加载中...
共找到 39,042 条相关资讯
Operator: Good day, and welcome to the Ameris Bancorp Third Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, CFO. Please go ahead. Nicole Stokes: Great. Thank you, Valentina, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening comments, and then I will discuss the results of our financials before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. With that, I'll turn it over to Palmer for comments. H. Proctor: Thank you, Nicole, and good morning, everyone. We appreciate you taking the time to join our earnings call today. Third quarter results again beat expectations with above peer performance across the board, including return on assets, PPNR ROA, return on tangible common equity, net interest margin and efficiency ratio. Two of our top focuses have long been growing our core deposit base and tangible book value per share. I'm proud to see our deposit growth at 5% annualized and tangible book value per share growth at over 15% annualized, both very strong metrics. We remain focused on generating revenue growth and positive operating leverage. This is evidenced by our 18% annualized revenue growth in the quarter. And when coupled with a modest decline in expenses and slight increase in margin, pushed our efficiency ratio below 50%. Our margin continued to expand during the quarter, while we grew loans 4% annualized, which is within our mid-single-digit guidance. Our 3.80% NIM remains above most peer levels, particularly thanks to our strong 30% level of noninterest-bearing deposits. Capital ratios grew again in the quarter, which positions us well for future growth opportunities. Our third quarter earnings and capital generation increased our common equity Tier 1 to 13.2% and TCE to 11.3%. Asset quality remained stable with net charge-offs and NPAs, excluding government-guaranteed mortgages at low levels. We grew tangible book value this quarter by over 15% annualized, almost $43 per share, and we're active in repurchasing stock, buying back $8.5 million. Our CRE and construction concentrations remain low at 261% and 42%, respectively. Our 4% annualized loan growth was driven mostly by a good mix of C&I and CRE. Our loan portfolio production also topped $2 billion in the quarter, the best level we've seen since 2022, and deposits grew at a similar pace of 5% annualized with noninterest-bearing deposits remaining over 30%. Our bankers are well positioned to take advantage of growth opportunities and disruption within our attractive Southeastern markets. Overall, we continue to stay focused on what we can control. When I look out at the end of 2025 and toward 2026, I'm very encouraged as we continue to benefit from a history of notable tangible book value growth as good stewards of shareholder value, a granular deposit base, a robust margin and diversified revenue stream, strong capital and liquidity, a healthy allowance and asset quality and a proven culture of expense control and positive operating leverage and a notable scarcity value given our size and scale in the Southeast top markets, which really allows us to take advantage of the banking disruption Southeast continues to experience. So overall, I'm very optimistic and confident about our franchise as we near the end of 2025 and look forward to 2026 and beyond. I'll stop there and turn it over to Nicole now to discuss our financial results in more detail. Nicole Stokes: Great. Thank you, Palmer. We reported net income of $106 million or $1.54 per diluted share in the third quarter. As Palmer mentioned, our profitability remained at levels well ahead of the industry with our return on assets at 1.56% and our return on tangible common equity at 14.6%, both very robust levels. This quarter, our PPNR ROA was at 2.35%, which is an improvement from 2.18% last quarter. Our efficiency ratio improved to 49.19% this quarter compared to 51.63% last quarter as we saw a modest decrease in expenses, but a really strong 17.8% annualized revenue growth, which is what fueled that positive operating leverage. Capital levels continue to increase with our tangible book value per share grew to $42.90 a share, which was a strong 15.2% annualized growth or $1.58 per share in the quarter. Our tangible common equity ratio increased to 11.31%. We repurchased about $8.5 million of common stock. That was about 126,000 shares at an average price of $67.36 during the quarter. Our Board recently also approved a new share repurchase plan of $200 million, which is double our last authorization of $100 million. Our strong revenue growth was driven by increases in both net interest income and fee income. Our spread income grew by $6 million in the quarter or 10.5% annualized. That growth came from interest income growth of $7 million, which outpaced our interest expense growth of only $1 million. Our net interest margin continued to expand, up 3 basis points to a strong 3.80%. And remember, that's a core margin as it includes 0 accretion. The NIM expansion this quarter really came from a 2 basis point positive impact on the asset side and a 1 basis point benefit from the funding side. We continue to believe we'll have some slight margin compression over the next few quarters due to the expected pressure on deposit costs as we see loan growth really pick up in 2026. We continue to be fairly neutral on asset sensitivity. Noninterest income increased $7.4 million this quarter, mostly from better equipment finance fees and also a $1.6 million nonrecurring gain on securities. Our mortgage production was approximately $1.1 billion with mortgage gain on sale at 2.20%. Our total noninterest expense decreased about $700,000 in the quarter, mostly driven by lower compensation costs in the lines of business, offset by some increased incentives and benefits in the banking division. And as I previously mentioned, our efficiency ratio was strong at 49.19%. While we did have positive operating leverage this quarter, the expanded net interest margin and noninterest income growth was the real driver of that lower efficiency ratio and not necessarily an expense savings initiative. And I do anticipate the efficiency ratio to return above 50% in the fourth quarter. During the third quarter, our provision for credit losses was $22.6 million, with over half of that provision related to reserves for unfunded commitments, which is a really positive sign for our future loan growth potential. Our reserve remained strong at 1.62%, the same as last quarter. Overall, asset quality trends remain good with nonperforming assets, net charge-offs in both classifieds and criticized all remaining low for the quarter. Annualized net charge-offs were stable at 14 basis points. Looking at our balance sheet, we ended the quarter with $27.1 billion of total assets compared to $26.7 billion last quarter. Earning assets increased $470 million or 7.6% annualized with the bond portfolio growing $287 million and loans growing $217 million or about 4% annualized, which is in line with our loan growth guidance. Loan growth was mostly from C&I and investor CRE this quarter. Deposits increased $295 million with really strong growth in our core bank of $355 million, a small increase in broker deposits of $67 million, and those were offset by a continued seasonal decline in those cyclical municipal deposits of $127 million. We were able to maintain our noninterest-bearing deposits at over 30%, finishing the quarter at 30.4% and our brokered CDs represent only 5% of total deposits. We continue to anticipate loan and deposit growth going forward in the mid-single-digit range and expect that longer-term deposit growth will be the governor of our loan growth. So with that, I'll wrap it up and turn the call back over to our operator for any questions from the group. Operator: [Operator Instructions] The first question comes from David Feaster with Raymond James. David Feaster: I wanted to start maybe on the loan side. It sounds like production remains pretty strong. We saw unfunded commitments increase. I'm curious, maybe first, just touching on demand. How is demand in the pipeline trending as we look forward? I know you reiterated the mid-single-digit guidance, but just kind of curious about the pipeline and the complexion of that? And then just how payoffs and paydowns are trending and how that's impacting growth near term? H. Proctor: Yes. I think one of the things that drives our optimism for the fourth quarter is the demand, and that's really across the board in all of our verticals that we're seeing. I will tell you, payoffs for the industry remain pretty steady, and we'll see the same thing in the fourth quarter. But in terms of the demand and the outlook going forward, that's where we really garner most of our optimism as we look into the end of '25 and into '26. So all in, payoffs, it's just a necessary evil, if you will, but it's also a sign of a healthy market. So we continue to remain very bullish. David Feaster: Okay. And maybe just staying on that kind of -- to some degree, could you touch on competition and how the landscape is today? On one hand, you touched on a lot of the disruption and the opportunities that come out of that. But at the same time, everybody is -- it seems like competition is heating up for deals. Curious, some of the push-pull between those dynamics and where you're seeing competition? Is it primarily on pricing? Or are you seeing that creep into structure as well? H. Proctor: It's primarily on pricing. And fortunately, for us, we're accustomed to a very competitive environment with our footprint, a lot of it being in high-growth areas. But I will tell you, one of the mitigants to that, even though the pricing will continue to be a pressure point, I think the disruption will help us in terms of garnering additional volume. So we are well positioned for that and ready to capitalize on any disruption that might come. So right now, at this stage, I don't see a whole lot of compromise on structure, which is good for the industry, but I do see a lot of pressure on pricing. David Feaster: And then just touching on the Equipment Finance side of the business. Could you touch on how production has been, how demand is trending there? And what segments of Equipment Finance you're seeing the most demand for? And then again, just any underlying credit trends within that business and some of the fee income opportunities that could come out of there as well? I know it's a lot, but just elaborate a bit on the Equipment Finance side. H. Proctor: Yes. I'll touch on the overall sentiment and then Doug can talk about the credit. But the -- I would tell you, I think it's a good reflection of -- these are small business operators. And so what we're encouraged to see is the demand there. It's obviously picking up. Our credit box is -- we're very pleased with, and you can see that in the declining charge-offs and NPAs. So that seems to be a bright spot for us as we go forward and the economy seems to be holding up. So I think it's a bigger, broader reflection of how well the small business operators are performing at this stage. And Doug, do you want to talk about the credit side of it and the metrics there? Douglas Strange: Yes, sure. Thank you. David, the credit box, we retooled that at the end of '23 and into '24. And I think we have it about right now where we want it, and we've seen very good results, and we've seen charge-offs over the recent quarters kind of right in that target zone that we were looking at. David Feaster: Okay. And then just the last part of that question was the fee income opportunities coming out of that business. You saw nice growth this quarter. Just curious some of the fee income opportunities you're seeing there. H. Proctor: Yes. I think the fee income -- we had a very strong fee income in that sector, in that vertical this quarter. And I think that will moderate. You can expect anywhere probably around 75% of that fee income to continue on a go-forward recurring basis. The other thing that we are excited about with increasing volume is we are -- we've got the ability now and are finalizing the opportunity to start securitizing that paper. And that way, we can increase production and still maintain some servicing and fee income there. So that could be a real contributor as we go forward in terms of prepayment penalties, late fees and everything else associated with the servicing. So that is an add to us in terms of that particular line of business. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: I wanted to start first on expenses. It was nice to see the decline this quarter, but I assume per your comment that the efficiency ratio will move up next quarter, that will probably increase next quarter. And so maybe kind of the big picture question on expenses is, can you talk about a good growth rate to think about for expenses going into next year just with loan growth being better? And then the second part of that is how should we think about how the mortgage expense line looks as mortgage revenue also increases next year? I noticed the mortgage comp line relative to mortgage revenue this quarter declined. And so I was just curious if there was anything going on that's run ratable if that's just a onetime event. Nicole Stokes: Perfect. Thank you, Catherine. So I'll start kind of with general expenses, and I'll say that the efficiency ratio be down in the 49% is really driven from the revenue side, the fact that we had the margin expansion and we had some noninterest income growth there. So I don't necessarily think that expenses were unreasonably low. I think when we look at next quarter, consensus has us about the same as 3Q, and I think that looks very reasonable. And then when you look into 2026, again, kind of -- I hear your question on mortgage, and I'll take that in just a second. So kind of with regular expenses, I think consensus has us right now at about a 5.5% increase. And I think that looks a little -- I mean, I think that looks reasonable. You kind of think about salaries and benefits kind of increasing in that 4% to 5% range, other expenses coming in about 3% and then maybe some increased mortgage revenue or increased mortgage expenses with that increased revenue. So kind of blending all that into that 5%, 5.5% rate for noninterest expense growth next year looks very reasonable to me. On the mortgage expense side, I would say that if we see that tenure come down and we get some real strong tailwind into the mortgage production and we see mortgage pick up, we would have some additional mortgage expenses. I think the easiest way to probably model that out is through an efficiency ratio specialized in mortgage. They're currently running about a 60% efficiency ratio, 60% to 62% efficiency ratio. And as they get the volume back up, their fixed cost stay and the variable cost, which is really the compensation will probably drive them into closer to a 55% efficiency ratio. So as modeling out that growth, I would model out about a 55% efficiency ratio on the growth, if that helps. Catherine Mealor: Yes, that's awesome. Okay. And then maybe my second question, just on the margin. As you just beat us on the margin every quarter this quarter -- or every quarter this year, it's been really special. But I know you think that it's coming down next year, which I appreciate. And so within that, maybe if you could talk a little bit about just on the deposit side, where you think deposits will go? And I don't know if it's easier to talk about it on like a beta for the next 100 basis points, maybe how that looks relative to the past 100 basis points, but help us just think about where deposit costs can go as we see rate cuts. Nicole Stokes: Absolutely. So my margin guidance has said compression for several quarters now, and we haven't seen it. But I will say that we're starting to see it. And so when you look at -- and I say that based on a couple of things. One, we know that our deposits have repriced a little bit faster than our loans and that they were starting to catch up and then the Fed moved again. So we know we have some built-in compression in the future in the margin just from that lag of the loans catching up to deposits. And every time the Fed cuts, it kind of just pushes that lag out a little bit. So I do feel like it's eventually coming from that side. And then the second piece of my margin guide really comes from the competition that I think we will see and we are starting to see on the deposit side. As everybody is really starting to fight for the growth on the asset side, they have to fund it. And so we're starting to see that on the deposit side. So an example, when you look at our retail CDs in the fourth quarter, this is the first time that we've seen this where we have almost $1 billion of CDs maturing, and they're coming off at a 3.71% rate. But our third quarter production for CDs is at 3.89%. So where we've had kind of some tailwind coming into that CD rate up to this point, this is the first time that they're very close to not having that tailwind and maybe actually having a little bit of headwind, thanks to the competition. I will say that our overall growth is still accretive to margin, and it really has to do with that growth in noninterest-bearing. If you look at our loan production coming on at a [ 6.77% ] and our blended deposit rate of our interest-bearing deposits, that spread is about a [ 3.52% ]. But if you add in that noninterest-bearing growth, we flip from being dilutive to being accretive to margin. So the real answer there is can we continue to grow noninterest-bearing deposits. If we don't and we are only able to grow interest-bearing, then we will absolutely have some compression on the margin. But I will tell you that we stay very much focused on growth of NII. So even if we have a little margin compression, I would expect NII to continue to grow. Operator: Next question comes from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to follow up on loan growth commentary here on the mid-single digits. Just curious in terms of a potential upside scenario given the strength of your markets and considerable dislocation occurring within them. Is there a scenario where we could start to see that begin to accelerate next year from kind of the mid- to the high single-digit rate? H. Proctor: That's certainly what we hope and would like to anticipate. And I think the most important thing is being in a position to capitalize on that, which is where we are. So that's what gives us a lot of confidence in our ability to take it from mid-single digits to upper single digits or maybe even double digits. We're accustomed to growing at a 10% rate in a healthy environment. And given -- it depends on the macro economy, too, and what happens there. But if things start lining up and improving like we're seeing, whether it be in terms of foreign trade, tariffs, employment, GDP, I think you could see an elevated loan growth opportunity and then you compound that with disruption, that will be a huge opportunity for us to capitalize in our primary markets. So we remain, as I said last time, we're in the optimistic camp and not just cautiously optimistic, but we're very optimistic about what we see in front of us. Russell Elliott Gunther: And then kind of in that scenario or perhaps maybe more near term, how should we think about the size of the investment portfolio going forward? Nicole Stokes: So our investment portfolio, as you know, we let it get down to about 3%. We're back up now to right at 9.3%. So we could maybe go up. Our goal is probably that 9% to 10%. So we're very close to being there. We could add about another $175 million or so to get us to that to the 10% range. But I think that's really where we feel comfortable. Although I will say we like the fact that we have the optionality that if we -- which keeps us focused on the deposit growth because we -- if we can grow the deposits, then we have some optionality between both loans and securities. Russell Elliott Gunther: Got it. Okay. And then I guess just last one for me, maybe going back to the optimism around organic growth. Given that opportunity set, is there anything from an M&A perspective for depositories on the buy-side front that makes sense for you guys? Or is the organic, again, opportunity set sort of more of a priority at this point? H. Proctor: I would tell you, it's even more of a priority now the organic piece of it, just given the new opportunities with disruption. I think it would be a mistake for us to get distracted at a time where we've probably got far more opportunities organically going forward as we look out than getting distracted by an M&A deal. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: So I like this optimism around loan growth. I'm wondering what part of that optimism would come from potential additional hirings. I know I think it was year-to-date last quarter, you'd hired 64 new lenders, but maybe -- and I know you tend to talk about that number in net and gross terms. So just kind of wondering what the scale of that opportunity might be and if that's a big focus and a push behind that organic growth optimism. H. Proctor: Yes. Our focus has and will remain -- we're focused on garnering customers more than we are having to have the dependency on doing lift-outs of teams to capitalize on that. And part of that is just because we're well established in these markets where you've got the disruption. That doesn't mean we won't be opportunistic and look at talent as it comes available. But the nice thing is, once again, for us to execute on our plan for growth, we have all the talent on board, and we're constantly assessing and reassessing that talent. So if you look at what we've done just this year, net, I think we're up 3 people in the commercial group, but that includes 10 new commercial hires. So I think it's important to constantly look at the caliber of the individuals you hire, not just the quantity, but look at the quality. And so that's really -- I think if you do that as you go along, you avoid potential pitfalls as you go forward. So we are certainly in a position to capitalize on what we see out there with our existing teammates. But if we see selective opportunities to bring in new talent, we will certainly consider that. But we are not dependent on that to capitalize on the opportunities we see going forward. Stephen Scouten: Got it. Appreciate that. And then you guys are kind of, in a lot of ways, in my mind, like tip of the spear around mortgage activity and inflection points. I'm wondering what you're seeing given where the 10-year has been moving and if there's any point where you think we could see a greater inflection around mortgage demand, both on the purchase side and the potential for a pickup in refinance activity? H. Proctor: We certainly hope so. And I think things are moving in that direction. Our applications are up tremendously. And I think people are realizing that it may move that direction. But I think if we can get down, if we talked about last time, something with a 5 handle on it in terms of the 30-year, I think you're going to see an accelerated activity in the industry in the mortgage space. And once again, we're well positioned to capitalize on that. We've got a lot of heavy purchase volume right now. But I think that if we start seeing some improvement in the 10-year that will definitely be a tailwind for us as we look into the end of this year and into 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Palmer Proctor, CEO, for any closing remarks. H. Proctor: Great. Thank you. I want to thank our teammates again for another outstanding quarter. We remain focused on producing top-of-class metrics, maintaining our strong core deposit base and growing our tangible book value per share. The bank remains well positioned to take advantage of future growth opportunities and disruption in our attractive Southeastern footprint. We appreciate your interest in Ameris Bank. