including that facility, we currently see a path to potentially investing over $500 million in internal projects over the next several years, ranging from greater processing capabilities within our network, additional hub locations, fleet expansions and additional incineration capacity. We look forward to sharing more of these plans with you in the coming quarters as plants for individual projects get finalized. We also view share repurchases as an attractive capital allocation opportunity to generate strong shareholder returns as demonstrated by our $50 million in repurchases in Q3. Looking ahead, while we believe that the challenges we faced in Q3 are temporary and market-driven with year-over-year growth illustrating our resiliency, we expect our incinerators to run strong through year-end and waste projects to continue to feed our entire disposal and recycling network. Tariff-related uncertainty and other macro factors in North American economy have ripple effects through some of our customers over the past 2 quarters, but we believe the overall economic outlook remains promising. Based on conversations with customers, we anticipate incentives to reshore and the benefits of the recent U.S. tax bill will drive meaningful lift in American manufacturing and continue to support remediation and waste projects. We expect that spending constraints related to Industrial Services and Field Services in our key verticals, including chemicals and refineries will loosen in the coming quarters as economic conditions improve. Overall, our project pipeline remains substantial with growing PFAS opportunities expected to contribute meaningfully to future activity. We also remain excited about the steady ramp-up in production and mix in our new Kimball incinerator as it works towards full capacity. For SKSS, we believe we've stabilized this business with our efforts around CFO, partnerships and Group III production and are looking forward to the new SDA Unit. We expect to achieve our profitability targets for this business in 2025. And with that, let me turn it over to our CFO, Eric Dugas. Eric Dugas: Thank you, Mike, and good morning, everyone. Turning to our Q3 results and the income statement on Slide 10. While our quarterly performance came in below our expectations due to the factors Eric outlined, primarily a shortfall in Industrial and Field Services plus elevated health care costs, I want to highlight the underlying strength in our business. Total revenue increased to $1.55 billion in the quarter, with Environmental Services growth stemming from our wide range of service offerings and diversified customer base. Adjusted EBITDA increased 6% to $320 million, demonstrating our ability to drive profitable growth through a steadfast commitment to margin expansion. Our consolidated Q3 adjusted EBITDA margin expanded to 20.7%, led by a 120 basis point improvement in Environmental Services. This margin expansion reflects our strategic focus on pricing initiatives, cost reduction efforts and productivity gains as we see evidence of margin improvement across each of our business units within the ES segment. Within Environmental Services, demand in our disposal network and collection businesses remained solid, driving revenue growth despite macro headwinds in some verticals like chemical. SKSS delivered more than $40 million in EBITDA, its strongest quarter in the year demonstrating operational resilience in a soft base oil market. SG&A expense as a percentage of revenue increased from a year ago to 12.2%, reflecting higher health care costs, professional fees and compensation. We are maintaining our full year SG&A guidance as a percentage of revenue in the low to mid-12% range. Depreciation and amortization was approximately $115 million, reflecting our continued capital deployment, including Kimball operations and increased landfill amortization related to greater disposal volumes. We've raised our full year depreciation and amortization guidance to $445 million to $455 million, primarily due to the strong landfill performance. Income from operations in Q3 was $193 million, flat versus the prior year as our 6% adjusted EBITDA growth was offset by higher depreciation and amortization, as I just mentioned. Net income grew modestly year-over-year, delivering earnings per share of $2.21. Turning to the balance sheet on Slide 11. With continued focus on cash flow generation and a record level of free cash flows in the quarter, we ended Q3 with cash and short-term marketable securities of $850 million, providing substantial flexibility for our capital allocation strategy that Mike just outlined. Our recent refinancing was executed at favorable terms as we replaced our 2027 senior notes with 2033 senior notes and replaced our term loan at a more favorable rate of SOFR plus 150 basis points. This refinancing provides us with more surety, extends the maturity of the debt, increases our flexibility and demonstrates market confidence in our credit profile. With net debt-to-EBITDA below 2x and a blended interest rate of 5.3%, we maintain a conservative capital structure. Our credit profile remains strong, just one notch below investment grade on our overall debt rating, while our secured debt carries an investment-grade rating, reflecting the quality of our asset base, cash flow stability and overall capital policies. Turning to cash flows on Slide 12. Our Q3 cash flow performance was exceptional. Operating cash flow of $302 million and a Q3 record adjusted free cash flow of $231 million, which was up $86 million year-on-year, underscores the generative nature of our -- the cash-generative nature of our business model. CapEx net of disposals of $83 million was down from the prior year, reflecting disciplined capital allocation. As previously highlighted, we began construction of our high-return re-refinery project, investing more than $10 million in Q3 to launch this exciting initiative that we expect to deliver excellent shareholder value. We also continued advancing our strategic hub facility in Phoenix, further strengthening our network capabilities. For 2025, excluding the SDA Unit and Phoenix Hub project, we now expect our net CapEx to be in the range of $340 million to $370 million. This is slightly down from our previous range as we expect asset sales to be closer to $15 million this year instead of the $10 million previously thought. We bought back more than 208,000 shares of stock for a total spend of $50 million in Q3. We currently have roughly $380 million remaining under our authorization. We continue to view our shares as attractively valued at current levels. Turning to our guidance on Slide 13. Based on Q3 results and current market conditions for both of our operating segments, we are revising our 2025 adjusted EBITDA guidance to a range of $1.155 billion to $1.175 billion or a midpoint of $1.165 billion. This adjustment reflects the Q3 EBITDA results factored into our annual guide. Importantly, we anticipate any Q4 carryover effects in the Field Services or Industrial Services will be offset by our facilities performance, project pipeline and PFAS opportunities. The long-term trends of PFAS, remediation and reshoring create substantial upside potential with recent developments like our EPA incineration study further validating our strategic positioning. For the full year 2025, our revised adjusted EBITDA guidance will translate to our reporting segments as follows: at our guidance midpoint, we now expect 2025 adjusted EBITDA in Environmental Services to increase by more than 5% from 2024. While recent economic turbulence has impacted some aspects of our business, we're optimistic about our future and ability to navigate the current landscape. SKSS is stabilizing effectively, we continue to expect full year 2025 adjusted EBITDA at the midpoint of our guidance to be $140 million. The combination of our operational improvements, CFO strategy and initiatives that Mike outlined have established a stable foundation for this business. Within corporate, at the midpoint of our guide, we expect negative adjusted EBITDA to now be up 3% to 5% compared to 2024, driven by growth-related expenses, higher wages and benefits and rising insurance costs. We continue implementing multiple cost savings initiatives to partially offset these increases. We are raising our full year adjusted free cash flow guidance to a midpoint of $475 million based on year-to-date performance and favorable provisions passed in the U.S. Tax Act this summer. This represents more than 30% growth from 2024, underscoring our focus and ability to convert earnings into substantial free cash flow returns. While Q3 presented near-term challenges, our highest margin businesses continue to grow and demonstrate competitive strength. Our incinerators, landfills and other permanent locations drove our profitable growth and supported our margin improvement. The slowdown in Industrial Services reflects deferred maintenance and projects that will return to market, positioning us well for recovery. Within Field Services, we remain confident in our prospects despite the absence of medium and large event work in the third quarter. SKSS appears to have leveled off, and we expect this segment to deliver greater consistency moving forward. We look to finish the year strong and carry that momentum into 2026 and are excited about the many growth and margin increasing initiatives undertaken this year, which place us in a solid position for profitable growth as macro conditions improve and we execute on longer-term goals. With that, Christine, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Tyler Brown with Raymond James. Patrick Brown: So it feels like there's a lot of puts and takes out there. The industrial malaise, I guess, continues to march on a bit. But Eric Dugas, just it looks like you brought the midpoint down, call it, $15 million. But if you had to bucket the culprits, would you say it was really the field and industrial shortfall? And then how big was the health care issue? You brought it up a few times. Was that onetime? Or is that a go-forward step-up in cost? Eric Dugas: Sure, Tyler. So in terms of the total takedown, the $15 million, a lot of that is reflected in our Q3 results. Industrial Services being the most predominant piece of that, we estimate maybe $7 million. Field Services, really just the lack of those medium and large projects that we've seen a good chunk of in earlier quarters, probably about $4 million. And then the healthcare in the Environmental Services segment is about $4 million and probably about $6 million overall to the entire company. So I think you're absolutely right in terms of a lot of puts and takes. We still see really strong momentum and good volumes in more of our waste disposal-related businesses of tech services and SKE and think those will perform quite strong kind of here into Q4 and into 2026. I guess the last point on healthcare, Tyler, it is a trend I think a lot of companies are combating. We have built in the increases into our Q4 guidance, and we're in the process of doing some things to make sure that we can offset some of the increases we're seeing there. But probably not entirely unusual, but certainly higher cost than we would have liked here in Q3. Michael Battles: Tyler, this is Mike. The one thing I'd add to what Eric said, we did have a fair amount of high-cost claims. That's much higher than, let's say, averages for the past 2 or 3 years. Hard for me to say if that's the new normal. It doesn't feel that way. But as Eric said, we're trying to make sure we're changing some of our plans to make sure we cover off on that in 2026. Patrick Brown: Okay. Okay. That's helpful. And then I appreciate that you guys aren't giving '26 guidance. But conceptually speaking, I mean, should we think about EBITDA on a more consolidated basis kind of flattening out year-over-year just into maybe the first part of '26. It sounds like maybe, Eric Gerstenberg, you're not looking for an industrial pickup really until the spring turnaround season? Or are there enough internal levers to kind of drive the EBITDA growth even in the first half without a whole lot of economic help? Eric Gerstenberg: Yes, Tyler, I'll start. And certainly not expecting a real rebound of an industrial turnarounds until the spring. However, we're going to continue to grow our EBITDA across our waste collection businesses and our service businesses as well. So we're looking at next year, preliminary. We're still of a budget process to go through. But 5% EBITDA growth, I mean, we're really still targeting that. We think we can do that based on the demonstration of cost-cutting initiatives and volume and pricing growth in those waste businesses. Patrick Brown: Okay. That's extremely helpful. And then I do just want to come back to capital allocation, Mike and Eric, just obviously, you guys announced a very sizable organic growth project. I'm sure someone will go over all of that. There was another decent buyback in the quarter. But just realistically, what should we be expecting on the M&A front? I mean, how does that pipeline look? Are you looking at bigger deals? Are you looking at smaller deals? Do you think you can get something across the line this year? Or is that something maybe more into '26? Michael Battles: Yes, Tyler, the answer to that question is yes. So we are looking at larger deals. We're looking at smaller deals. I think that we obviously, we talk about the SDA and happy to go into that and maybe other projects we're thinking about. But in the interim, we want to remain prudent. We want to remain disciplined, like we have for the company's history, frankly. But certainly in the past couple of years, we certainly try to be very thoughtful about it and make sure we're getting a good return on our shareholders' investment. And I think there's plenty of things out there, both large sizes, publicly available and smaller things that are out there. And so we remain very active. In the interim, we did buy back some shares. I don't think that's a change in trends. That's more like we saw opportunities there to take advantage of some market dislocation, and we took advantage of that, and we bought back over $115 million worth this year. And so I think that's a good return on our shareholders' investment. So we'll continue down that path. I don't think that's a change in strategy. But we see ourselves as a growth company. We see ourselves as M&A company, and we'll continue to do things like that. Patrick Brown: Okay. Perfect. Michael Battles: And one follow-up, too, Tyler, when you think about the 5% that Eric mentioned, obviously, budget processes is in that area code. It's probably -- most of that's going to be in ES with a little bit in SK and a little bad guy in corporate, I think as I think about the piece parts of that. Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Let's kind of continue along the capital allocation theme. Made some really nice progress this year on free cash flow conversion and free cash flow generation, as you talked about, Eric, with Kimball rolling off and the underlying growth. Mike, when you talked about potentially up to $500 million of organic investments and obviously, this SDA investment might be part of that. Can you give us some guardrails around where you want to convert free cash flow to EBITDA within the business broadly over the next couple of years? Is there a baseline we should think about? And I know it's a little bit path dependent on what kind of M&A you do. But just kind of try to give us a baseline level that we should be underwriting here? Eric Dugas: Sure, Noah. So this is Eric Dugas. And I think you're absolutely right. The free cash flow generation has been fabulous this year, a lot of initiatives on that front. As we look out into the future, I think we're going to continue to target kind of that 40% free cash flow generation, 40% of EBITDA. I think there'll be pluses and minuses to that along the way for the minuses would be these accretive capital investments that we mentioned that will be adjusted out of that, and we'll call that out and explain those clearly. But those are really growth projects that we see, and that will be a detriment to the 40%. But normal baseline guardrails, I'd say 40% conversion and each year trying to grow up from that. Michael Battles: I think the team under Eric's leadership has done a great job with cash collection. The organization has done a great job with cash collections, managing our spend, and you really see it in the margin improvement, and that's really been helpful trying to get to that 40% and hopefully beat that over the next few years. Noah Kaye: Okay. And just so we're clear, you do intend to formally adjust this SDA investment out of free cash flow because that was not the case with Kimball, right? So is that kind of the practice going forward that these extraordinary organic investments would be excluded? Eric Dugas: Yes, you got it Noah. Noah Kaye: Okay. And then I guess to double-click on this specific investment, I think just help us understand some of the key assumptions you made in underwriting this. I mean you talked about the 6- to 7-year payback. Obviously, we've seen the value of base oils fluctuate a lot over the company's history. What is it sort of dependent on to hit those target returns from a commodity value, if at all? Eric Gerstenberg: Yes. Noah, this is Eric. I'll start. It's really a great investment for us. It's a bolt-on technology out at our East Chicago refinery, and it's upgrading a product that we already produce called VTAE, Vacuum Tower Asphalt Extender, and it's moving it up the value chain by implementing this technology and taking over 30 million gallons of what we already generate and sell and creating it at a better market value. There is some -- certainly some fluctuations in the price of that 600N product. It's not as -- it doesn't fluctuate as much as base oil. It's used in heavy-duty applications. So it's a more stable price look at when we sell that product. So we're excited about that. Overall, though, it's just a straight baseline upgrade of that 30 million gallons into a new arena, bringing that up the value chain, proven technology with a hydrotreater back down the back end. And so we're excited about that incremental $30 million to $40 million of EBITDA once we start up in 2028. Michael Battles: And Noah, one thing I'd add to that is that, as Eric said, we're using kind of our -- the byproduct of the re-refining process, VTAE, as Eric mentioned, and using that in this process to make a higher-value product. But there's also that -- we're not -- this won't fill -- that 30 million gallons won't fill the new product. We'll have an opportunity to grow from there. We're not assuming we get any other VTAE from any other third parties, which that would be upside to the model. The reason why I bring that up is just as an example is that I think that as we built this model up, it came up with the $30 million -- $30 million to $40 million that we spoke of in the live call, I think there's plenty of upside to that model. I think that we -- I thought Eric and I went through the analysis with the team, we're very reasonable in our assumptions as far as how we build it, how we think about the price of VTAE, how we think about the price of 600N, how we think about the cost of building the plant, how we think about the time line of building. I mean we thought through that. We've had many, many meetings on this with the team and with the Board to ensure that we're doing this in a thoughtful way. So we continue to do, what we've done with every large project on time, on budget, hit the numbers we say we're going to hit, simple as that. Noah Kaye: If I could sneak one more in. I think you're clear now on sort of the delta versus expectations in Industrial and Field Services. I guess just from a forecasting perspective, I know usually, IS tends to gather steam into September and then October is kind of the big month. So with that particular line of business, was it just the case that these deferrals really started to manifest late in the quarter and kind of continued through October here, and that's what we're seeing? And is there some way to think about normal seasonality in the future perhaps being different at all than what we've seen in the past? Eric Gerstenberg: Yes. No, I'll begin. This is Eric. When you look at kind of what occurred in the quarter, our turnarounds have been -- the number of count of turnarounds has been pretty stable. There's been some pushes. But overall, when we get into working for the turnarounds at our customer sites, the scope of the turnaround ends up being a little bit less than what we originally quoted or scoped with that customer. They really wanted to get the units cleaned and back online as quickly as possible. As we proceed into the fourth quarter, we took that into our guidance for the fourth quarter. We're still having turnarounds here, as you mentioned, as we flow into October here, and that's solid. But we're -- we really didn't -- we pared back a little bit of what we expected based on the third quarter results. And we truly expect as things continue to stabilize that as we get into 2026, we're not losing turnarounds to any competition. We're performing all the turnarounds. And we're going to -- we expect it to have a little bit better growth path as the economy recovers a little bit, particularly in the chemical and refinery sector. Eric Dugas: Yes, I think just to add one thing to what Eric said and one thing that we can see in our P&Ls and here around the business is the business is -- we're setting ourselves up really well for when things loosen up and come back. And when I look at even the Industrial Services P&L, Noah, I can see much better labor management. So I can see labor as a percentage of revenue in a better spot. I can see overtime coming down as a percentage of revenue. I can see us using less subcontractors and internalizing more work. So despite the financial results here in Q3 and what we believe into Q4, which is really impacted by the cost pressures, particularly in chemical and refinery, as we said, that those customers are seeing, we set ourselves up really well for when things change in the future because I do think those investments, particularly on the labor front and other areas, we should reap benefits of that hopefully next year, but definitely in coming years. Operator: Our next question comes from the line of Jim Schumm with TD Cowen. James Schumm: So maybe just help me understand, I'm sure other people don't know the 600N base oil market very well. Can you just help us with like what is the market pricing right now? What is like peak to trough pricing for this market? What's the total demand? Just how should we think about this? Like what's the total demand this year? What was it 5 years ago? Is demand expected to grow? Why? What's the end market? Just help us understand this is a fairly big investment for you guys. So I just want to understand this market a little better? Michael Battles: Yes, Jim. So we have an hour on the call, we're not going to take an hour trying to explain that 600N base oil market. But I will tell you, I will tell you that it is used primarily in industrial applications, which tend to be a little more resilient and gear oils, heavy-duty diesel engines, hydraulic oils is not as sensitive to electrification as passenger car engine oils would have. We've had a lot of customers express interest in this high-value buying this high 600N oil, and we've kind of worked out. We've kind of given them samples of what we provided, and they seem like there's a very good receptivity in the marketplace for this base oil. When you think about that the market, we'd be a very, very small player in a very large market. It tends to trend a little bit with Group II base oil, which has been down over the past couple of 3 years, but it's at a much higher premium. And it's been a consistent dollar premium to what we're thinking in the Group II base oil. And most of the country has to import 600N today, including from Korea and from other places. And so it's hard to kind of put a finger on, what's it going to be 3 years from now. We're assuming that the trend we see of some decrease -- we're assuming decreases over the modeling period. We're not expecting this plan to get turned on until 2028. So we do have some time there. But I do think that we've cut this way -- we've cut this 7 different ways. So let's assume that base oil -- the Group II 600N pricing is down. I think there's other levers out there, including taking additional VTAE from other customers to help offset that. I think the model that we put forth, I think, is a very balanced model. Hard to predict what happens to base oil, hard to predict what happens to 600N oil, but we think we have enough levers in the actual model that even if that comes up a little softer than we expect, there's other levers we can pull to help offset that to kind of get to where we need to get to. Again, we've consistently put together a large-scale construction projects that are on time and on budget that hit or exceed the EBITDA numbers that we have quoted. I believe this is no different. James Schumm: Mike I just wanted to clarify, it sounded like you -- were you saying the consumption, you're expecting the consumption to decrease over the next couple of years of this oil? I did I... Michael Battles: No, no, no. It is more about -- we have assumed pricing goes down a little bit in the modeling period not the demand per se. And the point I think that maybe I misspoke is that when we produce this 600N oil, we still be a very small player in a very big 600N market, I guess what I'm trying to say. James Schumm: Okay. Okay. All right. Maybe switching over to the SKSS guidance. I kind of -- my recollection was just that it was sort of the $140 million was the number. You guys just referenced a midpoint. What is -- just so everybody is clear, like what is the range for SKSS this year? So -- and then what's the confidence level in hitting that $140 million midpoint? Eric Gerstenberg: Jim, Eric here. I'd say that as we sit here today, we're very confident in that $140 million mark. To range bound that, I hesitate to do so. You might have to force me into a range, maybe it's a few million on either side. But the way the business is performing right now, particularly around our initiatives of CFO and our ability to continue to drive CFO pricing due to market conditions. The catalyst of that is obviously the high level of service we continue to provide and the fact that we haven't lost customers. I mean that really is the area that the team has done excellent on this year, and that gives us the confidence that we'll be able to meet that $140 million of EBITDA. So hopefully, that answers your question. Range bound, we haven't really looked at it that way, but high confidence in that number right now. Eric Dugas: We feel the $140 million is the new low watermark, we grow from there. Operator: Our next question comes from the line of David Manthey with Baird. David Manthey: My first question is on incinerator pricing. I didn't see a number in the slide deck. Could you talk about what that was? And then somewhat related, I know you gave the data specifically in the 10-Q later today, but could you talk about specific growth rates for Industrial Services, Field Services, SKE and tech services? Eric Gerstenberg: Sure. Dave, it's Eric. I'll take that, and I'm sure the guys will add on. In terms of incineration pricing, there's pockets, but over the entire population, we're looking at mid-single digits again, I think pretty consistent with prior quarters. In terms of the different sub-business lines or business units underneath ES, you'll find our tech services business, really great revenue growth there, some nice volumes, good pricing, but some of our -- as we alluded to in the prepared comments, kind of waste remediation projects, those types of things really saw a really strong quarter. So you're looking at double-digit growth there. Safety-Kleen branch continues to do really well. Again, some nice initiatives around our back services and pricing, mostly leading to about an 8% growth. And then we mentioned Field Services, not overly concerned here. You'll see, I believe, about a 9% drop in revenue there, maybe a little bit higher, maybe 11% now that I'm thinking it through. But really, it's those projects that didn't come through kind of medium, large-scale projects. We're not overly concerned about that right now. These things can be a little episodic. But when you look at that business over the longer term over the last few years, you're going to see some nice organic growth there. So not concerned with that. And then Industrial Services, as Eric mentioned earlier, about, I think, a 3% or 4% decline kind of year-on-year there, largely related to the turnaround services. David Manthey: That's great. And I know we've talked a lot about capital allocation here this morning. But does the investment you're making in this SDA Unit say anything about your M&A outlook? And I was also wondering that since you put out these Vision 2027 goals, we're a little bit past half time here. I think HydroChem was already in that 2022 starting point, and you've added Thompson and HEPACO basically. But could you maybe talk about how things have played out since that update and kind of how you're thinking about the market in general? Michael Battles: Yes, Dave, this is Mike, and I'm sure Eric and Eric have some thoughts on this as well. But the SDA Unit has no reflection on our M&A appetite. That was -- that's been an investment that we've talked about internally for a few years, frankly. And so this is more like, hey, we got the Board approval. We're starting to spend money on it. We should talk about it. It's a material asset that we need to make sure that our investors understand and we track against that. So that's really the driver of the discussion of the SDA. The other items that are out there, the $500 million, those are other things we're thinking about. As we think about where we go next with this, things like adding more hubs or making some investments in other incineration capacity. These are not new topics that we've talked about many times before. So it's more like just trying to say, look, that's another good use of capital that has great awesome returns, as you saw from the math that we're doing on this. So that's just a good use of capital. We're going to have $1 billion in cash by the end of the year. We're going to generate another high $400s million of cash flows in 2026. I mean those are -- we're going to have plenty of cash to do a variety of different things, including good M&A. As Eric mentioned in his Eric Dugas in his remarks, the leverage market is very -- our leverage is very low. Our appetite for debt -- from our debt investors is very strong. It was way oversubscribed. We got the rates. Eric and the team did a great job of pushing that debt out for a number of years, and it shows the appetite that the marketplace has for our high-quality debt because it's a high-quality asset. So it doesn't change one little bit. When thinking about Vision 2027, that was always a vision, just what it was. It was a vision of where we want to take the company, but we want to be disciplined about capital, and we've been thoughtful about M&A, and we'll continue to be thoughtful. And there are opportunities out there that are big and small, and we'll continue to capitalize on that. So I'm of the view that nothing has really changed with that announcement with the SDA announcement. I just want to make sure that you understand that this is more of kind of a timing issue that we've been talking about for a number of years that we want to share with the investing public because it's going to be a material number. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Lawrence Solow: I guess first question, just on the guidance again, not to beat a dead horse, but the miss in the quarter, you guys clearly outlined that, a little bit of industrial, a little bit of Field Services. But it sounds like you kind of -- you've bucketed that miss out in the quarter and it skew cards out for the year. But do we -- so do we bounce back? Were you assuming a little bit of a better Q3 than you are going forward already? I'm just kind of curious if turnarounds seem to be a little bit less even than expected. So do we -- what gives you the confidence that we kind of get back to where you thought we were going to be in Q4, not to kind of get the details, but if you get where I'm going with that question. Eric Dugas: Certainly, Larry. And as we digested kind of our Q3 results and then projected our thoughts on kind of Q4 and the guide there, I think one thing that gives us -- makes it -- allows us to feel really good about Q4 is, I mentioned a moment ago, and I think in response to Dave's question, kind of the growth that we're seeing in Technical Services that 12% revenue growth, more projects coming our way, continued good waste volumes. So we're continuing to see because of our diverse customer base, although there's softness in certain verticals that we mentioned around chemical and refinery, we continue to increase volumes by collecting from other customers and bringing into the network. So that part of the business, we see a lot of strength. I think the other thing that pleasantly that we saw in Q3 here that I mentioned a moment ago is our margin expansion, right? I mean I think, as I mentioned in my remarks, the steadfast commitment to continuing to drive margins and generate free cash flows. That gives us comfort, quite frankly, as we move into Q4 in some of those more waste disposal type businesses. Certainly, the services business, as Eric alluded to, Industrial Services, we're not forecasting any large pickups there. And Field Services, again, like Industrial Services, a lot of good margin accretion there that we're seeing, but that can be episodic. So both medium and large jobs will come back. It's just a question of when and where, quite frankly. Michael Battles: I guess I would say one more thing, Larry, to that end. I'd say that all our [ LOBs, ] all the businesses that make up SK -- that make up Environmental Services had good margin accretion year-over-year. And when you think about from where we were a year ago, where we were concerned about SKSS, when we stabilized that business. We're concerned about free cash flow conversion. While we're going to have great free cash conversion this year, we continue to grow. When you think about EBITDA margins and our mark to 30% margins, I mean, that's on ES, that continues on unabated. It's 14 straight quarters of year-over-year margin growth. So I mean, I feel like we're kind of hitting all our strides. Look, it's a miss. I get that. I get the point. But really, it really is, I think, very, very temporary, as I said in my prepared remarks. Lawrence Solow: Absolutely. I appreciate it. And I'm kind of looking how this miss -- how you put this on a go-forward basis as opposed to just the miss. I just want to make sure that going forward, obviously, it's only 1 quarter, but you threw out -- we appreciate a little bit of color for next year in that 5% number, which I'm sure can move around. That's just kind of a baseline, we get all that. But I just want to make sure that you're not -- it doesn't sound like you're building a rapid improvement in Industrial and Field Service. So I just kind of trying to say then if you weren't building that in, in this quarter, then why we have the miss. But I get the extra color really does help. Just shifting gears real fast, just on PFAS. It sounds like things are continue to go well internally. To get a real acceleration, obviously, 20%, 25% growth is great, but I think your queue is growing a lot faster than that. To translate that into actual sales, right, we'll need some governmental -- some kind of legislation or something, I guess, right, or maybe even the National Defense Authorization Act or something. And I guess we're just in a holding period on that. Obviously, government shutdown doesn't help, but any further -- any color on that? Eric Gerstenberg: Yes, Larry, this is Eric. So obviously, getting our -- the results of our test that we did on our thermal units out and exposed and published by the EPA was a great milestone for us. The activity in the market has been extremely strong and became even stronger when that published results came out. The level of activity of what we've seen, how our pipeline has been growing. We've continuously talked about how our pipeline has been growing 15% to 20% quarter-over-quarter. It continues to do that. It feels like we even got more of a bump. So we're not really thinking that any major change in regulation has to happen to continue to drive that growth and even accelerate it. We're pretty bullish on how our prospects are panning out and the opportunities in front of us. So we feel pretty good about it. We think it's just going to accelerate. And as far as the Department of Defense lifting their moratorium, that's just -- that will be just another accelerator for us, and we're optimistic about that as well. Operator: Our next question comes from the line of James Ricchiutii with Needham & Company. James Ricchiuti: So outside of chemical, the refinery markets, are you seeing any choppiness, any other signs of weakness in some of the broad end markets that you guys service? Eric Gerstenberg: James, Eric, this is -- I'll begin. No, we haven't. We really -- as evidenced by our results in Q3, our volumes have been growing across our waste businesses. It's really strong through Q3. We're beginning Q4 very strong. So where there's been this pullback a little around IS spending around turnarounds and chemical spending around turnarounds. On the waste side of the business, it's been strong, volumes, price into the network and project growth with PFAS, but other projects happening across the board. So we feel pretty good about what we've seen from manufacturing, from retail, from the whole list of other verticals that we service. And that's really very resilient in our waste collection business because of all the diverse verticals that we service. Everybody is generating hazardous waste and what they're making out there these days. And we're certainly a beneficiary of driving those volumes into our network, which we continue to see and projects ever lift. James Ricchiuti: Okay. Maybe just turning to Kimball, and I know you touched on it a little bit, but how should we be thinking about how the scale-up of Kimball is going, maybe discussions you're having with customers? And you've talked in the past about better network efficiencies that come as a result of this and then potentially some lift to margins. And just talk to us about maybe how Kimball plays out in 2026? Eric Gerstenberg: Yes. So in the third quarter this year, we -- the new Kimball incinerator Train 2 unit processed over 10,000 tons. When we came into the year, our plan was to burn an incremental 28,000 tons in our network, and we're doing that with the Kimball expansion. It's been great. The ramp-up has been solid, typical start-up type things. We expect that tonnage to continue to grow as we've laid out. Nothing that -- everything that we see continues to see a path to hit our ramp-up objectives of that new unit going into 2026. The network efficiencies are alive and well. The routing of our -- how we manage our customers' waste into our units, the transportation efficiencies, those are showing up. So we're really bullish about how Kimball has helped the network in so many ways. As far as speaking with our customers, the trend continues on how our network provides them a really security in being able to have multiple units service their needs and well positioned geographically with transportation efficiencies built on. And when we even think about what's going on with captives, we talk a lot about that, where the interest of what we have now continues to be strong. Those captives are our customers, as we've mentioned. Our relationships with them are strong as they continue to evaluate their cost positions, we have active discussions. So we're just adding Kimball to our network continues to prove to them in those large generators of hazardous waste that we have the network and the capabilities to supply their needs. James Ricchiuti: Got it. Last question, just on M&A. And again, you touched on this, but is valuations or is that the main challenge with respect to the potential for larger opportunities that might be out there? Just wondering how we might think about the pipeline for larger deals? Michael Battles: When you think about larger deals, Jim, this is Mike. Certainly, valuations have gone up from where they were. The whole industry, including our stock, has experienced kind of some valuation appreciation, which is well deserved and probably can go further. But I think that we have the best opportunity for the larger deals to provide the most amount of synergies that are out there and that would provide, when you look at it kind of post-synergy basis on multiple levels that are very reasonable and very value accretive to our shareholders. So -- the answer to your question is that we're trying to stand our swim lane. We look at deals all the time. Price is certainly part of the discussion, no doubt about it. We're trying to be thoughtful and make sure we get a good return. But I think on some of the deals we look at, synergy component is a big part of it, but I think we can provide a fair amount of synergies from the larger deals we're looking at. Operator: Our next question comes from the line of Tobey Sommer with Truist. Tobey Sommer: I'm going to ask another capital allocation question, but maybe from a broader perspective over the next 2 years plus. If you look back at your Investor Day, 2.5 years ago, you have about $3.4 billion you thought at the time you'd incrementally you'd be able to deploy on acquisitions. Now we've got $500 million internal investments that you cited and who knows maybe there's even more. How does the -- if you could compare and contrast sort of today's capital allocation profile between acquisitions, share repurchase and internal investments versus what you thought 2.5 years ago? What are the differences in that mix of spend? Michael Battles: Tobey, this is Mike. I'll start and Eric and Eric can certainly chime in. I think that there's been really no change in our deployment of capital when you think about internal investments or buybacks. I think those 2 -- when you think about the 4 legs of the stool, the fourth being debt repayments, I think that we have maintained a consistent posture on both capital internal growth projects like the Kimball incinerator, now like the SDA Unit or buybacks, a steady growth of buybacks this year, maybe a little higher than normal, but we buy back a float plus depending on the market that's out there. We still have $350-plus million of availability under our current authorization. When I think about M&A, I mean, M&A is lumpy. It takes two to tango, and we got to make sure that we're getting a good return on our investments. We never said it was going to be a straight line to get to that level of growth. We always said that it's going to be -- this is kind of -- we wanted to message to the Street that this was our -- Eric and I's intent to go do M&A, but it's got to make financial sense. And as such, there have been deals that we got to a point where we stopped or deals that didn't fit very well that we talked to the Board about a couple of 3 times that didn't fit well that we decided not to go forward on. So these are all the process of being very cash disciplined, getting -- trying to make sure we get a good return. And that I think that our long-term shareholders are happy about, frankly. Tobey Sommer: And if I could ask another question about health care expense. Do you anticipate health care expense growth increasing or accelerating again next year? Some of the surveys out of the big health care consulting firms suggest that next year is going to be even tougher. Eric Gerstenberg: Yes, Tobey, it's Eric here. I think difficult to project, kind of read the same news you do. I think at a gross level, certainly, I don't think one could say that health care costs in general won't increase. However, I think some of the reasons for our increase this year that Mike mentioned around the preponderance of high-cost claims. The frequency of those this year just seems to be higher than normal, and I don't necessarily see that impact continuing. It could, but I think the law of kind of long-term averages would get that back down to a normal level. So I think in short, yes, they'll continue to increase. I don't think they'll increase at the same level that we saw this year at the gross level. However, as I mentioned earlier, we are doing some things internally to try to mitigate the increase. And I think it will mitigate the increase in health care costs going forward. Operator: Mr. Gerstenberg, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. Eric Gerstenberg: Thanks, Christine, and thanks, everyone, for joining us today. Our next investor event will be at the Baird Industrial Conference in Chicago in a few weeks, followed by a Stephens event that Jim will be presenting at in Nashville. Also, have a great day today. Keep it safe and enjoy the upcoming holiday season. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Maggie O'Donnell: Good afternoon, everyone, and thanks for joining Adyen's Q3 2025 Business Update Call. My name is Maggie O'Donnell, and I'm part of the Investor Relations team, and I'm happy to be joined today by Ethan, our CFO. In today's call, we'll discuss Adyen's financial and business updates from the quarter, followed by a Q&A segment. [Operator Instructions] With that, let's get started. Ethan, what were your key takeaways from this quarter? Ethan Tandowsky: Sure. Thanks, Maggie. In the third quarter, we delivered strong revenue growth of 23% year-over-year on a constant currency basis. We're continuing to see diversified growth across pillars as we expand share of wallet with our existing base. This quarter was especially characterized by consistent growth across regions and was also supported by the timing of settlements during the quarter as compared to last year. This quarter, our team grew by 86 FTEs, primarily in commercial roles in North America and in tech roles across our tech hubs. Overall, it was a strong quarter, in line with our expectations. Maggie O'Donnell: Great. Thanks, Ethan. Can you also just give us an update on the performance across pillars? Ethan Tandowsky: Yes, happy to. I'll start with Digital. Digital net revenue was up 10% year-over-year, driven by continued momentum in the content and subscriptions and delivery and mobility verticals. We continue to see a headwind from APAC headquartered merchants focused on online retail, but noted a slight improvement throughout the quarter. As we turn to Unified Commerce, we see that net revenue for the pillar was up 32% year-over-year. This is driven by strength across retail and successful execution of our strategy to expand share of wallet across channels. And finally, platforms. Net revenue was up 50% year-over-year, reflecting continued momentum in the SaaS segment. As we've mentioned before, our relationship with platforms typically starts with embedding payments, and we now have 31 of our platforms processing over EUR 1 billion annually with us. Amongst our platforms, the number of underlying business customers reached 212,000, up from 126,000 this time last year. This growing number of business customers, we see as an important indicator of our momentum towards the next phase of our growth. In short, Q3 was a quarter of solid broad-based growth across each of the 3 pillars. Maggie O'Donnell: Great. Thanks for the summary. Now let's talk about the outlook for the rest of this year. Is there anything in particular you'd want to highlight? Ethan Tandowsky: Yes. So similarly to what we shared in August, we continue to expect full year net revenue growth to be similar to H1 on a constant currency basis. Furthermore, we also continue to expect EBITDA margin expansion for the year. As we get closer to the end of the period covered by our financial objectives, we're also refining our net revenue expectations. We expect annual net revenue growth to be between the low 20s and mid-20s in 2026. Maggie O'Donnell: Great. Thanks. Before we go to Q&A, I'm sure most investors are wondering what we're planning to share at the Investor Day on November 11. Can you give a sense of the agenda for the day and what they can expect? Ethan Tandowsky: Yes, of course. First off, I'd say we're very much looking forward to hosting you all at our upcoming Investor Day, which will take place here in Amsterdam on November 11. Typically, we host these days every couple of years to talk about our long-term strategy and how we plan to execute it to capture the market opportunity in front of us. You can expect us to talk about our core strengths and how we leverage them to set us apart in our space. Ultimately, how we see our long-term opportunity. This includes how we think about our tech infrastructure, innovation and topics such as Agentic commerce. Of course, we'll also connect that back to our business model by giving a sense of how we view the opportunity ahead. We're looking forward to a great event, and I'm personally really excited to see you all. Maggie O'Donnell: Great. Thank you, Ethan. For those interested in attending the Investor Day in person, formal registration has closed, but we do have a few spots left. So please reach out to Isaac and me at ir@adyen.com if you're interested in attending. We also will be live streaming the full event on our website at investors.adyen.com. We'll now transition to the Q&A segment of today's call. We'll get to as many questions as we can with the time remaining. Following the call, the IR team will, of course, be available to respond to any outstanding questions. Maggie O'Donnell: All right. Let's take a look at the questions we've received so far. Our first question comes from Fred Boulan at Bank of America. Frederic Boulan: Hope you can hear me well. Maggie O'Donnell: Yes, we can hear you great. Frederic Boulan: If you can discuss maybe any specific factors that have driven the underlying revenue acceleration we've seen in Q3 versus Q2? Anything in particular you want to call out for the rest of the year beyond the kind of unwind of the settlement days? And then maybe as a follow-up on that, looking at 2026 and the new guide that you've provided, should we assume a base case is now for a bit of an acceleration, if I look at the midpoint of the guide or it's a bit early to talk about that? Ethan Tandowsky: Yes, sure. So first, if I talk through our growth in Q3, I think what is strong here is that our growth was really driven across quite a diversified set of customers, right? You see strength in each of the 3 pillars this quarter. What we've also seen is quite consistent growth across the regions. And so I think we're seeing strength in being able to expand our relationship with our existing customers across a really well-diversified set of our customer base. The other thing, of course, that you touched on is that we had some benefit from settlement days in this quarter. That was about 1% support to our growth in the third quarter, and we expect to have a similar sized headwind in Q4 given the timing of settlement days next quarter. In terms of our guidance for next year, we set that guidance back in November 2023. And we've been quite open in sharing how we look and get insights into our revenues, that's around a 6- to 12-month type of view that we get around our revenue growth. That's because we're in constant conversations with our customers, and that's typically how they think about their own planning, their own road maps, their own priorities. And as we start to get more and more visibility into what next year looks like, we wanted to refine our view and share that information with you all. We don't still have complete and total visibility on those expectations. So we're still working through that over the coming months. And as we get more and more visibility, we'll give that view, but we're confident that we can deliver within the range that we've shared today. Maggie O'Donnell: The next question comes from Hannes Leitner from Jefferies. Hannes Leitner: I have also a question on -- you mentioned that Digital saw some attrition towards Unified Commerce pillar. Maybe you can elaborate on that? And then within Unified Commerce, you talked about luxury segment outgrowing the group performance in H1. Maybe you can talk about that trend, how that continued and how long you think that will continue to grow? Ethan Tandowsky: Yes, sure. So I would much more call it expansion than attrition. I think our strategy is about how do we grow -- land our customers and then expand with them. That can be across regions, that can be across sales channels like in this case, that can even be around expanding to more brands. It really depends on the business. In this case, this is about adding an in-person payment sales channel to existing e-commerce businesses. And that's a move that is -- that we see basically quarter after quarter as it is part of our strategy and part of how we can help our customers to solve for complexity. We called it out this quarter because we saw a more visible move in our Digital volumes to Unified Commerce. But this is just playing out our strategy as we always have. On your second question around Unified Commerce and how luxury is growing. I gave that example back in August because I wanted to share that the growth of our existing customer base is split between growth in share of wallet and their own growth. And at that time, luxury was quite publicly not seeing strong market volume growth, but it was still for us an industry or vertical that was growing faster on our platform than the overall platform was growing, and that was due to share of wallet gains. So we continue to see strength in that vertical. But it wasn't to explain all of our growth in Unified Commerce. I think what we've seen over past years is that we've actually really diversified across many more verticals. We call out entertainment, we call out hospitality. So while we are seeing strength in retail, we're also seeing our customer base get much more diversified. And I think that's the story of how we're growing so far this year. Maggie O'Donnell: The next question comes from Justin Forsythe at UBS. Justin Forsythe: Just one question here. So I wanted to come back on the largest cohort comments for 2025, new merchant cohort that is that you made at the 1H. Maybe you can just confirm whether that's still in play based on the last 3 months progression? And also talk a little bit about where you're having success. I know you just mentioned and why. I assume, again, within that comment as well, you wouldn't be counting then any existing partners like LVMH or Shopify or Toast within that, so therefore, aren't part of the 2025 cohort. And could we potentially be, given how strong this cohort is performing at a high single-digit contribution versus the building block suggested contribution of mid-single digits? And is there anything that's providing incremental opportunity, say, like the Worldpay Global Payments pending merger or any other broader macro shifts in the payments universe? Ethan Tandowsky: Thanks, Justin. So indeed, the comment that we shared is if you look at the 2025 cohort and compared it to the 2024 cohort that this cohort was growing faster than the overall platform was growing. We continue to see that through the third quarter. These are indeed all new customers. So these are customers who we are working with for the first time that are included there. Otherwise, it would indeed be expansion with our existing base. In terms of how it's shifted, I think maybe the only thing that I would call out is that if you look over the past couple of years, we've seen our pipeline move more to platforms than it was previously. So a bigger proportion of the pipeline is now coming from platforms than in previous years. Other than that, it's the same things that are differentiating ourselves -- that have been differentiating ourselves over the past years. It's how do we drive the best payments performance, right? Uplift is a big part of that story, a combination of auth rates and fraud and authentication and payments costs. It's, again, the platforms play. It's connecting sales channels across online and in-store. So it's very much iterations on top of the differentiation that we've been driving over past years. And that's the story of what we're seeing today. I think your question around what to expect for the building blocks going forward, I think it very much has -- it should have a similar impact in the next year. I think still mid-single digits is the right way to think about it. But of course, we see pretty consistent ramping from year 1 to year 2. So if this is a faster-growing cohort, it should have some larger impact in 2026, but the biggest part of our growth next year will come from our existing base still. Maggie O'Donnell: The next question comes from Mohammed Moawalla from Goldman Sachs. Sorry, that's my mistake. The next question comes from Adam Wood at Morgan Stanley. Adam Wood: Maybe first of all, just to come back on the 2026 outlook. I guess if we look at the run rate today, you've got some exceptional headwinds in the business, the large merchant, the Chinese merchants and eBay. And I think you'd probably be a good few points ahead of what you've reported if we were to ex those out. Is that a big part of why you'd still see mid-20s as a realistic outcome for next year? And are there any other things you'd highlight to give us comfort that, that's still a realistic scenario? And then maybe just secondly, as we look at the guide or the implied guidance for the fourth quarter, it does imply some decel. Obviously, the settlement headwind is part of that. Is there a desire to flag that there'll be deceleration in the fourth quarter? Or is it just a feeling that your guidance is specific enough already and there's no kind of clear signaling implied in that? Ethan Tandowsky: So yes, thinking about 2026, first and foremost, I think it is easy to isolate and pick out one customer or another. When we've shared this guidance, it's been a reflection of the broad customer base that we have, right? So when we take our current information about how we expect to grow with all of our customers across the platform, across all of our pillars, across all of our regions, again, a much more diversified base as we go year-by-year. This guidance range is a reflection of how we expect to grow with the width of them. And so of course, you can pick out and isolate specific topics. But for us, it's really about the overall growth of our customer base on the platform. And when we're in discussions with them and when we're trying to understand the opportunity size that we have going into next year, the visibility that we start to get puts us in the range that we shared today. In terms of what we're sharing for Q4, I think the main thing that we are sharing which is different between Q3 and Q4 is the impact of settlement days. Again, that was a 1% support to our growth this quarter, and we think that's a 1% or so headwind to our growth next quarter. We wanted to be sure that, that was understood. On an annual basis, this has very little impact. But given where we are quarter-by-quarter, we wanted to share that. And that's ultimately what we're sharing for our guidance through the rest of the year. Maggie O'Donnell: The next question comes from Adam Frisch at Evercore. Adam Frisch: On the continued execution. I wanted to ask specifically about -- there are aspects to your growth algorithm that are specific to Adyen, obviously, the growth with your existing base and so forth. But I also wanted to ask you to specifically call out anything you're seeing in markets in Europe being particularly weaker, stronger, any view on the consumer? There's been a lot of mixed data points around there and the fact that you guys are growing so well, maybe you have a different view. So if you could just separate the Adyen-specific stuff from what you're seeing in the overall market would be very helpful. Ethan Tandowsky: Yes. Thanks, Adam. I think the challenge is that they are mixed in our view of growth, right? So our growth with our existing customers is that combination of how fast they are growing with how fast we are gaining proportion of their share, what we call share of wallet. We haven't flagged anything specific that we've been seeing related to changes in behavior here. So I don't really have additional insights to share. Maggie O'Donnell: The next question comes from Jason Kupferberg from Wells Fargo. Jason Kupferberg: I just wanted to circle back on one of the prior questions about Q4, make sure we have the numbers right here. So we did 23% in Q3, would have been 22% without the settlement tailwind. And then I think the implied growth for Q4, if the second half is going to be the same as the first half is 19%, which would be 20% if you add back the benefit of settlement. So it does seem if our numbers are right, like there's a little bit of a modest slowdown embedded in there. So I don't know if this is more just rounding, but I just want to make sure we're synced up properly for Q4. Are you putting some cushion in there for macro or tariffs or any other items? Ethan Tandowsky: Yes. So I think what we've tried to share is a view on the year, right? And of course, we're getting now closer to the end of the year. So that time frame gets shorter and shorter, but we've never been trying to guide to every specific quarter. It is our expectation that Q4 will not be at the same growth rate as Q3 given that settlement day impact. Q4 was also a very strong quarter for us last year. So the comparables are strong that we're comparing ourselves to. We still think that we're in a strong position to grow, but these are the factors ultimately in play, which lead us to continue with the expectation we shared back in August, which is that our growth for the full year should be broadly in line with the H1 constant currency growth. Maggie O'Donnell: The next question comes from Darrin Peller at Wolfe. Darrin Peller: Just 2-part question. One is first on Agentic. I know we'll get a lot more at the Investor Day, which we're looking forward to. But maybe any quick preview on some of the initial ideas or plans or partnerships you see already and what your opinion is in terms of momentum on it in the next, let's call it, 2 to 3 quarters from Adyen's perspective? And then the second part would be around hiring. I just -- we keep seeing -- we continue to see the healthy pace of hiring. Ethan, is this the run rate that we should expect sort of normalize for the company going forward in terms of, call it, the annualized rate we're seeing this quarter? How do you want us to think about that? Ethan Tandowsky: Yes, sure. I think first on Agentic commerce, we're really excited about the potential to help customers meet their own customers where they want to engage in commerce. And this is certainly an area that we think over time will develop and be an important piece for our customer base. At the moment, what we're doing is we're working with other industry leaders, think about a Google or an OpenAI or Visa or Mastercard, working together to make sure that we develop standards, which will truly work for merchants that will support them in their growth and their relationship with their own customer base. So we're absolutely engaged and actively working together with others in this space to make sure that we deliver a really unique and differentiated solution for our customer base. Again, here, a lot of the challenges that we're really already strong at, things like authentication, things like managing fraud, things like multiple payment methods. Those are things that we are -- that are core strengths of ours and that we think we can apply in this realm as well. Of course, you mentioned it. We will share more at our Investor Day, but I think that's how I'd summarize our position today. In terms of hiring, yes, we did 86 net new FTEs this quarter. I think the last 2 quarters, we did about 110 each. That type of level is something that we would expect to continue. I have no reason to think that we need to scale that significantly up or significantly down over the next coming while. So as of now, that's our plan. And if that would change, I would, of course, let you know, but that's our expectation going forward. Maggie O'Donnell: The next question comes from Harshita Rawat at Bernstein. Harshita Rawat: I want to ask about Uplift, and I appreciate you're going to discuss it in more detail at the Investor Day. So you've enabled it for all of your customers. What's the uptake been? I know you talked a little bit about it last quarter, the conversion boost you're seeing? And also, how should we think about wallet share gains as it relates to Uplift, especially as we look into next year? Ethan Tandowsky: Yes. So Uplift is a really important way that we package our differentiation to our customers. It continues to be that. So the same updates we gave in H1 hold true through Q3. For instance, when we look at our new customers that we onboard, we still see around 2/3 of them or so using Protect from day 1, so our fraud tooling. But ultimately, this combination of solving for authorization of solving for lowering payments costs, solving for better authentication flows and reduction of fraud, those can be applied no matter the priorities of customers, right? If they want to focus fully on how do they drive revenue Uplift or if they want to manage payments costs more carefully, those are optimizations that they can control and tweaks that they can make. And Uplift really helps make -- helps them quantify the impacts and make it easier for them to ultimately take up these products. And so it's a really important part of our commercial conversations and how we help bring more share of wallet to the platform. It continues to progress well in Q3, similar to what we shared in H1. Maggie O'Donnell: The next question comes from Alex Faure for at Exane BNP Paribas. Alex, can you hear us? Alexandre Faure: Can you hear me now? Maggie O'Donnell: Yes, we can. Alexandre Faure: A couple of questions maybe. As we go into the CMD, I just wanted to sort of look back to what you guided to in November 2023 and sort of this acceleration in the high 20s you're expecting for 2026 and you're now guiding more to, I don't know, low to mid-20s. So I know you called out some tariff impact, obviously, but you also helped us size that impact. So it doesn't quite take us to high 20s. So what do you think didn't go according to plan to get to high 20s in 2026 eventually? So that would be my first question. Second question is going back to the Agent commerce discussion, I heard what you say in sort of engaging with other industry leaders in OpenAI and Google and so on. When you look at all the different protocols and frameworks that have been issued so far this year, and you think of the work it requires on Adyen side to integrate with some of those, does it sound like a significant work? Is it a matter of weeks, a matter of months, a matter of quarters? How should we think about that? Ethan Tandowsky: Yes, sure. So I think if you think back to November 2023, as you mentioned, right, we were giving a 3-year view. Now we wanted to share a wider range at that time, given that we were giving a longer time frame, right? So we were talking about that 3-year view. And a lot of things happen over multiple years to understand what your growth looks like in any given year, right? Even the priorities of your own customers, what is in play in 1 year may look different than what's in play in the next year. And that's just based on their road maps, their own prioritization. We're always looking to help our customers where they have the pain points where they are focused, and that can look different in any given year. So I wouldn't necessarily frame it in the sense of like, hey, what went wrong or what went differently, mostly frame it in, we get closer towards this 2026 year, towards the end of this kind of guidance time frame, and that gives us more visibility and that more visibility is what we are trying to share here by refining the financial objective. To your second question on Agentic commerce, it is not real significant work for us to implement. And I think that's the benefit of building everything on our single platform and taking that end-to-end ownership. We have so many of the building blocks which are going to be required in this new Agentic world, and that positions us really well to be able to move quickly. So I think in large part, we have a lot of the building blocks, which will be at play here. It's much more about figuring out the solution, which truly will help merchants and allow them to give -- have the right experience and the consumers to have the right experience. Of course, there's going to be some work that goes into it, but that's not the biggest piece. I think we largely have the building blocks in play, which is a great position to be in. Maggie O'Donnell: Great. The next question comes from Pavan Daswani from Citi. Pavan Daswani: Can you hear me? Maggie O'Donnell: Yes, we can hear you. Pavan Daswani: So my question would be on the de minimis tariff impact and the previously guided 2 percentage point drag in H2. Could you maybe give us an update of how did that trend in Q3 for the online APAC headquarter merchants? And was there any incremental disruption in late August with the de minimis expansion? Ethan Tandowsky: Yes. For the subset of customers that we talked about in the first half, we saw a slight improvement during the quarter. Also keep in mind that in the first half, this was largely an impact that we saw at the end of that first half. So we did see some slight improvement throughout the quarter, but nothing that really meaningfully changed our results that's worth commenting on. In terms of other impacted merchants also beyond it, we haven't seen material or meaningful movements related to this throughout the course of the third quarter. Maggie O'Donnell: The next question comes from Sven Merkt at Barclays. Sven Merkt: Can you give us maybe a bit more detail on the point of sales volumes growth? It slowed sequentially in both Unified Commerce and Platforms. Can you just comment what is the driver here, especially as you called out that there's been an increased migration from Digital to Unified Commerce? Ethan Tandowsky: Yes, there's nothing specific that I would call out related to this. I think in any given period, right, it is a short-term period. You do see different volumes moving between pillars, but also between the sales channel, also between regions, right? So I wouldn't focus too much on a single quarter results. I think in general, what we've seen is strong growth across each of our pillars, across each of our regions. It is quite a diversified mix, which is driving the growth that we see in the third quarter. And for me, that's the strength of the position that we're in. Maggie O'Donnell: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: I have 2 quick questions on your revenue line. I mean you've got some new initiatives like issuing as well as lending, et cetera. Where are we at this point? Has anything changed in the third quarter in terms of progress on these pillars, these next-generation pillars that you are working on? And then secondly, looking into '26, I mean, in the past, Adyen would announce some big new customers and they would have a significant impact on your sales growth in future years. With your TPV now so much bigger than it was in the past, are there any customers that are targeted and can make a big difference to Adyen in '26 or beyond? Or are we now at the point that most of your growth -- more and more of your growth is going to come from existing footprint gains at existing customers. But clearly, this is something that you will probably talk at the Capital Markets Day, but is that way we are going towards as such? Ethan Tandowsky: Yes. So let's start with embedded financial products. Of course, it's a topic we will cover in more detail at Investor Day. But in relation to Q3, I think we still see strong traction in issuing. That's one that we talked about also in H1. And I think in general, the way to think about EFP is that it's a really important piece of the products we deliver, especially to our platform customers. And it's a big reason why we're able to grow the platforms pillar in the way that we have been at the 50% or so level that we saw in Q3 as well. In terms of if there are still big customers to win, which ultimately will drive our growth, I think there's a couple of points I'd make. One is I've said it a few times on the call, but we are getting more and more diversified. So there are more and more customers on the platform, which are helping to drive our growth. I don't look at it necessarily on an individual customer by individual customer basis. If you again compare it or take a look at the 2025 cohort we're seeing on the new sales side. So again, completely new businesses to the Adyen platform, we're seeing that scale up quite nicely. So there still is a lot of potential for us to add new business to the new customers to our platform. And we're very much focused on still driving that because while it has little impact in any given year you add them, it does drive your growth over future years, and it's very much also a signal to our positioning in the market, the strength of the differentiation we have. And so it's, of course, something we spend a lot of time on and that we see strength in today. Maggie O'Donnell: The next question comes from Sanjay Sakhrani from KBW. Sanjay Sakhrani: Kind of I wanted to ask the 2026 question a little bit differently. I guess when we think about that range that you guys have provided, how have you built that range up? And then when we think about some of the variables that could land you within that range, bottom or lower, like what are they? Because as discussed earlier, you've had some puts and takes over the guidance period that you provided before. Ethan Tandowsky: Yes. So the biggest driver of our growth for 2026 is going to be the existing customer base. And the 2 biggest factors are how fast they grow and how much share of wallet we gain in that year. Now we're starting to get some better insight into the specific opportunities that we see with our customer base for 2026 as they go through their own planning process, their own prioritization exercise, and they talk through what types of opportunities they'll be focused on. We also start to get better insights into how they think about their own growth for next year as well. But ultimately, those are going to be the 2 biggest factors that will drive our growth. And while we're not at the point that we have full visibility with them because we're still going through that exercise, we did feel like it was helpful to refine again the range at which we see 2026 playing out. And I think if you look at that range, you see that we'll be in a position to gain significant market share also through the course of next year. We're well positioned to be able to gain much more share of wallet with our customer base. And I think that ultimately is the strength of the differentiation that we have and that we're bringing to market. Maggie O'Donnell: The next question comes from Bryan Bergin at TD Cowen. Bryan Bergin: A bit of a follow-up there on wallet share. So just can you share updated views on your wallet share penetration across certain client cohorts that you've talked about in the past? The runway for further penetration in that wallet share? And does macro volatility enable situations where you can actually pursue and win greater wallet share in certain types of clients? Ethan Tandowsky: Yes. So of course, this is part of what we addressed at the Investor Day a couple of years ago, thinking about where we are per pillar by wallet share. I think the reality is that we're still very much in the same position that we still have most of the wallet share still to win with our existing base. Now that's not true for every customer. There are customers we do 100% or the vast majority of payments for them. But if you look at our platform overall, especially because we've been continuously adding new customers to the platform over past years, we're still in the position where the majority of volumes within our customer base is to win, and that's what we're very much focused on. Maggie O'Donnell: The next question comes from Fahed Kunwar at Redburn. Fahed Kunwar: Just a quick question on Digital, specifically. I thought the acceleration or the inflection in Digital is quite interesting. We've had a couple of quarters where you've disclosed net revenues where it's been decelerating. I appreciate there's been some noise, but it does feel like we had kind of that 7% core number last quarter, probably 9%, 10% ex de minimis and leap year and -- FX, sorry. We probably jumped up to kind of 12%, 13% now. Could I understand -- and that 12%, 13% is with volume boom in Digital to Unified Commerce, so really, really strong performance. Could I understand what's been happening in Digital? Like why has it inflected as much as it has? And going forward, can we expect further acceleration in Digital revenues? Because my understanding is Unified Commerce and Platforms is probably where the juice is coming from, but any color on that would be great. Ethan Tandowsky: Yes. I would just say that we remain really, really focused on winning in Digital. It's the biggest part of our volumes. It's the biggest part of our customer base. A lot of the products that we've been rolling out have a huge impact on Digital customers, right? Think about the Uplift suite, this combination of authorization and payments costs and fraud, that's really, really prevalent in the Digital pillar. And I think our global capabilities, our abilities to work with the largest enterprise and really optimize for their payments needs is the thing that's been really important to differentiating ourselves. Now that's always been the case, but rolling out products like Uplift help us ensure that we continue to stay differentiated that we can continue to help our customer base, and that's ultimately where you see us continuing to gain share. Maggie O'Donnell: Thanks for your question. The last question -- I guess that is the last question. Thank you guys so much for joining us today. We appreciate you taking the time. For any further questions, please don't hesitate to reach out to the IR team. Have a great day. Ethan Tandowsky: Thanks, everyone.
Operator: Good morning, and welcome to the Navient Third Quarter 2025 Earnings Conference Call. This call is being recorded. [Operator Instructions] At this time, I will now turn the call over to Jen Earyes, Navient's Head of Investor Relations. Please go ahead. Jen Earyes: Hello. Good morning, and welcome to Navient's earnings call for the third quarter of 2025. With me today are David Yowan, Navient's CEO; and Joe Fisher, Navient's CFO. After their prepared remarks, we will open up the call for questions. Today's discussion is accompanied by a presentation, which you can find on navient.com/investors. Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements and other information about our business that is based on management's current expectations as of the date of this presentation. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjusted tangible equity ratio and various other non-GAAP financial measures that are derived from core earnings. Our GAAP results, description of our non-GAAP financial measures and a reconciliation of core earnings to GAAP results can be found in Navient's third quarter 2025 earnings release, which is posted on our website. Thank you. And now, I will turn the call over to Dave. David L. Yowan: Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. This morning, we reported results that highlight our ability to drive high-quality loan growth and reduce operating expenses. Our expected life of loan cash flows increased substantially as our legacy loan portfolios experienced lower prepayment speeds. We also updated default rate, financing and secured debt service assumptions and incurred regulatory and restructuring charges. Adjusting for these assumption changes and charges, core EPS was $0.29 for the quarter. A summary of these significant items can be found on Slide 2. We're also announcing a new share repurchase authorization of $100 million. This authorization provides additional capacity and flexibility to purchase future value at a discount. Turning to our engine for future growth. For the third straight quarter, Earnest doubled origination volume year-over-year, totaling approximately $800 million in new loans. This included $528 million in refi loans, our highest quarterly volume this year, accompanied by credit quality that is among the strongest in our refi history. In-school lending also saw a record peak season with $260 million originated, also the highest quarterly volume in our history. Our strong performance across both product lines demonstrates our ability to attract high-quality, high-balance customers, many of them graduate students by offering products and a customer experience that meets their needs and exceeds their expectations. Earnest refinance business helps high-earning early professionals move from managing debt to building wealth. We focus on customers with prime to super-prime credit, most earning over 6 figures and about half holding graduate degrees. We succeed with this segment through a streamlined, transparent application process, advanced underwriting, personalized pricing and an in-house U.S.-based client happiness team with industry-leading Trustpilot scores. Borrowers can select from up to 240 term and rate combination, making ours one of the most flexible refinance products in the market. Data-driven marketing and a mobile optimized process allow us to efficiently attract and serve financially sophisticated borrowers. Our scalable platform supports higher volume and additional products. We're proud of our momentum, excited about future growth, especially with the backdrop of potential Fed rate reductions and expanded product and market opportunities. Turning to our ongoing effort to aggressively reduce expenses. We're pleased to report that we will exceed our ambitious expense reduction targets ahead of schedule. You'll recall that less than 2 years ago, we shared the ambitious goals related to our strategic initiatives, outsource loan servicing, divest BPS and reshape our infrastructure and corporate footprint. The removal of a large amount of infrastructure and corporate expenses was dependent on the successful completion of the first 2 objectives. We have now completed our final obligations under the last transition services agreement, the final milestone in our Phase 1 transformation. This is earlier than both our original timing and the timing we shared last quarter. Team Navient has done a phenomenal job to accomplish this feat. Completing our obligations under the final TSA allows us to accelerate the removal of final expenses that were previously identified for removal. These expenses include $14 million in the third quarter that were supporting the TSA, as well as additional expenses that could not be eliminated until all TSA obligations were complete, all of which will further reduce our corporate footprint. These expense removals are already underway, and are expected to be completed in the first few months of 2026. Once complete, we have exceeded our initial goal of $400 million run-rate expense reduction target set in January 2024. We're now on track to remove over 90% of this expense reduction target by the end of 2025. Let me now turn to the cash flows we expect to harvest from our legacy loan portfolios. As you know, a significant portion of our portfolio is comprised of FFELP and private loans originated over a decade or more ago. Our portfolios have generally been experiencing lower levels of prepayments over the last few quarters. Our ongoing process of reviewing portfolio performance was supplemented by our Phase 2 review. The trends we are seeing have incorporated into our life of loan cash flow assumptions. The trends are largely driven by changes in public policy and customer repayment behavior. The result is the increase of projected life of loan cash flows by approximately $195 million. All other factors held constant. Two of this quarter's assumptions changes had a significant impact on expected future cash flows. First, we lowered prepayment rate assumptions, reflecting changes in public policy under the current administration, which has not proposed, nor encouraged federal and FFELP loan forgiveness programs. As a result of these changes alone, expected future cash flows increased by approximately $280 million across all of our outstanding loan portfolios. All of these future expected cash flows, no part of them is reflected in Q3 results. Secondly, we've revised default and post-default recovery assumptions across all previously originated loans. These updates reflect slower portfolio amortization, continuation of recent credit trends in customer repayment and recent recovery trends on defaulted loans. As a result, expected net life of loan charge-offs increased by $151 million. Unlike the increase in expected cash flows from slower prepayment speeds, all of these reductions in future cash flows are reflected as provision expense in Q3 results. In addition, we updated certain financing and securitized debt service assumptions. The net effect of these changes was to increase expected life of loan cash flows by $66 million. Collectively, this set of changes increased life of loan cash flows by $195 million. As we do each quarter, life of loan cash flow projections were updated for actual loan repayments, new originations and benchmark interest rate assumptions, among other factors. Given our strong origination volume this quarter, these updated volumes further increase expected life of loan cash flows. The increase in expected life of loan cash flows from these updated assumptions and the actual results provides additional fuel for the growth strategy we have been working on. In addition, we recently completed our fourth term ABS financing of the year, backed by refi loan collateral. We continue to experience strong investor demand for these securities and are achieving effective cash advance rates that demonstrate our ability to grow more rapidly with low capital intensity. So, we have more fuel for our growth strategy, and we are growing in a more fuel-efficient way. We plan to provide an update on the progress of our going-forward growth strategy for our Earnest business on November 19. We look forward to sharing our observations and initiatives at that time. With that, I'll turn it over to Joe. Joe Fisher: Thank you, Dave, and everyone on today's call for your interest in Navient. In the third quarter, we reported core loss per share of $0.84. Adjusting for significant items, we earned $0.29 per share. During the quarter, we demonstrated strong loan origination growth in both the refi and in-school lending products, reduced our operating expenses in line with our long-term efficiency initiatives and increased our reserves. Our reported results include the upfront costs of higher origination volumes along with the following significant items. First, provision of $168 million, of which $151 million, or $1.17 per share relates to previously originated loans. While our delinquency rates are improving, they remain elevated and the provision reflects a continuation of both the credit trends and lower levels of prepayment activity we are experiencing. Second, an interest income benefit of $11 million, or $0.08 per share, resulting from the impact lower prepayment expectations have on loan premium, loan discount and deferred financing fee amortization. And third, regulatory and restructuring expenses of $5 million, or $0.04 per share. Our outlook for the fourth quarter is a range of $0.30 to $0.35 per share. Our fourth quarter guidance range would place us within the full-year guidance of $1 to $1.20 a share, set at the beginning of the year before the significant items we are announcing this quarter. I'll walk through our results by segment, beginning with the Federal Education Loan segment on Slide 7. The net interest margin for Q3 was 84 basis points. This is 14 basis points higher than the second quarter. The increase in the quarter included reduced premium amortization from lowering our prepayment rate assumptions, resulting in a 23 basis point benefit. Prepayments were $268 million in the quarter compared to $1 billion a year ago. In the quarter, we earned $13 million of floor income on $3 billion of eligible loans. With respect to Floor Income, if rates were, on average, 50 basis points lower throughout the quarter, Floor Income would have increased by an additional $4 million. We expect fourth quarter NIM to range between 55 basis points and 60 basis points, which assumes moderately lower rates in the quarter. Compared to the second quarter, our total delinquencies declined from 19% to 18.1%, and the net charge-off rate increased 1 basis point to 15 basis points. The FFELP provision expense is driven, in part, by the expected extension of that portfolio from continued low levels of prepayments. Now, let's turn to our Consumer Lending segment on Slide 8. Total loan originations in the quarter grew to $788 million, an increase of 58% from the year ago period. This was driven by over 100% growth in refi originations and 9% growth in in-school originations. The doubling of refi originations demonstrates our capabilities to attract high-quality prospects and convert them to customers with improved efficiency. The external environment is providing a tailwind as lower benchmark rates coincide with an increase in federal borrowers seeking to lower their rate and payments. Our record high quarterly in-school originations of $260 million included $119 million of borrowers pursuing graduate degrees. We are raising our full-year total loan originations guidance to be around $2.4 billion, or over 30% higher than our guidance provided at the beginning of the year. Net interest margin in this segment was 239 basis points in the quarter compared to 232 basis points in the second quarter. Unlike FFELP, where we have a net loan premium on our books, our private legacy portfolio is on our books at a net discount to par, thus lowering our prepayment rate assumptions, reduced net interest income in the portfolio by $7 million or 17 basis points. We expect Consumer Lending NIM for the fourth quarter to range between 255 basis points and 265 basis points. When looking at delinquency and default trends over the last year or so, some context might be helpful. In 2024, FEMA declared 90 major disasters in the U.S., a sizable increase when compared to the 30-year average of 55 major disasters. As a result, forbearance balances were elevated and were 2.8% of balances a year ago compared to 1.5% in the current quarter. As these borrowers exited disaster-related forbearance and returned to repayment, we saw 91-plus delinquency rates rise to 3% in the second quarter of this year and begin to decline. These events coincided with changes in federal loan policy and broader economic pressures that have influenced repayment behavior. While we are seeing improvement in delinquency rates, they continue to remain elevated. Of the $155 million of private education loan provisions that we took in the quarter, $17 million is related to new originations and the remainder reflects our macroeconomic outlook and recent credit trends. Our allowance for loan loss, excluding expected future recoveries on previously charged-off loans for our entire education loan portfolio is $765 million, which is highlighted on Slide 9. The total reserve build in the quarter is driven by a variety of factors, including changes in student loan borrower behavior, elevated delinquency rates, macroeconomic outlook changes, new originations and the extension of the FFELP portfolio. Slide 10 shows the results from our Business Processing segment. As of October 17, we have no further obligations to provide transition services for our government services business. The TSA revenues and expenses from this quarter totaled $7 million and $6 million, respectively, and are reported in the other segment. This final step allows us to begin removing $14 million of shared expenses, primarily consisting of IT infrastructure that was leveraged to support multiple business lines prior to the strategic transformation. Once removed, we will have exceeded our original target of $400 million of expense savings that we outlined in January of 2024. More detail on total operating expenses can be found on Slide 11. Compared to a year ago, our total core expenses for the quarter declined by $93 million to $109 million. This substantial decrease was driven by our focused efforts to significantly reduce our expense base through the divestiture of the BPS business, transition to a variable servicing structure and reductions in our corporate shared service expenses. Turning to our capital allocation and financing activity that is highlighted on Slide 12. This month, we completed our fourth securitization of the year. Year-to-date, we have issued nearly $2.2 billion of term ABS financing. These transactions were characterized by strong investor demand and high advance rates. Our current cash and capital positions provide ample capacity to distribute capital and invest in strong loan origination growth. In the quarter, we repurchased 2 million shares at an average price of $13.19, as our shares remain significantly below tangible book value. In total, we returned $42 million to shareholders through share repurchases and dividends while maintaining a strong balance sheet with an adjusted tangible equity ratio of 9.3%. Our quarterly guidance of $0.30 to $0.35 per share incorporates continued strong origination growth boosted by moderately lower interest rates and continued expense reductions. Thank you for your time. And I'll now open the call for any questions. Operator: [Operator Instructions] We'll take our first question from Bill Ryan with Seaport Research Partners. William Ryan: First question, obviously, relates to the provision and delinquencies that you noted on the call. I look back last -- I'd say, in the last 6 of the 7 years, we've seen delinquency rates go up from Q3 to Q4 -- excuse me, Q2 to Q3, actually went down both in the 30-plus and 90-plus this year. Forbearance rates, as you noted, have moved lower as well. I was wondering if you could kind of talk about the decision process to do what looks like a Q3 cleanup provision. It's obviously very well upside to what we've seen in the last couple of quarters. And if you could maybe, Joe, be a little more specific about the default and recovery assumptions now embedded in the reserve rate and how those compare to current trend line? David L. Yowan: Bill, thanks for the question. This is Dave. Let me try to step back and provide some context to the changes we've made around default and prepayment rates. And I think our situation is distinct because of our legacy portfolios. We first established life of loan loss reserves in January 2020 when CECL replaced the incurred loss model across lending in the U.S. Within a couple of months of recording that CECL reserve, of course, the pandemic began. And we and like many other lenders, provided COVID-related forbearance to private loan borrowers. Of course, the federal government, provided federal borrowers with payment relief, and they also provided consumers and small businesses with broad financial support programs. As a result, delinquency rates and charge-offs in our legacy portfolios fell significantly during this period, and they remained at historically low levels for some period of time. We didn't release reserves during that period as we expect the defaults that we assumed would happen were being deferred, not avoided. Federal loan payment relief programs remain in place for an extended period of time. Federal loan forgiveness programs were also proposed. It's only about 2 years ago that federal loan payments resumed and about a year ago, that credit bureau reporting also resumed. As these relief programs are being wound down, we did, in fact, see over time, as you just pointed out, increases in delinquency rates and charge-offs. These included charge-offs that were deferred during the pandemic. We also experienced, as Joe indicated, some disaster forbearance volumes, which further but temporarily increased our delinquency and default rates. At the same time, in recent quarters, we also began to experience incremental defaults. We continue to see those incremental defaults. These are due to a wide variety of factors, including changes in borrower repayment behavior and macroeconomic conditions. The provision expense we recorded this quarter assumes that these incremental defaults will continue for some time into the future. In recent quarters, we also began to see substantially lower levels of prepayments, especially within the FFELP portfolio. These have also continued. They're due to a wide variety of factors as well, but particularly public policy around federal loan forgiveness. The prepayment assumption changes we made this quarter also assume that these low levels of prepayments that we're experiencing will continue for some time into the future as well. Joe Fisher: And Bill, to your question about recovery rate assumptions, think about our portfolio today, our recovery rate assumption is about 17% on the private portfolio. If you go back 5 or 10 years, that would have been a higher recovery rate assumption, reason primarily driven by as these loans have seasoned, we've lowered that recovery rate over the years, but relatively flat over the last couple of quarters at 17%. William Ryan: Okay. And then if we could kind of go to the gross default assumption as well? Joe Fisher: Sure. In terms of the -- well, net charge-off rate that we've seen historically, we've given a charge-off rate range of 1.5% to 2%. We are trending slightly higher than that over the first 9 months outside of our range. When we think about the new originations that we're making today, especially on the refi side, those are very high quality, as Dave highlighted in his prepared remarks, some of the highest credit scores that we've seen in our history. And so that charge-off rate assumption is roughly around 1.5% in terms of the new loans that we're making on the refi side. William Ryan: Okay. And just one quick follow-up. Your guide for Q4, $0.30 to $0.35. I know you don't want to provide a 2026 outlook just yet, but should we be thinking that range as a potential starting point for moving into next year? Joe Fisher: So I wouldn't use it as a baseline, just primarily because, obviously, we've got a lot of opportunities here in terms of addressing during our upcoming investor update as well as during the next quarter's earnings calls. So depending on interest rate assumptions that you're making, obviously, it could be a significant tailwind for us as it relates to refi originations. There's an opportunity, as you know, from the elimination of the Grad PLUS program. So as we circle those numbers and look forward to next year, obviously, there's higher provision expense that you take upfront in terms of the costs associated with those loans. So as we give you better guidance into next year, I would just keep in mind those upfront costs that you take during that time of origination will be a driver that you won't see necessarily in the fourth quarter. David L. Yowan: Bill, if I could just add to that a bit. So look, we're -- if you think about the fourth quarter, we still have some expenses that we're going to take out, that we expect to get rid of by the end of the first quarter of 2026. So, we're not at quite a run rate there. Operating expenses will undoubtedly be lower. We're looking for additional opportunities to do that. I think the thing I would just emphasize that Joe just said is, as you think about '26 is we see substantial opportunities to continue to grow as we have. And so the key variable in terms of run rate will be the acquisition costs and the upfront cost of additional loan originations. Operator: We'll take our next question from Mark DeVries with Deutsche Bank. Mark DeVries: I was hoping to get a better