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Second Quarter Operating Results for Fiscal Year Ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: Thank you very much. This is Moriuchi, CFO. I will now give you an overview of our financial results for the second quarter of the fiscal year ending March 2026. Please turn to Page 2. Group-wide net revenue came in at JPY 515.5 billion, down 2% from last quarter. Income before income taxes fell 15% to JPY 136.6 billion, while net income was JPY 92.1 billion, down 12%. Excluding gains from the sale of real estate recorded in the previous quarter, net revenue was up 10% and net income was up 40%, reflecting steady growth. Earnings per share for the quarter were JPY 30.49 and return on equity was 10.6%, reaching the quantitative target for 2030 of 8% to 10% or more for the sixth consecutive quarter. In addition, income before income taxes in the 3 international regions rose 63% to JPY 44.9 billion, marking the ninth consecutive quarter of profitability. For all 4 divisions in total, income before income taxes rose 25% to JPY 132.6 billion. In Wealth Management, the balance of recurring revenue assets and recurring revenue saw a net inflow for the 14th consecutive quarter, reaching an all-time high. And in Investment Management, assets under management also reached an all-time high on a 10th consecutive quarter of net inflows. Revenues and profits rose in both divisions. In Wholesale, the overall trend of growth in both revenue and profits strengthened further with net revenue in Equities reaching a record high in Global Markets and momentum remains strong in Investment Banking, too. The Banking division established in April also performed well. Before we go into details for each business, let us first take a look at the performance in the first half of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 26% year-on-year to JPY 296.9 billion. Net income rose 18% to JPY 196.6 billion, and earnings per share came in at JPY 64.53. Return on equity rose to 11.3% as medium- to long-term initiatives steadily bore fruit. In addition, group revenue rose by 11% and profits benefited from cost controls and operating leverage with a cost coverage ratio of 71%. Please see the bottom right for a breakdown of income before income taxes. Income before income taxes at the 4 main divisions rose 11% to JPY 238.4 billion. Growth in recurring business revenue in Wealth Management and Investment Management helped to stabilize overall performance and Wholesale continued its self-sustained growth based on the principle of self-funding, enabling income before income taxes to rise substantially, thereby driving overall performance. Banking got off to a good start and has made progress with preparations for the introduction of a deposit sweep service next fiscal year. In view of this performance, for the period ended September 2025, we expect to pay a dividend of JPY 27 per share. This works out at a dividend payout ratio of 40.3%. Please turn to Page 4. This time, we have added this slide to our presentation. We calculate stable revenues as the sum of recurring revenue at Wealth Management, business revenue at Investment Management and revenue at Banking. Steady growth in recurring assets in both Wealth Management and Investment Management, shown on the left, has resulted in strong growth in stable revenues, as shown in the graph on the right. And Banking has been steadily increasing its recurring business, including loans outstanding and trust balance, thereby expanding its foundation for growth. Now we will look at the second quarter results for each division. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. Wealth Management net revenue increased 10% to JPY 116.5 billion, and income before income taxes grew 17% to JPY 45.5 billion. Income before income taxes was the highest in about 10 years since the quarter ended June 2015. Recurring revenue and the balance of recurring revenue assets both reached record highs as recurring revenue assets saw a net inflow for the 14th consecutive quarter. As major equity markets rose to fresh highs during the quarter, client activity increased and flow revenue registered strong growth. Meanwhile, the pretax profit margin reached a high level of 39%, buoyed by ongoing cost controls. The recurring revenue cost coverage ratio for the last 4 quarters came to 70%, leading additional stability to the division's performance. Please turn to Page 8, where you can see an update on total sales by product. Total sales declined around JPY 300 billion to JPY 6.4 trillion, but this was owing to a tender offer in excess of JPY 1 trillion during the previous quarter. As for recurring revenue assets, sales of investment trusts and discretionary investments grew steadily, supported by continued strong demand for long-term investment diversification. Regarding insurance, sales have continued at a high level, reflecting the relatively high U.S. interest rate environment. Next, let's take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 289.5 billion. As major markets reached new highs, net inflows remained at a high level despite increased selling pressure from portfolio adjustments as our efforts to expand the recurring business proved successful, taking us to the next stage. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 26.2 trillion at the end of September and recurring revenue exceeded JPY 50 billion for the first time in our quarterly results, owing to a contribution from investment fees, which are collected on a half-yearly basis in the second quarter. As shown on the bottom right, the number of workplace services rose steadily to exceed 4 million. Next, let's take a look at Investment Management. Please turn to Page 10. Net revenue came to JPY 60.8 billion, up 20%. Income before income taxes amounted to JPY 30.7 billion, up 43%. Stable business revenue has been growing steadily. In addition to favorable market factors, 10 straight quarters of net inflows resulted in assets under management topping JPY 100 trillion and asset management fees reaching a new high. Investment gain loss came to JPY 16.8 billion, rising sharply by 69%. This reflects not only a large increase in investment gain loss related to American Century Investments, but also profits recorded at private equity investment firm, Nomura Capital Partners on the sale of shares held in Orion Breweries, which publicly listed. Let's now turn to Page 11 and examine our asset management business, which is the key source of business revenue for the division. The graph on the upper left shows that assets under management reached JPY 101.2 trillion at the end of September. As shown on the bottom left, net inflows amounted to JPY 498 billion. Net inflows to the investment trust business totaled around JPY 525 billion and net outflows from the investment advisory and international businesses were around JPY 26 billion. Net inflows in the investment trust business were achieved despite share price increases on the major markets, triggering profit-taking sales, pushing up funds kept in reserve in MRFs. But even excluding MRFs, funds flowed into Japan equity ETFs, private assets and balanced funds. The investment advisory and international businesses saw net outflows owing to reshuffling of investments by Japanese investors and outflows from Asian equities, which outweighed inflows to U.S. high-yield bonds and UCITS investment funds. As shown in the graph at the bottom right, alternative assets under management rose to a new high of JPY 2.9 trillion. This performance is the result of solid net inflows and not solely owing to market factors. Next, Wholesale Division. Please go to Page 12. Net revenue came to JPY 279.2 billion, up 7% as shown at the bottom left of the slide. Global Markets net revenue was up 6% and Investment Banking net revenue was up 15%. Meanwhile, stringent cost management resulted in division expenses only rising 3%. As a result, cost-income ratio improved to 81% and income before income taxes rose 27% to JPY 53.1 billion. Please turn to Page 13 for an update on each business line. Net revenue in Global Markets business rose 6% to JPY 235.7 billion. Fixed income revenue was JPY 121.9 billion, in line with the previous quarter. Let's look at the product breakdown. In macro products, rates revenues were down quarter-on-quarter in EMEA. FX/EM revenues in AEJ were also down. In spread products, credit revenue growth in Japan and AEJ was attained by capturing client flows and securitized products revenue growth was supported in the Americas by the prevailing direction of the interest rate environment. As a result, higher revenue from spread products offset lower revenues from macro products. Equities revenue rose 16% to a new high of JPY 113.8 billion. In equity products, revenues grew on higher client activity in Japan and AEJ, supporting a strong performance in the derivative business and the Americas business remained favorable. Execution services sustained strong revenue from the previous quarter. Please turn to Page 14. Investment Banking net revenue rose 15% to JPY 43.5 billion. Corporate action in Japan remained consistently strong and the international business also contributed to revenue growth. By product, in advisory, momentum remained strong in Japan with multiple transactions involving financial sponsors and moves to take companies private. And international business also made a contribution with M&A deals related to renewable energy and digital infrastructure, primarily in EMEA. Advisory continued to rank top in the Japan-related M&A league table for January through September and ranked 15th in the global M&A league table, demonstrating its global presence. In financing and solutions, revenue rose in DCM on continued solid performance in Japan and multiple international transactions, primarily in EMEA as well as ALF deals, particularly in the Americas. Now let's look at Banking. Please turn to Page 15. In Banking, net revenue came to JPY 12.9 billion, flat from the previous quarter. Income before income taxes fell 12% to JPY 3.2 billion. KPIs such as loans outstanding and investment trust balance remained at a high level and revenue from lending business and trust agent business held firm. Meanwhile, higher costs pushed down profit as an upgrade to the core banking system completed at Nomura Trust and Banking in May 2025 resulted in the associated depreciation being fully booked this quarter. Preparations for the deposit sweep service scheduled for introduction in FY 2026, '27 are progressing as planned. Now I will explain noninterest expenses. Please turn to Page 16. Group-wide expenses came to JPY 378.8 billion, a 4% increase from the previous quarter. Compensation and benefits totaled JPY 195.1 billion, rising 5%, reflecting an increase in performance-linked bonus provisions. Commissions and floor brokerage fees came to JPY 47.2 billion, up 5%. The increase was driven by a heavier volume of transactions. Other expenses came to JPY 52.8 billion, which includes JPY 3.1 billion related to acquisition and integration of the U.S. asset management business of Macquarie Group as well as the expense of paying compensation for losses arising from fraudulent trades in clients' accounts due to phishing scams. I will comment in more detail on how the phishing scams affected our profits this past quarter at the end of today's presentation. Lastly, we take a look at the financial position, Page 17. In the table on the bottom left, you can see that Tier 1 capital at the end of September came to approximately JPY 3.6 trillion, up roughly JPY 170 billion since the end of June, while risk-weighted assets came to JPY 23.5 trillion, up roughly JPY 660 billion. The common equity Tier 1 ratio at the end of September accordingly came to 12.9%. This is within our target range of 11% to 14%. Our common equity Tier 1 ratio finished the quarter down from the 13.2% marked at the end of June, but this decrease reflected the accumulation of positions commensurate with revenue opportunities as well as the increase in the value of risk-weighted assets due to market factors. As we explained 3 months ago, the calculation method for regulatory capital ratios will change once the acquisition of Macquarie Group's U.S. asset management business has been completed, and we currently expect this to depress the CET1 ratio by about 0.7 percentage points. This concludes our overview of second quarter results. We would like to provide more detail on the issue of fraudulent trading in client assets resulting from phishing scams. In response to instances of fraudulent trading, we have raised the security level in stages and the number and scale of damages have come down greatly from April peak. At this point, we have been in direct contact with nearly all clients that have been affected by the attacks, and we are working through the process of paying a compensation to them. There are times during the second quarter when the related damages increased again, but at present, the situation has settled down, owing to various steps undertaken to address the issue. In the second quarter, the negative impact on the profit came to JPY 4.8 billion. Although the number of damages fell sharply, fluctuation in share prices led to high costs in some cases to restore our clients' assets to their original condition. In this regard, we are working to avoid market volatility risk to the greatest extent possible. On October 18, we introduced a passkey authentication system that is recognized as an effective means of thwarting phishing attempts, and we are strengthening measures to eliminate such damages. Looking ahead, we expect that the impact of phishing scams will be much smaller than it has been up through the second quarter, judging from the current state of damages. Our swift action to implement high-quality security countermeasures does more than just limit the damages suffered by our clients. It enhances the security and convenience of the financial services we provide. Our plan is to be proactive in assembling effective account security measures in our role as an industry leader and thereby reinforce our brand as the most trusted partner for our clients. I would like to close with some final remarks. During the quarter just finished, stock indices in Japan and other major economies rose steeply amid lessened uncertainty over the trajectory of U.S. interest rates and widespread interest in AI-related stocks and other high stocks -- high-tech stocks. Those conditions helped us record another quarter of strong earnings as we expanded our stable source of revenue and successfully monetized robust client flows. EPS in the second quarter came to JPY 30.49 and ROE came to 10.6%. For 6 quarters in a row, we have attained a quantitative target for 2030 announced last year of consistently achieving ROE of 8% to 10% or more. In addition, ROE for the first half of the fiscal year was 11.3%. As mentioned at the beginning of this presentation, we have seen solid growth in our key sources of stable revenue, including revenue -- recurring revenue in Wealth Management, business revenue in Investment Management and net revenue in Banking. This has added further to the stability of our company-wide performance. Wholesale as well as steadily achieving independently sustainable growth under the self-funding approach. Revenues and profits in the division have both been increasing in the continuation of last year's trend and overseas business, which has long presented a challenge, has gained ground in making a steady profit contribution. Let me briefly touch on the situation in October. In Wealth Management, net revenue thus far in October is well above the levels observed in the second quarter. We have seen continuous medium- to long-term growth in investment trust and discretionary investment and other such products and services premised on the idea of long-term diversified investment, and this trend has continued in October. The flow from savings to investment has become well established, and we have tangible sense that the client base for investment in marketable securities have broadened steadily. We intend to continue playing our part to transform Japan into an asset management powerhouse by building relationship of trust with our clients and providing them with asset management services tailored to their needs. In Wholesale GM business, equity products have continued performing well. In Investment Banking, we expect the current high frequency of corporate actions to continue. In October thus far, the net revenue in Wholesale continues to be solid. Going forward, we aim to raise our profit baseline by taking on risks appropriate to market conditions, and we ask for your continued support. Operator: [Operator Instructions] The first question, Bank of America Securities, Tsujino-san. Natsumu Tsujino: This is Tsujino. Two questions. First is regarding the personnel expenses. And as explained, in Q1, you had the U.K. and according to the accounting rules, every year, the expenses tends to be high. So you started at a low level. And this time, compared to Q1, the yen has weakened slightly, so the costs are a bit higher. But even so, if you look at it on a Q-on-Q basis, the personnel or compensation and benefits has increased too much, I think. Considering the wholesale revenue and even compared to that, I think comp and benefits has increased too much is my impression. So could you add more color on that, please, is my first point. My other point is, and this was the case in the past, too, but the CET1 ratio is within target range. And after Macquarie acquisition, it will go down a little bit. And it was 12.5% or so, which -- and you said you were not exactly fully comfortable with that. So now the market is strong and the position tends to increase. So for this year, regarding the buybacks this year, is there going to be any change compared to the past? So could you -- maybe you can't disclose that, but any color on that, too, please? Hiroyuki Moriuchi: Tsujino-san, this is Moriuchi. Regarding your first question about comp and benefits, yes, the points you raised are all correct. And yes, let me add some color to that. Within the compensation and benefits, there's the bonus increase linked to our earnings. That is a big factor. And on top of that, there was some retirement bonus increase in Wholesale, for example. And that does tend to happen as part of our business. And in this quarter, the retirement payments was a little larger than usual. So that's my answer to your first question. And for the second question, regarding the CET1 ratio target, 12.9% is going to go down to 12.8%, but how we think about the buybacks this year? Well, as for buybacks and for shareholder return in general, we have committed to the market of 40% dividend or above and total payout ratio of 50% or above. And we plan to stick to that as we consider shareholder return. And we had the Macquarie closing and the CET1 ratio is going to decline further from here. And within Wholesale at the moment, we are seeing some high-quality deals and opportunities, and those are increasing. So from an investment perspective and financial discipline perspective and shareholder return, we will keep those 3 factors in mind, and it's quite hard to balance those 3. But we will make sure to stick to our commitments. Thank you. I hope that answers your question. Operator: The next person asking the question is SMBC Nikko Securities, Mr. Muraki. Masao Muraki: I'm Muraki from SMBC Nikko. I have 2 questions. First question is about markets department revenue. Now in macro, revenue seems weak and credit and equity derivatives -- sorry, securitized products and equity derivatives seem strong. But the way revenue is generated in Page 17, the credit risk RWA increase has followed -- or is continuing? And where are you taking the risk and what kind of revenue is being generated? And recently, you said there are quality deals, but what kind of risk taking is expected in the third quarter? So could you explain? That's my first question, market revenue and risk taking. And my second question is as follows. The First Brands failure, so such incident from such instance, did you have some impact or any lesson that you have taken? And regarding private credit, oftentimes, there are many inquiries we receive about private credit. But looking at your balance sheet, trading book loan is JPY 1.9 trillion. And other than that, excluding Nomura Trust and Banking, loan is about JPY 1.2 trillion. In Americas, securitized -- securitization department or private credit-related business, what is the size of the business in this overall number? Could you give me some sense? Hiroyuki Moriuchi: Thank you very much for your questions. For your first question regarding credit risk, where we are taking and how we are taking credit risks. In the first quarter and second quarter, as you say, SPPC and equity derivatives were very strong. Also, usually in credit trading business, our credit trading business contributed to revenue solidly. And what is the outlook for the third quarter, as you said, related to SPPC. There are interesting deals in the pipeline. On the other