sense of kind of where within Consumer Lending, you're seeing the credit weakness and what's driving the reserve build. I mean, it looks like the consolidation loan credit has been relatively stable. So it seems like it's the rest of the portfolio. Is the weakness mainly coming from kind of legacy private student loans? Or are you also seeing weakness in some of the more recent in-school loans that you've made? David L. Yowan: Yes. Mark, this is Dave. Thanks for the question. If you think back the first part of my answer to Bill's question, the majority of what we're seeing is focused on the legacy portfolios that we have. That's why I went through the establishment of the CECL reserve, the conditions that have changed since then. And so that's where the majority of the provision expense has been. The other products, there have been some changes, but they're not as significant as the changes in the private legacy portfolio in particular. Mark DeVries: Okay. And so just to clarify, based on the comments you made, is it kind of your observation that the primary source of the weakness now is just kind of the end of some of the more extended forbearance options that they've been granted under on other loans that they hold? Is that what's kind of driving the weakness? David L. Yowan: Yes, that's certainly -- that's one part of it. There's a variety of factors. Macroeconomic conditions have weakened part of our reserve increase, not a significant part is due to weakening of the Moody's economic forecast. That was a contributor to the second quarter as well. But if you think about the primary source of the provision being the legacy portfolios, again, that's why I go back to when we established the life of loan reserves. It was really -- I think we can all agree, it was in a very different ecosystem for those loans than exists today as they've come through the pandemic. Part of the lower prepayment speeds, which we're seeing in both FFELP and in private legacy, loans that pay off don't default, right? So, part of the reason we've tried to make sure that you see the relationship between the incremental cash flows from longer portfolios from slower prepayment speeds, that's also a contributing factor to higher provision as well because higher average balances outstanding can create higher charge-offs as well. So, there's a variety of factors that are at play here. Mark DeVries: Okay. And just wanted to gauge your comfort level with how conservative these revised assumptions are and what kind of risk, if any, is there to further negative revisions? David L. Yowan: Look, we're responding to what we're seeing with current trends, Mark. I'm not going to give a life of loan forecast for that. I think we feel we've done the appropriate thing here, obviously, to reflect what we're seeing in the portfolio today. And I'll just leave it at that. Operator: We'll take our next question from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: I looked through the cash flow assumption changes and noticed that more than all of the increase comes in 2030 and beyond. And from 2026 to 2029, it's actually almost $200 million less than you had in Q2. What's the driver for that? Joe Fisher: The primary driver is the lowering of the prepayment speeds, Moshe. So if you think about the FFELP portfolio, we lowered our overall CPR from 5% to 3%, and that we have going until through 2028 and then again, increasing back to 5% more historical levels. So as a result, that impacts the cash flows that are coming in your earlier periods and increases those cash flows in the 2030 and out. Similarly, on the private portfolio, on the legacy portion of our portfolio, we lowered our CPR speeds from 10% to 8%. So, that's really the biggest driver of the movement from the earlier periods into the outer years. Moshe Orenbuch: And maybe if you mentioned this already, I missed it, and I apologize, but is there an ongoing impact on the private margin from that? You mentioned what the impact was in this quarter, but is there an ongoing impact on the margin from slower prepays? Joe Fisher: So, we adjust for that every single quarter. So really, the biggest driver in terms of margin impacts when you look back historically and what's, I'd say, lowered the margins overall is that as our balance has shifted more towards the refi portfolio from the legacy in-school loans that we originated, we typically have lower margins on the refi, albeit at much higher credit quality. And so that's the push on the margin in the recent years as that has become a higher percentage of our balance. Moshe Orenbuch: But still the margin going forward on the legacy book would be lower at a slower prepay rate, right? Joe Fisher: It really shouldn't impact it overall. I mean, you take that charge in the quarter and have the catch-up, assuming that the rate we have in place continues, there really shouldn't be much of an impact to the margin. Moshe Orenbuch: Got it. Okay. And then how do you think about capital needs given the potential for significant asset growth if you have expanded plans for Earnest? David L. Yowan: Yes. Look, I think we feel very confident about our ability to finance rapid asset growth. We're doing that today. We've called out in the last 2 releases, Moshe, if you've seen, our ABS issuances. I can't overstate how important that is to our outlook for this business and how we're comfortable with our ability to grow it in a much more, as I call it, fuel-efficient way, meaning less capital. We're achieving advanced rates in our most recent ABS securitizations that are higher than we have historically achieved. So, we're getting a majority of the financing we need to originate those loans from the ABS market, therefore, requiring less equity and other sources of risk capital to finance the loans. We've also got other avenues that we haven't exercised levers before like loan sales, et cetera. You combine what we're seeing in the ABS market with some of the flexibility that we think we have, and we're highly confident in our ability to finance higher levels of loan originations. Moshe Orenbuch: Just to follow up, I mean, is loan sales or are loan sales kind of a key part of the strategy? Is that something that you've got a program in place? Or how do you think about that? David L. Yowan: I think I'm not going to preview our November presentation or our '26 plan at this point. We've historically been an opportunistic seller of loans. Again, I think we feel confident in our ability on a make-and-hold basis to continue to originate loans. Make and sell is an option we have, and it's good to have that flexibility. Moshe Orenbuch: Great. We'll be listening on the 19. Operator: We'll take our next question from Rick Shane with JPMorgan. Richard Shane: Look, a long-standing part of the narrative is sort of the decline in the reserve rate due to consolidation of loans and the relative loan quality. And if we look back consistently, the provision has been well below charge-offs on any given quarter in the private -- in the consumer book. Have we reached the inflection point when you think about, for example, fourth quarter guidance, does that assume that the reserve rate is now stabilized in the mid-2.50s? Or how should we think about that going forward? Joe Fisher: So the way I would think about it going forward is going to be a function of also new originations and what we're making. So as I said in my earlier response, for the refi originations, we're reserving at 1.5% in terms of life of loan loss assumptions. So for every dollar we're adding there, it's 1.5%, which would lower our overall allowance. So as that balance shifts, I would just imagine that, that allowance would come down to more -- to reflect just the greater percentage of refi loans. To the extent that we are -- we see an opportunity here, obviously, in the Grad PLUS Market and grab opportunity there, those loans typically are originated with life of loan loss assumptions closer to 6%. So, that's the balance and the trade-off there. Otherwise, just in a naturally amortizing portfolio where we have life of loan loss expectations, I would imagine that, that allowance would come down, all else equal as the portfolio runs off. Richard Shane: Got it. And just to be clear, and I don't know if I missed this or not, but you're suggesting that the reserve rate on the consolidation loans was not changed of this increase that we saw today? Joe Fisher: For new originations, no, it was not. So if you think about the refi portfolio, as Dave mentioned, very high credit quality, high earners, that's some of the best that we've seen in terms of our history there. And the early trends that we've seen over the last year have not given any indication that we would need to change that. Richard Shane: Great. But does that suggest that on the older stuff, not the new originations that the CECL rate on the consolidation loans did change? Joe Fisher: So on the refi book -- we keep saying consolidation. So on the refi book, yes, we did take up our reserves on the refi originations, primarily as we looked at some of the back books and vintages that were, call it, 4 or 5 years old. Operator: We'll take our next question from Sanjay Sakhrani with KBW. Sanjay Sakhrani: Just a follow-up on some of the credit quality questions. Just on this provision that you did take, the $151 million, how much of it was credit related versus just the cash flows extending out because of lower payment speeds? I'm just curious on that. And then I guess just a follow-up on that as well. It sounds like when I look at the slide, you guys -- every third quarter, you sort of true up that number and look at the back book. I'm just curious like what -- I understand like things have changed post-pandemic, but what changed between last year and this year? Was it just the repayment behaviors that changed? I'm just curious what you think drove that because you would have thought the conditions post-pandemic have been fairly stable more recently than they were in some of the years sort of ensuing that. David L. Yowan: Yes. So, thanks for the question, Sanjay. If you think about the narrative that I went through with Bill's question, the change in public policy, particularly around the FFELP loans, for example, is a new administration policy, right? Prior to the inauguration, the prior administration had a very proactive view of loan forgiveness, payment relief programs, et cetera. The new administration has not exhibited that same appetite for that and in fact, has not proposed anything. And so we're 3 months -- 3 quarters, excuse me, into that new administration, and we've now both for prepayment and default rates, looked at trends that we're seeing when you see a trend that occurs over several quarters, we've appropriately stepped back and said, let's take a look at if we continue to see these trends, both on prepayment and default rates, here's the impact on life of loan cash flows. And then, of course, the accounting treatment for each one of those is very different. There's none of the future cash flows from extension that gets booked in the current quarter and all of the provision expense gets booked in the current quarter. I think in terms of the -- I'm not going to try to attribute all the different factors here. We've laid them out. I think we could turn it into a World Series game of 18 innings. There's a lot of factors going on. The ones we've called out are really the impact of the -- everything that went on in the pandemic related to COVID relief, related to federal loan forgiveness, the macroeconomic conditions that we've seen. And again, this is a distinct portfolio for us, just given the age of this. The majority of the provision we're taking, again, is on loans that originated a decade or more ago. And I think that's distinct certainly from the loans that we're booking today and distinct from maybe other players that have a different story to tell this quarter. Sanjay Sakhrani: And of that $151 million, I mean, is there a breakdown of that? Like how much of it is credit? How much of it is extension of duration? David L. Yowan: Yes. I'm not going to -- there are so many factors involved. We don't have that attribution, Sanjay. Sanjay Sakhrani: Okay. Got it. And then just one last one on -- so it seems like the delinquency rates aren't necessarily showing the same type of deterioration that the charge-offs are. So, should we expect that severity of loss -- like so that the roll rates to be higher on a go-forward basis? I'm just curious, Joe, as we think about sort of where this all falls. Joe Fisher: Yes, they should be lower. So a big driver, obviously, of just the charge-offs in this quarter is the timing of those borrowers coming out of the various disaster relief programs and forbearances. So to your point, we're seeing early-stage delinquencies that are improving and late-stage delinquencies for that matter on the Consumer Lending side. So from that standpoint, we would expect lower charge-offs going forward and we are seeing improving roll rates. Sanjay Sakhrani: Sorry, I have one more question. You hear a lot about high levels of unemployment among graduate students. I'm just curious if you guys are seeing anything in your portfolio that you've accounted for any of that in this provision increase? Joe Fisher: No, we are not seeing that. Certainly, when you look at the originations that we've been making, we've been doing that since 2020. They've predominantly been to -- I should say, more than half have been to graduate students. And we're just not seeing that in terms of those that have graduated here in the early term, there has not been the impact that you're seeing in the headlines. Operator: We'll take our next question from Mihir Bhatia with Bank of America. Mihir Bhatia: I apologize upfront. It's another question on the provision. I'm just trying to understand the moving pieces. You mentioned the $155 million increase in provision in the consumer segment. $17 million was due to new originations. Is there a way to break out the remaining $138 million between the macro policy changes and just higher delinquencies even? I guess we're just trying to understand the moving pieces, how much is coming from macro assumptions and policy assumptions changing? How much is coming from actual like delinquency? Because the delinquencies don't -- like the trends in delinquency, I think, as some of the previous analysts also mentioned don't seem that bad. I mean, I understand they're higher than earlier, but -- so just trying to understand the moving pieces. Joe Fisher: Yes. Look, I appreciate the question. The macroeconomic condition piece this quarter is relatively small. The rest of it there is the trends we're seeing in the portfolio, and our assumption and expectation that those trends are going to continue. Again, I go back to the narrative that I used to answer Bill's question upfront. I think you really have to look at the private legacy portfolio, look at the establishment of the reserve back in 2020, think about the 5 years since then, see what we're seeing now, that's what we're responding to. There's a variety of factors on that very seasoned portfolio that we're responding to there. That's the majority of the story of the $151 million. Mihir Bhatia: Okay. And then maybe just on the refinance side. As you had some more time to digest some of the changes that are going on, on the graduate side and so maybe just a question like both on the in-school opportunity for new loans and then just on the refinance side even. Is there something for us to be thinking about with all the policy changes going on there where there could be some type of refinance benefit also? David L. Yowan: Yes. So, thanks for the question. Yes, we do -- well, you're seeing in our results today, I think the opportunity in refi and our ability to capitalize on it. I mentioned at last quarter's release, one of the things that, again, I keep going back to 2020, but prior to the pandemic, our refi originations were roughly 50% coming from federal loan borrowers. Then during the pandemic period, which also coincided with a period of higher benchmark interest rates and volumes lower, roughly 20% of our refi origination volume was coming from federal loan borrowers. In the first half of the year, roughly 40% of our borrowers were coming from consolidating out of federal loans. And this quarter, 50% were consolidating out of federal loans. So the impact of federal public policy -- federal loan public policy on payment relief programs, et cetera, has made the federal loan value proposition to borrowers less attractive than it once was. And therefore, the private loan, the refi loans becoming more attractive. We think that's what's driving a part of the increase in the growth in refi that we're seeing. We would expect that to continue. Lower benchmark interest rates only further increased the addressable market there. If you look at the interest rates on federal loans, I think it's over -- there's over $100 billion of federal loans originated in the last 6 years that have above 7% coupon. That's a significant and substantial opportunity, not all of which meets our targeted customer base, but the refi opportunity is significant and substantial. The Grad PLUS piece is still -- we don't know what -- I don't think anyone knows for sure what that's going to look like. We feel confident in our ability demonstrated this quarter again to attract high credit quality, high balance borrowers, predominantly graduate students. And so when those students present themselves and are looking for a gap to help finance their education, we're confident in our ability to meet them, meet their needs and exceed their expectations. Operator: We'll take our next question from Ryan Shelley with Bank of America. Ryan Shelley: Most of mine have been answered. I just wanted to ask about your outlook on competition going forward. So, obviously, with changes to federal policy, it sounds like there's going to be more greenfield. I know you just said it's hard to exactly size that. But big picture, it sounds like there will be more opportunity. How do you see that changing the competitive landscape? And any commentary around what you're doing to prepare yourself to more effectively compete? Joe Fisher: I think that we've done a good job in terms of our entrance into the market over the last several years here, positioned ourselves very well to take advantage of the opportunity. When we look at our competition as it relates to new in-school graduate loan originations, just looking at public data, we're roughly over $200 million in terms of graduate originations when you look at last year. We estimated that market to be between $1 billion and $1.4 billion. If you look at some of our competitors and what they suggest is the market that's fairly consistent. So, roughly a 20% market share there. And I think that the product suite that we offer is very attractive. In the early stages of what we've seen here and just really with some of the reforms that have taken place, we've had a number of financial aid offices reach out. We've been able to add in terms of the percentage of the top 200 schools that we participate in over the last 2 quarters here. So call it, an additional 9% to 10% increase there. So certainly, we're taking advantage of the opportunity here that's in front of us. And the normal competitors in that place are obviously the largest player in the market. We still -- has a significant share there. We haven't yet seen new entrants that have made a significant impact. And on the refi side, there's a significant opportunity for growth there if, obviously, rates fall. It's predominantly just us and one other larger competitor in the market. We don't see other players stepping in yet to, like we did, call it, 5 years ago, where there were more diverse players in the refi space. So today, I'd say it's really a 2-person race in terms of refi originations, and we're not seeing any changes in really outsized coupons that are changing or pressure on rates that are being charged to borrowers at this stage. So, we feel good about where we are and we're well positioned for all of 2026. Operator: [Operator Instructions] We'll take our next question from Jeff Adelson with Morgan Stanley. Jeffrey Adelson: I know it's already been asked already, but just in terms of the potential Grad PLUS opportunity here, is there any more work you've done over the past quarter to try to better sort of ring-fence the opportunity here, what your work has shown you? And I think one of your competitors has been out there on the in-school side talking about a $4 billion to $5 billion opportunity annually. Does that seem maybe in the ballpark for you? Or are there any maybe differences in how you would think about that? Or should we be maybe expecting something on this November update around sort of market size opportunity there? Joe Fisher: So, I would think of it as the market share today is $1 billion to $1.4 billion in terms of what the graduate market represents for the private players. I would say Grad PLUS as a total is a $14 billion market. So, I don't view that as just one-for-one replacement that you're adding $14 billion. I know one of our competitors has said $4 billion to $5 billion is the expansion. Another one of our competitors has quoted is closer to $10 billion. So from us, we certainly think there's going to be a level of multiples of expansion there, and we're excited about the opportunity and that's where I leave it. Jeffrey Adelson: Okay. That's helpful. And then just on the refi side, I think you had said your -- about 50% is now as of this quarter coming back from the government refi side of things more in line with pre-COVID. Do you think there's an opportunity for that to expand even further above even where pre-COVID was just as sort of rates fall from here and the government policy on forgiveness and repayment plans after next year is going to get a little bit worse? Joe Fisher: Absolutely, I think there's opportunities when you think about just the rate environment here. So, I'll just use one example. If I look at the Grad PLUS program, going back the last 14 years, there's only been one instance where the rates that are reset every single year has been below 6%. And if you look at the last 4 years, those rates have been at 7.5% or higher and just 2 years ago, it was at 9%. So as rates fall here, I think there's a tremendous opportunity when you think of the volume of high-quality borrowers that have attended and graduated with a graduate degree. I think it's a great opportunity in front of us to increase that percentage and ultimately increase the volume. You don't have to go that far back to see just very high-level volumes from us. Back in 2021, we were close to $6 billion in terms of originations. So, I think it's really going to be rate driven, and we'll have to see what happens here in the next couple of quarters. Operator: And there are no further questions on the line at this time. I'll turn the program back to Navient's CEO, David Yowan, for any additional or closing remarks. David L. Yowan: Yes. Thank you, and thanks for joining today. Before we close, I'd just like to put into context this quarter's results the way that we see it. And I'd actually call your attention to Slide 3 in our slide package. We've included this slide for 8 or 9 quarters now. So it has 4 elements to it that we're attempting to deliver on. I'll just go through them. One, maximize the cash flows from our loan portfolios. Based on the trends that we're seeing today that we have recorded and put into our life of loan cash flow assumptions, those combined to have a $195 million increase in the life of loan cash flows that we saw. The second thing we said we'd deliver on was enhance the value of our growth businesses. For the third straight quarter, we've doubled our origination volume from prior quarters. We had our highest peak season in in-school lending in our history. Credit quality is exceptionally high. Customer satisfaction remains very high. And so we're positioning ourselves for further growth in market and in product opportunities. Continuously simplify the business and increase efficiency, I'd call your attention to Slide 11, where operating expenses this quarter are roughly 55% of what they were just in the year ago quarter. And we've identified within the amounts we incurred this quarter, $14 million of expenses that we know are going to go away. We're in the process of getting rid of those. That would bring our operating expenses down to less than half the level they were a year ago, and we're committed to continue to look for ways to be more efficient. And then fourthly, maintain a strong balance sheet and distribute excess capital. We have an adjusted tangible equity ratio of 9.3%, which remains above our long-term average and we were able to grow loans at the levels we grew at and still distribute $42 million worth of capital for our shareholders. So, we feel like this quarter is a great example of our ability to check all 4 of those boxes in a very meaningful way. And I hope you can see our results in that same context. Appreciate your time and attention. We look forward to speaking to you in November. Jen Earyes: Thanks for joining today's call. Sorry, David. Operator: Go right ahead, Jen. Jen Earyes: I was just going to offer anybody whose question we didn't get to, please contact me after the call. Happy to have some more conversations. And thank you, David. Operator: Absolutely. Thank you all for your participation. You may disconnect at this time.
Operator: Good morning, and welcome to Otis' Third Quarter 2025 Earnings Conference Call. This call is being carried live on the Internet and recorded for replay. Presentation materials are available for download from Otis' website at www.otis.com. I'll now turn it over to Rob Quartaro, Vice President of Investor Relations. Please go ahead. Robert Quartaro: Thank you, Sarah. Welcome to Otis' Third Quarter 2025 Earnings Conference Call. On the call with me today are Judy Marks, Chair, CEO and President; and Cristina Mendez, Executive Vice President and CFO. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items. A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Otis' SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. Now, I'll turn it over to Judy. Judith Marks: Thank you, Rob. Good morning, afternoon and evening, everyone. Thank you for joining us. We hope that everyone listening is safe and well. Starting with Q3 highlights on Slide 3. Otis delivered strong third quarter results and returned to growth, as we executed well on our service-driven business model. Organic sales in the quarter were up 2%, driven by Service, which grew 6%. Notably, modernization organic sales grew 14%. Adjusted operating profit margin expanded by 20 basis points overall, driven by Service margin expansion of 70 basis points. This strong performance, together with a lower share count, drove a 9% increase in adjusted earnings per share in the quarter. Our Maintenance portfolio continued to grow 4%, and we are on track to approach 2.5 million units in our service portfolio by year-end. Modernization order growth accelerated to 27% and backlog increased 22%. New equipment orders grew 4%, returning to growth for the first time since the fourth quarter of 2023, supported by moderating declines in China and good momentum across the other regions. Adjusted free cash flow increased sequentially as anticipated to $337 million, giving us good line of sight to deliver our adjusted free cash flow outlook of approximately $1.45 billion for the full year. We opportunistically completed approximately $250 million in share repurchases during the third quarter, bringing the year-to-date total to approximately $800 million, fulfilling our full year outlook. We continue to innovate both in our product and go-to-market approaches. For example, we recently launched Otis Arise MOD packages in our EMEA region, which represents our largest modernization opportunity currently. Otis Arise MOD is a new suite of flexible, phased modernization packages designed to help building owners upgrade their elevators in a way that creates less disruption for passengers and provides customers with options for a phased project and predictable budget. Otis Arise MOD reflects our commitment to customer-centric innovation and positions us to capture long-term modernization demand across the region. Also, during the quarter, Otis was named a TIME magazine's list of the world's best companies for 2025, and again, recognized by Forbes as one of the world's best employers. These recognitions reflect our commitment to our absolutes, our strong culture, global impact and commitment to excellence. Turning to our orders performance on Slide 4. Combined New Equipment and Modernization orders grew 9% in the quarter, with notable strength in Americas, EMEA and China. Our combined backlog increased 3% and excluding China increased 11%. Our total backlog, including maintenance and repair, remains near historically high levels, which should support growth in the coming quarters. New Equipment orders increased 4% in the quarter. And excluding China, we saw a robust 7% growth, with EMEA up high teens, driven by Southern Europe and the Middle East, while Americas grew mid-single digits. The strength was partially offset by a low single-digit decline in Asia. We have seen improvement in China year-over-year comparisons, and we expect China New Equipment orders to be down mid-single digits for the second half of the year. At constant currency, our New Equipment backlog declined 1% year-over-year, but excluding China, it grew 8%. We had our highest modernization orders since spin, up 27%, driven by strong 20-plus percent orders growth in Americas and China and high teens growth in EMEA. Our quarter end backlog grew 22%, positioning us well for the coming quarters. We continue to believe we're in the early innings of a multiyear growth cycle in modernization driven by the aging of the 22 million unit installed base. All regions contributed to our Service portfolio growth of 4% in the quarter. We saw low teens growth in China, mid-single-digit growth in Asia Pacific and low single-digit growth in Americas and EMEA. Our global teams continue to execute well. And this quarter, we secured a number of strategic customer wins that underscore our ability to deliver differentiated solutions, deepen relationships and expand our footprint across key markets. In the Americas, we secured a project at 100 McAllister in San Francisco, a landmark 1930 Gothic Revival and Art Deco building that serves the University of California law school. Otis will install 5 Gen3 elevators with Compass destination dispatching, delivering advanced vertical transportation while preserving the building's historic character. The project is being managed by Plant Construction, a long-standing Otis partner, and highlights our commitment to quality, innovation and heritage preservation. In China, Otis was awarded the largest bond-funded elevator renewal project in Shanghai with 106 units at the Sunshine Waterfront Residential Community. We're upgrading legacy Otis roped elevators to our Otis Arise MOD packages, preserving key components to optimize the bond budget and adding AI-enabled safety cameras to prevent e-bike entry. Our customer has requested handover by year-end with a fast-paced schedule requiring 10 units replaced every 10 days. This project showcases our ability to deliver safe and efficient solutions under tight time lines. In Dubai, we've secured a new project with Sobha Realty to equip Sobha Sea Haven, a premium residential development in Dubai Marina. Otis will supply 29 units, including 25 SkyRise elevators and 4 Gen2 machine room-less high-speed systems, as well as our EMS 2.0 Elevator Management System. This project further reinforces our presence in the high-end residential segment and marks an important step in building a strong relationship with Sobha Realty. In South Korea, Otis was selected for the landmark K-Project, the first urban architectural design innovation project designated by the Seoul Metropolitan Government. We'll provide a total of 54 units, including 25 SkyRise elevators and Compass 360 destination management system to optimize passenger journeys. This project highlights our role in shaping next-generation urban mobility, and we're proud to support this innovative development in Seoul. Finally, last week, I had the privilege of joining our customers at the celebratory ribbon cutting of the new JPMorgan Chase Global Headquarters in New York at 270 Park Avenue. Otis installed 89 units, including 72 high-performance SkyRise elevators and 12 escalators and introduced our Compass Infinity AI dispatching system, which continuously learns and optimizes passenger flow. We're proud to support JPMorgan Chase at this landmark site and beyond. Turning to our third quarter results on Slide 5. Otis delivered net sales of $3.7 billion with organic sales up 2%. Adjusted operating profit margin, excluding a $17 million foreign exchange tailwind, increased by $16 million driven by strength in the Service segment. Adjusted operating margin expanded by 20 basis points to 17.1%. Adjusted EPS grew approximately 9%, or $0.09 in the quarter, driven by strong operational performance, favorable foreign exchange rates, a lower tax rate and a lower share count. Adjusted free cash flow was $337 million in the quarter and $766 million year-to-date. With that, I'll turn it over to Cristina to walk through our results in more detail. Cristina Mendez: Thank you, Judy. Starting with Service on Slide 6. Service organic sales grew 6% with growth in all lines of business. This acceleration represents the highest organic Service sales growth this year, in line with expectations, and demonstrates the fundamentals of our Service flywheel. Maintenance and repair organic sales grew 4%, with maintenance driven by 4% portfolio growth and 3% positive price, partially offset by mix and churn. Our Repair business continued to accelerate to 7% growth year-over-year. After the first half of the year, marked by the transformation changes in our branches, as expected, Repair activity is improving in the second half. And we expect Repair sales to continue ramping up to 10% growth or above in the fourth quarter. Modernization sales also saw significant acceleration in the quarter, with organic sales growth of 14% on the back of our robust growing backlog at the end of the second quarter. Furthermore, the outlook for modernization remains strong. And the aging installed base should continue to support sustainable modernization growth in the coming years. Service operating profit of $621 million increased $49 million at constant currency with higher volume, favorable pricing and productivity more than offsetting higher labor costs and mix and churn. Operating profit margins expanded 70 basis points to 25.5% in the quarter, the highest margin expansion of the year, and marked another record quarter in Service margins since spin. Turning now to New Equipment on Slide 7. New Equipment organic sales declined 5% in the quarter, as the strength in Asia Pacific and EMEA were more than offset by declines in China and the Americas. EMEA sales grew 3%, driven by robust growth in the Middle East, while Europe was relatively flat. Asia Pacific grew high single digits, driven by strong growth in India, Japan and Southeast Asia, partially offset by weakness in Korea. Americas declined 7%, as we continue to work through last year's backlog. However, thanks to solid orders performance for 5 consecutive quarters, Americas growing backlog provides line of sight for the region to deliver positive new equipment sales growth in the near future. Excluding China, our New Equipment backlog grew 8%. And while China is still relatively weak, the sales decline versus the prior year is expected to moderate in the second half. China New Equipment sales declined approximately 20% in the third quarter. New Equipment operating profit of $59 million declined $24 million at constant currency, and operating profit margins declined 170 basis points to 4.7%. The operating profit decline was driven by lower volumes and favorable price, tariff headwinds and mix. These were partially offset by productivity, including the benefits of restructuring actions. The margin decline was more moderate than anticipated thanks to better-than-expected sales, especially in Americas, and ongoing efforts to reduce cost as part of our China transformation. Due to our progress, we now anticipate 2025 in-year savings of approximately $30 million from the China transformation, as we have captured more than $20 million year-to-date. On an annual run rate basis, we continue to target approximately $40 million per year. Our average savings targets have not changed. We continue to expect 2025 in-year savings of $70 million and to reach annual run rate savings of $200 million by the end of the year. Note, we have reduced our expected full-year '25 restructuring and transformation costs to approximately $220 million. I will now turn it back to Judy to discuss our 2025 outlook. Judith Marks: Thanks, Cristina. Starting on Slide 8 with the market outlook. Before discussing our updated 2025 outlook, I'd like to briefly discuss our global market expectations. We've continued to see improvements in the Americas. Therefore, we are upgrading our outlook to up low single digits. This upgrade is supported by continued growth in the U.S. and Canada, particularly within the infrastructure and residential verticals. Notably, we've also seen encouraging developments in the data center segment this quarter, a vertical, we believe, holds strong potential for sustained growth given increasing demand for digital infrastructure. Our outlook for EMEA and Asia remains unchanged with EMEA growing low single digits and Asia declining high single digits. In EMEA, we continue to see greater than 20% growth in the Middle East supported by strong projects activity and urban development. Central and Southern Europe are on pace for mid-single-digit growth, partially offset by softer trends in Western Europe and the U.K. and Nordics. Within Asia, our outlook for China is unchanged, down low teens. Overall, we continue to expect a mid-single-digit decline globally. But while new equipment industry orders are expected to decline this year, we anticipate the industry installed base will continue to grow mid-single digits, with low single-digit growth in Americas and EMEA and mid-single-digit growth in Asia. This growth reflects the 830,000 units that were installed 2 years ago that are now rolling off their warranty period. Turning to our financial outlook. We continue to expect our Service segment to drive full year revenue and profit growth. We anticipate total net sales of $14.5 billion to $14.6 billion, with organic sales growth of approximately 1%. The third quarter marked our return to organic sales growth, driven by accelerating repair and modernization as well as moderating declines in New Equipment organic sales. We expect these improving trends to continue in the fourth quarter. These trends should also flow through to the bottom line. Our adjusted operating profit outlook is $2.4 billion to $2.5 billion, up $75 million to $95 million at actual currency, including the impact of incremental tariffs imposed in 2025. We've narrowed the range and increased the midpoint of our adjusted EPS outlook to $4.04 to $4.08, representing an increase of 5% to 7% compared to 2024. We anticipate adjusted free cash flow of approximately $1.45 billion for the year, in line with the midpoint of the previous guide. As I previously mentioned, in the third quarter, we completed our full year target of approximately $800 million in share repurchases. I'll now pass it back to Cristina to review the 2025 outlook in more detail. Cristina Mendez: Thank you, Judy. Moving to our organic sales outlook on Slide 9. We continue to expect organic sales growth of approximately 1% for the full year, driven by strength in our Service business, partially offset by a decline in New Equipment as we work through last year's backlog. Within New Equipment, we have improved our Americas organic sales outlook to down mid-single digits due to improving shipments in the second half of the year. We have seen 5 consecutive quarters of orders growth in the region, and we have a solid backlog entering the fourth quarter. Asia is still expected to decline low teens with high single-digit growth in Asia Pacific, more than offset by a greater than 20% decline in China. As mentioned before, the China New Equipment sales year-over-year decline is moderating sequentially in the back half of the year, thanks to an easy comparison. And taken together, we expect New Equipment organic sales to decline approximately 7% for the full year. We maintained our growth outlook across all segments. Maintenance and repair is expected to grow mid-single digits, within range of our previous outlook. The change to mid-single-digit growth is mainly rounding given maintenance and repair has grown 4% year-to-date, and we expect approximately 5% growth in the fourth quarter. We anticipate repair to continue ramping up with growth accelerating to 10% or above in the fourth quarter. We are pleased to see the repair backlog normalizing with shorter execution time driving customer satisfaction. And we are well resourced to execute as we have continued to ramp up field mechanics similar to last year. In modernization, after a solid third quarter, we have good line of sight to deliver approximately 10% growth in 2025 on the back of our strong backlog. Turning to our financial outlook on Slide 10. We now expect adjusted operating profit to grow $75 million to $95 million on an actual currency basis, including the impact of tariffs. On a constant currency basis and excluding the impact of tariffs, we expect adjusted operating profit to grow $65 million to $85 million. We continue to anticipate a tariff impact of approximately $30 million for the full year, assuming current reciprocal and Section 232 tariff rates. As a reminder, the tariff impact is primarily in our pre-2025 backlog, as we have adjusted contract terms and pricing. Adjusted operating margin is expected to expand by approximately 30 basis points, in line with our previous expectations. Cash flow has sequentially improved in the third quarter, and we have good line of sight to deliver the guide of approximately $145 billion for the year, as we anticipate fourth quarter cash flow to be in line with last year. Looking at the big picture, 2025 is on the pace to be another challenging year in New Equipment with sales declining over $350 million at constant currency, similar to '24. Despite of ongoing challenge in New Equipment price and volumes, we are effectively managing costs to mitigate our decremental margins. At the same time, we expect to deliver another year of solid adjusted operating profit growth, thanks to the strength of our service flywheel, with 5% topline growth, driven by volumes and price, and ongoing margin expansion driven by density, productivity and our UpLift program. Moving to 2025 EPS bridge on Slide 11. We are narrowing the range and raising the midpoint of our outlook. With only 2 months to go, we now have good visibility for full-year results. We expect full-year adjusted EPS of $4.04 to $4.08. This is driven by a strong operational performance in our Service segment, partially offset by a decline in New Equipment. Favorable foreign exchange rates and a lower share count are expected to offset headwinds from tariffs and higher interest income -- interest expense. Taken together, this represents adjusted EPS growth of 5% to 7% for the year. While it is too early to provide formal 2026 guidance, we remain confident we can continue to deliver solid earnings growth in the coming years through the strength of our service-driven business model. The global installed base continues to expand supporting mid-single-digit growth in our service portfolio, which should continue to drive our maintenance and repair business. We are also in the early innings of a multiyear growth cycle in modernization, due to the aging of the installed base. Combined with our productivity and cost savings initiatives, we have a strong foundation to continue delivering sustainable revenue and earnings growth. With that, I will kindly ask Sarah to please open the line for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Joe O'Dea with Wells Fargo. Joseph O'Dea: Can you talk a little bit about the efforts that are underway on the maintenance side in terms of what you're doing on retention and recapture? And when we think about that growth might be pacing kind of in the 3% range, on revenue, kind of what your visibility is with respect to the timeline to see that stepping up as you achieve some of your targets around retention and recapture? Judith Marks: Yes. Thanks, Joe. As we've shared all year, we were not pleased with where we ended 2024, and we made a conscious decision to invest, invest in our service excellence, invest to make sure that we could retain our customers more. We'll share those outcomes at fourth quarter statistically. But I will tell you, it's going to be a long journey. We should see some sequential improvement, but returning to the 94% retention rate will take sustained time to rebuild customers' trust, as well as to gain them back. Having said that, we continue to add about 100,000 units this year. And as I shared in my opening remarks, we're going to approach 2.5 million units in our portfolio. That gives us the density, not just for maintenance and for productivity and maintenance, but it gives us additional repair opportunities, and we'll talk more about that, I'm sure, this morning. So we had good line of sight. We understand our conversion rates. We'll share those as well. We're pleased with where those are heading directionally. And again, our focus is on customer satisfaction and driving retention rates up. Recapture rates, we're pleased with as well, both Otis and non-Otis equipment, and we'll continue to drive towards portfolio growth. We'll share more at our Investor Day next spring, but we do believe that we should be growing at higher than a 4% portfolio. We're pleased we've done that now for over 2 years after being a traditional 1% growth, but there's more to happen in the maintenance portfolio, so stay tuned. Joseph O'Dea: I appreciate those details. And then on Americas and New Equipment, and what you're seeing and a little bit better outlook there. Just in terms of any more color on kind of how the last few months have kind of unfolded when you talk about infrastructure and resi as some of the verticals where you're seeing a little bit better activity. Were these things that were in the pipeline, you just didn't think they were going to happen in the back half of the year? And any other color on what you attribute some of the demand kind of coming through here to? Judith Marks: We're much more positive on Americas growth based on 2 factors. One, the demand we're seeing, and that's even -- that's only with one interest rate change, but the demand we're seeing. Residential, as I said, infrastructure are driving most of these improvements, but all geographies in the Americas showed growth this quarter. So we were very pleased with that. The second thing we're seeing, Joe, is on the New Equipment execution side that gets us equally excited about the future. We had shared with you last quarter that we had started seeing some challenges at job sites where there had been slowed down by other trades. As we came through this third quarter, we saw that basically being eliminated and back to a normal cycle of construction at New Equipment sites. So with the backlog growing in New Equipment in the Americas, and this was our fifth straight quarter of growth, in especially in Americas, about 4%. That 4% is on top of 23% same quarter last year. So Joe and our team are just really driving -- Joe Armas, driving this growth on growth. And we have our great Gen3 core product that's out there. We're addressing so many different segments now. And so we're really seeing that growth, and then, it's going to come through. It's 5 quarters now. We say there's about an 18-month lag, especially in North America from the time we take an order until we see that revenue come through, which is why we're feeling good about Americas revenue in the next few quarters. Operator: The next question comes from Nigel Coe with Wolfe Research. Nigel Coe: So really nice momentum in repair activity. I think you said, Judy, 10% growth in repair in the fourth quarter. Just maybe just talk about sort of the visibility on that. And really what's driving this sort of this crunch towards growth in the back half of the year? And then just maybe the implied maintenance growth would be probably sub 4% when we back out repair. I know that mix is a negative headwind to the kind of the core maintenance growth rate. So maybe just talk about where are you seeing the pressure points on mix and how that resolves or kind of improves as we go into 2026. Judith Marks: Sure, Nigel. I will -- let me take the repair, and I'll hand over the maintenance to Cristina. If you look at our sequential repair improvement, started out fairly anemic at 1% growth in the first quarter, went to 6% in the second quarter. We were 7% this quarter, and we have line of sight to at least 10% in the fourth quarter, which gives us the confidence for the outlook for maintenance and repair to be mid-single digit. Especially now through October, we're seeing orders pick up as well. So that gives us even more confidence in repair. But I was pleased to see us really -- with that revenue growth, 2 straight quarters, 6% and 7% and now 10%, we are going to turn that backlog much quicker. And Cristina mentioned that helps with customer satisfaction. No one wants to wait in the queue to get an elevator or an escalator repaired. So we have made sure we have our mechanics available, the parts available, and we put a concentrated effort to backlog conversion. . And that rolls through to modernization backlog conversion as well. You'll recall that was 5% second quarter. Now, again, for organic, it's 14% this quarter, and our backlog is still growing. So we've got pretty good line of sight to the Service revenues and what's going to happen in the fourth quarter. And especially in repair, as you know, the elevators are aging. We've got 8 million plus over 20 years old. And when they don't become modernized, they do tend to break more frequently because of usage and age. And so we think the repair business is going to stay strong. I think it will -- it could moderate over time back to kind of more traditional mid- to high single digit versus 10%, but we think it's going to remain strong. Cristina, I'll turn maintenance to you. Cristina Mendez: Yes. Nigel, on maintenance, we have always said that we like seeing maintenance and repair together because depending on where you are in the world, the contractual setup is different. You have places where everything is included, therefore, everything is in maintenance, others, where the maintenance fee is smaller, but then we have a lot of repair activity. So it's better to see them together. But talking about maintenance specifically, our performance this year has been very stable. Year-to-date, we have grown maintenance 3%, and we expect this to continue going forward. The formula is as follows: we are growing portfolio of 4%. We have a 3% price, and that means that there is a headwind in mix and churn. And this is exactly the area we are focusing on at the moment. Judy mentioned before, all the actions around customer retention improvement, investment in service excellence. This is going to be a mid-term journey, but we are positive about the initial results we are getting from those investments. And the other headwind will be the geographic mix of the growth, and we are also focusing on growing in high-value markets. And also focusing on a more sophisticated price algorithm. So with all of these components, we expect maintenance growth to improve going forward. But again, the best way to look into this is to bundle maintenance and repair. Nigel Coe: Okay. I think we'll follow up offline on this for more detail. Maybe just a quick one on 4Q new equipment margins. 