hand, your -- it's related to your second question, but in our credit business, including First Brands, whether we see abnormality in credit market, we receive such questions often. Regarding SPPC, internally, we have been having various discussions and high profitability deals lined up. On the other hand, in our balance sheet, concentration risk on SPPC is something we have to be mindful of. So more than ever before, we have to be selective in deciding which deal to do. So in our total portfolio, SPPC portion is not going to be grown rapidly from where it is now. Regarding your second question about First Brands related impact as well as lessons we have learned and also the scale or magnitude. Firstly, regarding this specific case or impact on our business or P&L was very small from this specific case. To a certain extent, we had some exposure, but it's negligible in size. Also, this name in question did not cause direct cost. And is there a broader implication related to this? As you say, regarding firm-wide stress testing, periodically and nonperiodically, we conduct a stress test to see the changing pattern of tail risk. Indeed, looking at our existing portfolio, whether the risk has grown bigger a lot or not, the risk is not growing rapidly because in SPPC business, private credit business portion in size is very small. So the SPPC business has mortgage structured lending and infrastructure business. So those represent a big portion. So regarding private credit, private credit-related business is right now in the sense of the balance sheet of our P&L, the impact from that is not big, even though I cannot give you a specific number. That's all. Masao Muraki: If possible, I am deviating from the earnings result, but I'd like to ask you about your perspective. So related to First Brands -- so risks related to First Brands, which you mentioned, what kind of risks are you paying attention to? For example, simply, but is it simple credit risk or nonbank intermediary-related risks or double collaterals were involved in some companies' transactions, but is there a risk of fraudulent transactions that you may be involved in? So specifically, what kind of risks are you being attentive to? Hiroyuki Moriuchi: It's not that because this incident happened, but regarding individual cases, credit, we need to perform due diligence closely to look at the creditworthiness of each case. And regarding the fraudulent case or scam, by -- all we can do is to conduct a thorough due diligence to screen for the fraudulent trading. Regarding the nonbank intermediaries, unlike commercial banks, we are a firm that's focused on the trading. So what we take is inventory as a counterparty. So how should I put it? Nonbank credit risks themselves are not taken greatly by us. The risk which I mentioned is in the sense that regarding individual transactions, we pay close attention to credit. And for example, for the specific individual cases, when we receive sizable deal to conduct, we are not a major firm. Our balance sheet size is limited. So to what extent do we allocate balance sheet to one transaction. So what is the level of concentration risk. So those are the items or matters that we closely evaluate as we make a decision, and that's what we will have to keep doing. Operator: The next question is from Mr. Watanabe of Daiwa Securities. Kazuki Watanabe: This is Watanabe from Daiwa Securities. Two questions, please. First is regarding the October revenue environment. And in wholesale equity and IB is strong, which I understand. But for FIG, what are the trends you see in FIG? And compared to Q2, if you look at the Wholesale division revenue, is it above or higher or lower, please? Number two is the tax burden, Page 5. If we look at it year-on-year, the pretax income is increasing, but the net profit is down. And international pretax income size is larger, but the tax rate is going up. Why is that, please? Two questions. Hiroyuki Moriuchi: Watanabe-san, this is Moriuchi. Regarding your first question, the fixed income trends. First, for Japan, fixed income is quite strong. In the first half, for the ultra-long-term domain, it was quite difficult, including position taking. But even in that domain, we are seeing a normalization. And the market is very active and the revenues are catching up in accordance with that is my impression for fixed income in Japan. As for international, I think we're seeing a similar trend, similar to first half. And from here on, depending on the rate environment going forward, there could be upside. And as part of the overall portfolio, when fixed income improves, that starts -- that tends to normalize the other businesses. But as we bundle the overall business, we are seeing an increase in stable revenues and that level is gradually improving is my impression. That's my first answer. Your second question regarding the tax burden or the tax cost going up slightly. Sorry, it's hard to go into the details. There's a lot of technical issues here. So what I can say now, well, I won't go into the technical details. Kazuki Watanabe: Just to check on the first point, in October, Wholesale division revenue compared to Q2, is it above? Is it higher? Hiroyuki Moriuchi: Well, overall, it is strong, but I would say it's about the same level. It's still only been 3 or 4 weeks. So we'll see where things go. It's still a bit early to say. But just for the first 3 weeks, I would say it's about the same level. Operator: The next question comes from JPMorgan Securities, Sato-san. Koki Sato: I am Sato from JPMorgan Securities. I have 2 questions. First question, sorry for dwelling on this, but Wholesale, Equities or especially equity product business. So the revenue has reached the record high level. But firstly, in the short term, in the first quarter, Americas derivative did well, if I recall. But this time, looking at the material, Japan, AEJ had a significant increase in revenue. Anyways, derivative seems to be the strong area. But if it is fine with you over the several quarters in each region, what has been the trend of movement of each business line over the last several quarters? And such trend, is it sustainable over the next several quarters in the future? Can you give me some sense? My second question is about risk asset. The target range is set at 11% to 14%. And in this situation, now after the closing of Macquarie acquisition, it will come to around 12%, but the CET1 ratio, CET, if it's JPY 3 trillion, if core equity, then if it's 11%, then it's going to be JPY 27 trillion. Then for the time being, is that going to be the allowable ceiling of risks you can take? Can I have that sense? So I'd like to ask you to elaborate on the capacity of risk taking. Hiroyuki Moriuchi: Sato-san, thank you for your questions. Firstly, your first question, equities, what was the equities performance in each region? And what is the extent of sustainability moving forward? This time for the U.S., I might not have -- the material might not have mentioned it. But in the first quarter, the Americas has been the driver of revenue and the strength continues in Americas, though that's not specifically mentioned. On the other hand, for Asia and Japan, compared to the first quarter on a Q-on-Q basis. Now second quarter results came in stronger. Overall, equities in AEJ, Japan and U.S.A. the performance was very strong. And to what extent for how long can we retain this strength? If equities continues to be this strong, then sometime down the road, there will be a point of normalization. That's what we are discussing internally. But as you are aware, not only in Japan, but in U.S.A. and Asia, we have geographical diversification. And within equities, we have various products and the last several years, we have worked to diversify and broaden the product range within equities. So in that sense, we are more tolerant or resistant against downside risk. In any case, equities have become stronger. So moving forward, we expect certain normalization, but in such situation, resource could be -- resource -- fixed income resource, which we had intentionally reduced could go up for macro and other fixed income. So I encourage you to take a look at the entirety of the portfolio. And regarding your second question, target range from 11% to 14%. After Macquarie closing, the ratio is around 12%. So what is the future capacity of risk taking, that's what you asked about. So it is a good point you made. But firstly, regarding Wholesale, so stringently, they are sticking to the self-funding concept as they grow their business. So self-sustaining growth is being driven. So in the third and fourth quarters, if Wholesale continues to perform strongly, then based upon the revenue and profit generated by Wholesale and based upon the capital accumulated -- to be accumulated, RWA headroom or capacity will be increased. On the other hand, for areas other than Wholesale, we have the question of whether we find a need for capital in the near-term future. But if there are opportunities for M&A or inorganic growth, then in a step change manner, resource may be grown. But in any case, it's going to be immediately after Macquarie transaction. So when it comes to finance, we would like to stay on the safe side, and we would like to be conservative to a certain extent, and we want to take a look at the balance. I hope I answered your question. Operator: The next question is from Morgan Stanley MUFG Securities, Nagasaka-san. Mia Nagasaka: This is Nagasaka. Two questions. On Slide 14, Investment Banking. In the second half and next year, how do you think about the pipeline towards the future? In Q2, Japan was strong. International also recovered. And according to your explanation, corporate actions will remain strong. So what about advisory, finance solutions? Could you add some comments by product, please, is my first point. My second question is regarding the ROE. In Q2, 10.6% ROE on a full year basis, and there were some one-off items, but even so, 10.6%. So what is the base ROE which you can achieve? I think -- I guess the base ROE has gone up quite a bit. And your target 2030 target of 8% to 10% plus, what is the -- and I guess your expected profit level to achieve that is going up. So are you going to reconsider the target profit level at this stage? Any thoughts on the upside, downside, as CFO, please? Hiroyuki Moriuchi: Thank you for your questions. This is Moriuchi. Regarding your first question about the pipeline by product. First of all, for advisory, in Japan, there are some cross-border opportunities and large opportunities and quite a lot of opportunities are building up in the pipeline. And for international, it depends on the region, but we have announced many deals. And also in the second half, there are some deals which we haven't announced, which is building up as well. And for advisory, the pipeline is building up quite nicely. Meanwhile for ECM, the fee pool is normalizing and shrinking somewhat. And there are some normalizations of the cross-shareholdings opportunities. But even for the reduction of cross-shareholdings, that seems to be picking up slightly. And in the second half, usually, it's the second half that corporate actions tend to be concentrated versus first half in this product. So we'll make sure to pitch and win these opportunities. And for DCM, the business remains strong. And for the second half, as rates are expected to go up, but we are expecting a certain level of deal flow. Advisory, very strong. DCM is -- we expect a similar level to continue. For ECM, compared to a typical year, it's a bit weak, but we expect some recovery would be the summary. Your second question regarding ROE. And in Q1, Q2, and based on the results, we are already booking more than 10% ROE. So are we not going to raise the level is your question. And yes, as you pointed out, if we look at the current earnings, our base earnings power is gradually improving. This is a result of portfolio reforms as well as the operational reforms at each business division, and those are leading to results. So in terms of ROE, we get a lot of inquiries about whether we are going to reconsider and revise it. And we are discussing a little bit internally, but the point here is that which part of the cycle we are in right now, that's something we need to be mindful of. And regardless of the economic cycle, we want the products in Wholesale to offset each other so that we can maintain the overall revenue level. That's the kind of portfolio we are aiming for. But if we are going to enter a slowdown, is something we need to consider. And even in that case, we want to maintain at least the 8%, which is the lower end of the range of 8% to 10%. And we are currently building up the earnings capability, and that's what we should be focusing on at the moment. I hope that answers your question. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you. This is Moriuchi again. Thank you very much for attending the call despite your tight schedule. So we were able to show you the good results. And we still have third quarter and the fourth quarter remaining, so we will stay focused so that we can deliver results so that we can do so, the management members will keep making efforts. Thank you very much for your continued support. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Jann-Boje Meinecke: Good morning, and welcome to our Q3 results presentation. My name is Jann-Boje, and I'm heading Investor Relations at Vend. And as usual, our CEO, Christian; and our CFO, PC, are here also with me to present the performance and highlights for the quarter. Following the presentation, we will also have a Q&A session by Microsoft Teams where analysts can connect. Let me then show you the disclaimer slide before I hand over to Christian. Christian, please go ahead. Christian Halvorsen: Thank you, Jann-Boje, and good morning, everyone. Very happy to be here to present our Q3 results. This was a quarter that really showed our progress towards becoming a pure-play marketplace company. We advanced monetization across our verticals. We executed with discipline when it came to cost, and we also took further steps to simplify our company. And financially, group revenues ended at NOK 1,595 million, and this represents a 1% year-on-year decline. Underneath the surface, however, the revenue development was positive for our verticals, driven by a solid ARPA growth. So this overall decline is then a result of several factors, reduction in the other HQ segment, the strategic decision to discontinue certain revenue streams in Recommerce and Jobs as well as a continued soft advertising area. Group EBITDA increased by 24% to NOK 640 million, and this was driven by reduced operating expenses across the group. And this is a reflection of lower personnel costs, also somewhat reduced marketing and lower costs related to the phaseout of TSA agreements with Schibsted Media. As I mentioned, we also continue to simplify the company. This is really to sharpen our execution. And during the quarter, we signed an agreement to sell Lendo, and we also started the sales process for delivery, together with also continued focus on exiting our venture portfolio. In parallel with all this, we are finalizing the removal of the dual share class. And also consistent with the capital allocation policy, the Board yesterday approved a new share buyback program that will start later this quarter. And here at the beginning, I also want to say that I'm very happy that we have appointed Yale Varty as our new Chief Commercial Officer for Vend. To me, this is an important step in strengthening our commercial leadership for the future for this company. So let's then move to the verticals, and let's begin with Mobility. And today, I'd like to -- before we go into the actual results, to spend a little bit time on the latest developments when it comes to dealer product packages and pricing. And one year ago, we announced new dealer packages in Norway, and these went live at the beginning of the year. And I would say that they have been a great success. Right now, around 70% of the volume from dealers is on the Pluss or Premium tiers of these packages. And that is also the reason why we are reporting now a 20% ARPA uplift in Q3. So to me, this model is really a proof that a more structured and a more transparent approach to the market creates value both for dealers and for us. It creates a better customer satisfaction and it improves performance at the same time. So we are now taking the next step. That means scaling this to Sweden, and we will launch dealer packages there in February of next year. And these packages will be very similar to the ones we had in Norway. And that means that they will also include features that really strengthen the value that we deliver to car dealers. And that, for example, includes things like integrated car valuation, buyer safety elements and also better dealer branding. Then there will be additional things that will come throughout the year. For example, Insight products will come later. And I also want to mention that with the Blocket launch on our Aurora platform that will happen a little bit later this quarter, dealers will also benefit from things like improved search, better filtering and also integration and traffic to their digital stores. So I would say, overall, this really marks another step in our path to harmonizing our offering across the Nordics. Now in addition to these changes that we're doing in Sweden, we're also harmonizing and changing the business model in Denmark, where we are moving to a pay per ad model. And we will obviously also continue to optimize the dealer packages that we have in Norway. So then let's move to the quarterly results. And here, we can see that the average revenue per ad or ARPA, which is our most important KPI, continues to grow well across all markets and all segments. And as we also saw in Q2, Sweden really leads the uplift here, and this is driven by both strong professional ARPA, and I would say, exceptional ARPA development in the private segment, and this is driven by upsell by value-based pricing and also new packages. Then in Norway, we also see a solid ARPA growth, and this is driven then by the package launches that I just mentioned that we came in the market with at the beginning of the year. And for Denmark, professional ARPA developed in line with the adjustments that we did at the year-end and also additional changes that we made in August of this year. Here, private ARPA was boosted by the introduction of listing fees for cars below DKK 50,000. However, these changes were reverted in mid-September to reboost listing volumes and to strengthen network effects by having more inventory. So if we then look at volumes. And here, we already announced the July and August numbers in our pre-silent newsletter that came on September 18. So most of this should already be known to you. But in Norway, we show a volume decline in Q3. This is mainly a result of a drop in subcategories. That means things like boat, caravans, motorcycles and so on. In these categories, we see a macroeconomic effect in this quarter. Cars, however, remained flat and even saw growth in the private area. For Sweden, Pro volume dropped, and this is due to the change in business model that we have mentioned before in sub-verticals in categories like heavy machinery. Cars remained flat in Sweden and private volume declined across categories. And in Denmark, I would say the overall market continues to perform very well. That means fast sell times. And unfortunately, for us, that means a decline in average daily listings for our Pro segment. And the drop that we see here in the private segment, that is something that we did expect. We have said it before, and this was driven by the introduction of the listing fees that I mentioned before. These are -- as I said, they have now been reverted and we see since the reversal growth week after week in this area. Moving then to the financials. And revenues in Mobility increased 8% overall in Q3. We had a couple of effects that had a negative effect, and that was the closing of Tori [ Autot ] with approximately NOK 8 million and the split from media with an additional NOK 5 million. If you take these factors into account, the underlying growth was 12%. On the back of the ARPA growth, classifieds revenues grew by 13%, while the transactional revenues grew by 18%. Advertising, however, was down 14% year-on-year. Then OpEx, excluding COGS, remained flat in Q3, and this is despite the continuous investments that we are making both in the transactional service as well as in core product and platform. And all in all, EBITDA increased by 16% compared to Q3 of last year, and this results in a margin of 57%. And if we were to exclude the transactional models, the margin was 64%, and this is up from 62% last year. Moving then to Real Estate. And let me also take a moment here to address some of the recent updates and announcement that we have made to product packages and pricing in Norway. I think these changes are quite important because they are strategic steps that we are making in aligning, let's say, the value that we deliver with the price that we charge to the market. And going into 2026, we are enhancing our large package. The purpose is to offer even greater value to the agents, but also to home sellers and to buyers. And one of the most important improvements is better agent promotion. This is something that we have designed to improve visibility and to really drive new sales mandates to agents on the large package. And just to give you an example of this, the launch of our home valuation tool that we call [indiscernible]. This is a feature that is exclusive to large agents. And it's a feature that, on one hand, helps home sellers get the valuation of their home. But on the other hand, also is a source for quality leads for agents. And it's only 2 months since we launched this service. And in that period, 40,000 homes have assessed their value using this tool, and we receive a lot of positive feedback from this tool. Now we're also narrowing the price gap between large and medium package from approximately 40% on average to now around 22% on average. And this is to more correctly reflect, let's say, the performance difference between the 2 package tiers. So overall, I would say that by offering more structure and by strengthening the platform tools, we really see that we benefit both agents, but also home buyers and sellers. And we see this as continued positive traction