3Q came in a bit better, obviously, not great margins, but it came in a bit better than we expected. I'm just wondering if the furlough maybe wasn't quite as impactful as expected. And then, the question we're getting is normally 4Q margins would be much lower in New Equipment than 3Q. That doesn't seem to be what you're signaling. So just maybe talk about that as well. Judith Marks: Let me talk to 3Q. So we had 2 things really help us on margins in 3Q; one, our team in China really accelerated. We entered this year -- as I step back, we entered this year knowing we needed to transform our China business. And our team took that on. We did our China transformation, and we're now going to achieve $30 million in savings. We've already achieved $20 million now. We're going to achieve $30 million. That all gets reflected in that cost takeout line in New Equipment. So by accelerating that, that helped. The other thing that helped was just more shipments than we had originally predicted out of our North America factory in Florence. So those are the 2 reasons that drove the margin expansion. Cristina Mendez: Yes. And on Q4, Nigel, so we expect margins to be around 4%. Q4 margins are seasonally lower than Q3, but we also need to bear in mind that because of the New Equipment segment getting smaller, there is much more volatility on margins. Having said that, because of the positive trends we see in the moderating decline in New Equipment sales, together with the accelerated savings in China transformation, we are positive about New Equipment margins being around 4% in the quarter, that full year would be approximately 130 basis points down versus previous year. Operator: The next question comes from Jeff Sprague with Vertical Research. Jeffrey Sprague: Can we just talk a little bit more about price? You noted price continues to be up on the Service side. I would suspect there's still a meaningful geographic difference China versus rest of the world, but can you give us a little more color on what you're kind of booking on new business today? Judith Marks: Yes. In terms of Service pricing, like-for-like pricing increased 3 points in the quarter. Obviously, inflation has receded somewhat in most of the world. But in mature markets, where most of our Service portfolio resides now, Jeff, EMEA was up low single digits. They had a tougher compare because of their ITC program in Spain. So they did have a tougher compare, but they're doing really well. And Americas was up mid-single digits, and Asia Pacific up low single digits. In China, as you know, the margin drivers are less on price and more on density and everything else. Mix and churn for Service was flat. Now China Service, our team continued to grow our Service portfolio in the teens yet again. And our Service units, that was the 16th straight quarter of teens growth in our China portfolio. We believe we're going to end the year approaching 500,000 units of those 2.5 million units in China. So our Service revenue there was up slightly. And our China team, I would tell you, to put it all in perspective, Cristina said maintenance repair, I would say, add maintenance, repair and modernization in China. Our China modernization was up substantively. Our orders were up 150-plus percent in China for modernization. When we look at those bond-stimulus orders, we were ready earlier this year. We're going to convert a lot of those to sales. We have a tough compare in fourth quarter from last year on those. So I wouldn't expect that similar number. But the China team has just really brought home this mod stimulus to where we do believe we are leading the order value in China amongst all of our peers for the mod residential bond program. Jeffrey Sprague: Interesting. And then on the new equipment side, can you kind of do a similar kind of geographic rundown for us on price? And I think Cristina said, only pre-2025 backlog has not been repriced. I wouldn't imagine there's a whole lot of pre-2025 backlog left, but maybe I misunderstood the comment there. Judith Marks: Yes, there's still some pre-2025 backlog left in the U.S. So I think when you're looking at, will there be some tariff impact in 2026 based on what we know today of reciprocal and 232 tariffs, there will be some. It should not be as much as we had this year, but there will be some. When we think about New Equipment pricing, it's up low single digit outside of China. And obviously, China, the pricing was down roughly 10% in the third quarter. And what we have done to really drive back to close to price cost neutral is use cost-out, productivity, tailwinds on commodities and our China transformation program. So all of those have contributed. I would tell you, strategically, we were prepared for this. And in the New Equipment market in China, Jeff, we are seeing sequential improvement. The second half, we think is going to be down 10% versus down 15% for the first half. And our team outperformed that. Our third quarter New Equipment orders, and as you look at the second half, we really expect to be down mid-single digit versus second half last year. That's to me that the real turn in for us on stabilization. Operator: The next question comes from Steve Tusa with JPMorgan. C. Stephen Tusa: Can you -- I guess you talked about retention, is it still getting better sequentially? And do you still have a target for year-end to be -- for retention to be at least up year-over-year, getting better? Judith Marks: I think it's very slightly improved. When we lose a customer, they do a multiyear service contract with someone else. So that's why it's so impactful and why we're laser focused on it to make sure that we're completing -- having the right quality of service, completing everything on time, being responsive to our customers. But I wouldn't anticipate a step function improvement, Steve, when we report this after fourth quarter. We've made the investment now, but it's going to be day-to-day, customer to customer, making sure that anyone who's going to renew, we're focused on them, and we're making the right investments now to keep them. C. Stephen Tusa: Got it. And then just on the Services growth for the fourth quarter. It does look like if repair is going to accelerate, I don't know, it's like the comp is like on mods, but if you're kind of stable on the maintenance side, that you should see an acceleration in revenue growth in the fourth quarter at Services, right, from 6% to maybe close to 7%? Cristina Mendez: Yes. Steve, for the fourth quarter, we expect Services to be around 6%. And you rightly said, repair is going to continue accelerating. We expect repair to be 10% or above, which, by the way, is the growth we had last year in Q4. So this demonstrates that repair is back on track and kind of normalized. On the other side, mods is going to be 10% versus 14% in Q3, reason for that is the calendarization of the bonds execution in China. Last year, bond projects, that are the subsidized projects, were very concentrated in Q4. China grew in Q4 more than 100% revenues there. This year is more level loaded between Q3 and Q4. So it's going to be 6% for the quarter. C. Stephen Tusa: Got it. And then just one last nitpick. But if I do -- you said new equipment was going to be down 150 basis points, I guess, was that a fourth quarter comment or an annual comment? Cristina Mendez: No, an annual comment. What I said is that New Equipment margin is going to be 130 basis points down versus prior year, full year. C. Stephen Tusa: 30 or 50? Cristina Mendez: 130. Judith Marks: 130, she means. C. Stephen Tusa: Okay, great. Okay. Okay, that makes more sense. Okay. Got it. Okay. Just making sure I had the numbers right. Operator: The next question comes from Amit Mehrotra with UBS. Amit Mehrotra: I just wanted to ask about Service margins. And maybe structurally, as we think beyond the fourth quarter, obviously, it was nice to see the expansion of the third quarter, we're up 40 bps year-to-date, is kind of that 50 basis point expansion algorithm still structurally right? I'm just thinking about, obviously, the net impact of higher mod mix in revenue that seems to be accelerating in '26 given the order growth. You're obviously making a lot of investments to -- that maybe serve as a debit to density, if I'm thinking about that correctly, to drive retention higher over time. I assume that's a little bit of a headwind. I'm just trying to understand, as we look beyond '25, like are those net headwinds to that margin expansion algorithm in Service? Cristina Mendez: Yes. So we are very pleased with the margin expansion in Service in Q3. It was 70 basis points, 25.5% margin, the highest margin rate in Service we have had since the spin. The reason for this strength is essentially very good performance in volumes, both repair and modernization ramping up. Volumes drive productivity, drives absorption. Also, mod ramping up in principle is a headwind in margin rate, but we also see mod margin rates improving sequentially. We have good line of sight to reach 10% margin rate for mod in the midterm. And we see this sequentially happening quarter after quarter. And last but not least, on repair, we also have the flow-through of a better price, so we see the rate of repair improving because of the price increase we executed in Q2. So with all of this, we expect full-year margin for Service around 25%, which is going to be 40 basis points up. And going forward, we are going to be laser-focused on growing service contribution in dollar basis. And we have very favorable tailwinds for that. So one is the volume growth, we have price and we have productivity. From a rate perspective, mods will be slightly a headwind. And we are also going to calibrate investments in order to continue growing top line, but the focus is going to be service contribution growth in dollar basis. Judith Marks: Yes, Amit, it's Judy. I would also tell you every quarter since spin, so 22 quarters, this is our 23rd, we have increased Service's adjusted operating profit dollars. And as Cristina said, it's going to be those dollars versus sustained margin rates at the levels we've shown now going on 6 years. Those dollars will contribute in terms of profit dollars, and they'll contribute in terms of cash as we grow the portfolio. Amit Mehrotra: Got it. Okay. That's helpful. And just a quick follow-up on China. You mentioned pricing was still weak in China, but some of the data that we look at, kind of assumes or shows that it's finding a floor. I don't want to get too cute with the data, but when you look at the month-to-month trends, it feels like it's finding a floor. Is that appropriate or accurate? If you can just comment on what's happening on the pricing side in China in real time? Judith Marks: Yes. Real time, we are seeing stabilization in the second half, and it's what we predicted in January, that we thought the first half would still see a fairly significant decline, but we're seeing that sequential improvement in China in the New Equipment market. And so, we are leading in the infrastructure segment. We're leading in the high-rise segment in China. And we are making sure that the units that we bring into our portfolio are actually -- that we win in New Equipment will be a higher conversion probability for us into the Service portfolio. As we look at our China business as a whole, China, just like last quarter, represents 12% of our global revenue, and it's now similarly 21% of our New Equipment revenue for the quarter. Our Service business now in China is 40% of our business in China. And so this 40% would equate to a few -- quite a few years ago, 15%. So we have had this focus on conversions, on New Equipment driving our Service flywheel, and China has done a great job to now make us a 60-40 business, New Equipment to Service, in terms of revenue. And that Service business in China is going to continue to grow between portfolio growth, which will drive maintenance and repair and modernization growth, which in China, they tend to modernize at the 15-year point. We have all indications that this bond modernization stimulus will continue into 2026. And as part of the 15th 5-year plenum, some of our interpretation of what's happening there is there's a focus on quality and digital versus involution, that we believe that the mod bond will continue potentially after 2026 as well. It may look a little different in terms of how much stimulus the government contributes versus the consumer, but we are making sure that we are optimized in bond and in regular modernization in China. Operator: The next question comes from Chris Snyder with Morgan Stanley. Christopher Snyder: Judy, you mentioned it's going to take time to get the retention rate back to where it was. And I think you specifically said you have to rebuild some customer trust. I guess, can you just maybe talk a little bit about why that trust has deteriorated over the last 12, or maybe it's been longer than that? Any color there would be helpful. Judith Marks: Yes. Thanks, Chris. And it's -- listen, this is something that we own. This is mainly about operational execution versus these customers going somewhere else just for price. I want to be clear about that. The good news is it's something we own and we can control and we can address. But we've gone through some changes in personnel, as you can imagine, as we went through our UpLift program. And some of those were customer-facing, although most of those were back office. We know that we can become more accurate in everything from invoicing to that. And we've now focused on having a GBS partner to help us do that. So we're taking actions. We're adding mechanics. Cristina said, we've added pretty comparable numbers of our field professionals this year. And I have to thank our field professionals for the work they do and how they represent our company every day because they are the heart and soul of this company. So we've added more where perhaps we had gotten to some ratios where we weren't able to deliver the outstanding service that we should and we commit to. So we're making sure we have better coverage. Some of that is an investment. We think that investment is worthwhile because of our Service flywheel, and we're going to continue to do that in all parts of the globe, but especially in our high-value -- lifetime value countries where we understand really the value of every service contract and every unit in our portfolio. Christopher Snyder: I really appreciate that. If we -- I guess, to follow up, is a lower retention rate have an impact on the rate of margin expansion in the Service business? I would imagine that retention is very good incremental business. And now, if you guys need to go out in the world and win more new work from someone else, would that be maybe lower incremental margin because there's more costs associated with winning new business rather than retaining business you already have? Judith Marks: Chris, the best business for us is when we convert a New Equipment customer into our portfolio to start. And then, depending where you are in the world, maybe 1 to 4 years later or more, we want to retain them with another Service contract. Even though, during that period, we've got inflationary adjustments, we've got price adjustments and we're servicing the customer. So you are absolutely accurate that that's -- those are the customers we want to retain because of the contribution margin that they drive. When we lose them and replace them with what we call a recapture, and we share the recapture rates, we'll share those as well in fourth quarter, they're strong, but obviously, to recapture from someone else, you have to take it away from them. We don't always just do that with price, though, which is your margin comment of why that would be lower. It is inherently lower, but we add functionality like Otis ONE. And we add other value differentiators, and we bring them back also on a road to modernization and a path there. So for us, the long-term value of that makes sense, but there is some margin headwinds by that loss of retention, absolutely. Operator: The next question comes from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just a couple of tie-ups from me since we've gotten through a lot of questions on the call. I guess maybe first, if we look at 4Q EPS, I think typically, you see like about a mid-single-digit decline. If I look back into your history, post spin, you're embedding something more like 1% this quarter. So just can we understand what's maybe a little bit better this year than what you've seen in the past? Cristina Mendez: Nicole, yes, so on EPS growth, we are planning $0.11 of growth in Q4 versus $0.09 in Q3. This is essentially coming from operating profit. So operating profit performance will improve because of New Equipment decline of sales moderating, as we have seen in Q3. So it's continuing the trend we saw in Q3. And on the Service side is the acceleration of repair plus also ongoing margin expansion, although Q4 is typically a lower margin rate quarter from a seasonality perspective, both on New Equipment and Service, and we are considering this seasonality. But we have very good line of sight to deliver this EPS growth because essentially, as I said before, it's continuing the trend of what we have executed in Q3. Nicole DeBlase: Cristina, super helpful. And then, on the buyback, you guys have basically completed your $800 million commitment for the year. Should we assume that you're done? Or is there room to maybe execute more buybacks if you see the opportunity in the fourth quarter? Judith Marks: Yes. In terms of capital allocation, Nicole, we are we are sticking with our capital allocation model in general, which includes beyond dividends and buybacks, also includes some M&A activity. Our M&A activity through the third quarter is up more than most years. We've already invested a little over $100 million in M&A, as we went through the third quarter. So we've been looking at all different cash usage. Again, these bolt-on M&As really give us that addition. They give us additional maintenance. They give us additional mechanics. They give us additional density. And they are very -- they are accretive, if not in year 1 by year 2. So they make sense for us. And now that more have become available, we've been using cash deployment to do that. So to answer your question specifically, we are -- we believe we are through. We still have authority from our Board, obviously, in terms of the capacity to do more, but we were opportunistic. Unfortunately, our stock price dropped fairly significantly after 2Q earnings, and we were opportunistic then to buy more shares back. Operator: The next question comes from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start with the free cash flow because I guess you've had this trend in Q3 and recent years, where the adjusted operating margins rise year-on-year, but the free cash flow margin falls. So just wanted an update on, do you think that can turn around anytime soon? And maybe clarify a couple of things on the free cash, specifically one would be around, how do we see the burden from cash restructuring changing from here? And also wondered how the rise in modernization affects the free cash flow dynamics of the business, if at all? Cristina Mendez: Yes. So, Julian, on cash flow, Q3 was a sequential improvement versus Q2. We delivered $337 million, that was $100 million better than Q2. And in terms of conversion rate, it was around 81%. This is much below the conversion rate we have historically had, and we are convinced that our business model should be at 100% conversion rate. The reason for this is the working capital buildup related to the change of the business mix. So year-to-date, our New Equipment sales have declined $300 million versus Service growing $340 million. And as you know, New Equipment has a more favorable working capital compared to Service. But all of this is just temporary, and we are confident that as New Equipment stabilizes and Service continues growing, we are going to come back to the regular levels of 100% conversion rate. In fact, for Q4, we are planning cash flow to be around $700 million. That's the same amount of cash we generated in Q4 last year. And we have positive signals that gives us the confidence that we are going to deliver. One is the fact that the orders in New Equipment turned positive in Q3 were plus 4%. And as you well know, we have advances coming from these bookings. You also mentioned modernization, and you are totally right, modernization working capital is pretty similar to New Equipment. It's at the end an installation project. And we also get advances from those projects. And last but not least, New Equipment sales are moderating. And there is a component of the transition of our collection's activity to a third party. We have recently outsourced this process to a third-party partner. We have seen a performance not at great levels so far, but we see it improving going forward, and we are confident that with all of this conversion rate in the year, it's going to be above 90%. And by 2026, we should be back to 100%. Julian Mitchell: That's great, Cristina. And then just my quick follow-up would be on the maintenance portfolio in the Service business. I think based on your comments, it looks like China will comprise maybe half, or almost half of your maintenance portfolio unit expansion in 2025. So just wondered if there was any update around the Service pricing and Service margin dynamics within China, please? Judith Marks: Yes. I don't think you will see China approach half of the portfolio growth next year, but we'll get back to you on that over time. We're very pleased with the growth we've had. But again, with this focus on the growth now being able to convert to service, we're being a little more disciplined as we go, so I would say that. In terms of Service pricing, again, with that discipline comes a little bit more focus on which tier cities we're going to serve. So we're not trying to cover the broader spectrum of countries. And if you look at where a lot of the property sequential improvement is, Tier 1 cities are doing the best. And the further out you go to Tier 5 and beyond, they're not. So we do have agents and distributors who can cover that if they choose, but we are -- as part of the China transformation, we've merged our 2 Service brands to make us more efficient and productive so that our Service contribution in China continues to improve. That will happen through density, and it will happen through us with our 2 brands. Now, being able to service and have shared routes, or even improved coverage, we think we're going to see that improvement come through in '26 as well. Operator: This concludes the question-and-answer session. I'll now turn to Judy Marks for closing remarks. Judith Marks: Thank you, Sarah. As you've seen, our Service flywheel is performing. This performance momentum is across the board in both segments and all regions. With the growing Service portfolio approaching 2.5 million units and an accelerating modernization business, we're confident we'll continue to deliver attractive and sustainable shareholder value for the remainder of this year and beyond. Thank you for joining us today. Stay safe and well. Operator: This concludes today's conference. Thank you for joining. You may now disconnect.
Operator: Good morning. Welcome, everyone, to the Tamarack Valley Energy Ltd. Conference Call and Webcast on Wednesday, October 29, 2025, discussing the recent third quarter 2025 results press release. I would like to introduce today's speakers, Mr. Steve Buytels, President and Chief Financial Officer; Mr. Kevin Johnston, VP Finance; and Mr. Ben Stoodley, VP Engineering. [Operator Instructions] Thank you. Mr. Buytels, you may begin your conference. Steve Buytels: Good morning, and thank you. Welcome, everyone, to the call to discuss our third quarter operating and financial results. My name is Steve Buytels, President of Tamarack Valley. And today, I'm joined by Kevin Johnston, VP Finance; and Ben Stoodley, VP Engineering. This morning, Tamarack announced its Q3 results, another positive update to our 2025 guidance and a dividend increase. Highlights of the quarter. Corporate production averaged 66,126 BOE a day, reflecting the previously announced 2,000 BOE a day impact of planned service interruptions at a third-party gas processing facility in the Charlie Lake and maintenance turnarounds in the Clearwater. Our production guidance of 67,000 to 69,000 BOE per day remains on track for the full year. In terms of portfolio optimization, we continued with that strategy during the quarter. As we previously announced, Tamarack completed a $51.5 million synergistic tuck-in acquisition of a private company in the Clearwater, adding approximately 1,100 barrels a day of production and over 114 net stacked sections of Clearwater land, primarily in the West Nipisi area. We see significant operating infrastructure and waterflood synergies on the newly acquired assets. In October, we closed the sale of our remaining non-core producing assets in Eastern Alberta for $112 million and disposed of approximately $63 million of undiscounted asset retirement obligations. This transaction is expected to reduce net production expense corporately by approximately 10% per BOE on a full year run rate basis. Tamarack has now completed its transition to a pure-play Clearwater and Charlie Lake producer. Our strong base volumes and lower decline rates from expanded waterflood activities in the Clearwater, combined with the Clearwater tuck-in acquisition are expected to replace most of the production from the East asset divestiture in the fourth quarter of 2025 and has allowed us to maintain our full year guidance range. In terms of shareholder returns, Tamarack repurchased 6.7 million shares during the quarter, which represents 1.3% of the 2024 year-end share count. During the quarter, we returned $57 million to shareholders through a combination of the base dividend and share buybacks. Consistent with our strategy of growing shareholder returns, we also increased our annual base dividend by 5% to $0.16 per share per year. Tamarack plans to move the timing of dividends from monthly to quarterly payments beginning in 2026. In the first 9 months of the year, we have returned $194 million to shareholders through base dividends and share buybacks, representing a 6% return yield through the combination of both the dividend and the buybacks. In terms of the waterflood, we increased Clearwater waterflood injection volumes during the third quarter to exit at more than 30,000 barrels a day in September. This represents the updated 2025 exit target rate being achieved 3 months ahead of schedule. We expect 2025 exit injection rates to exceed 35,000 barrels a day, which would represent approximately 22% of our Clearwater production being under waterflood support. This equates to a 250% increase over 2024 exit water injection rates. This significant response in oil rates from waterflood have driven approximately 3,600 barrels a day of full year production growth this year, which has been a key driver in the positive guidance revisions. In terms of our capital structure and net debt reduction, during the quarter, we completed a $325 million note offering of 5-year 2030 senior unsecured notes. The proceeds of the offering were used to redeem $100 million of our existing 2027 senior unsecured notes with the remaining proceeds used to reduce the drawn portion of the credit facility. Tamarack ended the third quarter with net debt of $631 million, which represents a reduction of $144 million or 19% since the beginning of the year. With this note offering, Tamarack has laddered its debt maturity structure across several years and currently has undrawn credit capacity of over $700 million. In October, S&P raised our corporate credit rating from B to B+ as a reflection of Tamarack's ongoing debt reduction and strong operational performance. Ben is now going to walk through the latest developments in the Clearwater and Charlie Lake. Benjamin Stoodley: Thanks, Steve. Operationally, waterflood and the Clearwater is driving our growth, while the Charlie Lake continues to deliver strong repeatable performance. Clearwater production has grown by 11% year-over-year. This continues to demonstrate the success of our primary development and strong response for the ongoing expansion of Tamarack's waterflood program. Response from waterflooding continues to grow with a total production uplift from waterflood now estimated to be 4,500 barrels per day of oil. Year-to-date, Tamarack has drilled 20 injection wells, a source water well and have converted 13 producing wells to injectors. Tamarack is demonstrating the long-term value creation and resource capture capability of deploying waterflood as part of a multilateral development strategy in conventional heavy oil reservoirs. To demonstrate this, we can look at the highest producing well rates in the Clearwater during the month of September. 4 of Tamarack's wells under waterflood, the 16-02, 15-02 and 01-11 wells at Marten Hills and the 11-24 well at Nipisi were 4 of the 10 highest producing wells in the Clearwater in the month of September despite all of these wells being brought on production 3 or more years ago. In the month of September, these 4 wells produced at a daily rate of approximately 940, 930, 430 and 490 barrels a day, respectively. These 4 wells under waterflood have collectively produced nearly 2 million barrels of oil to date as of September. Tamarack plans to rig release 22 net producing wells and 2 injectors in the Clearwater in the fourth quarter of 2025. Our Charlie Lake asset continues to deliver strong results. The Charlie Lake produced approximately 14,000 barrels of oil equivalent during the quarter, reflecting planned service interruptions at a third-party gas processing facility in the Pipestone area. We continue to await start-up of the CSV Albright plant and are prepared to commence delivery of gas as the facility is currently in the final stages of commissioning. Delays to the start-up of the CSV Albright gas processing facility are not expected to have a significant impact on Tamarack's production for 2025 or 2026 with several mitigation plans already in place. Tamarack resumed drilling and completion activities with 4 net horizontal wells drilled and 3 net horizontal wells completed during the third quarter, and Tamarack plans to continue running a one-rig program for the remainder of 2025 and to rig release a total of 4 net wells in the Pipestone and Saddle Hills areas of the Charlie Lake in the fourth quarter of 2025. I'll turn it over to Kevin to expand on the financial results and our updated corporate guidance. Kevin Johnston: Thank you, Ben. Q3 2025 marks the completion of our multiyear transition to a pure-play Clearwater and Charlie Lake producer. In the quarter, we generated adjusted funds flow of $201 million or $0.40 per share, which was in line with 2024. Tamarack earned $96 million of free funds flow or $0.19 a share in Q3. In the first 9 months of 2025, Tamarack has generated free funds flow of $320 million or $0.63 per share, which is 17% higher than the first 9 months of 2024, even with WTI pricing 14% lower. This year-over-year increase reflects the compounding effects of production outperformance, lower cash costs and continued share buybacks. Since beginning our share buybacks in January 2024, Tamarack has repurchased 63 million shares, which represents over 11% of our 2023 year-end common share float. We believe that long-term share buybacks allow Tamarack to both accelerate and compound per share value. Since the fourth quarter of 2022, Tamarack has delivered debt-adjusted production per share and debt adjusted funds flow per share growth of 40%. The ongoing reduction in our share count allows us to increase our dividend while keeping the absolute dollar payout relatively unchanged. Tamarack's base dividend will increase by 5% to $0.16 per share annually, beginning with the November 2025 payment. As Steve mentioned, during the quarter, Tamarack completed the tuck-in acquisition of a private Clearwater producer, the disposition of non-core producing assets in Eastern Alberta and the bond refinancing. With all of this, Tamarack ended the quarter with net debt of $631 million, which represents approximately 0.6x net debt to the trailing 12 months EBITDA. Since the fourth quarter of 2022, we have reduced our net debt by $750 million and our net debt to the last 12-month EBITDA by an entire turn. Tamarack's balance sheet is in a very strong position with low leverage, a laddered maturity schedule and currently 75% undrawn on its credit facility. We announced 2 positive revisions to annual guidance with the quarter. First, given the continued margin enhancement and expected cost savings from the East asset disposition, we further reduced guidance for net production expense by 5% on the full year. Second, we reduced guidance for royalty expenses by 1 and 2 percentage points on both the low and high end of our guidance, given lower commodity prices and greater gas cost allowance credits. Year-to-date, net production expenses have declined by 19% compared to the same period last year. The East disposition is expected to further reduce our net production expenses by 10% per BOE go forward. Tamarack will be announcing its 2026 corporate guidance and capital program in early December. I will now turn it back to Steve for closing commentary before we open the call to questions. Steve Buytels: Thanks, Kevin. We announced 2 executive updates this morning as well. First off, Kevin Screen, Tamarack's Chief Operating Officer, has decided to retire in January. Kevin joined Tamarack in 2011 as the Vice President, Production and Operations, and has served as the Chief Operating Officer since 2021. Kevin's 15 years of experience and integrity have been instrumental to the success of Tamarack are an important part of the company's foundation. We all wish Kevin and his family a happy, lengthy and healthy retirement. To ensure we keep one Kevin in the C-suite, Kevin Johnston, our Vice President of Finance, has been promoted to our Chief Financial Officer, effective January 1. Kevin joined Tamarack in 2023 and has been expanding his role since then to ensure a smooth transition. We'd like to congratulate both Kevins on these upcoming changes. Tamarack continues to be differentiated by the scale and quality of our assets. Through our recent acquisition and divestiture activity, we continue to build on both of those factors with the overarching goal of becoming one of the most profitable exploration and production companies in North America. There are 3 important themes I'd like to emphasize about Tamarack, which have been further demonstrated this quarter. First, the margin of profit on our barrels is consistently improving as we streamline into the best-in-class assets and drive down unit costs. Second, the Clearwater, aided by waterflood continues to deliver best-in-class economics with growing production and lower declines, driving enhanced free cash flow margin. And third, we continue to increase returns to shareholders through meaningful buybacks and growing dividends. These themes contribute to a sustainable business, where we see compounding free funds flow per share growth and sector-leading margins. This positions Tamarack uniquely across all commodity price cycles. Our focus maintains on maximizing the value of our barrels for investors, and we will continue to allocate capital and free funds flow in a manner that maximizes shareholder returns. We see the buyback and waterflood investments as our most attractive investments at modest commodity prices. On behalf of the executive team, we would like to thank our staff and Board of Directors in supporting the continued success of the company. Thank you. I will now turn it back to the moderator for questions. Operator: [Operator Instructions] There are no questions at this time. I will now hand the call back to the management team. Unknown Executive: Thank you. We will now read through some questions from the online Q&A. Our first question is for Mr. Ben Stoodley. Today, you announced Clearwater waterflood uplift of 4,500 barrels from waterfloods implemented prior to 2025. How many wells are responsible for these 4,500 barrels? Is the maximum expected from these wells? Or is the number expected to increase? Benjamin Stoodley: Yes. I think for that 4,500 barrels a day of uplift, we would attribute that to approximately 40 wells currently seeing response. They're in various portion or parts of the cycle of response. So some are inclining and some are quite stable. So I don't believe all of the patterns have reached their peak yet, and that will continue to evolve, but it's about 40 there. Unknown Executive: Thank you, Ben. Our next question is for Mr. Kevin Johnston. Given Q3 end net debt and given the disposition closed in October, it seems that net debt is in the low to mid $500 million range presently. Can you give us an update as to whether the expectation is to hit the net debt target sooner than previously communicated? Kevin Johnston: Thank you. So it's important to note that the $630 million net debt we have as at Q3 includes the East disposition. So they're on our balance sheet as assets held for sale. So those proceeds are already reflected in that $630 million number. That being said, at our Investor Day in June, we were pointing to 2027 as when we saw ourselves kind of achieving our net debt target, and we do see that being accelerated with the recent success we've seen on lowering declines, waterflood performance and margin enhancement. Unknown Executive: Thank you, Kevin. Our next question is for Mr. Ben Stoodley. The 1602 and 1502 wells are remarkable. In September, they produced more than double their primary production high. Are these unusual performances? Or do you expect to be able to rejuvenate other old wells to exceed their primary production highs? Benjamin Stoodley: Yes, we do expect this trend to continue, particularly in the Marten Hills area where we do have some older patterns. That's where 15-02 and 16-02 are. The other pattern we discuss often is our longest on injection W-pattern, which is the lateral flood. And it's now showing combined from the offsetting producers showing response uplift of almost 700 barrels a day. So it's also trending towards exceeding the initial peaks. We do have a large inventory of those wells, probably about 55 currently in the ground, and we continue to drill under these various waterflood patterns to build that inventory further. So we do expect these trends to continue across that area of the play. Unknown Executive: Thank you. Our next question is for Mr. Steve Buytels. How much does the new barrel of Clearwater oil from waterflood compared to a new barrel from new drilling? Steve Buytels: Yes. I think just sort of easy math, it would be probably about half depending on the style of the waterflood injection. If we're drilling new injectors, I'd say you're probably going to be in that $5 to $6 a barrel range. And if you are converting wells, which are old producers into injectors, the cost of that is probably about 1/3 of drilling a new injector. So you're going to see those costs on an F&D basis trend even lower. So again, I think we highlighted it last year in our really strong reserve report and our really strong F&D metrics. I think you'll continue to see as we put more waterflood that come through the business. And as Ben just talked about, specifically at Marten Hills, with the response we're seeing, the incremental recoveries we're seeing there, we hope to continue to see that trend of that overall cost per barrel moving lower from a finding and development perspective. Unknown Executive: Our next question is for Mr. Steve Buytels again. With debt levels moderating, how is the company looking at M&A opportunities versus share repurchases and further dividend increases? Steve Buytels: Yes. I think at the end of the day, as Kevin mentioned, we're ahead of where we would thought we'd be and forecasted at Investor Day with respect to debt levels. Obviously, the East asset sale has accelerated that. But at the same time, we continue to look at maximizing shareholder value. And as we've walked through, there's a combination of different things we can do with that. It's allocating capital appropriately. And here, we see waterflood investment being the most attractive at a lower commodity price. We put limited capital in the ground today, and we get a significant amount of production response in what we see is hopefully a better commodity environment. In terms of M&A, you can see that we added the Clearwater tuck-in acquisition during the quarter in conjunction with the disposition of the non-core pieces. So you still see us shuffling the deck, if you will, in terms of coring up the Clearwater. And I think our focus going forward will be continuing to do these smaller tuck-ins that offer synergies both on the infrastructure side, the operating side and potentially the marketing side with our barrels, and we've been successful in being able to do that. I think the other element, too, is the more we can get cored up and take advantage of our infrastructure with waterflood moving forward, you're going to see just enhanced full cycle profitability in the business. So those -- all those elements are going to play a part. And lastly, on shareholder returns, the buyback continues to be top of mind here. We want to be front-footed at these levels, even at these commodity levels, we see a growing return profile through our business at depressed pricing, and we want to get ahead of that. And Ben just walked through what we're seeing on the waterflood and the results and what they should indicate just moving forward from a reserve growth perspective and lower declines, lower sustaining capital, more margins. So again, shareholder returns are top of mind, and we continue to want to be front-footed there and be opportunistic there at this time. Unknown Executive: Our next question is for Mr. Ben Stoodley. At a high level, what are some of the reasons why the waterflood in the Clearwater has worked as well as it has so far? Benjamin Stoodley: Okay. Our modeling and testing lands on really 2 primary reasons why that waterflood has been so exceptional. One is the characteristics of the reservoir. This includes the relative permeability to oil and water. This creates a very efficient flood where the water naturally displaces oil rather than fingering through the water phase. And then the other thing is just the large surface area we create by drilling horizontal and multilateral wells is such a large step change from a vertical waterflood. The rate at which your water is being injected is more like sweating into the reservoir or soaker hose rather than high rate injection, even though we are injecting at high rates. This caused the flood front to move very slowly through the reservoir. But despite that, the pressure front is moving quite quickly, and that's why we're seeing these disproportionate responses at the producing wells. Unknown Executive: Our next question is for Mr. Steve Buytels. You touched on it in the financial statements, but can you speak to the strength in this quarter's production expense on a per BOE basis? How should we be thinking about the production expenses into 2026 compared to 2025 guidance? Steve Buytels: Yes. I think when you look at that, we've guided to with the East asset disposition there, what that means for OpEx moving forward on a run rate basis. So we do see OpEx trending down into '26, and we'll update that here in December when we come out with the budget. But again, I think really when you look at it, as we core up into the Clearwater and in the Charlie Lake, you're seeing that more efficient, higher netback barrel come through, which is a function of, in a lot of cases, that lower OpEx that comes with the Clearwater. And again, the growth in the Clearwater and the growth just in production ahead of where we would have budgeted, obviously, is driving on a per BOE basis lower costs there as well. But I think ultimately, at the end of the day, our goal here is to core up into the 2 plays that we're in, the Charlie Lake and the Clearwater. We see best-in-class economics. And as we look at the budget here in December, that margin in that barrel should come through, and we'll provide more detail then. Unknown Executive: Our next question is for Mr. Steve Buytels again. Tamarack mentioned it is able to mitigate the delays in onstream timing of the CSV Albright facility. But can you provide any timing updates on when the facility could be on stream? Steve Buytels: Yes. And I want to be careful here because it feels like there's a lot of false starts with this one through the year, and there's been some different messaging. As we've highlighted in the press release on the quarter, and we've talked about previously, we've been able to do things to mitigate that. And we -- even if there is delays, we see that mitigation being handled through some other processing alternatives that we have. Again, we drill to fill those volumes corporately here to in the Charlie Lake to manage that. However, the latest update we did receive is that the plant was in the warm-up phase and that we could be seeing gas volumes moving through that plant here this week. I have not heard any change. So I think for now, we'd leave it at that. But again, as we look at it, and I want to make sure we drive the point home is even if there are further delays, we don't see any impact to our production guidance for '25, and we have different mitigating alternatives for 2026 as well should there be further delays. Unknown Executive: Our next question is for Mr. Steve Buytels again. What is Tamarack's general view on A&D activity now that you finished disposing of the non-core assets in your portfolio? Steve Buytels: Yes. We screen all A&D the same way. And for that matter, we actually look at capital investment or all the business decisions very similarly. And if it is accretive to the business on a debt-adjusted free funds flow per share basis, does it make our internal 8-year plan better by competing for capital with existing assets or inventory. Those are all things that we look at and how do we sit currently versus where that opportunity set could lead us? And what threshold in terms of does that rank higher than what we currently have in the portfolio exists. So we look at a lot of different things. But again, as I mentioned earlier, tuck-ins in the Clearwater where we can leverage our infrastructure, our operating experience, the waterflood footprint, they're going to make a lot of sense for us. However, again, we'll be very disciplined with it. And again, the other thing I would say there, too, is it also has got to compete with our ability to buy back our own stock in many different ways. So I think we've shown the Street that we've been very disciplined. We've had a plan in terms of what we want to bring in, and we'll continue to look at all of that from an opportunity perspective. But it's got to be accretive to the underlying earnings potential of Tamarack. Unknown Executive: Our next question is for Mr. Kevin Johnston. Are you considering adopting a DRIP program? Kevin Johnston: So we've been discussing we see great value in buying back our shares and reducing our share count. A DRIP program, you're issuing additional shares for your dividend, so kind of going the wrong way. So we're not looking at a program at this time. But any investors who want to use their dividends to buy additional Tamarack stock options available. Unknown Executive: We have no more Q&A questions online. So I will pass it back to Steve to finish off the call. Steve Buytels: Yes. Again, we just want to thank all our shareholders, our staff for the support here in the success of the company and the patience that you've had as we've transformed the company, but we're really excited now with where we're at in terms of being a pure-play Charlie Lake and Clearwater producer. And hopefully, here, we'll talk to you guys again in December with what could be a good update on the future of the company with those core assets in place. Thank you. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good morning, and welcome to the TriNet Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Alex Bauer: Thank you, operator. Good morning. My name is Alex Bauer, TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's Third Quarter Conference Call and Webcast. I'm joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to preview this morning's call. I will first pass the call to Mike, where he will comment on our third quarter performance and discuss our progress on our strategy and medium-term outlook. Kelly will then review our Q3 financial performance in greater detail. Please note that today's discussion will include references to our 2025 full year financial outlook, our medium-term outlook and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks, uncertainties and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for adjusted EBITDA and adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or our 10-K filing, which are or will be available on our website or through the SEC website. With that, I will turn the call over to Mike. Mike? Michael Simonds: Thank you, Alex, and good morning, everyone. We appreciate you joining us for the early start. Before discussing our third quarter results, I want to formally welcome Mala Murthy, who as announced this morning, will become TriNet's Chief Financial Officer effective November 28, and I am sure is listening to the call this morning. Mala previously served as CFO of Teladoc Health and has more than 25 years of leadership experience, including business unit CFO for the Global Commercial segment at Amex and FP&A, corporate strategy and treasury experience at PepsiCo. I'm excited to have her join at a pivotal time for TriNet as our results increasingly reflect a strengthened foundation and our focus is on generating sustainable growth. I know Mala looks forward to getting out and meeting you all over the coming months. I would also like to sincerely thank Kelly Tuminelli, our outgoing CFO, for her outstanding service and contributions to TriNet over the past 5 years. Kelly has played a vital role at TriNet during her tenure. She's been a consistent and reliable voice to shareholders and has been a great partner to me as I transitioned into the company. I'm grateful for all her efforts and for her willingness to stay on as an adviser to me through the middle of March next year, supporting a seamless transition. Thank you, Kelly. Now let's turn to the third quarter, which was a good one for TriNet. I'm pleased with our financial and operating performance, allowing us to adjust our full year earnings outlook upwards and towards the high end of our 2025 guidance range. In the quarter, we made progress on several dimensions of our strategy. While overall market conditions remain difficult with persistently low SMB hiring and elevated health care costs in the areas we control, our execution is strong, our outlook is improving, and our confidence is growing as we work to reposition TriNet for long-term profitable growth. As a reminder, our medium-term strategy objectives include total revenues achieving a compounded annual growth rate of 4% to 6%, with our adjusted EBITDA margins expanding to 10% to 11%, which taken together will ultimately drive total annualized value creation of 13% to 15% through earnings growth supplemented by share repurchase and dividends. During the third quarter, revenues were in line with our plan. And with just a quarter left in the year, we expect full year 2025 total revenues to be approximately $5 billion, near the midpoint of our full year guide. Our disciplined pricing and better-than-expected ASO sales have contributed to revenues in line with plan despite a decline in WSE volumes. I recognize that while revenues being in line with plan is encouraging, investors will also have questions on underlying WSE volumes and when to expect a return to growth on this metric. Before talking through the components of volume growth, I'd like to make 2 points as context. First, we look at both the absolute number and the quality of WSEs in our client base. While volumes are down, we are quite pleased with the strong and increasing quality and profitability of our customers. Looking forward, we feel confident we have the high-quality client base alongside other levers at our disposal to achieve value creation in line with our medium-term strategy. Second, our health plan pricing relative to the market is important context. Partly because we had our own issues to fix, we moved earlier to address the escalating cost trend, taking a view that might initially have been thought to be conservative. That is, that the escalated trend would not abate in the short term. We now believe this assumption of persistent escalated trend is playing out as the prudent view. Moving more quickly and aggressively with health fee increases, which proved to be in line with the general health care market, we believe put us ahead of some other PEO competitors. While this has clearly impacted our WSE volumes, we believe we are largely through the steepest part of the repricing and set up well for 2026. Based on what we are seeing in our new business pipeline and hearing from brokers, the pricing gap appears to be tightening. With those 2 points as context, let's look a little deeper into our 3Q volume performance through the 3 drivers: customer hiring for CIE; retention; and new sales. Kelly will go into more detail on CIE later, but specific to the third quarter, we saw the normal exodus of summer seasonal workers in September. Even still, we are on track to see some overall improvement in CIE when compared with last year, albeit still at much lower levels than historical norms. On retention, while we remain on track to retain clients at or above our historical norm of 80%, we have seen a decline from prior year. It's worth noting that margins for terminated clients are considerably lower than for the overall client base. Further, in looking at our client exit research, it's clear that health plan pricing is the driver as it was cited as the number one reason for termination, up from being the fourth largest reason cited a year ago. Controlling for the impact of health plan pricing, attrition was down year-over-year. And indeed, we feel very good about our improving service delivery. More than a dozen years ago, we established the Net Promoter Score as our primary measure of success from our clients' perspective, and I'm happy to report that here in 2025, we've reached an all-time high in NPS. We believe there is a strong correlation between our investments and our service model and our strong NPS scores. On that front, we recently announced the launch of our AI-powered suite of capabilities, which harnesses our extensive HR knowledge and delivers tailored output for our customers. The evolution of our service model continues, and AI will play a central role in this evolution. Turning to new sales. Sales were down in the quarter, though we are encouraged by the quality of new clients added. Looking ahead to the fourth quarter, we expect improvement in our year-over-year performance, and we're excited about the January pipeline as well with strong contributions from the growth investments we've made. We continue to improve the retention of our senior, most productive reps, and the median tenure of our team continues to improve. At the same time, we've revamped our recruiting and training programs and have restarted our hiring with more confidence these new reps will reach productive status. Our preferred broker program, which is comprised of 4 national partners, is currently in market. As a reminder, a feature of this program is the alignment of targets for new sales and retention as well as building out dedicated quoting sales and service teams. This program is already generating a growing share of our RFPs, increasing our optimism for Q4 and 2026. We're also in market with our first set of benefit bundles, which seek to simplify the offering, streamline the sales process and better align cost and plan design needs for our clients. It's increasingly clear that simplified benefit offerings will be an important part of our growth equation. So on revenue overall, we believe we are building the foundation for predictable and sustainable growth. On margins, we're making progress towards our 10% to 11% target. The two key levers for improving margins are getting back into our long-term insurance cost ratio range and managing operating expense growth. The third quarter saw us, again, realize health plan increases per enrolled member of approximately 10.5%. This is the cumulative increase after plan design buydowns, which clients use to manage fee increases and also has the effect of reducing risk to TriNet. Looking forward, we're increasingly confident in our ability to return the insurance cost ratio back below the top end of our long-term range of 87% to 90% in 2026, while also allowing for more moderate and predictable pricing for our client base. On operating expenses, for the third straight quarter, we saw a year-over-year reduction, down 2% in 3Q. The drivers of this performance remain the same, the application of technology to our business processes and continued talent optimization. With our expenses and pricing levels well managed, free cash flow is improving, which enables us to return capital to shareholders consistent with our history. In the third quarter, we repurchased stock and paid dividends totaling $45 million. In conclusion, we have a high-quality client base that is increasingly advocating for TriNet. We have a talented and engaged colleague base and an increasingly broad set of marketplace partners. We're making progress on our growth and margin expansion initiatives and delivering against our financial objectives. Momentum is clearly building here at TriNet. With that, let me pass the call to Kelly for her review of our financial performance. Kelly? Kelly Tuminelli: Thank you, Mike. Before I jump into discussing the quarterly results, I do want to mention a few things about our leadership transition. My 5-plus-year tenure at TriNet working with our dedicated group of colleagues, who always put our customers first, has certainly been a highlight of my career. The entrepreneurial spirit of TriNet is unmatched, and it's been an honor to help move the company forward on many fronts, including a focus on capital management. I have confidence in the management team to finish 2025 strong and make significant progress towards the medium-term strategy and shareholder value creation announced last February. I will remain on Board as an adviser to help support the team as they work through the year-end process. Now let's jump into the third quarter results. During the third quarter, we demonstrated continuing progress on benefit repricing and a focus on efficiency and cost discipline, resulting in a quarter that puts us at the top end of our annual EPS guidance. Total revenue in the quarter was down 2% on a year-over-year basis. Total revenue performance in the quarter reflected our decline in WSE volume, but was supported by prudent benefit repricing, putting us back in line with the general cost trends in the health care market. Interest income and pricing strength in professional service revenue also supported total revenue performance. Similar to our second quarter, interest income was higher than originally forecasted, driven by increased balances attributable to the timing of certain tax refunds. The timing of these refunds remains intermittent and difficult to predict, particularly given the processing delays at the IRS. As we've continued our repricing focus, volume remained a headwind for revenue. We finished the quarter with approximately 332,000 total WSEs, down 7% year-over-year and 302,000 coemployed WSEs, down 9%. During Q3, we saw a continuation of many of the trends we've experienced in 2025. Attrition was elevated when compared to the last year due to our repricing efforts and new sales were down as our pricing reflected higher health care observed trends. CIE was flat to last year and a net negative in Q3 due to the offboarding of seasonal workers. Note that even with this, CIE is slightly higher than last year on a year-to-date basis by approximately 0.5 point. Our year-to-date improvement has been driven mainly by the tech vertical, but we've also seen strength in hiring in financial services. This modest year-over-year improvement in CIE is in line with the guidance we laid out at the beginning of the year. As Mike indicated, we expect to see an improved year-over-year comparison for sales execution in the fourth quarter, and our January pipeline is benefiting from our growth initiatives. We've also been quite pleased with the high-quality customers we have added. Furthermore, our January cohort represents our last outsized renewal, and it's our view that our pricing is increasingly aligned with claim trends and competition. Professional services revenue in the third quarter declined 8% year-over-year, largely due to two main reasons: lower WSE volumes; and the discontinuation of a specific client level technology fee of which we recognized $5 million in Q3 of last year. As the technology fee was largely fully recognized in revenue through Q3 of 2024, beginning in the fourth quarter, it will no longer be a significant negative prior year comparison. Professional services revenue was supported by low to mid-single-digit pricing strength and stronger than originally forecasted HRIS and ASO revenue. On an absolute basis, HRIS fees and ASO revenues, including those resulting from HRIS conversions, decreased slightly year-over-year as the company transitions away from a SaaS-only solution. However, our ASO conversion rates continued to exceed initial forecast, indicating ongoing demand for our services. And because of our ASO pricing framework at $50 to $75 PEPM, this strong demand partially mitigated the impact of reduced PEO volume. Insurance revenue and costs in the quarter each declined by 1%, resulting in an insurance cost ratio, just to touch over 90%, which was about flat to last year and slightly better than our embedded guidance. We attribute our improved performance to 2 items: our continued pricing discipline; and stabilization in health cost growth rates, albeit at elevated levels when compared with historical trends. While we're pleased with our pricing discipline, we do acknowledge the adverse impact it has had on both retention and new sales in 2025. On retention, after the successful implementation of our January 2026 renewals, we believe that the catch-up will be behind us, and our pricing will be aligned with health insurance pricing trends moving forward. On new sales, we believe that our pricing in the fourth quarter and fall selling season are already aligned with the market's perception of current health care pricing levels. Each bodes well for continued improvements in 2026. Turning to expenses. Expenses in the quarter declined by 2% year-over-year. Our continued disciplined expense management is driven by further automation and our workforce strategy. I would like to reiterate that with a portion of the savings we realized, we funded our medium-term strategic initiatives, which are intended to drive growth, improve our customer experience and implement process efficiencies. I continue to be impressed by the improvements our colleagues are making on the items that will truly matter to our customers. Third quarter GAAP earnings per share was $0.70, and our adjusted earnings per diluted share was $1.11. Our earnings were supported by continued improvement in our cash flow. In the quarter, we generated $100 million in adjusted EBITDA, representing an adjusted EBITDA margin of 8.2%. Through 3 quarters, operating activities generated $242 million in net cash and $191 million in free cash flow. Our free cash flow conversion now stands at 52% and is in line with our 2025 plan. Our capital return priorities for 2025 remain consistent. We aim to deliver shareholder value through continued investment and our value creation initiatives, funding dividends and share buybacks and maintaining a suitable operating liquidity buffer. In the quarter, we paid a $0.275 dividend per share, representing a 10% increase year-over-year and repurchased approximately $31 million in stock, bringing total capital deployment to $45 million. For the year, we've deployed $162 million to shareholders or approximately 85% of our free cash flow ahead of our annual target of 75%. With the improvement in our financial performance, we continue to move closer to within the top end of our targeted leverage ratio of 1.5 to 2x EBITDA. Now let's turn to our 2025 outlook. With just 1 quarter remaining and the benefit of 3 quarters of performance, we wanted to provide a little more color as to where we're falling within our annual guidance range laid out in February. Given some of the volume impacts, offset by other favorability in 2025, we expect total revenue and professional service revenue to both come in near the midpoint of our originally stated range. Our insurance cost ratio is trending slightly better than the midpoint. Altogether, this is bringing our adjusted EBITDA margin to the top half as well as our adjusted EPS closer to the top end of our originally disclosed range. In conclusion, we performed well in the third quarter, executing our medium-term initiatives, remaining disciplined in our pricing and prudently managing our expenses. While the operating environment remains challenging, especially for our customers and prospects, we are optimistic that our efforts to enhance our offerings are being received well in the marketplace. We believe that efforts to drive profitable growth, efficiencies and to return us to our targeted insurance cost ratio by 2026 are all on track. I'm proud of the continued execution by our dedicated colleagues, and I know our team is going to finish the year strong. With that, I'll pass the call to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Jared Levine with TD Cowen. Jared Levine: Just wanted to start by double-clicking on the ICR. Just wanted to clarify, were there any onetime impacts to your 3Q performance here? And then as you pointed to returning to that long-term ICR guide in FY '26, can you just go over some of the assumptions there? Does that assume there's any kind of deceleration in health care cost trends there? Kelly Tuminelli: Jared, it's Kelly. Happy to respond. Regarding the ICR... Michael Simonds: Yes. I mean I think I'll take the second one, Kelly, first. On the assumptions for next year, we're going to stay pretty conservative about what health care trends is going to do next year. I think we've talked a little bit on this call that we saw about 4 quarters of very stable, albeit elevated trend. We started to see some of the shorter duration analysis show a little bit of improvement. We think it's reasonable to assume you know health -- Jared, on the margin just a tick or two lower than what we sort of experienced this year. But nothing that isn't already reflected in some of those duration curves overall. And then I think the first question was just about. Kelly Tuminelli: Onetimers, yes, really nothing notable in the quarter at all related to one-timers, Jared. Jared Levine: Got it. And then in terms of the sales headcount there, can you just update us in terms of your expectations for ending sales headcount for FY '25 here? And then how you're thinking about at this stage FY '26 in terms of continuing to grow that headcount? Michael Simonds: Yes, happy to do that. And the strength of our sales force, the productivity and tenure, as you know, Jared, is a big part of the investments we're making in growth. So in terms of tenure, I'll actually start there, we continue to see the median tenure of our sales force increase. We see turnover at the 3-plus years of experience in reps, particularly over 48 months, our most productive reps be at or below historical loans. And that's really, really important as we're taking that kind of quality of salespeople through the selling season and into 2026. We did slow down, as you know, new rep recruiting early in this year as we really revamped that process. We've retooled, we are doing experienced rep hiring, but also some right out of college hiring to help sort of build a stronger culture and hopefully, a longer tenure in that team. And that pause in the aggressiveness of hiring means we've got a smaller in aggregate, albeit more experienced sales force at the moment. I do expect that as those new trainees come on in 2026, we'll start to see the absolute number grow in terms of the sales force next year. Operator: The next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to hone in on your comments around rate increases and pricing relative to competition. Is there anything that you could say either qualitatively or quantitatively on maybe just the magnitude of difference between the rate hikes that you're going out to market with -- or even with your existing client base with versus maybe what you suspect some of your competition is having to do this renewal season? Michael Simonds: Andrew, I think we sort of tried to hit it in prepared remarks, but I think in general, when you think about health carriers out there, managed care, nobody saw the acceleration in trend come including us. We also had happened to be leaning in for about 6 quarters in terms of more aggressive and lower new business and retention pricing. So the timing wasn't good. We had some issues on our front that sort of it compelled us to move pretty quickly and pretty conservatively when it came to pricing. And I think at this point, that proves fortuitous for us. We're coming up on January 1 renewals being sort of our last kind of catch-up set of renewals. In terms of the magnitude of the difference, I wouldn't think -- it doesn't need to be sort of a massive gap to be consequential just given the absolute cost of health care today in the small cases commercial market. So I wouldn't quantify the number, but I would say the evidence is sort of pointing towards when we look at what we see in our pipeline, what we're hearing from our channel partners, kind of our most recent pretty good October sales month here sort of points to what that gap being through most of the year, tightening up here as we get to the end of the year and as we head into 2026. Andrew Nicholas: Understood. And then maybe just a higher-level question on client decision-making. It's been a choppy year for SMBs broadly with Liberation Day and tariffs and kind of all the uncertainty around that part of the market. Just curious what you're seeing in terms of business optimism or hiring plans or maybe just business owners' willingness to make budget decisions or HR decisions in this environment, whether or not there's any change in that relative to the past couple of quarters? Michael Simonds: Sure. Happy to do it. And I'm sure Kelly will have a couple of thoughts on what we're seeing maybe by vertical on the CIE front. I would say high level, actually, we sort of have seen a little bit of settling in when I'm talking to clients and prospects. Like you said, there was a lot of optimism at the very beginning of the year, and then there was an immense amount of uncertainty, and I think some of the uncertainty has now become a little bit the new normal and people are just sort of realizing we are where we are, and they are making decisions. I'd say because health care costs have been so challenging for the market in total, that what we're seeing a little bit is health care being pretty central to the PEO buy decision and people wanting to line that up around the January 1 start. So we see some things that we normally would see in November, December getting pushed to January 1st, and a little bit just health care-specific dynamic, maybe a little bit of a slowdown in the buying process. But in general, I'd say it's a pretty resilient small business client base that we're seeing in our verticals, and CIE isn't where we would want it to be, but it does look like we're on track to see a bit of improvement this year over the full year last year. Kelly, I don't know if you have anything to add? Kelly Tuminelli: Yes. I mean the only thing I would add, Andrew, to Mike's point, about 0.5 point better on a year-to-date basis related to CIE. But when you kind of pull the covers apart on that, what we're really seeing is there's less layoffs. So it's not that there's more people hiring, but there are less layoffs than there had been in the past. And it was a bright spot for us though, when we looked at most of our CIE growth has really been year-over-year in tech and financial services. Operator: [Operator Instructions] The next question comes from Kyle Peterson with Needham. Kyle Peterson: Thanks for the early call, make sure to get extra cup of coffee here. But I wanted to start off particularly on some of the new logo pipeline. I know you guys mentioned attrition has picked up a little bit, it sounds like with some of the insurance pricing, which obviously is kind of a necessary thing, given the environment. It sounds like you guys are a little ahead of some of your competitors. So I just wanted to see if you guys had any thoughts on if you think there's an opportunity to maybe gain share or increase new logo sign-ups when as some of these other guys catch-up and push their own repricing through their books within the next, whether it's 6 to 15 months or whatever the cycle ends up being for them? Michael Simonds: We appreciate the early start, Kyle, on the extra cup of coffee. I think there is a little bit of an element. We've talked about it for a long time here at TriNet about repricing on our cohorts on a quarterly basis. I think over the last 4 quarters or so for the reasons we've talked about, we're probably a little bit quicker and a little bit more conservative to move those prices on the health side up. We do look at our pricing on new business and a cohort of our renewals every 90 days or so. So I think it's both the aggregate level and then the pace at which we put that pricing through tends to be a little bit quicker than maybe the average market participant. And I think it's a reasonable assumption to say that while we certainly aren't forecasting a big falloff in health care claim cost trends, we are seeing that tail down just a little bit. And I think we can be responsive to that over the next 12 to 18 months, maybe a little bit quicker than the average market participant. But I think really what that does is as that gap to the market narrows, and we get in a position there where the broader value proposition can just shine through a little bit brighter. And for me, and I think for the team here, the fact that we've got a greater percentage of our clients advocating for us, you saw the kind of record high on the NPS. The fact that double-digit growth in broker-driven RFPs as that channel is really starting to open up. We've got a more tenured sales force. Our biggest 4Q wins so far actually is a benefit bundle proposition to a large employer that had a very distributed workforce, and we were able to bundle up the benefits in a way that sort of met their need for simplicity and hit a price point that made sense to their budget. So I think there's a bit of an opportunity here relative to pricing, but I think ultimately, it's just about kind of clearing the decks. So the investments we're making in growth can really come through. Kyle Peterson: Okay. Fair enough. That's good color. And then I guess just a follow-up on interest income. I know that's been a big swing factor, and it's been pretty resilient this year. I know there's some timing impacts and rates maybe haven't come down as fast as originally thought. But I guess, how should we think about that line item moving forward, especially just given some of the timing shifts on tax returns, it seems like rates are going to drift down some, but then you guys should be building cash too. So I guess like what's a good run rate for that line moving forward? And how should we be thinking about the impacts of the timing shifts and the outsized benefit this quarter? Kelly Tuminelli: Kyle, it's a great question because it has been definitely a bright spot on our revenue for the year, for sure. We have had some catch-up interest associated with IRS tax refunds, and that did occur again this quarter. It's a little uncertain due to the fact that the IRS is currently shut down. But other than that, we're -- just have small balances that we're still expecting to receive some level of interest on. So I can't really give you the forecast for catch-up interest for delayed payments there. But I think as we're all watching what's going on with rates, we would expect those to come down, but while we're building our cash buffer back up. Kyle Peterson: Okay. I guess then, I guess, just as kind of a house, is there like a rough amount of the catch-up interest that has benefited this quarter or anything? Any color you guys can give? Kelly Tuminelli: Sure. In terms of the catch-up interest, it was roughly $3 million this quarter. So that was the amount that I would kind of consider unusual. Our balances are a little bit higher right now as well before we distribute some of those to our clients as well. Operator: The next question comes from Andrew Polkowitz from JPMorgan. Andrew Polkowitz: Before I ask my question, Kelly, I just wanted to congratulate you on a great tenure. Kelly Tuminelli: Thanks, Andrew. I appreciate it. Andrew Polkowitz: Of course. First question from me. I wanted to ask if you could provide an update on what you're seeing on the ASO offering? It sounds like interest is tracking a little bit better than expected there, so figured I'd start there. And maybe as a quick follow-up to that question. Is there a different competitive set that you're kind of competing against at this stage for ASO or is it really just kind of converting existing HIS at this point? Michael Simonds: Great question. And we are. So I think we made the decision to exit the SaaS-only business because we really do feel like, competitively, our advantage is the combination of really strong technology and outstanding colleague support. And so we sort of made a set of assumptions around the rate at which the ideal profile of customers that are currently sitting on the SaaS-only product would buy-up. And we've done pretty considerably better than we would have thought, which was really encouraging. And then the second piece, Andrew, is of late here in the last quarter or so, we've seen organic new sales coming in and our forecast coming up on that front as well. So this is sort of a long-term bet for us, and I think will be a meaningful contributor to our longer-term growth. And I think partly, it's because to your kind of what's inferred in your question, we've got clients on the PEO side and their needs change over time. And so they may want to unbundle certain parts of that offering, and ASO can make a lot of sense for them. I think the competitive set is probably a little bit of a Venn diagram. It overlaps in certain respects with some of the traditional competitors we have on the PEO side. I think we're also seeing a lot of success in a much more fragmented ASO and much more sort of locally delivered ASO market where kind of having the depth of expertise and then sort of the strength of technology platform on a national scale, I think, sets us up well against that sort of local fragmented customer or competitor base. Andrew Polkowitz: Got it. That's helpful. And maybe for my follow-up question, I'll just ask around the guidance. So very clear that revenue kind of pointing from the midpoint EPS. ICR on the little bit to the stronger end of the range. I just wanted to ask the question, is there anything we should consider like what the unknowns are that would point to the higher or lower end of the range? Understanding there's only about 2 months left in the quarter, but still on January 1 selling season is sort of in-flight right now. So just wanted to ask kind of the range of outcomes embedded there. Kelly Tuminelli: Good question, Andrew. And we have tried to pivot to annual guidance just to make sure that we're really focusing on the core direction of the business, et cetera. We're not expecting anything unusual at this point in the fourth quarter. we pointed towards the top end of the EPS range overall. And that was also helped by capital management throughout the year 2 and partly through share repurchase. But ICR, obviously, will have some minor level of fluctuation that will impact EPS in a little bit more disproportional way. But that would be the largest winner. I think we've got a pretty good eye on both new sales and retention from a volume perspective. So I really wouldn't point anything out of the normal seasonal impact. Operator: The next question comes from David Grossman at Stifel. David Grossman: I just had 2 really quick questions. One is on the CIE commentary. Is growth, would you say, improving year-over-year? Is that less negative versus growth? I just wanted to clarify and make sure I'm understanding that correctly. And then secondly, as I look into 2026, if we remain in a stable environment, and we know that we have lower attrition, the gap in pricing is improving and CIE is improving, is there any reason to think that in a stable environment, WSEs won't grow next year? Kelly Tuminelli: David, let me take the CIE question, and then I'll pass it over to Mike to take overall growth questions about next year. Regarding CIE, I did make the comment earlier on Jared's question around less layoffs. CIE, we expect to be really low single-digit positive for the year on a net basis. Just when you peel apart -- or pull up the covers, you do see that while hiring has been pretty stable at a low level, we are seeing just less layoffs. So net-net, when those two net out, it's a small single-digit positive, but about 0.5 point better than last year. Michael Simonds: And then on the second question around getting to growth in 2026, I have to take one step back, David, and say, we laid out a series of objectives, a medium-term strategy. Two component parts of that, let's get revenue growth going. Certainly, volume growth would be a sort of component part on that side and then get the EBITDA margin improved. In aggregate, we're very much on track, maybe tracking a little bit favorable. I'd say within that, we're probably a tick or two stronger, quicker to the margin improvement and maybe a tick or two slower to sort of the outlook on revenue growth. I think that affords us the ability to do a little bit of rebalancing here in the short term as we kind of head into 2026. So I would stop sort of predicting kind of volume growth or WSE growth, but I would say just because CIE is going to be a little bit of a wildcard, but I do feel like getting past January 1, our last catch-up renewal, as we work through 2026, being on track for total revenue growth to reemerge. We certainly are feeling bullish on that prospect. I hope that's helpful. David Grossman: Right. And then, I'm sorry if I missed this, if you mentioned this earlier, however, are you seeing -- if the pricing discrepancy between you and the market is compressing, if you look sequentially throughout calendar '25, has the attrition been diminishing on a relative basis each quarter by virtue of that price differential diminishing? Michael Simonds: Yes. I think the way I would sort of actually think about that is we brought on, as you talked about and sort of laid out at the beginning of the year, a cohort of business over about 6 quarters. That tended to be skewed pretty heavily to Jan 1. So that sort of throws out -- sort of throws off the retention patterns that doesn't have that kind of sort of natural, what you might expect, improving. So I do think we'll look to this getting through this January 1st renewal. I do think we're going to remain above our historical average of 80% retention. I am looking forward to the sort of last catch-up being in the rearview mirror and getting out into 2026, back into that long-term insurance cost ratio range of 87% to 90%. I think the team has done a very good job of sort of balancing retention, taking a couple of cycles for a cohort or two to kind of get back to where we need to be. I think that was the fair and balanced things to do for these small businesses. But yes, in general, I'd say, the end is in sight from what we can tell in terms of catching back up to where we need it to be. David Grossman: And then just lastly, you gave a metric on the broker channel. I think about the percentage of RFPs that are coming in, is there anything that you can -- I think it was double-digit growth in RFPs in that channel. Is there anything you can tell us about the character of the business that's coming through the channel versus your existing growth? Michael Simonds: Yes, it matches up very well from a vertical point of view. And I think as we're sort of building out, we're learning a lot about these relationships, and I think really good partners in the channel. They want to understand what kind of client is going to be the best fit for TriNet and their job is to match-make obviously. So I think that's coming through really well. I think our proposition comes through really well. I'd say, on average, maybe the one difference we could point to is, the average size of prospect tends to be a little bit bigger, not dramatically so, but a little bit bigger. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michael Simonds for any closing remarks. Michael Simonds: Thanks, Drew, and thank you all for the early start this morning. Hopefully, you're leaving with a better understanding of both our strengthening results and a really positive outlook. Here at TriNet -- and I do want to thank Kelly one more time as we are wrapping up our last TriNet earnings call. Kelly, I appreciate everything you've done to help make TriNet the strong company that it is and all the support you provided for me in coming in and that you will provide in making this a really seamless and successful transition. I know you've already got a couple of Board seats and you're looking to add to that portfolio over time, and I can't imagine a better person to help guide a company. So thank you, Kelly. Much appreciated. And with that, operator, that concludes our call. Kelly Tuminelli: Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Salvador Villasenor Barragan: Good morning, everyone. I'm Salvador Villasenor, Head of Investor Relations at Walmex. And I want to thank you for joining once again to our live Q&A session following our third quarter results, which were published yesterday evening. As always, we will make every effort to answer as many questions as we can in the 45 minutes we have scheduled for this call. [Operator Instructions] I will now hand over to our recently appointed CEO and President of Walmart de Mexico y Centroamerica, Cristian Barrientos, who will present the team and give his initial remarks before going into the first question. Please, Cristian, go ahead. Cristian Barrientos: Thank you, Savor, and good morning, everyone, and thank you for joining us today. We're hosting this live Q&A from Costa Rica right after our Board meeting yesterday. I am here with Paulo Garcia, our CFO; with Javier Andrade, our recently appointed CMO for Mexico; and Cristina Ronski, our CEO for Walmart Central America. Before we begin, I would like to share a few reflections from my first 90 days since rejoining Walmex now as the CEO. Over the past 3 months, I have spent time visiting many of our stores and distribution centers across both Mexico and Central America, and I have seen at firsthand how we are delivering our purpose. It's been energizing to see the evolution of the business since I left the region almost 3 years ago. Even more exciting are the opportunities that I see going forward. I'm convinced that with our renewed focus on the execution of our fundamentals, the strength of our people and the newly appointed leadership team, we are very well positioned to take Walmex to the next level. So now we are open to your questions. Operator: The first question is from Mr. Alejandro Fuchs from Itau BBA. Alejandro Fuchs: My question would be for Cristian, maybe on Bodega, I wanted to discuss a little bit some of the performance of this quarter, looking at same store sales per format, right? It seems that it's falling a little bit behind Sam's and supercenter in the context of kind of easy comps, right? So I wanted to get your thoughts on these first ones that you just discussed in Mexico. Coming back, having had a lot of experience with the brand for so many years. What are some of the strategies that you're thinking for Bodega maybe to grow a little bit faster its semester sales. And maybe you can share a little bit of the early strategy, maybe early findings that you're seeing at Bodega and how do you see it performing for the future? Cristian Barrientos: No, Thank you very much. And as we mentioned, Bodega performed in the quarter, a little bit behind Sam's. But we are seeing a really strong business in the 3 formats. We are seeing in this quarter evolution in terms of the relative performance against different banners, and we are seeing more than 20 weeks gaining share in Bodega. So we're confident that with the value proposition that we had in place are performing well. We have been improving. And as I mentioned in the webcast, we are very focused in things that we can control, means EDLP, availability and the evolution on demand. We see a ton of opportunities in all our business and particularly in Bodega, trying to create access to low-income customers to the -- to the prices that we can deliver for them. So we can accomplish our purpose to save them money and live better. So we're very confident with the future of Bodega and with our 3 banners that we have. I don't know if you have more to add there, Paulo. Paulo Garcia: No, I think it's okay. As you said, Cristian, I think it's -- we talk extensively about that, it's pushing the 3 priorities. Alejandro, it's about the pricing, the new investments. It's about actually availability, making the product available to the customer and accelerating e-commerce. And with that, I think we will continue gaining the trust and the preference from our customers. Operator: Our next question is from Mr. Ben Theurer from Barclays. Benjamin Theurer: I wanted to follow up a little bit on kind of like Alejandro's question, but more broader in terms of like the traffic versus ticket performance. And then at the same time, we've obviously seen a little bit of a weaker opening versus a year ago and particularly in Mexico. And I wanted to understand how you're thinking about the need or the opportunities to open stores if at the existing, you have like traffic pressure to a certain degree. I remember we got the announcement earlier this year during your Capital Markets Day about the commitment to open a lot of new stores over the next coming, I think it was 5 years or until the end of the decade. So as we think about it, the need to open stores, while at the same time, we're seeing at the existing stores traffic decline. With what you've seen over the last 90 days, and it might be early on, but do you think there's a need to potentially revisit what's out there in terms of like openings just to avoid cannibalization? And how should we think about the pace of openings throughout the fourth quarter and ultimately, those stores coming online that might be already under construction? Paulo Garcia: Yes, Ben, a very good question that you're putting on the table. So at the moment, we don't see a need, Ben, to review our ambition in terms of store openings. I think we talked about 1,500 stores in the next 5 years. So we still stick to that. Yes, you already alluded to the fact that we didn't open probably as much as we were expecting in Q3, and there was a little bit of slowdown in that openings, but we have a pipeline, a huge pipeline now for the Q4, a little bit like we tend to do it at the end of the year. But to go directly to your question, at the moment, we don't see necessarily a need to review the store openings in light of potential cannibalization. As to what relates to traffic and ticket, what we are seeing at the moment, maybe I'll hand over to Javier to just give you a little bit more details in terms of how we're seeing traffic and ticket and a little bit the evolution of some of the categories. Javier Andrade: Yes. Basically, Ben, regarding traffic, what we see is a reflection mainly of the customer backdrop that we're seeing in the retail, but we see a positive trend in the last quarters, and we feel very optimistic about Q4 and what's coming for us for seasonal. We've seen a lot of engagement of the consumers regarding seasonalities and everything that's about to come in on Buen Fin and Fin Irresistible. And the other thing, even though we see inflation in some categories. We're also investing in price, we can give access to the consumer even though we see inflation in some categories, we're also investing in price so we can give access to the consumers to better prices and help them save money and live better. So we want to grow even faster instead of just following inflation. And as I said, we're optimistic about what's coming for Q4. Operator: Our next question is from Mr. Froylan Mendez from JPMorgan. Fernando Froylan Mendez Solther: Can you hear me. Well, I guess I'll take the question, but I cannot hear your answer. I don't know why. We had some improvement this quarter, but this is something that you mentioned that there is room to further increase. I would like to know what are the steps being taken? And what was... Paulo Garcia: I think we need to move to the next one. Let's move to the next one. Sorry. Froylan, we are moving to the next one. If you come back and you can hear us, we'll come back to you. Operator: Our next question is from Ms. Irma Sgarz from Goldman Sachs. Irma Sgarz: Welcome to the new appointments on the leadership team. I was excited to see the positions filled and good luck with your new responsibilities. Just 2 quick questions on the gross margin. I understand that the pressure that you posted in the third quarter came specifically also related to the inventory reductions that you are aiming for. So I was wondering if you could just point out if that was concentrated in specific categories or specific formats if that was perhaps more sort of general merchandise related rather than sort of the consumables side and perhaps concentrated in certain formats and how you see that need to adjust your inventories going forward? Or if that's sort of more concentrated and behind you from what your comments on the guidance for the fourth quarter, it sounds like it sounds like it's behind you. And then the second question is just on the private label. I'm curious, just Cristian and Javier, maybe to hear your thoughts about where you feel sort of when you take an assessment of where you're doing well so far and what you still need to be doing on the private label side, especially given that, if I may say, it feels like consumer attitudes are changing towards private label in Mexico and they have been changing over the last couple of years. And where do you feel -- you did call out general merchandise. I think you had in some categories, higher penetration. But on the consumables side, I'm curious like sort of how you're thinking about the strategy there. Paulo Garcia: Thanks, Irma. Thanks for your question. As usual, spot on, by the way, on the first question and what you just said is spot on, on all you said. So as you know, we've been talking about that we wanted to address our inventories. You probably have seen the improvements that we've done in inventories of almost 3.5 days, days on hand, and we still see an opportunity going forward. In terms of what it relates to investments to If you say, expedite some of this more and healthy inventory that we have, I think it's probably most of it behind us. And as you said, it's mostly in general merchandise and because the general merchandise tends to impact a little bit more a banner like Walmart, but at the end of the day, it tends to grow across all the banners. I'll now pass on the second question to Javier on the private brands and Cristian can also build. Javier Andrade: Yes. Okay. So thank you for your question, Irma. As you said, I see a huge opportunity in private label now. Even though we're performing good and we increased 100 basis points this quarter in penetration. I see a big opportunity in terms of surety of supply that we're working with the global sourcing team, and we're also trying to leverage as much we can from other markets. In groceries, consumables and even fresh, we are improving our capacity to bring in products for the customers and give access to them to better qualities and best prices. And for us, private label is going to be important because it's a huge component of the EDLP approach that we have for the future in the company. So you will see more to come in terms of private label. But basically, we're going to make sure that we have the best assortment possible for each of our business formats and making sure that we cover all the needs that every customer has in our different businesses and also in our different channels. So we're focusing on improving as much as we can all our processes, and we will leverage as much we can with global sourcing and other operations in Mexico. We're also working here with suppliers, specifically to drive efficiencies that we can translate those efficiencies into better costs and better price for the customer with local suppliers. So overall, private label is going to be important, and we're going to be speeding to develop our private brand to the maximum potential that we can. Cristian Barrientos: If I may add, Irma, the private label points. As you saw in the webcast, we just hiring [ Prativa ] from international to lead Sam's U.S. -- Sam's Mexico, sorry. And Prativa has a ton of experience before managing private labels in the U.S. So we are seeing a tremendous opportunity to work together between China and the U.S. trying to improve our penetration in Member's Mark in Sam's also. So it's a complement that Javier mentioned before in self-service. So we are taking advantage of the global brand that we are and bringing talent to Mexico to help us or to work together in terms of the business of Sam's some and also with some knowledge about private brands. So we're very confident for the future and the opportunity that we have to improve more our private brands program. Operator: Our next question is from Mr. Ulises Argote from Santander. Ulises Argote Bolio: Congrats, Cristian and the recently appointed leadership team. Actually, we had 2. So the first one for Cristian. Maybe I wanted to get your sense. Obviously, you were a long-term participant here in the Mexico market, then you went to Chile and now coming back. So I wanted to get your thoughts there. What are your kind of recent impressions on the current state of the market. Any relevant change that you're seeing there in competitive dynamics. Any relevant opportunities that might be worth tackling kind of on an initial basis. And then the second one for Paulo. Maybe if we could just get a little bit more details on the one-off that you mentioned yesterday impacting the net income. Any color that you could add there would be really helpful. Cristian Barrientos: Thank you very much for your question. And as you mentioned, I moved in these 7 countries in the last 14 -- 13, 14 years. And my first reaction, if I can compare both countries, it's incredible how similar the situation that we are looking today in Mexico were with the situation that I founded in 2023 when I landed in Chile because both countries were growing 0%. And we saw in Chile and also here in Mexico, the huge opportunity that we have to focus on the fundamentals with the idea when the -- let me say, the economy will recover, we will take advantage of -- we will be better prepared to capitalize all the sales that we're looking for. And that's happened in Chile. We moved from 0% and the retail -- the economy grew to 2% and the business there took advantage of that. So we are looking something similar here in Mexico, focusing on the things that we can control, and that is why we set very clear our priorities to go back, let's say, to these fundamentals as EDLP, availability and of course, the e-com acceleration that we have a huge opportunities, both in Mexico and Central America. So we're very optimistic for the future, and we are focused on these 3 priorities to take advantage in the coming -- in the next year. Paulo Garcia: Just on the second question, Ulises. So I already alluded to the fact that it's a nonrecurring item. So in a business of this size, once in a while, some of these topics pop up. I think I also wanted to give a little bit more reassurance to the market in terms of what we expect going forward. Obviously always the change in laws and regulations that we cannot control the tax effective rate. But actually, we see that hovering more around the 25%. And I think that's probably what is meaningful at this stage for you guys. Operator: Our next question is from Mr. Bob Ford from Bank of America. Cristian Barrientos: Bob, are you there? Operator: Our next question is from Alvaro Garcia from BTG Pactual. Alvaro Garcia: Congrats, Cristian, on the new role. I noticed in the release that used that you mentioned SG&A should sort of gravitate back to high single-digit growth in line with sales, and I found that a slight change relative to sort of the comments at Walmex, which were you should expect SG&A to continue to grow above sales. So I was wondering if maybe you could expand on that comment. Was that specific to this coming fourth quarter or for the full year or medium term? Any color on that would be helpful. Paulo Garcia: Yes. Thanks for the question, Alvaro. So I think what we said is twofold. One is, as we said it in the beginning of the year in terms of the guidance, we do expect to have for this year, high single-digit growth in terms of SG&A, which is much different than what we have said in the past. And for that means we continue to invest behind in the business. We always shed clarity on that token, but also driving efficiencies. And actually, these days also more midterm efficiencies also fueled by AI. I think in terms of also what we said it was that we do expect that SG&A to grow more closer to sales. That's our expectation there, Alvaro. So that's also what we want to see going forward. Alvaro Garcia: Great. And then just one. Maybe for you Paulo, could be for Cristian on gross margin. This Is a business that over the last 10 years has seen a 300 basis point increase in gross margin, which by Walmart standards, I think, is pretty darn high. So in the context of really doubling down on EDLP and really being true to that purpose, how do you feel about gross margin investment over the medium term? Paulo Garcia: Yes. I'll say and then Cristian can immediately jump and chip on that. You clearly see that -- so we have been investing behind pricing behind and we find our customers to help them save money better, as we said it. We do want to continue to invest more. We want always to invest, have the lowest prices in the market. As part of that investment, private brands penetration increase is also a part of that and a more EDLP approach, Javier can allude to the fact that we can do that in a better way than we've done in the past. I think we want to have the right P&L shape, Alvaro. So of course, we want to invest behind our customers. It's also important to know, and you know it very well and a few others as well, the shaping of P&L is also somewhat changing as we have the new contributions from the new businesses. That is helping our gross margin. We have easily around always 20 to 30 basis points in our gross margin as a positive effect that we want to invest behind our customers. And to do that, we need to, of course, continue to work on SG&A efficiencies to get it closer to sales, certainly keep it high single digit. I think if we do that and we sweat more the investments we do in terms of gross margin, we will be putting more money in the pocket of our customers. Cristian Barrientos: And also, if I may add, Paulo, around ecosystem, ecosystem is helping us to improve our profit, where we separate internally gross profit through commercial margin. And we have seen a more stable commercial margin. And also, we are working on managing the approach in our Tier 1, Tier 2, Tier 3 connect with the EDLP approach. And we have seen, as Paulo mentioned, opportunities or better participation on margin in private brands and also managing -- better managing our Tier 3 to improve maybe our mix in the total box, and that is why we are seeing a more stable margin. But we -- as I mentioned before, we strongly believe in the EDLP, and we will be focused on EDLP, trying to maintain as stable as we can our flow of merchandising and connect with our purpose. Operator: Our next question is from Mr. Antonio Hernandez from Actinver. Antonio Hernandez: Congrats on your results and the new appointments. Just wanted to follow up on Ulises' previous question regarding more than the macro environment, are you seeing anything more specifically on how consumer environment or the consumer's mindset has shifted or changed from your previous stage here in Mexico and Central America or more specifically in Mexico. Are you seeing any type of difference from back there to right now. And maybe also on the competitive environment competition. Cristian Barrientos: Well, to be very honest, only 90 days. And my first reaction is I had the privilege to travel in these 3 years that I landed in Chile to Mexico. And I see a more advanced or a more advanced market in terms of the -- how open we are to take, let me say, some technologies and connect with the e-commerce side. And that is why we put the e-com acceleration as a key priority. We are taking advantage of the brand that we are and bringing, as you saw in our webcast, single hallway to provide to our customer a less friction experience, connecting on-demand with 1P, with 3P, and we are seeing a very good adoption for customer. So if I may say something, it's going to be around technology. I've seen in my first 90 days, customer more open to receive these kind of technologies, open to give us, let me say, their cell phones and allow us to build this beneficial program. And with that, we can use data and be more precise in terms of selecting the assortment, in terms of price elasticity. So I'm seeing a more advanced customer, let me say, and very open to receive this kind of new technologies and reduce friction for them? Operator: Our next question is from Mr. Renata Cabral from Citi. Renata Fonseca Cabral Sturani: Congrats Cristian for the new position. My question is about the One Hallway that the company delivered this quarter. So if you can give some color for us on the main milestones that you are seeing now in terms of store coverage or plug in more vendors from the U.S., for instance, in terms of overall opportunities. Of course, we always look at what Walmart U.S. did, but we understand that there are some differences in terms of the market, maybe other opportunities as well. So if you can give us some color of what you see ahead for this One Hallway would be really helpful. Javier Andrade: Yes. Thank you, Renata, for your question. I'm very excited about sharing some ideas and thoughts about One Hallway. Let me start by saying that we are focusing very strongly in on-demand first just to make sure that we are protecting our core with groceries, consumables and fresh. And with One Hallway, we have now the opportunity to simplify the access and the experience for the customer where they will see all the opportunities in items and experiences in just one place in our digital platforms. And as you said, similarities between U.S. and Mexico are bigger than what we expected at the beginning. And basically, when we started the shift to One Hallway, we leverage all the technology from the U.S., the search engine and the technology. And what we're seeing now is interesting because we were expecting kind of a downside of the business during the transition. And with all the learnings that we have from the U.S., we were able to have a better transition in Mexico. We're seeing more loyal customers to our platforms. We're seeing more bigger baskets, if I may say, the customers are now purchasing groceries, consumables and GM, not necessarily just from on-demand, also from extended assortment, and we're working. And we recently shared inside the company that one of the core strategy is going to be cross-border. So marketplace is going to have a huge acceleration in the upcoming weeks and months. So what I can say is that we feel very confident that we're going to be leading the omnichannel experience for the customer, for every customer in Mexico, and we will give them access to the digital economy also through the ecosystem. So we are closing the loop, and we're going to be expecting growth and sustainable growth for the future with One Hallway. Renata Fonseca Cabral Sturani: Super good. Just a quick follow-up. For us, it's clear the potential for top line growth for 2026. In terms of margins, do you think that in 2026, that will be also accretive or that will take some time? Paulo Garcia: I think do you refer to the margins here in e-commerce in the marketplace, Renata? Renata Fonseca Cabral Sturani: Yes. Paulo Garcia: So I've always alluded to the fact you guys know if that if you think about our on-demand business, it's a profitable business already. We always said that our extended assortment business of 1P and 3P in a different stage, it's pretty much a business of critical mass. So critical mass here is important. So we are in that journey. So we actually see a lot of value creation can be created in the future as we go through that journey in improving the volumes that we pass through the 1P and in particular, marketplace. Operator: Our next question is from Mr. Andrew Ruben from Morgan Stanley. Andrew Ruben: Just one quick follow-up on the e-commerce side. For Marketplace, we saw [ celebrace ] grew 30%, but there was a 30% decrease in SKUs. So just trying to understand the strategy and what drove the divergence. And then just a second item, there was a quick mention of tariffs within the release or the conference call. So I just wanted to clarify, is that more of a general statement on macro uncertainty? Or are there specific ways that the tariff backdrop has been impacting business. Paulo Garcia: Yes. If I can just start on the second one. I think it's more just a general statement, Andrew, the way you put it. I think we're just seeing that was a little bit the uncertainty around tariffs, but also a little bit the uncertainty around the TMEC agreement. What it does at the moment is just it's hampering a little bit the investment in Mexico or the big investments. So that ultimately, hampering the investment leads to less job creation that you used to do it in the past. I think that creates a bit of uncertainty and therefore, impacts the consumption. I think that's the statement. I think if you think about tariffs as such and direct impact to our business, we're not seeing necessarily a meaningful impact of tariffs in our business. To the first question. Javier Andrade: Yes. And basically, to your question about SKUs and sellers, it was temporary because of the transition we were doing in technology, but we expect to recover very fast in terms of SKUs and sellers. And we're working closely with the U.S. to expedite this. So we know that it's important for us to have the right value proposition in every category. So it was just temporary. Operator: Our next question is from Mr. Froylan Mendez from JPMorgan. Fernando Froylan Mendez Solther: I want to ask -- I'm sorry, if they already asked, I couldn't hear most of the call, but on working capital, we saw an improvement in this specific quarter. Can you give us some color on what changed? And what are your expectations in the mid and long term on your working capital cycle. I guess, it's for an additional improvement, but more color on how sustainable is this quarterly improvement? If it had more to do with your pricing strategy or just the temporary and the type of SKUs that were sold during the quarter, what are different from the previous ones? More color on that would be highly appreciated. Paulo Garcia: Thank you for the question. So we've alluded in the past quarters that we were actually attacking our working capital. We are not necessarily entirely happy with the performance that we had on inventory days. You have that quarter 2 was already a better performance than the previous quarters. And this quarter, in particular, a reduction -- a significant reduction 3.5 days versus where we were a year ago. I think you can expect us continue to tackle inventory, continue to improve. I think ultimately, if we have less inventory in the store, it leads to more productivity. If it leads to more productivity, leads to money that we have at hand to be able to invest behind prices and therefore, put the spinning wheel to work and for to get more growth, you should expect that to continue to happen consistently in the coming months and not just necessarily a one-off. You do also -- there were concerns also in the past, Froylan, about our DPO and the fact that was increasing. That has to do, of course, we had to reduce purchases in the past to address inventory, now gets to a more stable level. If you remember, I said that in the prior quarter, and I think that's what you can expect going forward. Fernando Froylan Mendez Solther: Excellent. And if I may, just on your comments on what to expect into the fourth quarter, you said that between the second and third quarter, does that mean you are reiterating your top line guidance into the year? And when you say that SG&A should grow in the same level as top line. Should, we not expect then EBITDA margin expansion, but let's say, a stable gross margin for this year? Paulo Garcia: I said 3 things for the quarter, Froylan, and just to allude to the things we said. One, we did said one thing on guidance for the Q4 on growth indeed, and we expect growth to be along the lines of what we saw in Q2 and Q3. And if that's true, then you can do the math versus what we previously had said overall for the full year. I think we are focusing on what we can control and what we have the line of sight. We have line of sight. The good -- as Javier was alluding to for the peak season, and we expect along the lines of what we did in Q2 and Q3. On SG&A, as you've seen in this quarter, we grew only around 5%. As you know, there will be phasing. Sometimes you invest more, sometimes you invest less, so you create more efficiencies, but we stick to our objective to continue delivering the high single-digit growth. And then -- and when you think more in the mid and long term, we definitely want to see SG&A more in line with sales in order to deliver the near-term stabilization of the margins that we promised. That's the second. And the third one that we said for the -- I said it for this particular quarter, Q4, is that we expect a sequential improvement in terms of profit delivery. We always said that Q3 was going to be better than H1, and it was. And we expect a Q4 that will be better than Q3. Operator: Our next question is from Mr. Bob Ford from Bank of America. Robert Ford: Congratulations on the new role, Cristian. Just curious how you're thinking about evolving trends in small box retail in Mexico, maybe historically why Walmex has not really leaned into proximity in the past and how we should think about Express or other proximity formats moving forward? And then also in the footnotes of the results for the last couple of quarters, there's been a note about transfer pricing and tax risk. And I was just hoping you could expand upon that, particularly in the context of this little hiccup on tax expense. Cristian Barrientos: Yes. So first, if you -- on the proximity. Paulo Garcia: Yes. So let me start with the second question, and Cristian can talk a little bit more about how he thinks about proximity risks, and I can build on that. So Bob, so this is what we saw in the quarter. It's just a one-off that we saw it. It doesn't relate with the footnotes that you're alluding to in terms of the transfer price risk or any anything that will be linked to that, Bob. Cristian Barrientos: And in terms of proximity, if I may answer your question, we changed brands in 3 or 4 years ago. And we -- personally, I truly believe that we have a huge opportunity to continue to expand our business in -- Supermarket business. We have a ton of experience here in Central America. We have more than 100 stores here. We have almost 100 stores in Mexico also, but with a different size. So in the middle class that is very big in Mexico, we are seeing a lot of white spaces. That is why we changed the brand. We have a strong -- or, let me say, a better presence in Mexico City, but we have a huge opportunity to grow this supermarket business in regions in Mexico. We recently opened 2 stores with very good performance, and we have planned to continue to open this one because we have seen a lot of white spaces in the region. So we're very confident with these kind of stores or business because of the experience that we have in Walmart. Operator: That was the last question. I will now hand over to Mr. Salvador Villasenor for final comments. Salvador Villasenor Barragan: Thank you very much. We would just like to thank everyone for joining us once again and looking forward for our fourth quarter results and talking to you soon. Operator: Walmex would like to thank you for participating in today's video conference. You may now disconnect.
Operator: Good day, and welcome to the Centene Corporation 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead, ma'am. Jennifer Gilligan: Thank you, Rocco, and good morning, everyone. Thank you for joining us on our third quarter 2025 earnings results conference Call. Sarah London, Chief Executive Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Specifically, our discussion today of our expectations for the drivers of adjusted diluted earnings per share for 2025 and any commentary on expected adjusted diluted earnings per share for 2025 are forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our third quarter 2025 press release, Centene's most recent Form 10-Q filed this morning and its 10-K filed on February 18, 2025, Additionally, other public SEC filings, which are available on the company's website under the Investors section. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. This call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our third quarter 2025 press release. With that, I will turn the call over to our CEO, Sarah London. Sarah? Sarah London: Thanks, Jen, and thanks, everyone, for joining us to review our third quarter 2025 financial results and updated full year outlook. We are driving significant progress against the milestones we provided to investors in July, yielding a better-than-expected adjusted EPS result in the period. This morning, we reported third quarter adjusted EPS of $0.50, ahead of our previous expectation. Within these results, our Medicaid business delivered anticipated HBR improvement in the period that was further aided by a positive 2025 retroactive revenue adjustment in our Florida business. SG&A and performance within our noncore segment were both slightly favorable. Net investment income was stronger than we previously expected, and we experienced a lower effective tax rate in the quarter than originally forecasted. Marketplace experienced additional medical cost pressure in the last month of the quarter, but the segment still produced an on-track result for the period. And our Medicare segment, including MA and PDP, performed in line with expectations we shared on our second quarter call. With 3 quarters of the year complete, we are increasing our adjusted EPS forecast to at least $2, up from our previous forecast of $1.75 per share. When we came to you in July with recalibrated earnings expectations, we laid out 6 key assumptions that bridged us from our April outlook to the $1.75 per share forecast. We'd like to take a moment to update you on how those 6 factors evolved during the quarter and are now treated within our new adjusted EPS outlook of at least $2. One, relative to marketplace morbidity and its corresponding impact on risk adjustment assumptions, we received the second tranche of Wakely data in September, improving our visibility with industry-level paid claims through July. We are pleased this data was consistent with our previous estimates, and we have, therefore, made no changes to our original full year assumption of a $2.4 billion pretax earnings impact within this new forecast. As a reminder, the next update from Wakely is expected in December. Two, also in the forecast was $200 million we added to account for additional Marketplace medical spend in the back half of the year. Marketplace delivered an in-line result for the quarter. But given the uptick in utilization we saw in September, we are holding the remaining $125 million of this provision in Q4 and are adding another $75 million given the volatility around eAPTCs. While we may not need this cover, as of now, we believe this to be a prudent posture given the landscape uncertainty that remains. Three, in July, we pointed to a 2025 Medicaid composite rate of roughly 5% based on the rates in hand at the time. With all scheduled rate adjustments now finalized, we expect the 2025 composite rate adjustment to be roughly 5.5%. Four, in July, we were targeting a second half Medicaid HBR of 93.5%. Our third quarter Medicaid HBR was 93.4%, which included $150 million in Florida Children's Medical Services program revenue, of which $90 million or 40 basis points was retro. As a result, we are now on a trajectory for a back half HBR of approximately 93.2%. Five, we continue to expect the Medicare segment to deliver $700 million of pretax favorability relative to our April full year forecast. Medicare Advantage and PDP results in the quarter were consistent with our outlook, so no change to this expectation. Six, we are also still on track to deliver $500 million in pretax benefit from SG&A. In fact, we performed slightly better than expected with administrative expense reduction in Q3. However, given the fluid nature of marketplace open enrollment and the potential for additional enrollment activities surrounding eAPTCs decisions, we are keeping the full year SG&A assumptions unchanged for the last quarter as of now. In addition to those items from our Q2 bridge, we want to highlight investment income and tax rate performance in the quarter and how they impact our expectations for the remainder of the year. As mentioned earlier, Q3 investment income was stronger than expected. Gains were largely driven by onetime items and therefore, not expected to recur. We believe there may be opportunity to take some investment losses in the fourth quarter to improve the trajectory of investment income in 2026, and we are providing flexibility in the guidance to do so if the opportunity arises. Tax favorability in the quarter was driven by a lower tax rate, which was purely a matter of timing. Our view of the full year tax rate remains unchanged. While we continue to track and pull levers to address Medicaid cost trend and are similarly watching marketplace utilization dynamics closely in this uncertain environment, we are pleased with the overall performance of the business in the quarter. With that, let's take a closer look at the performance and trajectory of each core business line, starting with Medicaid. We were pleased to deliver 150 basis points of sequential improvement in our Medicaid HBR this quarter. While this was aided by improved revenue from the Florida Children's Medical Services contract, it also reflects fundamental improvement that is a direct result of the actions we described on our Q2 call, including rate advocacy, program changes, clinical management, network optimization and more aggressive fraud, waste and abuse interventions, among others. Those efforts yielded tangible proof points in Q3. During our second quarter call, we identified 2 states, Florida and New York, where we were experiencing outsized Medicaid medical cost pressure. In Florida, you'll recall we saw significant trend pressure in the CMS population as members receiving ABA services were transitioned into that sole-source contract. We engaged in constructive dialogue with the state and shared real-time data throughout the summer. In September, the state moved to address the underfunding of that program going back to February 1. Additionally, the state provided a rate update for the coming year that better reflects the underlying medical demand within that population. In New York, we made real progress on the fraud, waste and abuse front, particularly in the behavioral health space. Fidelis team was able to terminate a provider group that engaged in suspicious billing practices and drove sizable excess medical costs at the expense of New York taxpayers. The state has simultaneously taken several serious actions against the same provider. It's a great example of the confidence our state partners in Albany have in Centene. Through these and other performance improvement efforts, the New York team is currently on track to deliver meaningful HBR improvement in the back half of the year compared to Q2 results. We continue to see trend in Medicaid with the same drivers we described in Q2, namely behavioral health with ABA a primary contributor, home and community-based services with home health the major driver and high-cost drugs, though high-cost drug trend did show slight moderation in the period. As you heard on the Q2 call, we have organized enterprise-wide to address these dynamics and saw solid momentum in the quarter on those initiatives. A few examples. We have been actively working with states on solutions to address high-cost drugs and have seen multiple states make movements over the last quarter to implement drug-specific carve-outs and revised formulary decisions, including 2 states who have reversed course on GLP-1. Additionally, our ABA task force successfully leveraged our multistate experience and unique breadth of data to drive important policy advancements with our state partners. One state established increased precision in ABA clinical service definition as well as more stringent supervisory and caregiver engagement requirements. This drove a 45% reduction to outlier payment rates, which results in tangible financial improvement for the state's program and aligns members to higher quality services. We are pleased to be making real progress on our Medicaid margin improvement agenda, but we are certainly not declaring victory. With behavioral health still driving 50% of above-baseline trend, we continue to aggressively pull levers internally to appropriately manage medical costs and advocate for rates that reflect the medical demand in the ecosystem, all part of returning Medicaid margins to a more normalized long-term levels. Despite the challenges we have navigated over the last few years, our commitment to serving low-income and underserved populations has never been stronger. We are pleased to be making progress against our financial goals and making good on our commitment to be responsible stewards of state taxpayer dollars, all while continuing to provide high-quality care and access to vital health care services for our members. Turning to Marketplace. From a membership standpoint, we ended the quarter with roughly 5.8 million members, slightly better than expectations. As you heard earlier, the business produced an in-line result inclusive of medical cost pressure in September. Given what we saw in September and the reality that we are supporting a population staring down eAPTC expiration and potentially the wholesale loss of affordable health care coverage next year, we felt it was prudent to provide for additional coverage in Q4 against a potentially more pronounced year-end utilization push. In the meantime, we have been laser-focused on positioning our marketplace book for 2026 margin expansion, and Q3 was the critical window for that effort. We were data-driven in the buildup of our revised rates, which ultimately averaged in the mid-30s, taking into account increased 2025 baseline morbidity, a prudent assumption for year-over-year trend and the combined risk pool impacts of expiring eAPTCs and program integrity measures. Consistent with what we shared in September, we were able to reprice our products for 2026 in states that cover 95% of our current membership and where we were not able to fully reflect the expected morbidity in the rates, we took additional actions to minimize margin impact for the remaining membership. Those rates have now been officially approved and absent any late-breaking policy changes will drive open enrollment as it launches this weekend. Congressional dialogue around eAPTCs has obviously gained traction in recent weeks, the outcome remains uncertain. While our products are priced to support year-over-year margin improvement in a scenario where eAPTCs expire, we believe these tax credits offer critical support for hard-working Americans, small business owners and rural health care infrastructure, and we are hopeful Congress can find a path forward. In the meantime, we are ready to open enrollment with strengthened digital tools and well-trained call center personnel to aid members during this time of uncertainty. Regardless of the outcome, we remain confident in the long-term importance and viability of the individual health insurance market as a critical coverage solution for millions of Americans. As we move beyond this moment of policy evolution, we continue to see a greater role for this platform to support a more affordable, portable individual insurance experience that we are excited to lean into and lead forward. Finally, Medicare. Both of our Medicare segment businesses performed well during the quarter, producing results consistent with our updated outlook provided this summer. Our reported Medicare segment HBR was 94.3%, reflecting typical cost of care patterns within Medicare Advantage as well as the inverted seasonality of pharmacy costs within PDP, owing largely to changes related to the IRA. Note that these dynamics are even more pronounced now that PDP is half of our Medicare segment revenue. Medicare Advantage medical cost trend remains elevated compared to historic levels, but was consistent with our expectations for the quarter. PDP performance was consistent with our previous view and is now largely contained by risk corridors, providing for increased visibility into the fourth quarter as the corridor serves to narrow the band of outcomes through downside protection for the product. AEP is live, and we are actively enrolling members in our 2026 Medicare products. Margin recovery once again took priority over membership as we constructed Medicare Advantage bids, but we are pleased with both the value proposition we are offering beneficiaries as well as our competitive positioning. We continue to invest in our member experience, providing enhanced digital tools and resources for members and prospective members. Dual eligible populations are a strategic focus for Centene, and we recently launched the first phase of our enhanced integrated duals model across 8 states as part of the broader transition of MMPs to integrated D-SNPs effective January 1, 2026. We look forward to the opportunity to serve these beneficiaries as their needs and our capabilities continue to align and evolve. Earlier this month, CMS released 2026 Star ratings that impact 2027 financial results, and we are pleased to have generated another year of progress. During this cycle, we elevated our performance despite continued cut point headwinds to 60% of members in plans at or above 3.5 stars versus 55% from the prior year with roughly 20% of members in 4-star plans. These results demonstrate a true One CenTeam effort with the initiatives being planned and executed at every level of the organization and provide us with increased confidence in our ability to achieve breakeven pretax margin in 2027. We are proud of the Medicare Advantage Star score advancements we have achieved over the last 3 years, but remain focused on the opportunity for continued improvement. In the near term, we are leaning into provider interoperability, multimodal member engagement and advanced VBC partnerships as levers for the future. Overall, we are pleased to have maintained strong Medicare segment results, including positioning PDP well to achieve results better than the 1% pretax margin guidance we began the year with and putting Medicare Advantage on an even stronger path to achieve breakeven in 2027. As we reflect on the quarter, we are pleased to have made material and necessary progress on Medicaid profitability and delivered solid results across the balance of the business. It is a testament to the resilience and discipline of this entire organization that we are able to raise the outlook today. And while a tremendous amount of work remains ahead of us, we intend to harness the positive momentum we have generated here in the third quarter to help power the balance of the year. Looking ahead, given that we will not be hosting an Investor Day in December, our plan is to provide detailed 2026 guidance on our Q4 earnings call in early February. In the meantime, we wanted to offer some initial comments on the major building blocks of our 2026 plan. In Marketplace, as we've shared, we were able to successfully take actions to account for baseline morbidity, trend, eAPTC expiry and program integrity impacts for 2026 across 95% or more of our membership. While the policy landscape remains uncertain, based on what we know today, we believe we have positioned the portfolio well for meaningful margin improvement in 2026. As a result of thoughtful bid construction and disciplined management, we believe our Medicare Advantage business is also well positioned for margin improvement in 2026. CP continues to outperform in 2025, but you can assume we would not guide to a similar level of outperformance as we step into 2026, making this a year-over-year headwind as we set initial guidance. In Medicaid, in light of our now better-than-expected full year trajectory, we believe a prudent posture for 2026 is profitability consistent with our current full year outlook in 2025. Additionally, you should assume that a lower tax rate environment makes net investment income a headwind and that our tax rate increases. Overall, we remain focused on driving margin improvement across the enterprise and delivering EPS growth in 2026. The current dynamic policy landscape has presented significant challenges in 2025, but also offers meaningful opportunity in the months and years to come. We have incredible runway ahead of us in the form of operational improvements, efficiency gains and margin expansion, all in service of our dual mandate to ensure quality health outcomes and serve as responsible stewards of taxpayer dollars. None of this would be possible without the tireless work of more than 60,000 Centeneers across the nation, serving and supporting our nearly 28 million members. Thank you once again for showing up day in and day out in service of our mission. With that, I'll turn it over to Drew. Andrew Asher: Thank you, Sarah. Today, we reported third quarter 2025 results, including $44.9 billion in premium and service revenue and adjusted diluted earnings per share of $0.50. The GAAP loss per share of $13.50 was the direct result of a $6.7 billion non-cash goodwill impairment charge recorded in the quarter. More on that in a minute. Within the $0.50 of adjusted EPS, we had a temporarily low adjusted effective tax rate in the quarter, which contributed about $0.10 compared to an expected full year 2025 adjusted tax rate of 20% to 21%. Let's go through the drivers for the quarter and then map that to the full year. Starting with Medicaid. We are pleased to report a Q3 HBR of 93.4%, better than we expected for the quarter and heading in the right direction. Of the 3 previously discussed high trending areas, Medicaid high-cost drug trends settled a little in the quarter, and we successfully advocated for much improved revenue in our Florida Children's Medical Services or CMS business, where we've seen very high ABA costs. As Sarah covered, we received a net $150 million positive revenue adjustment in Q3 for the Florida CMS program for the 21 February 1 to September 30, 2025 period, of which about $90 million was retro to Q1 and Q2 2025. Retro piece was worth about 40 basis points on the Q3 Medicaid HBR. We also made some progress in New York, but there is more work to do to further improve performance. Overall, given the Q3 result and momentum we are seeing from actions we have taken in 2025, we're a little ahead of our back half Medicaid HBR goal. On the rate front, the 9/1 to 10/1 cohort that represents about 28% of annualized premium averaged in the mid-5s, consistent with the full year 2025 composite rate. We are focused on 1/1 and 4/1 rates, representing about half of our 2026 annualized premium revenue, and that advocacy is in process. Medicaid membership is at $12.7 million, and we would expect slight attrition over the next few quarters. Stepping back, we are pleased with the sequential progress in Medicaid with opportunity for improvement ahead. In our Commercial segment, our HBR was on track for Q3 at 89.9% Sarah indicated, in September, we received and evaluated the second run of marketplace weekly data, which represents updated claims through July. Our review of this data is consistent with the $2.4 billion forecast change we described on the Q2 call. Recall also, our previous guidance had accounted for a pickup in marketplace trend in the back half of the year, especially given the level of public discourse around the eAPTCs. We did see a pickup in utilization in September, including ER. And as we assess risks and opportunities for Q4, we added another $75 million to our prior marketplace medical expense forecast. The more critical activity during Q3 was focused on 2026 rate filings and eAPTC education and advocacy. We sit here today based upon our rate filings in 29 states, we have priced for our estimates of: one, 2025 baseline correction; plus two, 2026 forecasted trend; plus three, the impact of program integrity rules implemented in 2025 and those announced for 2026; and four, the sunset of eAPTCs. Unlike 2025, which is expected to run at a slight loss, we expect these pricing actions to support margin expansion in our Marketplace business in 2026. Our Medicare segment was also on track in the quarter. Medicare Advantage continues to show progress toward our 2027 goal of breakeven, and we were pleased with the progress with the October Stars announcement, as Sarah covered. Within PDP, while trends are still high in the non-low-income PDP population, they weren't as high as we had planned for in Q3. That's good for cash flow and forward forecasting, but is largely offset against the risk corridor receivable for current earnings purposes. As we discussed at a webcast conference during Q3, we are pleased with our 2026 PDP product positioning relative to the relevant benchmarks and direct subsidy estimates. More to come on the Medicare segment after AEP. Our adjusted SG&A expense ratio continues to be strong at 7.0% in the third quarter compared to 8.3% last year and 7.3% year-to-date compared to 8.3% year-to-date last year. This is largely due to growth in 2025 PDP revenue and continued leveraging of expenses over higher revenues, coupled with good discipline. Given the amount of activity expected in Q4 with open enrollments and member communications, we are assuming for now that we will spend any remaining Q3 SG&A outperformance in Q4. You will notice investment and other income is up $79 million in Q3 compared to Q2. We had a few gains in the quarter, plus temporarily higher cash balances than expected. As we think about Q4, we may harvest some unrealized losses like we did a couple of years ago in Q4. as we think about reinvesting in higher-yielding instruments for 2026 and beyond. So for now, we are assuming that Q3 investment and other income outperformance will be earmarked for that purpose. Overall, the fundamental business performance was good in Q3 relative to our July forecast. Our GAAP results, you can see a reduction or write-down of about 38% of our goodwill during Q3. As we covered on the Q2 call, the drop in market cap required us to accelerate our annual goodwill evaluation into Q3. After going through an accounting promulgated and detailed review of our goodwill, we took a onetime non-cash charge of $6.7 billion in our GAAP results. This has no impact on statutory capital, cash or adjusted EPS results. Our sole credit facility financial covenant is a debt-to-cap limit at 60%, and we sit at 45.5% on 9/30/25 after this write-down. The topic of the balance sheet, we had 0 drawn on our $4 billion revolver that has a duration until 2030. We also had a strong cash quarter with cash flow provided by operations of $1.4 billion in Q3, primarily driven by net earnings and the net timing of pass-through and other payments. Unregulated cash on hand at quarter end was $357 million. As you can see in the 10-Q, we expect to receive net $200 million in dividends from subsidiaries in Q4. Medical claims liability totaled $21.5 billion and represents 48 days in claims payable, an increase of 1 day as compared to the second quarter of 2025. We look at the full year 2025, we are increasing our 2025 adjusted EPS forecast from the previous $1.75 to at least $2, driven by early execution on the improved Florida CMS revenue. 