in the market where traffic continue to trend in a positive direction for real estate in Norway. Let's then move to the ARPA KPIs. And in Norway, Real Estate ARPA grew by 17%. The main driver here was residential for sale, where the ARPA growth was 18% year-on-year, and this is very much in line with what we have communicated previously. In Finland, we saw 19% year-over-year ARPA increase, and this is stronger than what we saw in the first half, driven partly by price increases, but also by changes in the product mix between for sale and for rent. We've also done better when it comes to upsell. Looking at the volume. And here in Norway, we had an exceptionally strong first half year. And now in Q3, we saw a decline of 3% as we've expected. We pointed out this in our Q2 presentation that we expected a volume decline in the second half of the year because of the very strong start and when we see at the -- let's say, the historical full year trends. In Finland, residential for sale volumes declined by 8% year-on-year and total volumes declined by 10%. And this also reflects the ongoing transition of rental listings from the, let's say, traditional classifieds model to the transactional business model that we have with Qasa. So for Real Estate, classifieds revenues grew by 9% year-over-year. And this was, of course, then driven by the aforementioned ARPA growth in residential for sale in Norway. But our transactional models, Qasa and HomeQ, they have also developed very well in Sweden. I can also add that our launch in Norway is also showing very promising signs. And overall, this segment of the transactional business models, here, we saw revenue growth of 29% in the third quarter. OpEx, excluding COGS, increased 5% year-on-year in this quarter, and this was driven by the marketing efforts that we're doing in Finland. And overall, this results then in an EBITDA margin of 48% for the quarter. And again, here, if we adjust for the transactional business and only look at the more traditional classifieds business, the margin was around 53%. Then to Jobs. And here, we continue to deliver exceptional ARPA growth of 17%. This is driven by our segmented price model, also changes that we have made to discounts as well as improved performance in our distribution products. Volumes, however, continue to decline. This reflects the macroeconomic environment in Norway. And if we look at, let's say, the year-to-date trends and compare it with the numbers from statistics Norway, we see that they mirror each other and that this confirms that we are tracking with, let's say, the overall national averages on volume development. So Jobs delivered then 1% underlying revenue growth in Norway. Classifieds grew by 2%, driven by the ARPA growth, but of course, then counteracted by the volume decline that was around 13%. For Jobs, OpEx, excluding COGS, decreased by 25%, and this was primarily driven by the exits in Sweden and Finland as well as some reductions in FTEs in Norway. And EBITDA grew 11% year-on-year, and this resulted in an EBITDA margin for Jobs of 55%. And finally, Recommerce. Here, transacted gross merchandise value or GMV continued to grow across all our markets, while our take rates remained solid. And this underpins our belief in the strong demand and the scalability of the Recommerce transactional model. Overall, Recommerce revenues declined 2%. This is driven by softness in advertising as well as the phaseout of low-margin and noncore revenue streams, while we still have a strong transactional growth with a revenue increase of 20% year-on-year. And transactional gross margin improved significantly in the quarter, and this was driven by lower cost of goods sold. OpEx, excluding COGS, decreased 2% year-on-year, and this was driven by FTE reductions from the platform consolidation, among other things. And these cost reductions were slightly counteracted by increased marketing efforts in this quarter. So overall, EBITDA improved to NOK 44 million and -- minus NOK 44 million, and this was a 6 percentage points margin improvement for Recommerce. And with that, I'll hand it over to PC to go a little bit deeper into our financials. Thank you. Per Morland: Thank you, Christian, and good morning, everyone. Let me take you through the highlights of the financials for Q3. In total, revenues ended 1% below Q3 last year, primarily driven by the decline in other HQ, offset by continued improvement and underlying growth in Mobility, Real Estate and Jobs. Total EBITDA ended at NOK 640 million, up 24% from last year, driven by positive developments across all our verticals, but also other HQ. Christian has already covered the development in the verticals, but let me give you some color on the other HQ segment. The year-on-year decrease in other HQ was, as earlier quarters, mainly affected by a change in our allocation model and the revenue decline following the split from Schibsted Media. Revenues from Schibsted Media are declining a bit faster than expected due to earlier termination of certain TSA services. Other HQ had an EBITDA of minus NOK 8 million in the quarter compared to minus NOK 31 million in Q3 last year. So far, we've been able to reduce our cost faster than the reduction in the TSA revenues. Now let's move over to cost development in the quarter. This slide shows the development of OpEx, excluding COGS. The overall cost development and workforce reductions are progressing well. Earlier termination of certain TSA revenues, as I mentioned, has enabled an additional NOK 25 million in reduction in external costs. In total, OpEx, excluding COGS, declined by 14% in the quarter. Personnel costs were down 13% year-on-year, driven by significant FTE reduction, mainly from the downsizing process that we executed last year, but also from the process of exiting the Jobs business in Sweden and in Finland as well as ongoing FTE management throughout the year. Our total workforce continued to trend slightly downwards. And at the end of Q3, we are a little bit below 1,700 FTEs in the company. Total marketing costs were down 7% year-on-year, driven by the job exits in Sweden and in Finland, partly offset by higher marketing costs in Real Estate and in Recommerce. Other costs decreased 18%, driven by general cost reduction across, but also a positive effect from the termination of the TSA revenues -- or TSA services with Schibsted Media. So overall, this resulted in a 7 percentage point improvement in OpEx, excluding COGS over revenue from 58% in Q3 last year to 51% in Q3 this year. Let me move to the income statement. Our operating profit for the quarter increased to NOK 440 million, up from NOK 263 million last year. This is mainly due to the improved EBITDA, but also somewhat lower depreciation and amortization costs and also lower net other expenses. The fair value of our 14% ownership stake in Adevinta has decreased from NOK 20 billion in Q2 to NOK 18.9 billion now at the end of Q3. The decrease is due to a multiple contraction in the industry, partly offset by improved performance for Adevinta. And then based on the updated valuation, a loss of NOK 1.1 billion was recognized as a financial expense in Q3. Our valuation methodology is kept unchanged. In totality, net loss for the group ended at around NOK 650 million minus. Let's move to cash flow. Cash flow from operating activities for the continuing operations ended at NOK 442 million, driven by the strong EBITDA. Cash outflow from investment activities in Q3 ended at minus NOK 21 million, and this includes a CapEx of NOK 108 million, offset by proceeds from sales processes within the venture portfolio and also some additional proceeds from the Prisjakt transaction. And then finally, cash flow from financing activities ended at minus NOK 18 million, mainly due to lease payments in the quarter. On the financial position, net debt amounted to NOK 25 million at the end of Q3. There were no refinancing activities in the quarter. Due to the still strong cash balance, Vend has deposited a total of NOK 1.6 billion in short-term liquidity funds to achieve a slightly higher return than bank deposits. The Scope Ratings of BBB+ with a positive stable outlook confirms Vend as a solid investment-grade company. Then let me end my presentation with a reminder of the financial framework and some comments on the outlook. I want to again reiterate our strategy, our medium-term targets and also the capital allocation principles that we laid out at the Capital Markets Day in November last year. Our strategy execution is going well, and we are on track to deliver on our medium-term targets. Regarding portfolio simplification, we are on track, and we have, during the first 9 months of 2025, made multiple divestments. In addition to selling Prisjakt and Lendo, we have also divested several of our venture portfolio investments. The exit processes for our skilled trade marketplaces is progressing as planned. And also during the quarter, we have initiated a process to sell delivery. The collapse of the AMB share structure is currently ongoing and will be completed during November, well ahead of the end of year deadline. And once the share collapse is completed, we will, as announced last night, launch another NOK 2 billion share buyback program. A couple of messages related to outlook before we move to the Q&A. As we enter the final quarter of 2025, we expect continued solid ARPA momentum across all our verticals. Volume trends, though, remain difficult to predict. Our simplification agenda will continue to affect the results also in Q4, reflecting the final effects of the phaseout and the deconsolidation of revenue streams in Recommerce, but also the exit of our Jobs position in Finland and in Sweden. And following the separation from Schibsted Media, advertising revenue continued to be under pressure at least compared to the last year. Our cost agenda remains firmly on track. The cost base is expected to stay below last year's level, although we expect the rate of the decline to moderate a bit in Q4, as we start to analyze some of the big savings that we did last year. Looking beyond 2025, we have already launched and are in the midst of launching go-to-market activities in all our verticals aligned with our product and pricing strategy. These actions are expected to drive revenue growth across our verticals in line with our medium-term targets. Structural initiatives, including common platform consolidation, divestments and support function realignment will continue to deliver efficiencies over time. Revenues in other HQ will continue to be under significant pressure also going into 2026. And then this is driven by completing the TSA with Schibsted Media by the end of 2025, combined with effects from progressing on the other exit processes that I mentioned. Based on the current knowledge that we have, we expect a temporary EBITDA headwind of up to NOK 100 million in 2026 compared to 2025. And we expect to be able to mitigate this fully in 2027. Overall, we remain confident in our ability to deliver on the medium-term targets. And with that, I hand over to you, Jann-Boje, and go into the Q&A. Jann-Boje Meinecke: Thank you, PC. So looking at Microsoft Teams, a lot of questions already. I think first in line is Will from BNP Paribas. William Packer: Three for me, please. So as I'm sure you're aware, GenAI has become a more prominent investor concern for the classifieds in recent months, which has dragged some share prices, a whole host of concerns, be it weakening network effects as traffic leaks to GenAI search or disruption by Agentic AI. I wanted to hone in on a couple of specific areas. So firstly, do you think you can sufficiently invest in your tech stack and consumer offering in the context of these rapidly emerging developments within the envelope of the cost cutting and margin expansion as you outlined in your CMD? I think consensus has 1,000 basis points of margin expansion to 2027. Can you sufficiently invest in offerings such as prompt-based search or hiring new staff with GenAI expertise? Secondly, Zillow has integrated their inventory on to ChatGPT. The U.S. market is a special one with MLSs, high competitive intensity, buying agents. So the market context is obviously very different. But would you consider a similar move? And then finally, on a slightly different note, press reports from the FT suggest that Mobile.de is considering an IPO next year. In the event that it goes ahead, would you consider fully or partially monetizing your stake? Or would you prefer to hold for the long term? Christian Halvorsen: All right. I can answer the AI questions, and you can take the last question. So first of all, I would say that we remain very positive when it comes to the opportunities from AI. We think it plays to our strengths and that this provides significant opportunity both for productivity gains and for delivering better services to users and customers. Of course, there are some risks, as you point out, but I really think that we are in a great position to deliver on that. And it's really about combining world-class AI with this deep vertical knowledge. When it comes to investments, I would say that, yes, AI will require some investments. But at the same time, we also know that AI will have productivity gains and free up capacity. So I think within that, we believe that there is room to make the sufficient investments in AI within the financial guidance that we have given. Then to your question about Zillow, I think it's too early to comment on, let's say, the impact of an initiative like that. When you look at the -- it's very nascent. But when you look at that product today, it doesn't really provide any, let's say, new or very different user benefit. But of course, we're following this. We are testing and experimenting. But for right now, we don't have any plans to launch a similar app, but that may change as things evolve. Per Morland: And then on your third question related to Adevinta, we don't comment on rumors or speculations in the market related to Adevinta. But what I can say is -- just repeat what we have said before is, first of all, we're very happy with being a 14% owner of Adevinta, and we believe this is a good, let's say, case for our shareholders going forward, both operationally and also structurally. And also just reiterate our capital allocation principles in the case that there are any proceeds coming in. As you have seen before, we will follow those guidelines that we have communicated and stick to, and there's no change in that. Jann-Boje Meinecke: Thanks for the question, Will. Then we can move on to the next one, who is Yulia from UBS. Yulia Kazakovtseva: This is Yulia from UBS. I have 3, if I may. The first one is about go-to-market initiatives. Could you please share a little bit more details about what these initiatives are? And is there any particular angle with regards to verticals or maybe geographies? The second question would be about EBITDA loss in other HQ in Q3. That number was meaningfully smaller in Q3 as compared to 1Q and 2Q. Should we think about the Q3 number as a good proxy for Q4 number? And then also, as we think about 2026, should we -- how should we think about that? Should we take Q3 number, then add on top this NOK 100 million headwind and divide by 4, which would imply about NOK 33 million loss per quarter? And then finally, you spoke about scaling dealer packages in Sweden in February. You mentioned that about 70% in Norway of volumes is going through Pluss and Premium already. Do you think the -- like what's -- first of all, what's the Premium penetration? And then do you think this mix between Pluss and Premium is already where you wanted it to be? Or do you expect any further changes? Christian Halvorsen: All right. I'll answer the first and the last, and you can take the middle question, PC. So first question was around go-to-market. And when we talk about go-to-market, it's really all the work that goes into bringing new products, prices and so on to our customers. And that is a process that takes up quite a lot of time and capacity throughout the full year, everything from building products that we really know deliver value to the customers, packaging those in a good way and working with our sales force to train them in how to talk about the value we deliver to customers and so on and how to answer questions and concerns from the customers. So this is something that we have professionalized substantially over recent years and that we're quite happy with how it works recently. And it's particularly important in Jobs, Real Estate and Mobility. Then when it comes to packages in Norway and the distribution among different tiers, I don't think we will comment more on, let's say, the details of how it's divided between Pluss and Premium. But I can say that when it comes to Norway, it is, of course, still an area that we will continue to optimize and work on both when it comes to the pricing and kind of the distribution of products for customers. Per Morland: And then your question on the losses in other HQ. So let me take a step back. So this is where we see the effects, both positive and negative related to the massive sort of transformation we are going through. When we met at the Capital Market Day last year, we had a sort of a last 12 months deficit of NOK 316 million. And at that point, we said that we need to be prepared that this could be NOK 100 million to NOK 200 million worse before it's coming down. If we then look at where we are as of now, over the last 12 months, similar number, we are a bit lower than NOK 300 million in deficit last 4 quarters. And then what we are saying is we've been able to reduce cost faster than the revenue has declined so far. That's not necessarily going to continue going forward. So there's 2 effects that you see going into '26. Both is that you get the sort of -- a bit sort of front-loading the EBITDA effect in '25 and also we're not able to fully address all the effects at the same time as the revenue fall off going into next year. So I'm not going to give you sort of a concrete, let's say, outlook either for Q4 or '26, but I think then you have some parameters to work for. Jann-Boje Meinecke: Thanks, Yulia. Then we can move over to Fredrik from Handelsbanken. Fredrik, can you hear us? Fredrik Lithell: Yes. Christian, when you describe the various verticals, you talk a lot about the effects on ARPA and sort of the volume declines. Are you sure that all the volume declines are just from the backdrop of weak macro? Is it so that you are too aggressive in certain instances when it comes to price increases, for example, as you described in Denmark on the private side. So are there any other areas where you are evaluating any other sort of moves when it comes to pricing going forward would be interesting to hear. Christian Halvorsen: Yes. Great question. Of course, we follow the development between price and volume very closely. And as you mentioned, we saw that the volume decline in Denmark on the private side was too high. So we kind of reverted that initiative. I would say, if you look at this topic more broadly, we are quite confident that the volume declines that we see are driven by macro or other market dynamics, but not that we are losing market share. I mean it could be -- let's say, for example, in Mobility, we see that sub-verticals are doing quite poorly in Norway. That's clearly driven by macro. In Sweden for sub-verticals, it's driven by the business model change that we're doing. and so on and so forth. So we remain confident in the approach that we have made to pricing and packaging in -- yes, broadly, I would say. Fredrik Lithell: Okay. And I have a follow-up, if I may, on Recommerce. It's still loss-making. You sound optimistic about sort of the model you have and the progress going forward. Do you have a plan B? I mean, what's your thinking in terms of how long would you let it be sort of the loss-making in the way it is would be interesting. Christian Halvorsen: We remain confident in the progress and in the potential of Recommerce. So that's what we are aiming for, and we don't have a plan B as such. Jann-Boje Meinecke: Thanks, Fredrik. Then I think we go back to Oslo. So Markus from SEB is next in line. Markus Heiberg: So first one is just to go back on the TSAs. And maybe you can break down into 2026 and in the revenues and cost is up to NOK 100 million, how much is cost and how much is revenues? And then secondly, on the TSAs, it seems in Q3 that HQ costs are coming down due to external expenses rather than headcount. So maybe also you can elaborate when and how you expect to reduce the headcount on HQ and maybe also how that will trickle down to the allocated HQ expenses into the vertical. So maybe you can elaborate a bit more there. And then the second one I have is on the car volumes. New car sales have picked up in the Nordics, and it seems like dealer inventories are improving into Q4. How do you see the Mobility volumes now into 2026? Per Morland: Shall I start... Christian Halvorsen: Yes. Per Morland: The first 2 ones. Yes, on TSAs, maybe give a bit more color on the TSA revenue related to Schibsted Media. Again, bring us back to the Capital Markets Day last year at that point and also entering this year, we said that we had around NOK 300 million in annual TSA revenues. That -- in the first half, that was only slightly going down. And then as I mentioned earlier today, we have seen an acceleration of those revenues going down. And we expect for the year to end around NOK 200 million for 2025. For 2026, that will be 0. So that shows the development on the revenue side. And then the cost side, I'm not going to give you a specific number, but that's included in the perspectives that we then share with you on the development on HQ/Other, both for this year and next year. I think maybe I wasn't totally clear when I talked about Q3. So when I talked about reduction in external spend, that was the additional cost reduction, which is linked to the faster ramp down of the CSA services. And those have specific external components, license costs, cloud-related costs. And that's why they were able to drop down at the same pace as the revenue fall down. In HQ/Other, we have a significant FTE reduction in the already numbers for this year, and we will continue to reduce that also going into next year. So you see a reduction across all cost items in the support functions. Christian Halvorsen: Yes. So when it comes to volumes, I first want to say and reiterate what we have said, it remains hard to