2026. We look forward to providing 2026 guidance on our next quarterly call in early February once we have closed out 2025. But as you heard from Sarah, we look forward to growing adjusted EPS in 2026. Thank you for your interest in Centene, and we can -- Rocco, we can open it up for questions. Operator: [Operator Instructions] And today's first question comes from Josh Raskin with Nephron Research. Joshua Raskin: I guess my question really would be, how do you get comfortable that you are getting ahead of trend in the exchanges? And do competitor exits make the pool less stable for 2026? And is there a point where this adverse selection spiral causes you to rethink certain markets or maybe even the segment entirely? Sarah London: Josh, thanks for the question. Let me hit utilization and trend in marketplace both as we think about the back half of 2025 and then how we've thought about it for 2026. So as we said, we saw a slight uptick in utilization in September, primarily outpatient ED. It correlated from a time standpoint with the direct uptick in dialogue nationally around both rate increases for 2026 and the eAPTC discussion at the congressional level. So not a perfect correlation or causation, I guess, but sort of correlation there. And as we thought about Q4 and thought about sort of that $200 million provision, pushing the remainder of the $125 million into Q4 and then adding another $75 million was really based on taking what we saw in September, extrapolating that out and assuming that given just the volatility in the landscape and the fact that some folks are going to be concerned about their ability to access health care next year, we may see more of an uptick than we normally do in terms of that Q4 utilization. So we feel like we've put prudent coverage in Q4 as we run out the year. Relative to 2026, we obviously did a lot of work and just want to call out again the marketplace team jumping on top of the weekly data in July really through that and understanding the drivers of what we were seeing and the fact that there were indicators in that data of what the extrapolated morbidity shifts would be above and beyond what we're seeing in '25 or '26. So what we built into the revised rates that we talked about filing across 95% of membership were 4 major components. One was that adjusted 2025 baseline morbidity. And obviously, the fact that the September weekly data came in consistent with our extrapolation of the July data is a strong reinforcing data point. So that's one. Two is a healthy provision for trend as we step in -- year-over-year trend as we step into 2026. Three is the assumption of the expiration of eAPTCs because that is current law of the land and what that will do to risk pool shifts. And then the last is a sort of composite view of the additional risk pool shifts that would be driven by both the continuation of the 2025 program integrity measures and sort of enrollment hurdles that were put in place as well as those hurdles that are -- were in the final rule and also in OB-3. And so all of that was loaded as part of that revised rate. And that gives us confidence that an average step-up, as I mentioned, in the 30s, really with a focus on margin over membership sets us up well for meaningful margin recovery in '26. Now there are multiple pieces that are still moving, right? Obviously, we don't know where eAPTCs will land. The payment program integrity measures that were in the final rule have been stayed in the courts. And our view is it's unlikely that those move ahead of Saturday and possibly not even through at least the original planned open enrollment period. And so we need to see where those land, but the bottom line is that our pricing took into account sort of all of those actually being in place during the open enrollment period. Lastly, just relative to your comment on overall stability, we do feel like there is still a competitive market. We feel like peers were thoughtful about '26 in terms of understanding the risk pool shifts. And we do think that sort of the fundamental construction of the market with those advanced premium tax credits prevents any kind of sort of death spiral, but we've been cautious as we constructed our view of 2026. Operator: And our next question comes from A.J. Rice at UBS. Albert Rice: Maybe just a follow-up on that and then maybe ask you something on Medicaid as well. On -- so presumably, the open enrollment people -- the open enrollment that enrollees are going to see will reflect the loss of these tax credits, and there may well be a move by Congress to extend them in some form or fashion. Do you have the ability to quickly reengage people to get them to sign up? I assume the people that are sicker and dealing with the health system through their providers will get prompted to resign, but I'm thinking about those that are younger, healthier and have less frequent contacts, many of those still using the exchanges. How easy is it to notify them that now it may make sense to re-sign up? And what efforts do you have in place for that? And then just quickly on your comment about stable margins or stable contribution in Medicaid next year. There's a lot of discussion about some states trying to adopt work rules early and also putting in place program integrity measures on that side of the business. How are you thinking about that when you think about your outlook for Medicaid next year? And is that a meaningful swing factor? Sarah London: Yes. Thanks, A.J. Great questions, easy question. So let me hit marketplace first. And you're right. So what we are navigating through is the idea that traditional open enrollment launches on Saturday. The eAPTC discussion is, we assume live as we speak with the possibility that there may be action before the end of the year. And so I think what you're really asking about is sort of breakage. So even if we got eAPTC extension, are we able to go and recapture folks who maybe got an initial letter, made a decision about the affordability of their insurance based on that data point and don't actually reengage or return of their own volition to understand how that landscape may change. So that is something that we are paying a lot of attention to. And in fact, if you think about our commentary about rolling forward some of the SG&A favorability that we saw in Q3 because of this idea that we may be going through sort of a multilayered enrollment process. We may find ourselves with a special enrollment period or an extension. We may want to be putting forward additional marketing efforts, obviously, mobilizing our broker relationships to go and find those members if and as the landscape changes midstream. Our view is that there will still be some degree of breakage. And so even if the eAPTCs are extended in the middle of the cycle and you go forward, for example, with an additional 60-day special enrollment period, our view of market contraction for 2026 is in the high teens to mid-30s range. So again, that's based on sort of all of the different factors that could be at play. But it tells you that even that bottom end where, for example, the program integrity rules remain stayed and eAPTCs are extended that there is going to be some degree of market contraction. And again, some of that is the roll-through of '25 program integrity enrollment hurdles, but also a view that there will be some abrasion and breakage on members who get that initial letter and don't come back. But we are certainly prepared to do everything we can to go find those members and help them understand in the event of an extension that they do have access to affordable insurance and certainly have done all of the work kind of both mathematically and administratively to be prepared, frankly, for any of these scenarios. so that we can help be a good partner both to the administration as they navigate through this, but also supportive of our member base. So that's Marketplace. Medicaid, so a couple of things embedded there. Relative to work requirements, we saw some movement over the summer for states that were putting in waivers and thinking about potential early start, call it, 7/1/26 implementation of work requirements. As of now, those states that were sort of early in that have all moved back to a 1/1/27 start date. So we don't have any firm data points of states that have our intent or have explicitly pinned 7/1/26 start date. There's also quite a bit of important guidance that is still to come from CMS that is not scheduled to come down in rule-making until the summer. And those are really important provisions relative to state flexibility, how to define able bodied what additional population states may be able to carve out what the data capture and reporting requirements are going to be, what the frequency is of all of this. So states can certainly and it should be, and we are working very closely with them to plan ahead, but there's a lot about what this is actually going to look like that is not even scheduled to become clear until the summer, which means that 2027 and for some states beyond that is going to be the more rational sort of implementation time frame of that. And then what, therefore, is the impact as we think about '26, we don't see a huge impact in '26 relative to work requirements as we think about the the overall sort of margin profile and our ability to retain, as we said, sort of initial view of '26 sort of consistent profitability. And then the program integrity measures, similarly, we are expecting some degree of membership attrition next year just as we're seeing states get better at the reverification process, but we don't see that as a huge swing factor. Operator: And our next question today comes from Justin Lake at Wolfe Research. Justin Lake: First, just a quick follow-up on the exchanges. I appreciate you sharing your thoughts on the market contraction potential. I wanted to hear your view on competitive positioning for '26 versus '25. And would you expect your growth overall to be in line with that market [ SAR ] or better or worse and by how much? And then maybe, Drew, any color you could share with us in terms of how much of that $700 million of Part D upside we should think about unwinding next year? Sarah London: Yes. Thanks, Justin. So a little bit about market competitive position. So again, sort of a slightly refined view of overall market contraction in that sort of high teens to mid-30s. Obviously, it depends on sort of which scenario lands, and we need to see how open enrollment, which may be extra complex plays out. But it's possible that we end up slightly on the higher end of that range. However, relative to our competitive positioning and sort of the landscape, relativity, we had 55% of our portfolio in the low-cost silver positions in '25 and 42% in '26. So not a huge change, but a change that I think reflects the fact that we were very focused on margin recovery over membership as we stepped into those 2026 pricing decisions. And then I'll kick it over to Drew on PDP. Andrew Asher: Yes. PDP, good question, Justin. So as Sarah said in her remarks, PDP is now about half of our $37 billion of full year '25 Medicare segment revenue. So you can keep that in mind on the impact on the full segment. And then underneath that, PDP, think about it this way. We're running -- we expect to run in the 3s in terms of pretax margin in 2025. And while we're still constructing all the elements of the plan, and we need to see how open enrollment plays out, we would probably come out of the gate something less than that as we think about initial guidance that we will give in February for 2026. Operator: And our next question today comes from Andrew Mok at Barclays. Andrew Mok: Last quarter, you expressed confidence in margin improvement across all business lines, including Medicaid. Now it sounds like you're not expecting much improvement in Medicaid profitability. First, was that comment framed through the lens of earnings dollars or margins? Because I think there might be some pressure on the revenue line from disenrollment and contract losses. And second, was there a change in underlying performance across the broader portfolio when excluding some of the idiosyncratic events in Florida? Sarah London: Yes. So let me sort of step through Medicaid, and I'll take your last question or last piece of the question first and just reinforce that, first, obviously, very pleased to be delivering sequential HBR improvement quarter-over-quarter. And the fact that what we delivered is reflective of the improvement that we were expecting in the July guidance. It was further aided by the $150 million in Florida, which actually, I think, is a great proof point of the fact that rate advocacy is an important lever. And that while in Medicaid, we don't set the rates, we can influence the rates and those rates are ultimately data-driven. So what influences our view of '26 now versus July, the biggest shift is really that we're on a better-than-expected trajectory than we were in July. But a couple of factors as you think about how we're looking at progression and important to note that regardless, we are not taking our foot off the gas on HBR improvement overall as an organizational focus. But we were jumping off a very high starting point in Q2 and a first half HBR of 94.2%. So we're going -- we're expecting to have a lower HBR in Q4 even than Q3, which was lower than Q2. We have the benefit of solid rates at 5.5% composite, which is sitting in that sort of back half cohort annualizing into 2026. We'll also have -- be lapping the acceleration of trend. And so does trend step up at the same accelerated rate? Our belief is that it is more likely to moderate to some degree, but that is also something that we are very focused on controlling where we can. And so a big proof point for us in Q3 was the fact that we were able to put points on the board against every one of those major levers that we talked about. So rate advocacy, not just in Florida, but the fact that the 10/1 rates materialized better than expected, clinical policy design in states. And I talked about a couple of those examples where we are influencing states to change their approach to high-cost drugs. And in fact, some of those changes that I described are effective 1/1/26. So we have hard data points about how states are making changes. We've got another great example of states that are adding CCBHCs to their program and the fact that we have experienced where that can drive unintended high costs in states from other parts of our portfolio have been able to inform states about what could happen if you don't put those in place with the right guardrails. And so they're stepping into those program changes in the right way in the first instance. Network optimization, I talked about some examples of that, not just from a fraud waste and abuse perspective, but we have a great program called Partnerships in Care when we go out to outlier providers and provide them with data and really talk about -- sometimes it's just a question of education about a better path of care for members. And then, of course, stamping out fraud waste and abuse. So really strong proof points of that work in the quarter and the fact that we've been at this now for almost a year. So good visibility into additional opportunities and additional tactical efforts that are out there and ahead and will manifest in '26. We also have almost 40% of the membership that re-rates in the 1/1 cohort. So our view, as we stand here today, sitting on a better-than-expected trajectory with important dates in 2025 still to play out, which will tell us a lot about Q4 trends, will tell us about sort of the right jump-off point for next year. We only have about visibility into 50% of 1/1 rates, and those are only draft. So if asked what jump-off point for '26, we believe it's prudent to say consistent profitability and margin as we go from '25 to '26. I will tell you that I will be disappointed if that's all we can deliver. But we think that, that is a prudent assumption at this time, given where we stand and what we know and also what we don't yet know. But we absolutely look forward to giving much more detailed perspective and formal guidance on the Q4 call. Operator: And our next question today comes from Ann Hynes with Mizuho. Ann Hynes: Just in your main businesses, Medicaid, Medicare health exchanges, can you tell us what -- you had that initial 2026 outlook, what you're assuming the trend is in each segment? And then with Medicaid, can you tell us what your initial thoughts are for the composite rate increase? Andrew Asher: Yes. So thanks, Ann. Let's start with Medicare. Medicare trend has been running high single digit to even maybe 10 plus for the last couple of years. And so we're assuming that, that continues. If you compose it with respect to our bids and what's baked into that progression towards breakeven, that would be low double digits. And at some point, that's going to start being reflected in the fee-for-service rates that we all get as an industry. So we look forward to getting an advanced notice in February and seeing what that looks like. In Marketplace, you have to think of the 4 buckets that I laid out in my remarks because they foot to like a mid-30s average rate increase. And certainly, fundamental trend is a component of that, but probably even more important than trend in Marketplace is the expected risk pool shift. And we learned -- and back to an earlier question, we learned a lot in 2025, which we talked about in the Q2 call, like what happens to risk pools when program integrity measures are put in place. And it was fortuitous that we were able to see that and learn that before we undertook the repricing effort that was largely successful, as Sarah indicated. So you've got to add a bunch of things up to get to that mid-30s, but that would include 1 of the 4 pieces is the fundamental trend. And then in Medicaid, -- if you think about this year, our HBR is up probably 120 basis points from 2024, and we got mid-5s rates. And as Sarah said, 30% of that will roll into next year and 2026 in terms of the annualization of what we got in 7/1 and 9/1 and 10/1. And then we have a little bit of the visibility into the 1/1 cohort. And jumping off of a high baseline, including, as Sarah said, like a 94.9% in Q2, a 94.2% for the first half of the year. And then with the levers we've been able to pull a couple of things Sarah mentioned in her script, the 2, maybe even 3 states rolling back on GLP-1s for weight loss, high-cost drug pools being formed, carve-outs of high-cost drugs like Zolgensma, Elevidys, Lyfgenia. And so examples of where we're able to pull levers impacting the trajectory of even then home health with private duty nursing management and behavioral health with the -- what we're being able to do with the task force, we think we're taking sort of a bite out of forward trends. So we'll give more details on the components. But all of that goes into the formula where we can sit here today, once again, with the visibility we have and the visibility we don't have about 2026 and feel like stability in that HBR relative to 93.7%, if you do the math on 2025, expecting to be able to maintain that in 2026 is the starting point of our forecasting for 2026. Operator: And our next question comes from Kevin Fischbeck at Bank of America. Kevin Fischbeck: I was wondering if you could talk a little bit about Medicaid margins, obviously, flat next year. Are you guys expecting that 2026 is going to be basically more of a trough year and that you should be expecting to build on that in '27? It sounds like you're assuming work requirements more of an issue in '27. Is that enough of a risk pool shift to offset the catch-up of prior rates? Or is it clear from this point that probably '26 is where you think the low point will be? Sarah London: Yes. Thanks, Kevin. It's a fair question. And as we look out over the next couple of years, our goal continues to be to drive back to more normalized Medicaid margins. As Drew walked through and I referenced, I think we've got a lot of momentum as we think about stepping into 2026 and our view of flat profitability, again, is sort of a prudent posture. As I said, I will be disappointed if we don't do better than that because I think that the enterprise is really organized around pulling the levers that we are in control of and those that we can influence. 2027 and 2028, to your point, is where we will start to see, I think, the real introduction of impacts of [ OB3 ] and what that means for work requirements within the expansion population there is a lot, as I mentioned, a lot still there to play out, including how much of that programmatic change actually takes root and how it manifests state by state. And so the way that we're approaching that is really leveraging lessons learned from the redeterminations process, leaning into state conversations. We've got a formal team that has already been organized around this over the last 6 months and starting to plan, again, at the enterprise level, coordinating with each one of our boots on the ground health plan teams to understand how the states are thinking about this, where we can step in and leverage the data that we have as an MCO and the expertise to help make sure that every member who is eligible and who is contributing to their community and who is working has access coverage. So we feel like we are preparing very well for that. We also feel like we have the precedent now of states incorporating more recent data and also understanding that as there are seminal program shifts, they need to make different decisions in terms of how the risk pools are going to shift prospectively. And so bringing forward a very concrete view of the expansion population, the specific rate that they're getting, what we think the shift is going to be so the states think about the '27 rate setting process as early as 2026, back half of '26 that we're having those conversations as well. So we obviously can't guarantee that states are going to perfectly nail the rate relative to what that shift will be. And so we're thinking about how that will play through in '27 and '28, but doing everything we can to set up the organization to continue to drive consistent margin improvement over the next couple of years to get to a place where we're back at long-term margins in Medicaid. Operator: Our next question today comes from George Hill at Deutsche Bank. George Hill: I guess this is more for Drew. I guess, Drew, can you talk about any of the assumptions that underpin the margin stability for Medicaid in '26? In particular, does that include the Florida retro and what's changed in New York. And I'd be interested if you'd be able to talk about the contribution of benefit cuts or benefit design changes you called out the high-cost drug carve-outs as it relates to margin stability in '26. Andrew Asher: Yes, George, thanks for the question. So if you think about -- you asked about the retro, that's actually not retro to a prior year. It's just retro. The Florida retro was retro to Q1 and Q2. So when you look at the full year, once again, around 93.7%, you guys could do the math, some I will tell you, 93.7% is sort of what we're forecasting for 2025 and stability, the goal of stability in that. And I agree with Sarah, like that's our initial goal, but we'd be disappointed if we don't move that down a little. But 93.7%, some of the things I covered with Ann, including the levers that we're pulling, you mentioned high-cost drugs. And so yes, those would get -- in one case, in one large state, they're going to do a carve-out. In another state, there's a kick pool, kick payment pool for those payers that have those encounters. And there's other examples of well-run reinsurance pools that other states are considering because of the lumpiness of some of those high-cost drugs. So that's just -- that's one example of sort of the hand-to-hand combat we have to go through in terms of managing care and creating affordability for our state partners and our members. So I won't repeat everything I went over with Ann, but those were some of the levers we thought about when we contemplate being able to have stability as we go into 2026. Operator: Our next question for today comes from Erin Wright at Morgan Stanley. Erin Wilson Wright: So you're still very committed to the business. And I know last week, I think, Sarah, you were at an industry conference talking about ICHRA still being a compelling area. But how do you just think about some of the longer-term dynamics across the exchange business, the longer-term margin targets and growth profile of that business? I guess a lot is dependent on the regulatory changes, right? But just given your level of commitment, how confident are you in some of those targets? And then -- and just what would potentially make you change your commitment to that as well? Sarah London: Yes. Thanks, Erin. So we haven't changed our commitment, obviously, to this product and not -- we haven't really changed our view of what philosophically we should be able to price for long term. And as we said, the work that we did for 2026 was really designed with the intention to make a meaningful step forward in margin recovery in 2026. But I think to your point, sort of longer-term stability, you're absolutely right. First of all, a fair amount depends, although not ultimately, but some short term certainly depends on what plays out relative to policy changes. eAPTCs, I think, is probably the biggest swing factor just in terms of getting to a really, really stable base so that we can think about building on the platform. There are still millions and millions of Americans even if eAPTCs go away that rely on the individual marketplace for coverage that have the backstop of the eAPTCs. And so we believe that this product stabilizes, we still think there is growth or millions of Americans who are still uninsured. And actually, I think the way that this administration is thinking about, at least in conversations, the possibility of getting creative about different product design and different ways to drive affordability in this market is really encouraging. We obviously think that the individual market is a compelling chassis as we consider the future of insurance and a view that individuals are going to want more agency. They're going to want more affordability. And as I mentioned last week in the conference, it's really hard to take a small number of benefit options across for Centene's 60,000 employees and feel like you're really customizing to each individual's needs. I use the example of the fact that I'm a 45-year-old healthy woman, and I didn't go to the doctor until last Saturday. And so I am definitely paying more for health insurance at Centene than I need. And so we continue to be excited and lean into ICHRA. We're hopeful that this administration is also very interested in ICHRA because it is -- a lot of the legislation is a legacy of Trump's first term, and we have leaders in the administration who have spent careers thinking about how this could be a way to sort of reinvent individual coverage. So we are going through a policy transition on the base, and we feel very confident that we will get through that. We're thinking about ways to drive additional transparency and stability in the core business. And so how can we partner with CMS, how can we partner with the DOIs, how can we partner with our peer set and actually do a better job of sharing data as we step through each year so that the risk adjustment conversation itself is sort of incrementally derisked. But we're not backing off sort of the view that we can design benefits that drive value and price for that value on the exchange and that this is a platform for future individual growth that I think we are investing in and positioned well to help capture. Operator: Our next question today comes from Stephen Baxter at Wells Fargo. Stephen Baxter: I just wanted to ask about the kind of the rate mechanics in Florida. It's obviously good to hear that CMS, the population there, Florida saw reason on the rates. But just in terms of the cadence, it looks like in the third quarter, obviously, you got trued up on your performance there. So if we're thinking about the Florida rate update, does Florida actually improve sequentially in the fourth quarter now, which is normally what you would expect when you see those rate updates come in? Or should we think about the Q3 performance effectively showing that you've got the rate year-to-date rather than getting it in Q4? Hopefully, that makes sense. Andrew Asher: Yes. No, good question on the progression. And so the way I'd probably look at it is we put up a 93.4% in the quarter. And the $150 million, if you sort of take that out and you want to sort of judge the progression into Q4, that's 60 bps, the full $150 million, of which [ 40 ] of that related to prior periods. So you're jumping off a 94.0%. And then, yes, you can evaluate, call it, mid-5s in terms of the 9/1, 10/1 cohort and Florida was slightly above that in terms of the mix between CMS, MMA and the long-term care population. And so yes, we expect a sequential lift going from Q3 to Q4 given the cohort of 9/1 and 10/1 rates, and that will be a contributor to the improvement that we expect in Q4. And then obviously, we have trend as well as a pretty soft November in terms of the day count. If you look at November, it looks more like a February in terms of the number of business days and the holidays. So that all goes in the formula of how we can get -- how we expect to get to around 93% for Q4, which then when you add to all the other numbers you know would get us to the 93.7% for the full year that we would jump off of and seek to maintain for 2026. Operator: And our final question today comes from Lance Wilkes of Bernstein. Lance Wilkes: Great. Yes. Could you give some maybe additional color on the resetting environment at the states? And what I was interested in is what sort of variability are you seeing across states in rates? And then as you're looking at the budget outlook for fiscal '26, '27, how is that budget, the '25, '26 fiscal year and then the '26, '27 kind of conversations that you're seeing impacting the potential for future rate increases? And as a result of these things, are you seeing any smaller competitors that are looking to either exit contracts or not rebidding in any of the states you participate in? Sarah London: Yes. Thanks, Lance. So every state is a little bit different. So there's certainly variability in the actual absolute rates. But I would say that what we have seen consistent across the states and consistently now for more than 18 months is very constructive collaborative dialogue around rates. The integration of more recent data. We've obviously now got for the 1/1 rates, the benefit of a full 12 months with sort of the step-up in trend drivers that we're seeing and then 18 months with the acuity impacts from redeterminations. And again, I think this increased sort of cadence and reflex around leveraging more recent data, both at sort of a baseline period, but also being able to better anticipate what inflation may be prospectively into the future period. Obviously, Florida is a great example of that because they had to use '25 rates to make the '25 adjustment. But again, that has become sort of normal course, and it's how we think about what we expect to see in the 1/1 cohort and going forward. The budget outlook for the states, there are obviously concerns that with the changes in legislation, there will start to be budget impacts in '26 as states need to balance their budgets and go through those legislative sessions. one of the things that I would point to, and we've said this before, but I think this is really a moment where we will start potentially to see this play out because we're seeing it play out from a program design standpoint is this is a moment where we -- our partnership with the states can really drive value. And they're coming to us and saying, we've got a balanced budget. We've got tighter sort of guardrails, how can we think about continuing to deliver the core benefits that we want to and continuing to drive health outcomes, but make adjustments where we can to optimize the program. And Drew and I have both given a bunch of examples of that. But we think there are -- there's definitely runway on that front. But then also states thinking about carving in fee-for-service populations where if you have a state that has ABA and a fee-for-service disposition over the last 12 months, they are struggling right now. And so there's opportunity as they go through upcoming procurement cycles to think about aligning some of those fee-for-service populations into kind of the core procurement. We started to see some opportunity for net new program adds in the RFP pipeline in '26. And so yes, we do expect there will be budget pressures. But in our world, that's actually an opportunity to help them think about managing care and therefore, managing taxpayer dollars. And that's really kind of the business that we're in. Operator: Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to Sarah London for closing remarks. Sarah London: Thanks, Rocco. Thanks, everyone, for the questions and for your time and interest in Centene this morning. 2025 has definitely been a challenging year, but I firmly believe that the Centene is stronger for it. And I just want to take a moment to thank my teammates for being unwavering in your focus on and commitment to our mission. We look forward to continuing to provide updates on these key inputs and milestones and then obviously provide formal guidance for 2026 on our Q4 call. Thanks, everybody. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good day, everyone, and welcome to the Opera Limited Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations. You may begin. Matthew Wolfson: Thank you for joining us. This morning, I am joined by our CEO, Song Lin; and our CFO, Frode Jacobsen. Before I hand over the call to Song Lin, I would like to remind you that some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to the safe harbor statement in our earnings press release, as well as our annual report Form 20-F, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at investor.opera.com. Our comments will be on a year-over-year comparison unless otherwise stated. With that, let me turn the call over to our CEO, Song Lin, who will cover our third quarter operational highlights and strategy, and then Frode Jacobsen, who will discuss our financials and expectations for the remainder of the year. Song? Lin Song: Sure. Thank you, Matt, and everyone else for joining us today. These are certainly exciting times for Opera and for our industry. And while it's only been 2 months since our last release, it already feels like ages ago. The product opportunities around AI that we have been advocating and preparing for over the past years are coming to fruition, and I could not be more pleased about our strategic position in this rapidly evolving landscape. And while this is playing out, we combine our strategic positioning for the future with a healthy business that continues to scale faster than we have expected. I will start with some of the big industry things that have happened since we last spoke. First, the remedies phase between the U.S. DOJ and Google came to a conclusion in which it became clear that Google can continue to compete for U.S. traffic in the same way as other players in the broader and rapidly evolving content discovery landscape. While anything else would have been quite surprising, it was good to get clarity on that. Second, the broader recognition of the web browser strategic importance continues to increase, even if the opportunities for Opera might not be fully appreciated yet. Household AI names are investing heavily to expand their reach and knowledge about the fuller context of end users with the browser being the focal point of attention. Opera's advantage in this situation is our agnostic approach to the underlying large language models that powers our browsers. We believe in an increasingly broad landscape of AI services that assist users across a multitude of areas from information gathering to making purchasing decisions to producing content and performing tasks. We believe that these services all come together in the browsing experience, in particular, on computers where most of us are spending an increasing amount of time as more products and tools are becoming web-based. And crucially, we don't believe people will install one browser for each use case or each AI services. The browser needs to work across all platforms and its approach to assist the user has to be powered by the right tool for each job. That is where Opera Neon comes in as an early stage window into how we see the future of browsers. Office browsers are not AI professional windows nor are the tools to lock users into a specific large language model. Rather, we offer the most sophisticated alternatives targeted to a growing segment of users that care about the functionality of their browser. This includes how we integrate services, manage tabs and workspaces, optimize memory and battery utilization, not to mention the design and visual customizations. We differ from others in that our specialization is the browser itself, and we use that skill set to create the best possible AI experiences. We know that people are different and the one-size-fit-all system does not work for everyone. Our flagship browser, Opera One is carefully tailored for people who want to have the richest possible browsing experience, while Opera GX and Opera AL both rethink what browsers should be for their core audiences. All the Opera browsers ship with a free and advanced LLM agnostic AI solution. Opera One was the first of our free browsers to receive the new chat functionality. Opera Neon complements this with being tailored for the most advanced and demanding users out there, those who want to participate in shaping the future of web browsing and believe AI agents will be a core part of their experience when doing so. Those of you who have experienced the early release of the Opera Neon browser have seen how we believe AI can integrate into the existing workflow in a way that people are already used to working as opposed to existing within a terminal like process remotely operated in a server form. As we evaluate our strategic position, we take pride in the exceptional quality of our products and the rapid expansion of partnership opportunities. Such partnerships, along with the efforts of multiple niche players in term of promoting browser choice, significantly increased public awareness that alternatives exist. In an environment where more users are actively considering switching browsers, we are well positioned and eager to compete for the most discerning and demanding users, offering them innovation, reliability and a truly differentiated browsing experience. And while running at full speed to seize these opportunities, we are proud to have a already healthy financial profile of growth, profitability and ability to turn capital to our shareholders. The third quarter experienced year-over-year revenue growth of 23%, as always, all organic and compared to guidance of 18% to 21% growth. Our $152 million of revenue in the third quarter was a new record. And for the first time, our annualized ARPU crossed $2 per user, growing 28% year-over-year to an annualized level of $2.13. Our revenue outperformance leads to adjusted EBITDA of $36.3 million, also above the high end of our previously issued guidance and also setting a new quarterly record. This translates to an adjusted EBITDA margin of 24%, expanding versus the first half of the year as expected and marking our 18th straight quarter as a Rule of 40 company. As Frode will detail shortly, the Q3 results and trajectory with which we enter Q4 allow us to raise our revenue guidance well beyond the Q3 overperformance. Our updated midpoint estimate now exceeds $600 million and represents 25% growth for the year as a whole. Taking a step back, our 2025 guidance has reached nearly 4x the revenue we had in 2018, the year we went public, and our CAGR over these 7 years is 21%, another feat to be proud of. Our company was recognized by Fortune Magazine this month, which named Opera in its 2025 list of the 100 fastest-growing companies based on growth in revenue, profits and scope returns. I wanted to spend the next few minutes on the launch of Opera Neon and what it tells you about how we see the future of AI-powered browsing. Currently, Neon is a premium subscription-based browser that showcases our ambition to transform web browsing. Opera Neon implements native AI assistant functionality that can step in at any point in time as we browse. As you are logged into your services in the browser, Neon acts locally on your behalf and supports you with everything from deep research to new task such as filling out forms, comparing products across sites and acting as your personal assistant with the efficiency befitting a browser veteran. The key innovation is architectural. Instead of adding chatbots to existing browsers like some of our competitors, Opera built a task-based system where AI agents operate directly in your authenticated browser session. This overcomes the limitation of cloud-based AI tools and stand-alone apps. They cannot access your logged-in account or interact with real website. Neon can because it runs locally in your browser where you have already been authenticated. Benefiting from our task architecture, Neon is also able to define the right context for a given task without the need to access or upload the entire set of OpenTabs or your browsing history to a platform in the cloud. This is putting privacy first and represents another competitive benefit of Opera's architecture. We are also tackling the complexity that hinders broader AI adoption. With so many AI services and models, users struggle to choose the right tools. As a independent player, we are introducing a new interface where Opera Neon guides users to the right group of agents for any task. And while we are on the topic of agents, one of our own agent, Opera Deep Research is already scoring better than the deep research capabilities of those AI-first platforms as we showed in our press release last week. It shows the benefit of combining the strengths of different large language models as we do not invest in the already crowded LLM landscape. Opera Neon is a product tailored for the most advanced and AI-forward users, but our mission is to expand these innovations in our mainstream products such as Opera One and Opera GX. As we evolve our monetization of AI opportunities and our industry partnerships, we will be able to facilitate an increasingly advanced experience for our total user base, that's the future that we are really excited about, and you'll see us acting rapidly on those fronts as well. While I wanted to mostly focus today on how we see the AI opportunity, there are also other highlights worth mentioning. Last time we updated you on how far along we've come with MiniPay. Since we last spoke 2 months ago, MiniPay has grown the number of noncustodial wallets to over 10.5 million, up from 9 million during our last report, while the number of transactions has increased to almost 310 million from 250 million as of this morning. We are building MiniPay with multiple use cases in mind. Building upon the power of stablecoins, it can allow immigrants working abroad to quickly and cheaply send money home. It allows the traveler who does not have access to local payment rails pay like local and can even facilitate payments to global freelancers in USD. We are a deep believer in how new technology can be used to facilitate transformation and have an exciting pipeline of partnerships and product features that we plan to launch in this space. Finally, I'm going to briefly touch on Opera GX, the browser for gamers. We ended the quarter with 33 million users, up 3% year-over-year and with a new ARPU record of $3.69 on an annualized basis. Opera GX has recently expanded its offering with exclusive in-browser gaming deals and introduced advanced features like smart home integration designed for tech enthusiasts seeking seamlessly device control. The browser also continues to enhance its AI capabilities by deploying faster, more powerful models, further improving performance and user experience for the gaming community. Lastly, GX modes allow users to personalize their browser even further, including animated courses for a highly customized and immersive experience. We are also excited about our continued sponsorship of the League of Legends World Championships currently underway. To conclude, I'm incredibly excited about our ability to innovate and take our browser offering to the next level. And at the same time, while it always feels like the future can't come fast enough, we also take pride in running a healthy business with solid revenue growth and profitability that directly benefits our shareholders through our recurring dividend program. Opera shows that it's possible to combine growth and strategic potential with healthy financials and meaningful return of capital to shareholders along the way. With that, I will now turn the call over to Frode to go into the financials in more detail. Frode Jacobsen: Thank you, Song. We are very pleased to report that the momentum in our business continues to outperform even our most recent expectations. Our third quarter hit a new milestone by exceeding $150 million of quarterly revenue coming in at $151.9 million, and we also reached our highest ever adjusted EBITDA at $36.3 million. Both came in above the high end of our guidance ranges and both come as a result of scaling new revenue partnerships, while also expanding browser classic revenue such as search. This quarter, we introduced a slight change in our revenue categories by reporting on total query-based revenue, which largely consists of the old revenue category search, but also includes revenue generated by other user prompts where we see increasing opportunities to monetize as we scale our business. For example, if the user has a dialogue with our AI assistant Aria and follows a paid recommended link or starts typing a search query in the URL bar and elects to follow an offer recommended partner listing from the drop-down menu. As a result, the new query revenue category includes the total of our potential ways to monetize a user's intent for online discovery. Advertising revenue in comparison is more lean back on the part of the user where we serve ads and promote partners that we think the user will be interested in, but without the user explicitly querying it. Our quarterly revenue, query revenue was $55.6 million, which represented a year-over-year increase of 17%. The old search category was the predominant component at $52.4 million, which represented 13% year-over-year growth and accelerated further versus the prior quarters, as well as the other query monetization that amounted to $3.2 million and tripled versus the year ago period, which has now been carved out of the advertising revenue category. Advertising revenue, net of the query monetization, as previously described, grew 27% year-over-year to $95.9 million. By the former definition, advertising revenue would have grown 29% year-over-year to $99.1 million. Once again, e-commerce was the primary driver of our advertising revenue growth, now representing about half of our advertising revenue and setting us up well for new records in the holiday season. Q3 costs came in according to our previous directional commentary. Cost of revenue items combined reduced slightly as a percentage of revenue versus the first half of the year and amounted to 34.6% of revenue, which was within the indicated 34% to 35% range. With the strong underlying performance, we allowed marketing to expand from $34 million in Q2 to $36 million in Q3, with a continued focus on the highest ARPU potential users, though remaining in the mid-$30 million range as indicated. Similarly, we recorded cash compensation cost at the higher end of the indication, predominantly as a result of increased provisions for annual bonuses in light of our trajectory, but also reflecting the weakening of the U.S. dollar versus our main salary currencies. Taken together with the sum of all other OpEx items pre-adjusted EBITDA showing a slight sequential decline and the revenue overperformance, we were still able to exceed our range for adjusted EBITDA. Our operating cash flow was $28 million in the quarter, representing 78% of adjusted EBITDA. Free cash flow from operations came in at $21 million or 59% of adjusted EBITDA. As always, we expect continued fluctuations in cash conversion on a quarterly basis due to impacts of seasonality and operational variations. Overall, we maintain a solid financial position with cash at $119 million, no financial debt and underlying cash generation well in excess of our dividend payments. Adjusted diluted EPS was $0.30 in the quarter, representing a relatively stable margin at increased scale. Now turning to guidance. For 2025 as a whole, our trajectory and the resilience that it has shown allows us to significantly raise our expectations for the year, continuing the trend from prior quarters. We now guide revenue of $600 million to $603 million or 25% growth over 2024. This updated range starts above the prior high end of guidance as we add an additional 2 percentage points of expected full year growth. Our guidance implied a further acceleration of annual revenue growth from 20% in 2023, 21% in 2024 and now 25% at the midpoint for 2025. Similar to before, given the hockey stick growth of the second half of 2024 and Q4 in particular, we have based our guidance on sequential modeling. The raised estimates capture the Q3 overperformance and adds a further incremental expectation to our Q4 guidance, resulting in a continued increase in our sequential growth rate. As before, this results in a relatively stable trend of quarterly revenue growth measured on a 2-year CAGR, which captures the scale we have built in recent quarters, while also evening out the growth profile. In terms of adjusted EBITDA, we lift the range to become $138 million to $141 million for the year as a whole or a margin of 23% at the midpoint. This reflects a continued expectation that the percentage margin in the second half of the year will stay about 1.5 percentage points above the margin in the first half, even as the weakened U.S. dollar relative to other currencies continues to represent a headwind. Apart from such fluctuations, we see cost of revenue items stabilizing as a percentage of revenue and economies of scale continue to benefit us as an underlying trend. Cost-wise, we then implicitly guide to a full year OpEx base pre-adjusted EBITDA of $461 million at the midpoint. For the year, we expect the cost of revenue items combined to come in at about 35% of revenue following the continued growth of Opera Ads. Other cost items grow at a lower pace than our revenue and thereby reduce as a percentage of revenue relative to 2024. This includes marketing costs, which we expect to grow at high single digits from 2024 to 2025, compensation costs, which will increase just over 10% and the sum of all other OpEx items pre-adjusted EBITDA will likely remain quite stable at the 2024 level. In line with this, we guide Q4 revenue of $162 million to $165 million, representing 11% to 13% growth or a 2-year CAGR of 20% at the midpoint and Q4 adjusted EBITDA of $37.5 million to $40.5 million or a 24% margin at the midpoint. Within the implied quarterly OpEx base of $125 million at the midpoint, we expect that cost of revenue items as percentage of revenue will be similar to the third quarter at about 35%. We expect marketing costs to increase by $2 million to $3 million relative to the third quarter, and we expect cash compensation costs to remain quite stable. The sum of all other OpEx items pre-adjusted EBITDA are expected to tick up such that the second half of the year as a whole becomes comparable to the first half as a whole. All in all, we find ourselves in a great position as we enter the seasonally strongest fourth quarter, and we are excited both about our commercial opportunities, as well as the broader strategic picture. With that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Naved Khan with B. Riley Securities. Naved Khan: Great. A couple of questions from me. Maybe just on -- starting with Neon, been around a month since you took it out of the closed beta and opened it. Just curious about the traction you might have seen with it in terms of people who have signed on and how is the wait list for the product and how quickly you're moving through it? And also, maybe just talk also about the go-to-market strategy for Neon, both in terms of paid media and unpaid media and how do you plan to sort of drive the awareness for the product? The other question I had is around e-commerce. Curious about how do you see the growth in this line of business kind of sort of evolve going forward, not just necessarily in Q4, but actually more in 2026. How should we think about that? Lin Song: Yes. So, yes, it's Song here. I think I'll just first answer the Neon question and then Frode can also comment a bit on the e-commerce one. So yes, so, Naved, as also mentioned a bit on the script, very excited about the launch. Yes, more like at this point, of course, it's still invitation based because I think our philosophy that in the beginning, it is very important to have a group of founders that we want them to be closely working with us on potential features and also the direction of the products what they need among others. So, we are very excited to form this very close group that we can work with for the next months to come. And I think there will be also a key base for the future Neon programs. So, I think that's also why our intention that we make this premium invitation-based product at this point. But you're also right that I think within the next 1 or 2 months, we will also open up to the broader public and also receive even more interesting advises and also product developments. So I think that's, in general, how we see Neon. And then maybe also super quickly that I saw you also asking questions about go-to-market and then a few others. So, I guess for us, it's a bit slightly different, I guess, from some of the competitions that, of course, we are -- I think more like anything in the browser field offer is a household brand name. We have a relatively big already audience, and then we have a very mature way of marketing. So, I think for us, probably we think slightly less about a particular way of go-to-marketing, but instead of thinking of how we can engage all our existing user base and then how we can find out some of the audience, which will fit them more with Neon and how we can also position Neon together with other free offerings. So, I think that's for now how we think about it. But overall, I think Neon has been extremely well received. We saw many media coverage. We saw more than 1,000 articles and it keeps coming. And even on the surprise that even though we are still on the invitation, we saw a very good coverage. I think just today, I also saw some other medias publishing very favorable announcement of when they try Neon. The operator is by far the most efficient and the type architecture they also appreciate. So overall, quite excited about the launch, but I think this is still very early stage. We will excited even more how can we take it further. Frode Jacobsen: And now I can chime in on the e-commerce part of the question. I think we, of course, find ourselves in a very good, nice situation where the e-commerce revenue streams have scaled extremely rapidly now over the past 18 months, still approximately doubling at a year-over-year basis this far into growth spur. The nice thing I would say is that I believe we are still under-indexing in terms of e-commerce as part of the advertising -- online advertising markets overall and perhaps for the browser in particular, which is so well suited to promote e-commerce partners. Operator: We'll take our next question from Ron Josey with Citi. Ronald Josey: Maybe a quick follow-up to Naved as it relates to Neon browser and adoption trends. I think Song, you mentioned on the call, it's tailored for the most advanced users. Just in this first wave, just talk to us a little bit more about the behaviors that you've seen from these users. Anything stood out, what you've learned here as you go to general market or call it, open it up to beyond just the invite list. And then on commerce specifically and not as much on the e-commerce side, but just I wanted to get your thoughts on Agentic commerce just as checkout mechanisms change as MiniPay becomes a bigger part of the business. But help us understand how you're thinking about Agentic commerce going forward. Lin Song: Yes, it's actually -- it's something else I think I'll cover a bit. It's also some of very interesting discussions in the market there. So, first of all, just talk about Neon. I think for now, actually, it's really well to get all those user feedbacks. So I think as also mentioned about earlier that I think for now, our strategy is really -- we are not really super eager to get so many users because we do have massive amount of users using us anyway, but more important to us to form a close community and hear their feedback on Neon and in particular, Agentic