predict volume development also going forward. So we will not give you any hard statements as such. But also repeat what we said about the Mobility volumes that it is actually better if you look at cars than it is if you look at the sub-verticals. So that's a general trend. Also, you mentioned some, let's say, more positive signs externally. There is good new car sales in our markets, and that usually translates also to good used car sales. There are also some changes in regulations, for example, that they're changing the VAT for electric vehicles in Norway, where that is being reduced going into '26 and also in '27, and that is likely to increase new car sales for electric vehicles in Norway even further. So let's see what this ends up with. It's hard to predict, but there are at least some promising signs. Jann-Boje Meinecke: Thanks, Markus. Then next up is Petter from ABG. Petter Nystrøm: So 2 questions for me. One is on cost. At the Capital Markets Day, you set a medium-term target of OpEx target of 40% of sales by '27. How should we think about the phasing into '26 and '27 on that? Will this happen gradually? Or should we expect a more significant step down primarily in 2027? The second question is on Mobility in Sweden and the new package structure. I totally understand that this won't go live before February. But have you received any feedback so far on the structure? Per Morland: Yes. On OpEx, excluding COGS over revenue, so as I said earlier, we are on the last 12 months, a year ago, at 65% and communicated a clear target to go towards 40% level. And as you have seen already this year, we are taking steps towards that. We still have some way to go. And that will be a combination of continuing the underlying revenue growth in the verticals that, of course, will help us out, at the same time, manage our cost development. So I think you will see those 2 effects continue to improve on that relative measure towards 2027. And there's not like at one point, suddenly, there's going to be a massive drop. So I'm not going to give you any more color on that specifically for 2026. Christian Halvorsen: Yes. On the car packages for Pro's in Sweden, first, I want to just say that the first step is to launch Blocket on the Aurora platform, and that will happen a little bit later in this quarter. And it's on that new platform that we will launch these new packages in February. So we have actually been out in the market discussing with the largest dealers, both kind of the new platform and how that looks as well as the packages. And I would say that the feedback so far is positive and promising, I would say. Jann-Boje Meinecke: Thanks, Petter. Next one up is Silvia from Deutsche Bank. Silvia Cuneo: Just one question left from my side on the 2026 outlook. I know it's still early, but given the message you provided in the release and earlier in the call that you expect to drive revenue growth across the verticals in line with the medium-term targets for 2026, that implies an improvement sequentially. And I just wanted to ask about your expectations within that for volumes since you said it's hard to predict. How can you be confident to increase revenue towards the medium-term targets without clear visibility on the volumes at this stage? So what are you expecting? And perhaps also related to that, what are your expectations on the macro impacts on advertising now that those phasing effects will be pretty much in the base from the removal of the Schibsted Media assets? Per Morland: Yes, I'll try to give some color on that. So yes, you're right, we have confirmed that our pricing and packaging monetization measures that we have already or are in the midst of introducing help us to deliver on revenue growth in line with our medium-term targets set by each vertical. In general, given that volumes is hard to predict, we assume a quite flattish development of volumes across our verticals. And then it becomes -- if that's significantly different, then we will have to look at that -- what is possible to do. On advertising, if you look at the development this year, it's very much driven by the separation from Schibsted Media. It's not really market driven, and we see no sort of big changes in that. So our base assumption is also that advertising will be okay from a macro perspective and the stabilization and potential sort of improvement over time is coming more from our action of developing advertising products relevant for our customers. Jann-Boje Meinecke: Thanks, Silvia. I can't see any more hands up currently. I'm also checking my Inbox if anyone written a question there, but it seems like we covered it for today. So thank you for tuning in, and I'm sure we stay in touch.
Jann-Boje Meinecke: Good morning, and welcome to our Q3 results presentation. My name is Jann-Boje, and I'm heading Investor Relations at Vend. And as usual, our CEO, Christian; and our CFO, PC, are here also with me to present the performance and highlights for the quarter. Following the presentation, we will also have a Q&A session by Microsoft Teams where analysts can connect. Let me then show you the disclaimer slide before I hand over to Christian. Christian, please go ahead. Christian Halvorsen: Thank you, Jann-Boje, and good morning, everyone. Very happy to be here to present our Q3 results. This was a quarter that really showed our progress towards becoming a pure-play marketplace company. We advanced monetization across our verticals. We executed with discipline when it came to cost, and we also took further steps to simplify our company. And financially, group revenues ended at NOK 1,595 million, and this represents a 1% year-on-year decline. Underneath the surface, however, the revenue development was positive for our verticals, driven by a solid ARPA growth. So this overall decline is then a result of several factors, reduction in the other HQ segment, the strategic decision to discontinue certain revenue streams in Recommerce and Jobs as well as a continued soft advertising area. Group EBITDA increased by 24% to NOK 640 million, and this was driven by reduced operating expenses across the group. And this is a reflection of lower personnel costs, also somewhat reduced marketing and lower costs related to the phaseout of TSA agreements with Schibsted Media. As I mentioned, we also continue to simplify the company. This is really to sharpen our execution. And during the quarter, we signed an agreement to sell Lendo, and we also started the sales process for delivery, together with also continued focus on exiting our venture portfolio. In parallel with all this, we are finalizing the removal of the dual share class. And also consistent with the capital allocation policy, the Board yesterday approved a new share buyback program that will start later this quarter. And here at the beginning, I also want to say that I'm very happy that we have appointed Yale Varty as our new Chief Commercial Officer for Vend. To me, this is an important step in strengthening our commercial leadership for the future for this company. So let's then move to the verticals, and let's begin with Mobility. And today, I'd like to -- before we go into the actual results, to spend a little bit time on the latest developments when it comes to dealer product packages and pricing. And one year ago, we announced new dealer packages in Norway, and these went live at the beginning of the year. And I would say that they have been a great success. Right now, around 70% of the volume from dealers is on the Pluss or Premium tiers of these packages. And that is also the reason why we are reporting now a 20% ARPA uplift in Q3. So to me, this model is really a proof that a more structured and a more transparent approach to the market creates value both for dealers and for us. It creates a better customer satisfaction and it improves performance at the same time. So we are now taking the next step. That means scaling this to Sweden, and we will launch dealer packages there in February of next year. And these packages will be very similar to the ones we had in Norway. And that means that they will also include features that really strengthen the value that we deliver to car dealers. And that, for example, includes things like integrated car valuation, buyer safety elements and also better dealer branding. Then there will be additional things that will come throughout the year. For example, Insight products will come later. And I also want to mention that with the Blocket launch on our Aurora platform that will happen a little bit later this quarter, dealers will also benefit from things like improved search, better filtering and also integration and traffic to their digital stores. So I would say, overall, this really marks another step in our path to harmonizing our offering across the Nordics. Now in addition to these changes that we're doing in Sweden, we're also harmonizing and changing the business model in Denmark, where we are moving to a pay per ad model. And we will obviously also continue to optimize the dealer packages that we have in Norway. So then let's move to the quarterly results. And here, we can see that the average revenue per ad or ARPA, which is our most important KPI, continues to grow well across all markets and all segments. And as we also saw in Q2, Sweden really leads the uplift here, and this is driven by both strong professional ARPA, and I would say, exceptional ARPA development in the private segment, and this is driven by upsell by value-based pricing and also new packages. Then in Norway, we also see a solid ARPA growth, and this is driven then by the package launches that I just mentioned that we came in the market with at the beginning of the year. And for Denmark, professional ARPA developed in line with the adjustments that we did at the year-end and also additional changes that we made in August of this year. Here, private ARPA was boosted by the introduction of listing fees for cars below DKK 50,000. However, these changes were reverted in mid-September to reboost listing volumes and to strengthen network effects by having more inventory. So if we then look at volumes. And here, we already announced the July and August numbers in our pre-silent newsletter that came on September 18. So most of this should already be known to you. But in Norway, we show a volume decline in Q3. This is mainly a result of a drop in subcategories. That means things like boat, caravans, motorcycles and so on. In these categories, we see a macroeconomic effect in this quarter. Cars, however, remained flat and even saw growth in the private area. For Sweden, Pro volume dropped, and this is due to the change in business model that we have mentioned before in sub-verticals in categories like heavy machinery. Cars remained flat in Sweden and private volume declined across categories. And in Denmark, I would say the overall market continues to perform very well. That means fast sell times. And unfortunately, for us, that means a decline in average daily listings for our Pro segment. And the drop that we see here in the private segment, that is something that we did expect. We have said it before, and this was driven by the introduction of the listing fees that I mentioned before. These are -- as I said, they have now been reverted and we see since the reversal growth week after week in this area. Moving then to the financials. And revenues in Mobility increased 8% overall in Q3. We had a couple of effects that had a negative effect, and that was the closing of Tori [ Autot ] with approximately NOK 8 million and the split from media with an additional NOK 5 million. If you take these factors into account, the underlying growth was 12%. On the back of the ARPA growth, classifieds revenues grew by 13%, while the transactional revenues grew by 18%. Advertising, however, was down 14% year-on-year. Then OpEx, excluding COGS, remained flat in Q3, and this is despite the continuous investments that we are making both in the transactional service as well as in core product and platform. And all in all, EBITDA increased by 16% compared to Q3 of last year, and this results in a margin of 57%. And if we were to exclude the transactional models, the margin was 64%, and this is up from 62% last year. Moving then to Real Estate. And let me also take a moment here to address some of the recent updates and announcement that we have made to product packages and pricing in Norway. I think these changes are quite important because they are strategic steps that we are making in aligning, let's say, the value that we deliver with the price that we charge to the market. And going into 2026, we are enhancing our large package. The purpose is to offer even greater value to the agents, but also to home sellers and to buyers. And one of the most important improvements is better agent promotion. This is something that we have designed to improve visibility and to really drive new sales mandates to agents on the large package. And just to give you an example of this, the launch of our home valuation tool that we call [indiscernible]. This is a feature that is exclusive to large agents. And it's a feature that, on one hand, helps home sellers get the valuation of their home. But on the other hand, also is a source for quality leads for agents. And it's only 2 months since we launched this service. And in that period, 40,000 homes have assessed their value using this tool, and we receive a lot of positive feedback from this tool. Now we're also narrowing the price gap between large and medium package from approximately 40% on average to now around 22% on average. And this is to more correctly reflect, let's say, the performance difference between the 2 package tiers. So overall, I would say that by offering more structure and by strengthening the platform tools, we really see that we benefit both agents, but also home buyers and sellers. And we see this as continued positive traction in the market where traffic continue to trend in a positive direction for real estate in Norway. Let's then move to the ARPA KPIs. And in Norway, Real Estate ARPA grew by 17%. The main driver here was residential for sale, where the ARPA growth was 18% year-on-year, and this is very much in line with what we have communicated previously. In Finland, we saw 19% year-over-year ARPA increase, and this is stronger than what we saw in the first half, driven partly by price increases, but also by changes in the product mix between for sale and for rent. We've also done better when it comes to upsell. Looking at the volume. And here in Norway, we had an exceptionally strong first half year. And now in Q3, we saw a decline of 3% as we've expected. We pointed out this in our Q2 presentation that we expected a volume decline in the second half of the year because of the very strong start and when we see at the -- let's say, the historical full year trends. In Finland, residential for sale volumes declined by 8% year-on-year and total volumes declined by 10%. And this also reflects the ongoing transition of rental listings from the, let's say, traditional classifieds model to the transactional business model that we have with Qasa. So for Real Estate, classifieds revenues grew by 9% year-over-year. And this was, of course, then driven by the aforementioned ARPA growth in residential for sale in Norway. But our transactional models, Qasa and HomeQ, they have also developed very well in Sweden. I can also add that our launch in Norway is also showing very promising signs. And overall, this segment of the transactional business models, here, we saw revenue growth of 29% in the third quarter. OpEx, excluding COGS, increased 5% year-on-year in this quarter, and this was driven by the marketing efforts that we're doing in Finland. And overall, this results then in an EBITDA margin of 48% for the quarter. And again, here, if we adjust for the transactional business and only look at the more traditional classifieds business, the margin was around 53%. Then to Jobs. And here, we continue to deliver exceptional ARPA growth of 17%. This is driven by our segmented price model, also changes that we have made to discounts as well as improved performance in our distribution products. Volumes, however, continue to decline. This reflects the macroeconomic environment in Norway. And if we look at, let's say, the year-to-date trends and compare it with the numbers from statistics Norway, we see that they mirror each other and that this confirms that we are tracking with, let's say, the overall national averages on volume development. So Jobs delivered then 1% underlying revenue growth in Norway. Classifieds grew by 2%, driven by the ARPA growth, but of course, then counteracted by the volume decline that was around 13%. For Jobs, OpEx, excluding COGS, decreased by 25%, and this was primarily driven by the exits in Sweden and Finland as well as some reductions in FTEs in Norway. And EBITDA grew 11% year-on-year, and this resulted in an EBITDA margin for Jobs of 55%. And finally, Recommerce. Here, transacted gross merchandise value or GMV continued to grow across all our markets, while our take rates remained solid. And this underpins our belief in the strong demand and the scalability of the Recommerce transactional model. Overall, Recommerce revenues declined 2%. This is driven by softness in advertising as well as the phaseout of low-margin and noncore revenue streams, while we still have a strong transactional growth with a revenue increase of 20% year-on-year. And transactional gross margin improved significantly in the quarter, and this was driven by lower cost of goods sold. OpEx, excluding COGS, decreased 2% year-on-year, and this was driven by FTE reductions from the platform consolidation, among other things. And these cost reductions were slightly counteracted by increased marketing efforts in this quarter. So overall, EBITDA improved to NOK 44 million and -- minus NOK 44 million, and this was a 6 percentage points margin improvement for Recommerce. And with that, I'll hand it over to PC to go a little bit deeper into our financials. Thank you. Per Morland: Thank you, Christian, and good morning, everyone. Let me take you through the highlights of the financials for Q3. In total, revenues ended 1% below Q3 last year, primarily driven by the decline in other HQ, offset by continued improvement and underlying growth in Mobility, Real Estate and Jobs. Total EBITDA ended at NOK 640 million, up 24% from last year, driven by positive developments across all our verticals, but also other HQ. Christian has already covered the development in the verticals, but let me give you some color on the other HQ segment. The year-on-year decrease in other HQ was, as earlier quarters, mainly affected by a change in our allocation model and the revenue decline following the split from Schibsted Media. Revenues from Schibsted Media are declining a bit faster than expected due to earlier termination of certain TSA services. Other HQ had an EBITDA of minus NOK 8 million in the quarter compared to minus NOK 31 million in Q3 last year. So far, we've been able to reduce our cost faster than the reduction in the TSA revenues. Now let's move over to cost development in the quarter. This slide shows the development of OpEx, excluding COGS. The overall cost development and workforce reductions are progressing well. Earlier termination of certain TSA revenues, as I mentioned, has enabled an additional NOK 25 million in reduction in external costs. In total, OpEx, excluding COGS, declined by 14% in the quarter. Personnel costs were down 13% year-on-year, driven by significant FTE reduction, mainly from the downsizing process that we executed last year, but also from the process of exiting the Jobs business in Sweden and in Finland as well as ongoing FTE management throughout the year. Our total workforce continued to trend slightly downwards. And at the end of Q3, we are a little bit below 1,700 FTEs in the company. Total marketing costs were down 7% year-on-year, driven by the job exits in Sweden and in Finland, partly offset by higher marketing costs in Real Estate and in Recommerce. Other costs decreased 18%, driven by general cost reduction across, but also a positive effect from the termination of the TSA revenues -- or TSA services with Schibsted Media. So overall, this resulted in a 7 percentage point improvement in OpEx, excluding COGS over revenue from 58% in Q3 last year to 51% in Q3 this year. Let me move to the income statement. Our operating profit for the quarter increased to NOK 440 million, up from NOK 263 million last year. This is mainly due to the improved EBITDA, but also somewhat lower depreciation and amortization costs and also lower net other expenses. The fair value of our 14% ownership stake in Adevinta has decreased from NOK 20 billion in Q2 to NOK 18.9 billion now at the end of Q3. The decrease is due to a multiple contraction in the industry, partly offset by improved performance for Adevinta. And then based on the updated valuation, a loss of NOK 1.1 billion was recognized as a financial expense in Q3. Our valuation methodology is kept unchanged. In totality, net loss for the group ended at around NOK 650 million minus. Let's move to cash flow. Cash flow from operating activities for the continuing operations ended at NOK 442 million, driven by the strong EBITDA. Cash outflow from investment activities in Q3 ended at minus NOK 21 million, and this includes a CapEx of NOK 108 million, offset by proceeds from sales processes within the venture portfolio and also some additional proceeds from the Prisjakt transaction. And then finally, cash flow from financing activities ended at minus NOK 18 million, mainly due to lease payments in the quarter. On the financial position, net debt amounted to NOK 25 million at the end of Q3. There were no refinancing activities in the quarter. Due to the still strong cash balance, Vend has deposited a total of NOK 1.6 billion in short-term liquidity funds to achieve a slightly higher return than bank deposits. The Scope Ratings of BBB+ with a positive stable outlook confirms Vend as a solid investment-grade company. Then let me end my presentation with a reminder of the financial framework and some comments on the outlook. I want to again reiterate our strategy, our medium-term targets and also the capital allocation principles that we laid out at the Capital Markets Day in November last year. Our strategy execution is going well, and we are on track to deliver on our medium-term targets. Regarding portfolio simplification, we are