browsing. So yes, we have received a very good feedback. For instance, one thing I would say stood out is that it's also in relation to what we also call out later about Agentic e-commerce, right, that I think for now, everybody feels that it is definitely the future that imagine the future that you don't really have to spend too much time on browsing, but simply ask agent to browse for you to buy books on Amazon to buy shoes among others. So, it is definitely working as of now. That's actually one of the major use cases that we saw happening on Neon that people actually use it to buy a lot of interesting content e-commerce wise. And for us, I would say what I think we stand out and what we also be proud of is the efficiency because there are some other Agentic solutions out there, you can try yourself, right, which is rather slow and sluggish. And -- but even more important on the back end is that I think many of them using -- have to rely on visual models, which are very costly that they almost cost 10x more tokens or whatever and also being slower, right? So I think what we have been extremely happy about and also what our focus is, is that how can we use capability of a browser because at the end of the day, browser have access to all the layout doom trips in a technical sense and how we can even use text to be extremely efficient to analyze all those elements and to move forward. So, I think that's so far what we have been probably received the most praised that we are able to execute those task very efficient, faster than others. And also people may not realize also that because of the past architecture, we are able to do this like we are able to execute multiple tasks as well, right, which is a better architecture than many others. So, this is what I'm really feeling proud of and user are appreciative, even though sometimes maybe some users feel that sometimes we can, of course, by design, be slightly more aggressive, partly just because we want those advanced users to influence what the agent can be doing, right? But this is actually in connection with your other question that -- I think our view is just that for now, agentic is definitely the future, everybody see it, but it's still not as efficient as a real human being, right, because it takes too long to do any transactions. However, we believe that within a shorter time frame, maybe a few months' time, hopefully less than 1 year that the ways the work like us and others, there is possibility to make sure that in certain task that agent will perform better in the browser other than the human be more efficient, and that will be the point where we will see more and more of those, I would say, agentic e-commerce coming along. And like I think also touched base on the cost part of it that -- at least for the architecture that we are using, it's actually very cost efficient without need to quote the exact numbers. I think -- for now, what we see that the cost of the agentic browsing due to e-commerce is actually very reasonable compared to the amount of the money that people will spend. And even if you compare to the commissions compared to whatever we can earn as an advertiser, it still leaves a big margin for us to be able to use agentic e-commerce to help move this forward. So, this is actually something which we also spend a lot of time on and it's very important for us. And I think in some cases, we may be 10x more efficient than our competitions, which we are quite proud. And I think this is also a major base of potential agentic e-commerce in the future. That being said, there are some other considerations that we're also closely following up. I think reason just because we are not only an agentic browser company, we are also advertisement company, as you see, that will grow very nicely of e-commerce. So, there are certain concerns, I would say, from e-commerce players that maybe some of them do not want to just be a pipe, right, that they do want to also have a better exposure of the goods and e-commerce, even in the agentic browsing scenario. So I think that's also something maybe we are a bit differentiating from others that we also take this into consideration that we also make sure that our partners do not end up as a pipe, but rather that they also end up as an interesting destination that not only agent but the audience can also have a chance to see and browse through all the different groups and perhaps have more selections. So, yes, so I think this can be too long discussions along the way, but it's definitely very interesting to see how this evolves. Operator: We'll hear next from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe if I could squeeze in two, we continue to hear a fair bit around the overall macro environment and how it might be impacting digital advertising. Would love to get your sense across your array of advertisers, how you would characterize the current demand environment and how you're thinking about that environment sort of evolving in the forward forecast. That would be one. And then two, coming back to MiniPay, can you talk a little bit about how you see that building in terms of scale as we look out to 2026 and beyond? And how you think that will tie into the broader services layer of your offering in terms of driving overall ecosystem strength? Lin Song: Sure. So yes, it's something else. So, I think I will also try to answer that, and then Frode will also chime in for many insights on the advertisement and as well, right? So okay. So, I would almost say that I think in a broader advertisement scape, there are different changes and shapes and forms, right? But I would almost say that at least in the angle where we see e-commerce, especially performance-based e-commerce, the fact that it is actually tightly related to whatever -- more like the actual purchasing. For now, we definitely see from our end that it's still on a growing path. Simple fact has been that -- at least from what we can see users are more and more buying with partners like us, and they get very good recommendations since it's also performance-based. There's less concern, I guess, from advertisers of is there enough brand richness or whatever. So I guess that's why for us, at least we are growing more than 100% year-over-year, and we see that trend definitely not slowing down, but rather continuous and very excited about it. That also fit into well with the agentic browsing scenario just because, again, it's performance-based, right? At the moment, it doesn't matter if you are a people or if you are an agent to bought something, I guess, some people are equally happy. So I think that is definitely positive. But more like -- on the other end, though, I do see that this is more like just a general feeling, right, that there are, of course, also discussions around, okay, now if the agents are doing a lot of stuff, well, let's say, traditional display advertisement or well brand or whatever still make sense and how is the best way to nail that because potentially, it's not real people, but actually agents who are doing that. I think that also posed some of the threat to some of the e-commerce players as we commented earlier that for them, of course, it's very scary if they end up at the end of the pipe, right, if they end up as only as a good delivery storage house or whatever, while all the others are taken by the other AI players if someone just directly use AI to direct a purchase or whatever, right? So, we see those things. So -- but that being said, I would say that actually put browser into a very good position because unlike at least some particular AI chat clients, we – our browser at least make sure that all the web pages and all the goods are showed up in front of people and even in front of agents for that sake so that there are enough exposures of those things, which can be immersive as well. So, I would almost say that at least we saw potentially at least benefit impact of for the browser players, while I would imagine that for some of the pure chat-based e-commerce solutions that might actually cause a issue for some of the ad players. So that's how we see it. But again, we can have longer discussions along the way. And then super quick for MiniPay. Yes, like I think, indeed, our feeling in that, of course, stablecoin is definitely going, it's definitely staying and it's growing strong. And also, it actually helps facilitate large part of payments even fit into agentic scenarios it's just because it's very naturally fit into agentic scenarios where all -- like everything can be combined. So we do have that as part of consideration. For us, I think maybe the only comment would just say that I think we will hopefully land some bigger partnership discussions and bigger cooperation with industrial players in stablecoin field in certain areas and markets to drive both adoption, but also hopefully to have even wider use cases like we commented about the local payments -- better integration with local payments, but also potentially integration with e-commerce and a few others. So, yes, so that is definitely coming. And we will -- yes, hopefully, there will be quite a lot of announcement in the next few weeks and months to come. Operator: We'll hear next from Mark Argento with Lake Street. Mark Argento: Just a couple of quick ones. Just turning back to advertising and the e-commerce opportunity. Could you just -- it's not still 100% clear to me what's kind of the gating factors are there in terms of the growth. Obviously, it looks like the business is growing extremely rapidly. But is it working with more e-commerce partners? Like what -- I guess, what are the mechanics there to better or to see additional growth or ultimately better understand that long-term opportunity? Frode Jacobsen: Yes. Frode here, I can start. I think we try to focus on the leading players by region and develop deep partnerships with them, and that allows us to really do a good job on targeting. All our revenue is performance-based. So there, we certainly share the interest on doing well. And then I think just to tie it a little bit to Eric's question before, of course, the year started out quite volatile in the macro-wise picture and also around the e-commerce. And then I think that we reflected by being quite cautious in our guidance as we progressed. And then I think the nice thing that we are reporting on today as well is that we are seeing the resilience in what we are building. We are sort of seeing a stabilization around this, and we're able to grow well in our key regions, Western markets driving our growth. Mark Argento: That's helpful. So, when you say working with partners, are those in particular, e-commerce, the bigger e-commerce players? Or is it brand specifically or both? Frode Jacobsen: It's the big players by region, so within the U.S., within Europe and Asia. Mark Argento: When you say players, I'm assuming you're talking about e-commerce vendors, the Amazons of the world or the Walmarts or those types of guys? Frode Jacobsen: Exactly. Mark Argento: Got it. That's helpful. And then in terms of more just kind of a couple of housekeeping things. Any update on OPay? I was digging around OPay, it's been a little while, I hadn't realized that the company hasn't really done any capital raising or really not a whole lot of activity, at least in the capital markets, the private capital markets since 2021. Still plans there in terms of an IPO? Is 2026 going to be the year? Any thoughts on that? Frode Jacobsen: Yes. I think updates on OPay, the company is doing really well. It's scaling rapidly. And as you say, it's been multiple years since their last real financing round, and they are essentially then operating also a profitable business. So I think that's a very good basis. We're very pleased with the company's performance. But for details, I think I'll have to leave it to them to control what they share about their business and when. Our strategy as a founding investor and no longer being operationally involved is that over time, we will monetize our stake in OPay, and it's very natural for us to consider that in the context of the company becoming public. In terms of timeline for that, again, it's not our decision, but we always think that or we think that the company is doing well, and it's definitely moving in the right direction. Lin Song: Yes. Maybe also I'll just comment -- maybe I'll just comment a bit that at least based on public information, right, you probably see that OPay is doing extremely well in Nigeria. It's by far the dominant players. By public information, you can also see that it is the -- very exciting to see that it is now the second most used DAUs. This is very unusual for a fintech app. So of course, very proud that we are able to incubate and support the company in early stage. But like, yes, as Frode is saying, the company is doing extremely well. It's very dominating in the area. So of course, as a shareholder, very happy to see if it's -- and will be supportive, if it's plans to also go on into further capital market-related activities, very excited. Mark Argento: Hopefully, hear more on OPay here soon. Operator: We'll go next to Jim Callahan with Piper Sandler. James Callahan: And I appreciate you breaking out the sort of other query revenue. Can you just talk about contractually how this revenue works and maybe just explain a little bit more about it at a high level? Frode Jacobsen: It shares the characteristics of search and that it's a revenue share models where we drive traffic to partners, whether it's a search engine or another partner and collect revenue share based on what the partner is then generating off that traffic. So, I think the reason we wanted to group this and create the one category is it's a much better view of our revenue mix in terms of what we monetize as a direct result of the user looking for something as opposed to the more classic lean back, as I said, advertising monetization. James Callahan: That's helpful. I mean it seems the growth has been pretty impressive. I guess where -- like how early would you say you are in kind of monetizing that opportunity? Frode Jacobsen: I think a lot of our strategy evolves around creating opportunities for user to essentially have a dialogue with the browser, whether it's the agent or integrating with Aria, as well as broader opportunities. So, we certainly think that both our key revenue streams, query and advertising have a great potential in terms of ability to scale as we keep executing on this. Operator: We'll hear next from Lance Vitanza with TD Cowen. Lance Vitanza: I have 3, if I can get them in. The first is back on Neon. And specifically, how should we think about competitive positioning there? I mean ChatGPT has Atlas, Perplexity has Comet. How does Neon stack up? And how do you expect the market to evolve in terms of how many AI browsers can the market ultimately support in your opinion? Lin Song: Yes. Okay. So, I will take this one. So yes, so like again, very interesting discussion. So okay. So I think our belief is like this, right, that I think we also commented a bit on the script that I think our strength fundamentally is that we are not a manage model company. We are not really -- we don't really see us -- I don't think actually all the see us also as competition. I think for us, the biggest strength will be that we are horizontal instead of vertical, right? So to us, it's about how we can work with all of those guys, both on the free browsers, but also Neon to provide the end user the best experience. For instance, yes, so like use different models to -- for different scenarios. So I think that is always our best approach. And we believe that there will be so many cases that users simply would not want to be locked into one single large language model when they are doing browsing. So I think that's definitely our competitive advantage on this that we are rather neutral. In the same way that even in days when we are integrating the search, right, we are not really buying into one player. And I think agentic are even much, much more actually afraid of locked in, I would say. So I think we are in a pretty good spot on that. And then -- but then in particular, right, I think there's also many different -- for instance -- for us, it's -- we talk about -- for me, for instance, if we talk about agentic browsing part, we focus about one efficiency because we feel that it's very important that the user can get results fast. It's very important that agent can achieve whatever needed to be done more efficient than human being, right, and cost with affordable cost and the ability that we are able to utilize different large language model in different cases to facilitate that is a big help. And then I guess the other thing, maybe I'll quickly comment is also again about privacy, right? That fact that we have a past architecture and the fact that we are not locked into any single large language model helps because there will be users which don't want to everything on their browsing to be logged by a particular large language model because this is very -- like it's very different when you chat something on it and everything go browsing with on it. And so that's why we actually designed in a very careful way that it's only a particular task particular context. We will use the context to give you best advice. And even that, we don't really upload all of those to a particular large language model or to your personal account, right? So I think there are plenty of use cases, we believe that we are better solution in those scenarios. And those are a few simple examples, right? And then just also to say that not only Neon, but also what we have on Opera One and Opera GX, the free watching are actually will be comparable to also those guys, maybe accepting agentic browsers, everything else, I think we will be comparable, even more efficient. And so all of those are actually important value propositions, I think, for Opera as a whole to facilitate the AI browsing. Lance Vitanza: Super helpful. So, then the next one is on MiniPay. Obviously, tremendous growth there in the past couple of months. Remind me, is there a plan to monetize that activity? Or is this just about capturing engagement and driving sort of user growth in the browser? Lin Song: Yes. So just to say that MiniPay, of course, are already revenue generating. It is actually due to some of our partnerships. It is actually have sizable revenue being generated. I think the only thing just to add at this stage, we probably would like to invest all the revenue back into marketing, both for promoting itself, but also for work with our partners, which we really think is -- some of them are very industrial important to further facilitate penetration, I would say, of stablecoin and Wave 3 technology into many regions that we would like to penetrate. So like when we talk about, okay, we had that experience in the past, which is super successful. And we think maybe there's something we can replicate or even bigger opportunities. So yes, so I think that's how we see it. Lance Vitanza: And then last one for me on GX. The user base has kind of plateaued there at 33 million. Is that a pause? Or has the product kind of matured? And we think out a year from now, should we think that the GX user base could it be notably higher at the end of next year? Or is this just 33 million is kind of where we stay? And then in that case, can we expect revenue will continue to grow in the face of a potentially flat user base? Lin Song: Yes. So okay, I think I'll also to this one and then Frode can also follow up, right? So okay. So, first of all, I think for us, of course, as a company, we focus a bit more on revenues and a bit more potential because I think fact has been add as a browser company, you have such a big user base compared to many others that sometimes we have been more disciplined, we focus a bit more on the regions and the areas where we can earn more money. So that's one. And then also just to say that, of course, we're actually also seeing very nice growth on Opera One because of AI. So that I guess some of the users, they might actually choose Opera One instead just because AI is so successful. And of course, to us, it doesn't really make a huge -- we just want users to choose whatever they fit into, whether they choose Opera One or GX, we have no strong fit in, right? And also some choose even Opera or Neon. So like GX is actually, I would say, one of the audience which are very AI saturated. So it's natural that some of them might also go to Neon, which I think we're all extremely happy about, we have no issue on that, right? So -- so that being said, I think there's definitely still growth potential for GX. There's many interesting regions that we are wanting to go into. There are many activities that we are also planning around Neon and product launches. Also with the AI upgrade, I think it will bring GX to be also as sophisticated and maybe as Neon and others will be. So there's many things -- many interesting aspects ahead that we are very excited. So I think we still remain very positive about the GX. Lance Vitanza: Oh and congrats on the becoming CEO. I mean, a long overdue, but it's great to see that recognition. Operator: And with no further questions in queue at this time, I'd like to turn the floor back over to Song Lin for any additional or closing comments. Lin Song: Yes. So okay. So like guys, thank you, everyone, for joining us today. I think as you guys see that we're very excited. We have been looking forward to sharing those updates with you on the product launches we have been seeing, but it's also good to share all those financials. And as mentioned, we will keep you posted with both even more product updates and also hopefully, even better financial releases as we continue our journey. Have a good day to you all. Operator: Ladies and gentlemen, that will conclude today's event. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.
Dominik Prokop: Good morning. My name is Dominik Prokop. I am the Head of Investor Relations. Welcome to this conference presenting Alior Bank's Q3 2025 results. In the first part, the results and the trends will be presented by Alior Board members, Piotr Zabski, CEO, who will present the main trends and discuss the business performance; VP Marcin Ciszewski, who will speak about risk; and VP Zdzislaw Wojtera, speaking about financial results. Right after the presentations, we will move right into your questions. Before I hand over to our CEO, Piotr, I urge and encourage all of you to ask your questions even during the presentations. Just like every quarter, this will allow us to smoothly segue into the Q&A. Thank you, and over to Piotr. Piotr Zabski: Good morning, and welcome to yet another presentation of our quarterly results. Yesterday, the Supervisory Board approved our results and it is our pleasure to present them today, to present our Q3 performance and the results year-to-date. Before I move to the highlights, I'd like to first talk about our strategy that we announced and published in March. In the third quarter, we continued to pursue our strategy, and in summary, we came close to saying that we are well on track implementing the strategy. The strategy is based on 3 pillars: growth, scale, stabilization of results and operational excellence, which you will see in our numbers. Operations, just a few highlights and facts I'd like to draw your attention to. This year, year-to-date, our revenues reached PLN 4.5 -- more than PLN 4.5 billion, including NII at PLN 3.87 billion year-on-year, stable with lower rates, of course. Our net fee and commission income grew. That's the other leg of stabilizing our results. So that has materialized. In Q3 alone, we have a drop in NII due to the lower rates, but we have made up for it by growing our net fee and commission income, which is our strategic objective. Hence, the net profit in Q3 amounted to PLN 563 million and year-to-date PLN 1.679 billion. And we have achieved all that with a very good return on equity, close to 19%, well in line with our strategy. My comment over that period of time, we also recognized 50% of last year's profit in our equity, and so we are even more proud of our ROE as equity is growing. Speaking of risk, we have very good readings, PLN 124 million cost of risk and the ratio is 0.72, less than 0.8 that is our target, down 0.2 percentage points year-on-year. NPL stood at 6.29%, down 0.81 percentage points in the past 12 months. So we are well on track, in line with the trajectory of eliminating the problems that burdened us over the past few years. I've mentioned equity. Our capital position is solid with a big surplus. Our ratios, Tier 1 and TCR, remain very strong, well above the regulatory minimums. And that surplus allows us to continue with our strategy of growth. Speaking of growth, just a few highlights, a few facts. As you may recall, our strategy relies on relationships, growing the number of relationship customers who are the future of this bank. That number grew by 100,000 year-on-year, the number of relationship customers, the biggest growth we have seen in this regard over the years. 1.68 million -- sorry, we have 1.68 million customers, 98,000 more than at the end of Q3 2024. And the number of mobile app users was 1.59 million, 15% up year-on-year. Our deposit portfolio grew 8% year-on-year to more than PLN 80 billion and our assets grew, especially mortgages. We are proud to say this, the increase was 111% year-on-year to PLN 1.3 billion of new mortgages in Q3. The share of our portfolio of mortgage loans in the portfolio is now more than 30%, which ensures some stability in our portfolio. This is a long-term, well-secured portfolio at good margins, so it is a stable factor working for us in the coming periods. Another success we are proud of regarding liquidity, we issued MRL bonds that Marcin will discuss in more detail at a very good margin, 1.5%, with a lot of demand. So something -- that's something we are also very proud of. The next slide presents more details of our activity across the bank. Assets grew 7% year-on-year, and we are very close to a special mark, PLN 97.7 billion -- very close to the mark of PLN 100 billion. We'd like to get there next quarter. The volume of deposits was growing faster than loans, specifically up 8%. That's more than PLN 80 billion. Performing loans grew 6% to PLN 63 billion. At the bottom of the screen, you can see 2 lines with some readings for Q3. The top - there's the top line and then year-to-date in the bottom line. Cost-to-income ratio was very strong. Our costs increased affecting the portfolio due to inflation. And I think Zdzislaw will focus on that later on. But as you can see, the growth of this indicator is lower than the growth in costs. NIM and net interest margin. The interest rate cuts are materialized here. ROE, very high, as I said, both in Q3 and year-to-date. Cost of risk, very low as well in both terms, in Q3 and year-to-date, better than we expected, in line with our strategy. And the NPL and capital ratios are very strong. Most importantly, in a downtrend this continues. Let me now move on to our main 2 business lines. First, retail. That's the top left-hand side of the slide. These are the assets of our retail customers that grew 12% year-on-year. We are very happy to see that growth. Basically, every line has improved year-on-year. On the right-hand side, you can see the gross loans to retail customers by real estate loans in yellow and other mainly consumer loans up 6% overall. In the bottom part of the screen, you can see the breakdown of that figure. We are happy with the growth of non-mortgage consumer loans, up 21% year-on-year. The sales have stabilized over the past few quarters, but we have maintained the dynamic growth. So growing scale is part of our strategy, and we are very much doing that. Last but not least, in the bottom right-hand corner, you can see the efforts we've made to sell mortgages, which grew by more than 200%, 2.1x bigger. That is our production and sales year-on-year. The sales grew to PLN 1.3 billion in Q3. So our market share is much bigger than our overall share in the banking industry. Customer relationships and relationship customers, part of our strategy. The number of relationship customers grew by more than 100,000 or close to 100,000, 1.68 million, the best numbers we've seen ever in this regard. Relationships are very important for us to stabilize our performance and the other -- to prop up the second pillar of our strategy. Our customers are using the mobile app more and more, the number of mobile app users has been growing. More of that later. But I'm happy to say that customers who do not hold accounts with us but only have installment loans or cash loans, they have a reason to use our mobile app. That number grew by more than 200,000 customers year-on-year. The relationship customers, about 50% of them are using the app. That's 5% more than last year. And we also see a 5 percentage point increase in the number of end-to-end customers, that is people who start their relationship with us in the mobile app and they only use mobile banking. Now very briefly about our mobile app. That's one of the key factors of our performance. Mobility is a key focus for us. We want the bank to be available, the entire bank and only bank in the app. We have improved that. We have improved our ratings and we have a very good NPS, very good customer ratings, even before what you can see in the bottom of the screen. In Q4, we will present a new version of our app, which we are building on the new technology provided by Kotlin, a multi-platform with new processes which rely on state-of-the-art technologies. We are working with Xiaomi and that's supported by the latest CRM. As a result, we have launched a number of new functionalities, BLIK prepayments for installment customers, for instance, those customers who do not have an account but have an installment loan are now actively banking over the mobile app, and they are using a number of other functionalities as well. And that's even before we have presented our new app. This is happening in Q4. Now let me move on to our business customers. We see stabilization in the performance and in the portfolio. The portfolio is stable, even though new sales would suggest that the portfolio should be now growing. At the bottom of the screen, the yellow bars, you can see the total credit limit granted, up 34% year-on-year, which has not yet fully produced complete results. On the right, at the top, you can see that we are phasing out the loans in the nonperforming portfolio. So this works both ways. But we are very happy to see that new sales are growing, and these will soon outweigh the termination of bad loans. So the portfolio should start to grow. What we see in some of the segments, maybe not in micro because this segment has been stagnant over the year and is now only starting to bounce back. But I'm speaking of the small and medium enterprise segment. The new sales there are growing by a double-digit number year-on-year, so a solid growth in new sales. Not across all segments yet, but in the segments where we want to be a bigger player. That's where we are being very, very active. So the portfolio mix that we are -- that we have now and our target portfolio mix are very different. So the results are not really comparable year-on-year. As far as business customers are concerned, obviously, deposit assets, there's an increase of 5% there. They keep banking online even though there's been a very recent launch of a business app. We've now been having a campaign about that for the past few days. I'll talk about it later. What we are very happy about is the activity in the leasing sector, lease and loans portfolio. That's a good start for our business customers. The portfolio grew by 8%, by 3% in the last quarter. The lease and loans market has seen some stagnation this year. So the 8% growth is really very satisfying. On the right-hand side, you see the growth in the new business. There's been a growth of 21% year-on-year. We are very strong in a few areas, especially vehicles up to 3.5 tonnes or machines and equipment. So we have a considerable share in those market segments. A few words about this part of the strategy. We want to leverage our brand. We want to refresh it. And we, therefore, continue further activities in that area. There is a new look in our cards. There is an [ e- Kantor ] business. As you can see, a slightly reversed banking model for business customers where we give them the possibility to conduct the company in the mobile app with our banking in the background. Obviously, there's a new model of functioning. I invite everyone to visit it. You can manage both your warehouse and your invoices directly from the app, and it is all combined with the actual account. We also want to follow the route of trying to reach new segments of customers. That is why in the last column on the right, you can see that we have joined the Inside Seaside festival as the main partner. We want to be visible there at the events of that particular festival. And another aspect of our strategy, we want to refresh our target group. We want to expand into younger people. That is why we have a dedicated offer to that group. We've started collaborating with Anita Lipnicka and the PRO8L3M music band. We have issued a new video with a piece of music dedicated to that group. And there's been a good pickup in that target audience, a growing interest in Alior Bank. So we find this direction of development to be a good fit, and we will be reaching into new segments in that particular way. So that is all as far as business results are concerned. I will hand over to Marcin to tell you more about credit risk. Marcin Ciszewski: Good afternoon, everyone. I will begin with the capital ratios. Our position is very secure. As has been mentioned by Piotr, there's a big margin quite above regulatory requirement, PLN 4.9 billion is the amount. The Finance Committee has given access. And at the end of September, there was an introduction of a new buffer, the capital buffer. Nevertheless, at the end of the quarter, the liquidity ratio is 17.5%. We also grow our liquidity, MREL. In the fourth quarter, we have placed another position of our bonds to the tune of PLN 450 million, senior preferred it's called, and the margin of those bonds goes down. It is 1.5 percentage points above the 6-month WIBOR. With considerable oversubscription at the end of the quarter, the ratio was 20.75%. The liquidity ratios are above the regulatory minimums. As regards LCR, it was 214% and NSFR at the level of 146%. Moving on to the credit risk. Let me start with the nonperforming loans ratio, which at the end of the quarter was 6.29%. In that particular quarter, we did not really sell any new loan NPL packages, but we did identify a default at a big customer in the mining and steel works industry. But that is a one-off event, which had an impact on the NPL and CoR level. But we have managed to bring that into order, and we still maintain the strategy where the cost of risk should not go above 0.8%. And after clearing the field from these negative events, it would be at the level of 0.7%. We maintain our strategic assumption, where by the end of next year the NPL ratio should go down below 5%. Moving on to the next slide. We can see some important information at the business slide, there's a growth there. There was that one-off negative event. But in case of the retail customers, it is quite flat, but a slight increase compared to the previous quarter. At the end of the second quarter, we sold an important package of loans, which did not happen in the third quarter. In the fourth quarter, there will be another package sold and a revenue will be credited, which will impact both NPL and the cost of risk ratios. Thank you very much. I now hand over to Zdzislaw. Zdzislaw Wojtera: Good afternoon. Let me tell you about the financial results. Let us begin with our income. The objective was to stabilize the revenues this year, especially in the environment of decreasing interest rates, 125 points dropped in 1 half of the year. Comparing year-on-year results, we are at the same level of revenue. Also, in quarter-on-quarter terms, they are very similar results. If we look at the net profit, there are a few one-offs that need to be taken into account and which represent the differences between the quarters. Let us look at the second quarter or the first half compared to the third quarter. As Marcin mentioned, in the second quarter, we had a one-off, which was the sale of the NPL loan package, which increased our profit for the second quarter. If we compare the years, the third quarter of '24 and the third quarter in this year, we were still before the principle of spreading out the cost over the quarter. So the cost in the third quarter were very low. And then in the fourth quarter, we had to report more costs, considerably higher costs, which resulted in the result of the third quarter of last year to be quite high. So these are the ones which explain the difference. In other conditions, we still deliver considerable result above PLN 500 million in each quarter. In the next slide, we see the breakdown of our income statement. The first yellow column is the quarter, then the second yellow column is the cumulative result, one through third quarter. And the first position, we will discuss them in the subsequent slides because we dedicated additional slides to these specific positions. If we look at the costs of activities, which we keep to control very well -- and there is a dedicated slide to that, so I will discuss those in detail later. Two important bits of information for you is the fact that when we use the conservative approach, we have created PLN 47 million of additional reserves for mortgages in currencies and additional PLN 19 million for the so-called pre-credit cost. We keep observing a growing increase of new cases in the third quarter, and so we had to react. But this is our very conservative approach. Nothing that could raise any concern is happening in terms of currency loans. This is a margin of our activities really. And so the currency loans is a very small part of our activities. So there are 2 events which we included in the third quarter which impacted the net result, PLN 563 million, which translated into a very good profit of 19% in quarterly terms and over 19% in cumulative terms. Cost-to-income ratio is also very good considering the scale of our activities. 36.9% in quarterly terms is a very good result. The next slide is addressed to the interest income. I talked in the part about revenues. This is obviously a very important part of it. Especially at the lower part, you can see that between the second and third quarters, we had a slight increase. Looking at 3 quarters of this year, there's been a stabilization of the result. And we expect that in subsequent quarters, we will observe a gradual improvement in the result according to our strategy. So on the one hand, there will be a low interest rate environment and potential further decreases of the interest rates, but the volume of our income, profits and commission and margin will help us improve the interest result and the profit. If we look at the commissions, the interest margin, we started with 6.20% and ended up at 5.61% for this current quarter. Two important constituent parts are important, the drop in interest rates, of course, but also the change in the structure of sale, where the important part of our balance sheet are the mortgage loans, which have a lower margin and income but can allow us to plan a stable income stream for the subsequent years. And these 2 elements impact the result, where you can see the drop in interest margin. What can we expect in the next quarter? Well, there will be further drop, about 10 basis points. So that is what we can expect as far as the next quarter is concerned. However, the interest result should be at a comparable level and will subsequently improve. And one final point on the loan-to-deposit ratio. You can see that our lending picks up, steps up, and so the curve is now turning north from 78% up to 80%, which shows that our loans are simply growing faster ever than before. NFC, the net fee and commission income. As we said when presenting our strategy, this item is of special importance for us. We want to grow it. And we cannot grow it unless we work over time. This cannot be done overnight. We have to offer better quality to our customers. And step by step, we can see results. NFC grew 5% quarter-on-quarter and 10% year-on-year, with a significant increase in Q3 alone. In FX transactions of our customers, the summer, the holidays, travels helped to boost FX income. And then we have another important line, sales of insurance in the group. That's good news. What are we anticipating in the next quarter? It may be difficult to copy the Q3 numbers one-to-one, but I think we will balance somewhere between Q2 and Q3 numbers with positive growth over the year. And my final slide talks about our operating expenses. I've already mentioned that if you look at the numbers starting in Q1, net of the BFG contribution, our operating costs or management costs, general expenses would be PLN 540 million, then PLN 550 million, PLN 565 million. And we expect that the total operating expenses net of the BFG charge should be up 6%, 7% year-on-year in 2025, which proves that we keep costs well under control and our cost/income ratio remains strong at 37.9% on a normalized basis net of the credit holidays. And that's a very good and solid result looking at the scale of our activity. In Q3, we saw a very positive contribution to the net profit -- in Q3 2024 to be specific. This is when our costs were still relatively low. Then in Q4, we booked very high costs with a significant increase. This is why that line is not straight. Now we expect to keep the costs stable quarter-on-quarter in a transparent way, and we are well on track. So it will be much easier to anticipate Alior Bank's costs quarter after quarter. Thank you, and over to Piotr. Piotr Zabski: Well, to summarize, let me go back to the strategy once again. As I said, our 3 pillars to grow scale. And you can see that we are growing. Our assets are growing and so are our liabilities. Our lending and new sales are growing. The portfolios are improving. So we are growing scale. Especially proud to say that our number of customers has been growing. We attract new customers. They recognize our efforts. We are refreshing our target group. It's going to be younger. We get results. Our customers are banking with us using mobile and digital solutions. The second pillar, stabilize our revenue. We are very proud with the increase in the share of NFC in our income mix. We are growing sales of insurance, for instance, that stabilizes our figures. And that's quite an impressive result I'm sure. Third pillar is operational excellence, and it's also bringing results. The cost-to-income ratio is very strong. The increase in costs is well below the market average. We have fully implemented the agile model -- business model, and we work in tribes to provide even better solutions and better performance for our customers, especially digital solutions, as we said in our strategy. After Q3, our bank is thriving, we are well on track with the strategy. And that's all for me. Thank you very much for listening to this presentation, and we open the floor for your questions. Dominik Prokop: Excellent. Moving on to your questions. What provisions for the CHF portfolio are you expecting in Q4 2025 and in 2026? Unknown Executive: Well, as you know, it all depends on how fast new cases are opened. I'm sure in Q4, we can expect a slightly higher number, maybe similar to what we reported in Q3. But we expect that in the coming quarters, these numbers will definitely be lower. If I may comment. Our CHF portfolio is disproportionately lower than those of other banks. So this is a fractional number really. Dominik Prokop: Another question. What were the reasons for the positive impact at PLN 14.8 million in your CIT in Q3 2025 in other items of the income tax? Unknown Executive: Well, as you remember, in the last year, we said we were closing down our activity, our branches in Romania. And this year, we started to clear the losses from the windup of that branch. So that is the positive impact. Dominik Prokop: Next question. What is the scale of the impact of the proposed CIT adjustments that are expected in Q4 in deferred assets? Unknown Executive: Yes. This is perhaps not that intuitive to some of the market participants. A higher tax rate expected next year means that the banks will be disclosing some additional impact on the net profit this year. I don't want to speculate. At Alior Bank and in all other banks subject to the new tax, the impact will be positive this year, which is paradoxical I know. But we've heard very different comments on this draft law. There may be an alternative draft proposed. So we don't want to disclose any numbers, but that would be the impact of the new tax strategy. We would have to look into it and present a positive result this year, which will be relatively high. Dominik Prokop: The next question. What is the WFD, the long-term ratio at the end of Q3? Unknown Executive: It's fairly stable at the bank, 40.54%. Dominik Prokop: Thank you very much long-term financing ratio. Next question, the increase in the corporate loans portfolio in Q3, was it affected by any one-offs? Unknown Executive: I think we are well on track of growth. As you may recall, our strategy says we want to shift the focus, and we are interested in micro -- in the micro segment. This year, the micro segment has been stagnant with no growth at all, very little growth in small enterprises and double-digit growth year-on-year in large customers. Well, I must say that Alior Bank is playing in this market in proportion to its size. We are not a leader or a trendsetter, but we are focusing on different segments than we used to. And so the growth you have seen may not be very impressive. But the segments we want to be a strong player in are now producing double-digit growth. Dominik Prokop: Next question. Why did your bancassurance income grow quarter-on-quarter in Q3 2025? Unknown Executive: That was partly due to a higher cost of provisions against insurance repayments that we set up in Q2 and partly due to better penetration of insurance that is bundled with products we sell. Dominik Prokop: What NIM are you expecting in Q4 2025? How will NIM perform in the next quarters? Unknown Executive: As I said, we are expecting a drop of 10 basis points or a dozen basis points in Q4. The annual average NIM next year is expected to reach 30, 40 -- sorry, to drop 30, 40 basis points. Dominik Prokop: Why was -- were your NPLs growing so slow in Q3? Unknown Executive: As I said during the presentation, one customer, a large customer was defaulted. They defaulted in Q3 as a one-off. But we maintain our expectation for the NPLs to go down for the entire loan portfolio by the end of next year to less than 5%. Dominik Prokop: Next question. Why did the number of relationship customers grow year-on-year, 40,000? Was it new mortgage customers or customers using installment loans? What products can you offer to the new 40,000 customers? Unknown Executive: Well, our definition of a relationship customer is quite broad, customer who banks with us day after day. An installment customer has a single relationship with us, an installment loan. So that's not covered by the definition and not covered by the growth. So we are looking at the number of customers who are actually banking with us. And there is no good answer to that question really. We are playing a number of different instruments like an orchestra, and all these instruments play together. We are refreshing our brand. We are entering new segments, launching new products, launching new campaigns, reaching out to new customers, communicating with them in new ways, improving our mobile app. We are now working differently with distribution, production. So all of that is now starting to contribute to the performance. Of course, we are continuously working to develop new products, simplify our processes, improve the time period, time to cash, and many other ratios. So it's a set of many different factors which we started to develop as we joined the bank and that we have addressed in the strategy. Dominik Prokop: Next question. Any of your strategic objectives to grow the loan portfolio, grow your NFC or your net profit, is any of those more difficult for you to achieve 6 months after you presented your strategy? Unknown Executive: Yes. I think after 3 quarters, we are in a different place and depending on the segment. So the situation differs segment to segment. We have great achievements in selling mortgages, better than expected really. In other segments, we are growing less fast than expected. But again, in most of them above the market average. So it depends. And as I said before, our loans may not be growing as fast as we would like them to. Our mortgages are growing faster than we expected. Installment loans are well on track. Business customers, we are changing our trajectory and reaching out to new segments. So in those segments where we want to grow, we can see sales grow by double-digit figures. It will definitely be difficult to improve the net fee and commission income now that interest income is falling, NIM is falling. It will be difficult to grow the margins. We need to regroup. We need to reorganize our processes and products and build up the customer base of relationship clients who are not only producing NIM, NII, but also NFC. In all these segments, we can see some challenges. As of now, I think we have addressed challenges across many different strategic initiatives, that we have defined now a tactical plan. We have aligned the bank with the objective of delivering solutions very fast. The agile business model we applied in Q3 was implemented. 100 teams in several tribes are working to develop even better solution for our customers. So we have seen some deviation from plan, but I think we are managing them quite well. Let me also mention leasing, which is also delivering double-digit growth year-on-year. Dominik Prokop: Thank you very much. This is all the questions asked. I want to thank everyone for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]