on track, and we have, during the first 9 months of 2025, made multiple divestments. In addition to selling Prisjakt and Lendo, we have also divested several of our venture portfolio investments. The exit processes for our skilled trade marketplaces is progressing as planned. And also during the quarter, we have initiated a process to sell delivery. The collapse of the AMB share structure is currently ongoing and will be completed during November, well ahead of the end of year deadline. And once the share collapse is completed, we will, as announced last night, launch another NOK 2 billion share buyback program. A couple of messages related to outlook before we move to the Q&A. As we enter the final quarter of 2025, we expect continued solid ARPA momentum across all our verticals. Volume trends, though, remain difficult to predict. Our simplification agenda will continue to affect the results also in Q4, reflecting the final effects of the phaseout and the deconsolidation of revenue streams in Recommerce, but also the exit of our Jobs position in Finland and in Sweden. And following the separation from Schibsted Media, advertising revenue continued to be under pressure at least compared to the last year. Our cost agenda remains firmly on track. The cost base is expected to stay below last year's level, although we expect the rate of the decline to moderate a bit in Q4, as we start to analyze some of the big savings that we did last year. Looking beyond 2025, we have already launched and are in the midst of launching go-to-market activities in all our verticals aligned with our product and pricing strategy. These actions are expected to drive revenue growth across our verticals in line with our medium-term targets. Structural initiatives, including common platform consolidation, divestments and support function realignment will continue to deliver efficiencies over time. Revenues in other HQ will continue to be under significant pressure also going into 2026. And then this is driven by completing the TSA with Schibsted Media by the end of 2025, combined with effects from progressing on the other exit processes that I mentioned. Based on the current knowledge that we have, we expect a temporary EBITDA headwind of up to NOK 100 million in 2026 compared to 2025. And we expect to be able to mitigate this fully in 2027. Overall, we remain confident in our ability to deliver on the medium-term targets. And with that, I hand over to you, Jann-Boje, and go into the Q&A. Jann-Boje Meinecke: Thank you, PC. So looking at Microsoft Teams, a lot of questions already. I think first in line is Will from BNP Paribas. William Packer: Three for me, please. So as I'm sure you're aware, GenAI has become a more prominent investor concern for the classifieds in recent months, which has dragged some share prices, a whole host of concerns, be it weakening network effects as traffic leaks to GenAI search or disruption by Agentic AI. I wanted to hone in on a couple of specific areas. So firstly, do you think you can sufficiently invest in your tech stack and consumer offering in the context of these rapidly emerging developments within the envelope of the cost cutting and margin expansion as you outlined in your CMD? I think consensus has 1,000 basis points of margin expansion to 2027. Can you sufficiently invest in offerings such as prompt-based search or hiring new staff with GenAI expertise? Secondly, Zillow has integrated their inventory on to ChatGPT. The U.S. market is a special one with MLSs, high competitive intensity, buying agents. So the market context is obviously very different. But would you consider a similar move? And then finally, on a slightly different note, press reports from the FT suggest that Mobile.de is considering an IPO next year. In the event that it goes ahead, would you consider fully or partially monetizing your stake? Or would you prefer to hold for the long term? Christian Halvorsen: All right. I can answer the AI questions, and you can take the last question. So first of all, I would say that we remain very positive when it comes to the opportunities from AI. We think it plays to our strengths and that this provides significant opportunity both for productivity gains and for delivering better services to users and customers. Of course, there are some risks, as you point out, but I really think that we are in a great position to deliver on that. And it's really about combining world-class AI with this deep vertical knowledge. When it comes to investments, I would say that, yes, AI will require some investments. But at the same time, we also know that AI will have productivity gains and free up capacity. So I think within that, we believe that there is room to make the sufficient investments in AI within the financial guidance that we have given. Then to your question about Zillow, I think it's too early to comment on, let's say, the impact of an initiative like that. When you look at the -- it's very nascent. But when you look at that product today, it doesn't really provide any, let's say, new or very different user benefit. But of course, we're following this. We are testing and experimenting. But for right now, we don't have any plans to launch a similar app, but that may change as things evolve. Per Morland: And then on your third question related to Adevinta, we don't comment on rumors or speculations in the market related to Adevinta. But what I can say is -- just repeat what we have said before is, first of all, we're very happy with being a 14% owner of Adevinta, and we believe this is a good, let's say, case for our shareholders going forward, both operationally and also structurally. And also just reiterate our capital allocation principles in the case that there are any proceeds coming in. As you have seen before, we will follow those guidelines that we have communicated and stick to, and there's no change in that. Jann-Boje Meinecke: Thanks for the question, Will. Then we can move on to the next one, who is Yulia from UBS. Yulia Kazakovtseva: This is Yulia from UBS. I have 3, if I may. The first one is about go-to-market initiatives. Could you please share a little bit more details about what these initiatives are? And is there any particular angle with regards to verticals or maybe geographies? The second question would be about EBITDA loss in other HQ in Q3. That number was meaningfully smaller in Q3 as compared to 1Q and 2Q. Should we think about the Q3 number as a good proxy for Q4 number? And then also, as we think about 2026, should we -- how should we think about that? Should we take Q3 number, then add on top this NOK 100 million headwind and divide by 4, which would imply about NOK 33 million loss per quarter? And then finally, you spoke about scaling dealer packages in Sweden in February. You mentioned that about 70% in Norway of volumes is going through Pluss and Premium already. Do you think the -- like what's -- first of all, what's the Premium penetration? And then do you think this mix between Pluss and Premium is already where you wanted it to be? Or do you expect any further changes? Christian Halvorsen: All right. I'll answer the first and the last, and you can take the middle question, PC. So first question was around go-to-market. And when we talk about go-to-market, it's really all the work that goes into bringing new products, prices and so on to our customers. And that is a process that takes up quite a lot of time and capacity throughout the full year, everything from building products that we really know deliver value to the customers, packaging those in a good way and working with our sales force to train them in how to talk about the value we deliver to customers and so on and how to answer questions and concerns from the customers. So this is something that we have professionalized substantially over recent years and that we're quite happy with how it works recently. And it's particularly important in Jobs, Real Estate and Mobility. Then when it comes to packages in Norway and the distribution among different tiers, I don't think we will comment more on, let's say, the details of how it's divided between Pluss and Premium. But I can say that when it comes to Norway, it is, of course, still an area that we will continue to optimize and work on both when it comes to the pricing and kind of the distribution of products for customers. Per Morland: And then your question on the losses in other HQ. So let me take a step back. So this is where we see the effects, both positive and negative related to the massive sort of transformation we are going through. When we met at the Capital Market Day last year, we had a sort of a last 12 months deficit of NOK 316 million. And at that point, we said that we need to be prepared that this could be NOK 100 million to NOK 200 million worse before it's coming down. If we then look at where we are as of now, over the last 12 months, similar number, we are a bit lower than NOK 300 million in deficit last 4 quarters. And then what we are saying is we've been able to reduce cost faster than the revenue has declined so far. That's not necessarily going to continue going forward. So there's 2 effects that you see going into '26. Both is that you get the sort of -- a bit sort of front-loading the EBITDA effect in '25 and also we're not able to fully address all the effects at the same time as the revenue fall off going into next year. So I'm not going to give you sort of a concrete, let's say, outlook either for Q4 or '26, but I think then you have some parameters to work for. Jann-Boje Meinecke: Thanks, Yulia. Then we can move over to Fredrik from Handelsbanken. Fredrik, can you hear us? Fredrik Lithell: Yes. Christian, when you describe the various verticals, you talk a lot about the effects on ARPA and sort of the volume declines. Are you sure that all the volume declines are just from the backdrop of weak macro? Is it so that you are too aggressive in certain instances when it comes to price increases, for example, as you described in Denmark on the private side. So are there any other areas where you are evaluating any other sort of moves when it comes to pricing going forward would be interesting to hear. Christian Halvorsen: Yes. Great question. Of course, we follow the development between price and volume very closely. And as you mentioned, we saw that the volume decline in Denmark on the private side was too high. So we kind of reverted that initiative. I would say, if you look at this topic more broadly, we are quite confident that the volume declines that we see are driven by macro or other market dynamics, but not that we are losing market share. I mean it could be -- let's say, for example, in Mobility, we see that sub-verticals are doing quite poorly in Norway. That's clearly driven by macro. In Sweden for sub-verticals, it's driven by the business model change that we're doing. and so on and so forth. So we remain confident in the approach that we have made to pricing and packaging in -- yes, broadly, I would say. Fredrik Lithell: Okay. And I have a follow-up, if I may, on Recommerce. It's still loss-making. You sound optimistic about sort of the model you have and the progress going forward. Do you have a plan B? I mean, what's your thinking in terms of how long would you let it be sort of the loss-making in the way it is would be interesting. Christian Halvorsen: We remain confident in the progress and in the potential of Recommerce. So that's what we are aiming for, and we don't have a plan B as such. Jann-Boje Meinecke: Thanks, Fredrik. Then I think we go back to Oslo. So Markus from SEB is next in line. Markus Heiberg: So first one is just to go back on the TSAs. And maybe you can break down into 2026 and in the revenues and cost is up to NOK 100 million, how much is cost and how much is revenues? And then secondly, on the TSAs, it seems in Q3 that HQ costs are coming down due to external expenses rather than headcount. So maybe also you can elaborate when and how you expect to reduce the headcount on HQ and maybe also how that will trickle down to the allocated HQ expenses into the vertical. So maybe you can elaborate a bit more there. And then the second one I have is on the car volumes. New car sales have picked up in the Nordics, and it seems like dealer inventories are improving into Q4. How do you see the Mobility volumes now into 2026? Per Morland: Shall I start... Christian Halvorsen: Yes. Per Morland: The first 2 ones. Yes, on TSAs, maybe give a bit more color on the TSA revenue related to Schibsted Media. Again, bring us back to the Capital Markets Day last year at that point and also entering this year, we said that we had around NOK 300 million in annual TSA revenues. That -- in the first half, that was only slightly going down. And then as I mentioned earlier today, we have seen an acceleration of those revenues going down. And we expect for the year to end around NOK 200 million for 2025. For 2026, that will be 0. So that shows the development on the revenue side. And then the cost side, I'm not going to give you a specific number, but that's included in the perspectives that we then share with you on the development on HQ/Other, both for this year and next year. I think maybe I wasn't totally clear when I talked about Q3. So when I talked about reduction in external spend, that was the additional cost reduction, which is linked to the faster ramp down of the CSA services. And those have specific external components, license costs, cloud-related costs. And that's why they were able to drop down at the same pace as the revenue fall down. In HQ/Other, we have a significant FTE reduction in the already numbers for this year, and we will continue to reduce that also going into next year. So you see a reduction across all cost items in the support functions. Christian Halvorsen: Yes. So when it comes to volumes, I first want to say and reiterate what we have said, it remains hard to predict volume development also going forward. So we will not give you any hard statements as such. But also repeat what we said about the Mobility volumes that it is actually better if you look at cars than it is if you look at the sub-verticals. So that's a general trend. Also, you mentioned some, let's say, more positive signs externally. There is good new car sales in our markets, and that usually translates also to good used car sales. There are also some changes in regulations, for example, that they're changing the VAT for electric vehicles in Norway, where that is being reduced going into '26 and also in '27, and that is likely to increase new car sales for electric vehicles in Norway even further. So let's see what this ends up with. It's hard to predict, but there are at least some promising signs. Jann-Boje Meinecke: Thanks, Markus. Then next up is Petter from ABG. Petter Nystrøm: So 2 questions for me. One is on cost. At the Capital Markets Day, you set a medium-term target of OpEx target of 40% of sales by '27. How should we think about the phasing into '26 and '27 on that? Will this happen gradually? Or should we expect a more significant step down primarily in 2027? The second question is on Mobility in Sweden and the new package structure. I totally understand that this won't go live before February. But have you received any feedback so far on the structure? Per Morland: Yes. On OpEx, excluding COGS over revenue, so as I said earlier, we are on the last 12 months, a year ago, at 65% and communicated a clear target to go towards 40% level. And as you have seen already this year, we are taking steps towards that. We still have some way to go. And that will be a combination of continuing the underlying revenue growth in the verticals that, of course, will help us out, at the same time, manage our cost development. So I think you will see those 2 effects continue to improve on that relative measure towards 2027. And there's not like at one point, suddenly, there's going to be a massive drop. So I'm not going to give you any more color on that specifically for 2026. Christian Halvorsen: Yes. On the car packages for Pro's in Sweden, first, I want to just say that the first step is to launch Blocket on the Aurora platform, and that will happen a little bit later in this quarter. And it's on that new platform that we will launch these new packages in February. So we have actually been out in the market discussing with the largest dealers, both kind of the new platform and how that looks as well as the packages. And I would say that the feedback so far is positive and promising, I would say. Jann-Boje Meinecke: Thanks, Petter. Next one up is Silvia from Deutsche Bank. Silvia Cuneo: Just one question left from my side on the 2026 outlook. I know it's still early, but given the message you provided in the release and earlier in the call that you expect to drive revenue growth across the verticals in line with the medium-term targets for 2026, that implies an improvement sequentially. And I just wanted to ask about your expectations within that for volumes since you said it's hard to predict. How can you be confident to increase revenue towards the medium-term targets without clear visibility on the volumes at this stage? So what are you expecting? And perhaps also related to that, what are your expectations on the macro impacts on advertising now that those phasing effects will be pretty much in the base from the removal of the Schibsted Media assets? Per Morland: Yes, I'll try to give some color on that. So yes, you're right, we have confirmed that our pricing and packaging monetization measures that we have already or are in the midst of introducing help us to deliver on revenue growth in line with our medium-term targets set by each vertical. In general, given that volumes is hard to predict, we assume a quite flattish development of volumes across our verticals. And then it becomes -- if that's significantly different, then we will have to look at that -- what is possible to do. On advertising, if you look at the development this year, it's very much driven by the separation from Schibsted Media. It's not really market driven, and we see no sort of big changes in that. So our base assumption is also that advertising will be okay from a macro perspective and the stabilization and potential sort of improvement over time is coming more from our action of developing advertising products relevant for our customers. Jann-Boje Meinecke: Thanks, Silvia. I can't see any more hands up currently. I'm also checking my Inbox if anyone written a question there, but it seems like we covered it for today. So thank you for tuning in, and I'm sure we stay in touch.
Operator: Welcome, ladies and gentlemen, to the analyst and investor webinar on the 3Q results for HSBC Holdings plc. For your information, this call is being recorded. I will now hand over to Pam Kaur, Group CFO. Manveen Kaur: Welcome, everyone. Thank you for joining. We are making positive progress towards creating a simple, more agile growing HSBC. The intent and discipline with which we are executing our strategy is reflected in the momentum this quarter and our target upgrades. Most notably, our annualized RoTE of 17.6% year-to-date excluding notable items. Throughout this presentation, I'll focus on year-over-year comparisons. This will exclude notable items and be on a constant currency basis. The equivalent comparisons on a reported basis can be found on Slides 16 and 22. Let's turn straight to the highlights. We reported a strong quarter. Total revenues grew $500 million to $17.9 billion. Wealth had another good quarter, with 29% growth in fee and other income. Our customer deposit balances stand at $1.7 trillion. If we include held-for-sale balances, these grew by $86 billion. We are also investing for growth. On 9th October, we announced our intention to privatize Hang Seng Bank. We see this as a compelling opportunity. Let me set out clearly our reasoning. First, it meets all four of our criteria for acquisitions. Second, we see good growth in Hong Kong in the years ahead. It's a business, in a whole market we know very well. Third, we see an opportunity to create greater alignment for better operational leverage and efficiencies. Fourth, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Fifth, we are removing a $3 billion capital inefficiency. This is a transaction which we initiated as a growth investment. It is also a statement of our confidence in the outlook for Hong Kong. We are in an offer period, so we are unable to give more details on synergies at this stage. What I will say is that consolidating the noncontrolling interest from the profit and loss increases our profit attributable to ordinary shareholders. We have also said that we see the potential for additional revenue through expanded capital market products to Hang Seng commercial clients and Wealth products to its affluent clients. And we can simplify and streamline decision-making processes, improve operational risk management and better align operations, which we expect will result in efficiencies. We are confident the integration will not distract us from organic growth and it's more value generative than a share buyback. Turning now to upgrades. We are delivering against the targets we set out to you. We are now upgrading two items: our 2025 banking NII to $43 billion or better, our 2025 RoTE, excluding notable items to be mid-teens or better. We remain disciplined with our shareholders' capital, investing it where we see growth, exiting businesses with the intention to redeploy the costs where we don't. We are progressing at pace with the exit of nonstrategic activities. This quarter, we have announced the exits of HSBC Malta and Retail Banking in Sri Lanka. This brings our total announced exits to 11 so far this year. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. The review will not include our wholesale banking activities in Egypt, which remains an important market and one we believe has strong potential for growth. Finally, we are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Let's now turn to the firm-wide financial results. First, the income statement. Annualized RoTE was 16.4% in the third quarter or 17.6% year-to-date, both excluding notable items. Revenue grew 3% year-on-year to $17.9 billion in the quarter. This was driven by a return to growth in banking NII and strong fee and other income. Profit before tax was $9.1 billion. Looking at our capital and distributions. Our CET1 capital ratio is 14.5%, and we continue to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Let's now turn to our business segment performance. We grew total revenue by 3%, and each of our four businesses returned greater than mid-teens annualized RoTE. Moving now to banking NII. $11 billion this quarter is a return to growth driven by deposit volumes. We are raising our full year guidance to $43 billion or better. I know you will have questions on the outlook. So I'll note here the multiple drivers of banking NII. HIBOR, which has recovered; deposit growth, which continues; interest rates, where the Fed is still cutting. We have grown our structural hedge to $585 billion and its rolling on to higher yields. I'll also just mention that the chart on the left is on a constant currency basis, while our full year guidance is as reported. There is a reconciliation in the footnote. Turning now to wholesale transaction banking. We are pleased with our strong ongoing customer engagement. This year has really validated the strength of our franchise in a range of economic and tariff situations. Both payments and trade grew again in the third quarter. In trade, I would note the first half was particularly strong as we supported customers to navigate a fast-changing trade landscape. In security services, fee and other income grew 15%. This was due to higher asset balances given improved valuations and new customer mandates in Asia and the Middle East. In FX, performance reflects lower currency volatility and a strong prior year comparison. Looking through this, performance of $1.3 billion was strong. Turning now to Wealth. We delivered 29% fee and other income growth to $2.7 billion. This shows our strategy is working. Net new invested assets were $29 billion, with more than half coming from Asia at $15 billion. This takes total invested assets to $1.5 trillion. Wealth was driven by all four income lines. Our insurance CSM balance is up by $2.5 billion year-to-date. This is driven by strong new business. I would note that we review our insurance assumptions in the third quarter, favorable experience and strong market performance slightly flatter at these figures. Private Banking grew 8%; and Asset Management, 6%, respectively. Investment distribution also performed very well, up 39%, reflecting strength in our customer franchise in Hong Kong. And Wealth is not just a Hong Kong story. It runs across our Asian franchise with double-digit fee and other income growth in Singapore, Mainland China and other markets. We are providing you with a little extra color this quarter on our Hong Kong flows on the next slide. We are pleased to have added 318,000 new-to-bank customers this quarter. This brings us to more than 900,000 year-to-date. What this slide shows, over a slightly longer period is that nonresident customers have been a significant driver of customer activity and balances. These new-to-bank customers have contributed up to 1/3 of flows across deposits, investments and insurance. We see new nonresident customers as a significant and long dated opportunity for the bank. Now let's turn to credit. ECL of $1 billion is flat year-over-year and down modestly on the second quarter. We retain our full ECL guidance of around 40 basis points. Our ECL charge this quarter includes $0.2 billion Hong Kong commercial real estate. On Slide 19, you will see we have updated the Hong Kong commercial real estate slide we showed you at the half year. Other charges include $150 million from a Middle East-based customer, $0.3 billion in the U.K., $0.2 billion in Mexico and a $0.1 billion release due to improved economic assumptions. Now let's turn to costs. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Year-to-date, we have taken actions to realize $1 billion of annualized simplification savings with no meaningful impact on revenues. We continue to expect $0.4 billion simplification savings to be realized in the full year 2025 P&L. It's worth noting that there is some slight seasonality to costs in the fourth quarter, which also includes the U.K. bank levy. This quarter, we have $1.4 billion of legal provisions on historical matters, which don't impact our ongoing business. They consist of $1.1 billion, as you will have seen in yesterday's announcement relating to made-of litigation, which is a material notable item and, therefore, does not impact any dividend, and $0.3 billion related to historical trading activities in Europe, which is a notable item. I would also just draw your attention to Appendix Slides 16 and 17, where we detail recent and potential future notable items. This leads us to our exit of nonstrategic activities, which we will discuss on the next slide. We are progressing at pace. With our exit of nonstrategic activities, this slide sets out that progress. The red boxes show the exits announced in each quarter, the gray, those in prior quarters. Given the phasing of the sale processes, only Grupo Galicia is currently complete with others to follow. In the third quarter, we have announced Malta and Retail Banking in Sri Lanka. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. As I said earlier, the review will not include our wholesale banking activities in Egypt, which remains an important market. As a reminder, costs released from the exits of a nonstrategic activities will be invested in our priority growth areas at accretive returns. Now let's turn to customer deposits and loans. Including held-for-sale balances, we've had another strong quarter with $86 billion of growth in deposits in the last 12 months. By business, there is some volatility this quarter. Silver bond subscriptions in Hong Kong moved deposits from Hong Kong business to CIB for a few days over quarter end, benefiting CIB balances. CIB also benefited with -- from some large client deposits, which may be short dated. Overall, we see good momentum in our customer deposit franchise. In the U.K., lending was the standout. We saw continued growth in mortgages and our commercial lending book. Infrastructure being a key area of focus. In our U.K. business, the book has grown 5% year-over-year, which includes a drag from the repayment of COVID loans. We see low levels of household and corporate debt in the U.K., which we expect to provide a platform for the continued growth of our franchise. In Hong Kong, we saw customer repayments and corporate deleveraging notably in the commercial real estate space. Credit demand remains muted. Now turning to capital. Our CET1 is 14.5%, reflecting strong organic capital generation during the quarter. We said with the announcement of the Hang Seng offer that we do not expect buybacks for the next 3 quarters. That is, of course, dependent on underlying capital generation with strong profitability and currently modest loan growth via highly capital generative. Finally, let's turn to targets and guidance. In summary, the intent with which we are executing our strategy is reflected in the growth and momentum in our performance this quarter. It again shows discipline, performance and delivery. Discipline in the way we are applying strong cost control. We are on target to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Our simplification saves are ahead of our previous expectation. We have announced 11 exits so far this year. We will continue to progress at pace and invest costs released from exits into priority growth areas. Performance in our earnings. Each of our four businesses is making mid-teens RoTE or better, excluding notable items. Delivery, our third quarter results show that we are creating a simple, more agile growing HSBC. Revenues grew and excluding notable items, our year-to-date 17.6% RoTE demonstrates that we are delivering against the targets we set out to you. That is why we expect 2025 RoTE, excluding notable items to be mid-teens or better. With that, I'm happy to take your questions. Operator: [Operator Instructions] Our first question today comes from Aman Rakkar at Barclays. Aman Rakkar: I wanted to ask about banking NII rather predictably, please. So just at face value, your guide does imply a decent step off in interest income in Q4. But I don't think that you really mean that. I just wanted to kind of check in around what your expectations are for net interest income in kind of Q4. I guess I'm particularly mindful of the tailwind from average HIBOR in the quarter alongside things like the structural hedge and hopefully, balance sheet momentum. My best guess is that Q4 NII is actually up Q-on-Q. But any color you can give us there in terms of what you mean and what the drivers are, would be very helpful. And then the second question is around deposits. And I'm interested in your take on the sustainability of the kind of current 5% underlying deposit growth that you're benefiting from at a system level. Obviously, Hong Kong year-to-date has been a key driver of that. And how sustainable do you think this level of pace is? And what confidence does it give you around things like net interest income growth next year? Manveen Kaur: Thank you, Aman. So firstly, on banking NII. I want to say that we are not walking back the Q4 as a starter. As the maths would show, we are saying that the banking NII would be no less than $10.6 billion. So absolutely, that's why it is $43 billion or better. And you are quite right from a balance sheet momentum, we see that continuing from the third quarter onwards, albeit there can be a few seasonality fluctuations. HIBOR is a tailwind, structural hedge is a tailwind, but we should be mindful that the U.S. dollar rate curve will be a headwind. So that's where we are on banking NII. In terms of deposits, and as you know, we are not giving a guidance on banking NII for 2026. But our deposit franchise is very strong across all markets, all currencies, all business areas. So it's not just dependent on Hong Kong dollars. But of course, we are very pleased with our preeminent position and strength in Hong Kong, which is a key driving force for the deposit growth. So very positive on deposit growth from here on as we've had before. Operator: Our next question today comes from Guy Stebbings at BNP Paribas. Guy Stebbings: The first one was back on bank NII then one on insurance. So obviously, quite a big move in the banking in our guidance. Outside of HIBOR, is it really the deposit strength that's the delta in terms of the guidance here? I mean you also referenced yield curve steepening. So I'm just wondering if you would encouraged to think about anything above and beyond the structural hedge roll when you think about yield curve steepening when it comes to NII? And then on insurance, really strong quarter, but there's quite a lot going on there, I think, so 46% growth. But you mentioned model changes, experience variance. And then if you can help quantify that, I think there might have been $150 million or so type model changes. I mean if that's the case, we're still talking about a sort of 20% clean run rate. So if you'd encourage you sort of think along those sorts of lines in the CSF now at $50 billion, it looks like a very sort of useful underpin from here? And if I can sort of briefly flip on that. There was $1.1 billion of CSM build year-to-date from economic factors. I'm just interested how much of that is sort of purely lumpy items? Some of your peers show the normalized unwind or expected return of in-force, which can be sort of quite material and a consistent tailwind to the CSM built above and beyond the new business systems. So I'm just wondering whether we should treat that $1.1 billion boosters very much one-off or an element of that is repeatable, if you like? Manveen Kaur: Okay. Great. Thank you, Guy. So firstly, in coming -- so with your question on banking NII. So it's -- our deposits strength, as I've called out, but our structural hedge is also important tailwind for us on banking NII and the stabilization of HIBOR, which impacted banking NII almost equivalently on the negative side in Q2 and Q3, is not expected for Q4 and has not shown that at all in Q4 so far. The insurance growth, you're again right, it's -- the one-offs are circa $150 million, as you've called out in terms of the change in assumptions, which is a normalized annual process that we go through. So we are very pleased with a very strong CSM and balance build, which gives the underpin in terms of the growth in this business. In terms of any one-offs or lumpy items, nothing material to note, but I'll ask our IR team to follow-up with you. You can see some of the walk on the CSM balances on Slide 21. Operator: Our next question today comes from Katherine Lei at JPMorgan. Katherine Lei: I also have a follow-up on NII and then I would like to ask about Hong Kong CRE. On the NII line, I noticed that in Hong Kong, the composite deposit rate actually comes significantly in 3Q. I think this is because that this move -- migration from time deposit to demand deposits and also that banks generally lower the time deposit rates. So into 3Q -- into the 4Q because of the rebound in -- because of the rebound in HIBOR, do we expect some of the reversal of that decline in composite deposit cost? Will that lead to some sort of risk to the banking NII? This is number one question. And then have we seen any like further migrations or what's the trends of deposits in CASA deposits? And then the next question will be in Hong Kong CRE. We noticed that the Stage III loan ratio increased from 16% to 20%, but however, if we look at the impairment charges on Hong Kong CRE, this quarter is actually lower than that of last quarter. So I would like to have some color from management say, for example, what is the latest trend in terms of the asset quality? And what is our thought behind that while the Stage III loan ratio continued to increase, but then we slow down the pace in making provision against Hong Kong CRE risk. Manveen Kaur: Thank you, Katherine. So in terms of HIBOR, it continues to be a tailwind from a deposit perspective, we see the trends from sort of prior quarters, continuing to Q4, so nothing much to call out there. Specifically, yes, there has been some small rise in time deposits, but that is all factored in terms of our banking NII guidance. And I'm speaking both from what we saw at the end of the September as well as the ongoing trend. The banking NII, as I've said earlier, in addition to HIBOR, the structural hedge also continues to be a tailwind for us. And that is the reason why we have obviously upgraded our banking NII guidance. And you know we are very conservative in HSBC. It takes a lot for us to upgrade the guidance and also to add the word or better. So take from that what you will. In terms of Hong Kong commercial real estate, I would like to take a little bit of time to share with you our reflections in the Hong Kong commercial real estate. So firstly, in terms of residential properties, the trend has stabilized and is getting stronger. The resi property index has grown 2% year-to-date. September transaction volumes were up 79% year-on-year and the valuations as well as rentals have held well. We have also seen some supportive developments in the retail sector. Hong Kong retail sales have grown since May and are up 4% year-on-year in August. It is also underpinned by increase in year-to-date tourist arrivals of 12% year-on-year. Now if I look at the office sector, of course, the office sector continues to be challenging and under pressure, and we expect that to continue through most of next year as well. However, there has been a slight uptick for take-up for grade A office space. So this is in the best locations with the best specs and that is an improvement, which we see quarter-on-quarter. As you know, our portfolio is well collateralized. This quarter, of course, there was some slippage, which is expected as part of our review in as things move through from some good to satisfactory, substandard to impaired, but there were names which you are aware of, no big surprises. And hence, the ECL pickup was relatively modest. Operator: Our next question today comes from Ben Toms at RBC. Benjamin Toms: In relation to the $1.1 billion provision in relation to Madoff litigation. [indiscernible] the ongoing cases with a cumulative total contingent liability of, I think, greater than $5 billion. Can you just provide that the case that was decided last week does not set any legal precedent for the other 4 cases? Especially the 3 cases that are in the Luxembourg courts where there's a more material exposure? And can you confirm that the litigation charge does not change your aspiration to resume the buyback at half 1 '26? And then secondly, on Slide 10, which is a really nice slide, you made 11 disposals year-to-date. It can be quite difficult sometimes to track the transactions coming out of the P&L. Is it possible to give us some idea of the annualized cumulative PBT lost as a result of these sales? Although the transactions may be RoTE positive together, it just be good to get a sense of the PBT headwind going into next year? Manveen Kaur: Okay. Thank you, Ben. So firstly, on the Madoff litigation provision charge, you can expect that we did a thorough exercise with advice from internal, external counsel as well as colleagues in the accounting function to determine what would be our best judgment on this case. In terms of the other cases, of course, we look at read across and those gets factored in. But each case has very distinct factual considerations. So there's nothing more to add on that other than what we've already called out as disclosures in the midyear. So please don't read more into that. As you know, on this case, we won on the cash side of the element of the case, but it was the securities element that we are providing against. In terms of our share buyback and announcements at the time of Hang Seng privatization offer. As you can imagine, this case has been pending for a while. We had looked at all kinds of downside scenarios. So when we came with our view of suspension of share buyback for the Hang Seng offer for up to 3 quarters, we still stand behind that number, that was all included. As you know well, we will go through a rigorous process every quarter. We continue to be highly capital generative as you've seen with also the upgrades on our guidance. And once we look at that, we see where the organic growth opportunities are. Obviously, in organic, that's where the Hang Seng privatization offer comes in and then the residual after obviously, looking at the 50% dividend payout, which is a key element of our capital distribution, then we look at share buybacks. So I don't expect any headwinds in that, the up to 3 quarters still holds. In terms of the 11 disposals, I note to your point, these are all relatively, as you can see, small disposals. What is very important is each time disposal happens and it's completed like we had the Grupo Galicia, but also as we did with the closure of the investment bank, we immediately reinvest, and the kind of areas we've invested and we've actually seen the benefits come through is we have invested in the U.K. And as you see, we have seen some loan growth in the U.K. We have invested in Wealth, both in the U.K. and Asia and the Middle East. And of course, the numbers speak for themselves. But also we take very specific opportunities where we see either growth in volumes or new customer mandates as we saw in security, services so that we can be in a prime position to take those opportunities. So that's an ongoing piece of work. We don't stop at the end of each quarter or regularly to see what we need to reinvest as soon as we have the money available, we reinvest. Operator: We will take our next question today from Joe Dickerson at Jefferies. Joseph Dickerson: I just -- it's just more of a conceptual question really in terms of the return profile of the bank. I guess why isn't this -- why isn't HSBC post-Hang Seng integration more of a high-teens bank than a mid-teens bank? I mean, clearly, the exit rate for this year on banking NII is going to be much higher, I think, than what most analysts would have thought, particularly given that the HIBOR move, you only had about 6 weeks of that embedded in Q3. So you get a full quarter of that in Q4. And effectively, you feed that through to next year. And yes, you can have lower rates, but ultimately, you probably have a structurally higher banking NII given the deposit mix. And then if you look at your invested assets, in Wealth, you clearly have a strong business there that continues to grow and the marginal ROE is much higher and throwing Hang Seng, you're 70, 80 bps just from the minority deduction. I guess why don't we get to a number that's in the high-teens here as opposed to mid-teens? Manveen Kaur: Thank you, Joe. It's a really good question. As you can imagine, we in the bank obviously reflect on this very closely as well. And you'd see that we have upgraded obviously, our guidance for this year. But let me just remind you, when we came up with our target of mid-teens RoTE for the medium term, '25, '26, '27. That's a target. There's nothing that says that you will stop working once you achieve the target. You continue to work to both achieve to target as well as to improve on the target. In terms of the target itself, we are not making any change. We will, of course, reflect on it as we go through our year-end results and go into next year and give greater details on our forward-looking guidance. But just remember, a target is something that you have to achieve or better. Target is not where you stop. Operator: Our next question today comes from Kendra Yan at CICC. Jiahui Yan: My question -- my first question is regarding to the Wealth management revenue. We've observed a very strong -- very rapid growth rate in the third quarter. Could you elaborate on the key drivers behind this performance and its sustainability? And my second question concerns is about the credit risk. In recent weeks, we've seen some risk involving the U.S. market, like the small and medium-sized banks in the U.S., they have some risk. And also the JPMorgan, they cautious the market about the credit risk during its earnings call. Although HSBC's primary client base is not in this segment, but still I'd like to ask whether HSBC has any exposure or concern in loans to nonbank financial institutions or say, those private credit corporate sector? Manveen Kaur: Thank you, Kendra. Two really good questions. So firstly, in terms of Wealth, we are very comfortable with our medium-term guidance of a double-digit growth in fees, though obviously, quarter-on-quarter, it can vary. So what has been really strong this year has been investment distribution notably in Hong Kong and strong equity volumes. As I said earlier, our insurance business has continued to grow, and that momentum is helped both in terms of existing client base, but also the new clients we are onboarding in Hong Kong, in particular. Obviously, strong equity markets have been favorable, and that becomes a lever for Wealth in terms of both the sentiment and the activity we see. But overall, not changing our guidance, but very optimistic for Wealth in future, as seen from Q3 results. And of course, be mindful there are some seasonal fluctuations, Q4 can be a little less in Q1 more, but we'll see how it progresses. So far, all on a very good trajectory. From a credit risk perspective, and as you can appreciate, I've been a Chief Risk Officer for 5 years. So indulge me, I'll share my thoughts on that with you. Private credit as a sector, of course, is going to have stronger players and weaker players. What is very key is how you do the due diligence and what are the kind of underwriting standards you apply in this new area. You are quite right. This is primarily U.S.-driven, 80% a U.S.-driven business, and our footprint in U.S. is relatively small. All I can tell you is that our direct exposure in the private credit space is single billion dollars. We apply the same strong credit underwriting principles there. So I'm very comfortable in that space. What I do want to call out is, you're right, it is always the second and the third order risk that you should be very mindful of, which are not your direct exposures, but exposures you may have through weaker counterparties. We have always taken a very conservative view in terms of our exposures to smaller banks, regional banks in the U.S. and elsewhere. We've been doing that right through the COVID period, through Russia, Ukraine, through inflation, high interest rates, so on as well as exposure to smaller hedge funds. Having said that, we closely monitor this space because you can never get too comfortable in the space, and good risk management really means looking forward to see what else can impact the overall ecosystem, which then can cause indirectly concerns to all participants. Operator: Our next question today comes from Kian Abouhossein at JPMorgan. Kian Abouhossein: Just to come back on the NDFI exposure because you mentioned private credit just now a single digit. NDFI would be similar. Clearly, you get your U.S. legal entity exposures, whether the branches, which is below $10 billion. So should we see that as overall group exposure roughly for total NDFI, can you confirm that? And then secondly, on tariff scenarios, you gave an impact scenario or sensitivity scenario of low single digit on group revenues before Clearly, things have changed, but also that was on a very specific part of your business. So I'm just trying to understand how you're thinking about impact scenario going forward in the current situation and expectation of a trade deal? And secondly, also what the impact has been so far? Manveen Kaur: So let me come through the NBF exposures. As you can appreciate, NBF is a very broad industry. My comment on our disciplined and conservative approach to weaker NBFIs holds. So from an exposure perspective, both in terms of quantum that I've called out and beyond, I am very comfortable in terms of our approach to date as well as going forward. For the tariff exposure and the impact, as you've seen, the trade segment has continued to perform well. We have the advantage that as much as there is an impact on U.S. dollar-related corridors. There are other corridors, which are growing, which we have a strong presence in, whether it's India, U.K., Middle East, Asia, Intra Asia. So that's been quite good for us. So overall, guidance that we've given on the direct impact of tariffs has not changed. And of course, we look at that as part of our downside risk scenarios even for the ECLs. From an overall view on the macro environment with all the trade deals being done, I'll just give one reflection that our probabilities that we give to our upside, downside in base case scenarios have now normalized, and that's resulted in some modest releases of ECLs because we think the situation is improving compared to where they were more weighted towards the downside scenarios in the previous quarters. Operator: [Operator Instructions] We will take our next question today from Amit Goel at Mediobanca. Amit Goel: So two questions for me. The first, just on the U.K. business. It looked like there's a bit more investment and there was also a little bit of a tick up in the impairment rate versus prior quarters. So just wanted to check what kind of investments you're making there for what kind of opportunity? And then on the impairment, what's driving that? And then the second one is just a follow-up on the Madoff litigation. I'm just kind of curious what is really the range of outcomes? I know obviously, it says that it could be materially different to the provision. There are a lot of kind of numbers in the release. So just curious how you see that range? And I was also kind of curious why a provision wasn't taken in December '24 when you had the original ruling that went against? Manveen Kaur: Okay. Thank you, Amit. So first on the U.K. business, we have continued to invest for Wealth, both in terms of hiring of RMs to grow our premier customer numbers and to sell more Wealth product for the customers who we already have very strong deposit base with. We are also investing as we've opened a new Wealth center in the U.K. in this space. And then business banking has been important for us for investing in, in terms of customer service, customer journeys, and that's primarily a liability-driven business. Having said that, we are very pleased that our corporate lending book in the U.K. has shown sustainable growth in the sectors that we have lent into, so more into the new economy sectors, into infrastructure, into social housing, into innovation and so on. So that has been really positive for us. From an impairment perspective, just to give you a context, a $300 million charge in a quarter for the U.K. is not abnormal. In prior quarters where we had to release the charge can fluctuate between $200 million to $300 million. In terms of the specifics, there were a few single name defaults, but they are all of very small amounts, so nothing notable. And no specific concentration in any sector. So I feel quite comfortable in that space. From a made-of perspective, just to be clear, we had an appeal as of December, and the outcome of the appeal was only known to us on Friday, the 24th of October, and therefore, we gave our RNS and announcement on the provision yesterday. So the provision we have given is our best judgment of likely outcomes. It's not a midpoint. It's not a broad range as people may think, but it's just our best judgment based upon advice from both internal and external legal counsel. Operator: Our next question comes from Kunpeng Ma at China Securities. Unknown Analyst: It's [ Chen Li ] from China Securities. And I also have the questions about the Wealth management because of the further interest rate cut. So will the nonresident new customers in Hong Kong will slow down or keep stable? And also, how would the migration of retail deposits into wealth management products impact our wealth management revenue? Manveen Kaur: Thank you. So on Wealth management, the growth of wealth management that we've seen comes both from new customers, but primarily from our existing customer base in Hong Kong. We do not believe that at a normalized HIBOR rate, which we've had seen for quite a long period of time despite the fluctuations we've had earlier this year that, that should have an impact on both the appetite of our customers for Wealth management products, their desire to diversify and our matched product offering, which is in a prime position to meet their needs. So I don't think there is anything more to call. Obviously, a positive stock market is good optimism factor and encourages customers to invest even more. But the baseline growth that we are seeing quarter-on-quarter is very much expected to continue. Operator: Our next question today comes from Alastair Warr at Autonomous. Alastair Warr: I just wanted to quickly return to the Hong Kong CRE question. You saw as you touched on yourself some downward migration. You said before, you've been focused particularly on the higher LTV problem loans. And those have gone up quite a bit again, third quarter versus the half year. So could you just give us a little bit more about what's going on in collateral there in the background, why the ECL would be able to come down by quite a bit in terms of, say, individual clients posting more collateral, what the values have been doing in the quarter? Manveen Kaur: So thank you for the question, Alastair. So in terms of the Hong Kong CRE, you're right, if you look at the LTV, 70% plus the number, which has grown. But in the same note, we've taken more provisions. So net of the provisions quarter-on-quarter, that number has pretty much stayed steady around the $900 million. Now in terms of valuations, of course, we look at valuations across the board. And particularly for these, we look at them on a quarterly basis as well as if there are any transactions or events that cause us to pause and look at the valuations, again, we are looking at that. The real distinction between perhaps what you saw in the middle of the year and now is that there is no individual surprise name or situation. And overall, in Hong Kong CRE, retail has got better, residential, as we know, has stabilized. And on the office space, which is challenging, we are not so far seeing improvements, which are coming from the momentum even slight as it may be in terms of A-type properties going into the rest of the office space. So hence, I think that challenge will continue. Operator: Our last question today will be from Andrew Coombs at Citi. Andrew Coombs: A couple of questions, please. Firstly, just to follow up on divestments. You've now announced Sri Lanka, you've talked about Egypt retail being up for review. I see there's no mention of Australia or Indonesia in the slides this time, whereas there was in Q2. Can you just provide us with an update there? Particularly Australia because that is a potentially more sizable divestment. And then the second question, just on the new disclosure on Slide 7 where you provided the resident versus nonresident split of the additional customer in Hong Kong. Perhaps you could just give us an idea of what the split is of the stock as well as the flow. How that changes with Hang Seng Bank if you were to combine the two, not just look at the Red brand and how the revenue margins compare between resident versus nonresident? Manveen Kaur: Thank you, Andrew. So firstly, your questions on the divestments that we had called out in terms of strategic reviews. There is no further news. They are continuing through that strategic review process. So that's why we haven't called out anything specific here. It's work in progress, no turning back as such. So the slide that we have said on the resident and nonresident, the reason for that slide is really twofold. Firstly, to explain to you that why this growth and the reasoning of how it's grown up since the borders opened up in '23 and see that trajectory, and that shows how the trajectory is continuing. However, it does show that fundamentally, the customers who are coming in to begin with are coming with small balances, and it's a deposit-led growth story. There is also an uptake on insurance, which is a preferred product. So we called that out. The other Wealth products, it takes time to convert. Overall, if you look at the premier customer base between the start and the end, it stays pretty much stable, 15% to 16%. So that's how I would look at it. And new customers coming in, in terms of a trajectory has continued pretty consistently at least through this year at 100,000 plus every quarter. It's a little higher than what it was in '24, which was a little hard to begin with from where it was in '23. So you can see that as a continuum. In terms of Hang Seng, they don't do a third quarter filing. So I don't want to say anything about that. There's no news to share. They are a listed company in their own right. But obviously, as we have talked about the opportunities for revenue growth and operating leverage as part of our offer that does call out that from a revenue perspective, particularly on Wealth products, we will have greater opportunities to leverage the Wealth products in the Red brand, for the Green brand customers, both existing and new, which continue. Operator: Thank you, Pam, and thank you all for your questions today and for joining our webinar on the 3Q results for HSBC Holdings plc. You may now disconnect your lines.
Operator: Greetings, and welcome to the Incyte Third Quarter 2025 Earnings Conference Call webcast [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Alexis Smith, Vice President and Head of Investor Relations. Please go ahead, Alexis. Alexis Smith: Thank you. Good morning, and welcome to Incyte's Third Quarter 2025 Earnings Conference Call. Before we begin, I encourage everyone to go to the Investors section of our website to find the press release, related financial tables and slides that follow today's discussion. On today's call, I'm joined by Bill, Pablo and Tom, who will deliver our prepared remarks. Steven, Dave, Matteo and Mohamed will also be available for Q&A. I would like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. I will now hand the call over to Bill. William Meury: Thank you, Alexis, and good morning, everyone. On our last call, I told you I'd be taking a fresh look at the company with a focus on getting the core business right, our R&D priorities right and our cost base right. This, of course, is a continuous process and one that is well underway and on track. In terms of the core business, my assessment has reinforced my confidence in the growth potential of our key products. As we announced today, we had a strong quarter with total revenues of $1.37 billion and product sales of $1.15 billion. This represents a 20% and 19% increase, respectively, versus prior year. The fundamentals around Jakafi, Opzelura and our hem/onc business, Niktimvo and Monjuvi namely remains strong. Our job right now is to keep it that way and to identify effective ways to optimize the promotional strategies and investment for these products to drive future growth. Jakafi Q3 sales reached $791 million, a 7% increase with strong demand growth of 10% year-over-year. Growth was broad-based across all 3 indications. In MF, Jakafi utilization continues to increase, and we are maintaining market share leadership despite competition. Growth in GvHD remains strong, supported by our portfolio strategy with Niktimvo, which is helping identify patients across multiple lines of therapy, and PV is our largest growth driver, fueled by compelling MAGIC PV data showing impressive thrombosis-free survival. Based on this momentum, we're raising our full year guidance for Jakafi to a new range of $3.05 billion to $3.075 billion. Opzelura growth was exceptional in the third quarter and continues to be a significant contributor to revenue with $188 million in sales, a 35% increase versus prior year. Of this, $144 million in net sales came from the U.S., which represented a 21% increase versus prior year. The increase was based on strong prescription demand across both indications and more favorable formulary placement at the 3 top PBMs. In July, we reorganized the Opzelura sales force into 2 dedicated sales teams, one for AD and one for vitiligo to ensure execution and sustained growth. The market for branded non-steroidal topical continues to expand at a 20% rate as more patients migrate off and away from topical corticosteroids. Given the efficacy of Opzelura in terms of rapid itch relief and skin clearance, our broad prescriber base and formulary coverage, we're well positioned to take advantage of this market dynamic. Internationally, sales for Opzelura and vitiligo totaled $44 million, representing a 117% increase from last year. France, Spain, Italy and Canada account for over 80% of our sales and growth, and we plan to file an application for ruxolitinib cream in moderate AD in the EU by year-end with a potential approval in the second half of 2026. Now in its third quarter post launch, Niktimvo continues to outperform expectations across all launch metrics. Sales in the third quarter totaled $46 million, an increase of 27% versus the second quarter. 90% of BMT centers have adopted Niktimvo with all centers placing repeat orders year-to-date. Importantly, 80% of patients who started treatment in the first quarter of launch are still on therapy today. And we've captured 13% of the third line plus GVHD opportunity in just the first 9 months on the market. In line with expectations, Niktimvo is primarily being used in the fourth line with increasing preference and utilization in the third line. Feedback from BMT centers has been positive with real-world efficacy and safety being equally as impressive as the clinical data. Finally, we're actively studying Niktimvo in combination with ruxolitinib and steroids in earlier line settings. Our combination study with Jakafi is designed to enable a steroid-free regimen in GvHD, which could shift the standard of care. And our combination study with steroids in the frontline setting has the potential to deliver benchmark efficacy and steroid tapering. This franchise strategy has the potential to significantly increase our addressable market and strengthen our leadership position in GvHD. Our broader hematology and oncology portfolio also performed well this quarter. Sales from Monjuvi in follicular lymphoma and Zynyz and SCAC, both launched this year, saw strong growth and contributed to our raised guidance. These products will be incremental contributors to our portfolio and collectively can deliver meaningful sales growth over the next several years. We have 3 important new product launches next year, ruxolitinib XR, Opzelura AD in Europe and povorcitinib in HS. I've completed a thorough review of the launch plans and believe these products have the potential to contribute significantly to Incyte's future growth. Strategically, ruxolitinib XR upon approval offers the same therapeutic benefits of Jakafi and a more convenient once-daily dosing regimen. The stability data are on track to be submitted to the FDA before end of the year with an anticipated launch in mid-2026. As it relates to Opzelura AD, as mentioned, we plan to submit our application in the EU with an anticipated launch next year. Assuming approval, Opzelura has the potential to contribute meaningfully to future sales in the EU4 and Canada and to overall growth given its clinical and economic value proposition. With the moderate AD indication in Europe, we could potentially increase our international topical business by 2 to 3x over the next several years. And finally, povorcitinib could be the first oral option for patients with HS, which is perhaps the most challenging disease in dermatology. It's a multi-cytokine disease involving many pathways, making treatment more complex and results more variable. A treatment option like povorcitinib, which has shown rapid pain relief and skin clearance scores of over 50% will be very marketable. We believe there's a substantial opportunity in HS, which is the first step for povo. Our ongoing developments in PN and vitiligo will come into focus next year, and if positive, further strengthen the position of povo and our derm portfolio. Together with Opzelura, we could provide a topical to oral offering for patients across HS, vitiligo and PN. Launch activities for each product remain on schedule, including preparations for the sales force, payer engagements and medical education initiatives. We'll share more details in early 2026. Turning to R&D. Our ongoing pipeline review is providing us with absolute clarity about which high-value programs are core to future growth and have the greatest potential to create value and outsized returns. We want to configure a balanced pipeline that is not consumed by either safe, low-value projects or moonshots. We've set clear go/no-go criteria for moving key projects forward. We will invest and take calculated risks in key programs rather than thinly spreading investments across many programs. In other words, fewer, smarter investments versus diffuse spending. We'll fund what matters and importantly, watch out for false positives and negatives. As it relates to our developing pipeline, the first call on capital is hem/onc. This is the central identity of the company and an area where we have differentiated knowledge and capabilities and an asymmetrical advantage. This includes targeted therapies for MPNs, including mCALR, 617, our mCALR bispecific and discovery programs. We have a window of opportunity here to trigger an innovation-based shift in MPNs from nonspecific symptomatic therapies like Jakafi and HU to targeted mutation-specific therapies like 989. Next steps for 989 and 617 will be shared later this year and next year. In terms of our solid tumor program, the cornerstone of our cancer strategy is novel biological pathways, high incidence cancers with substantial medical need that miss the IO revolution and immunotherapies and targeted therapies that can be used frontline in combination with standard of care regimens. As you know, we have 3 programs in early development, KRAS G12D for pancreatic cancer, TGF-beta x PD-1 bispecific for MSS CRC and CDK2 for ovarian cancer. Over the next several months, we will collect more data on these programs in terms of response rates, duration of response and safety, particularly in combination with standard of care. We'll move forward without delay, providing our data, continue to be objectively competitive, and we can be early to market and defend our position long term. Now in terms of our operating expenses and overall cost structure, we're conducting a review of the entire business, which focuses on prioritization and data-driven trade-off decisions. Our objective is to manage costs but not underfund critical initiatives and compromise growth prospects. We'll strike the right balance between financial discipline and long-term strategic investments, which can be achieved by controlling costs in low-value areas to free up capital either for reinvestment in high-value opportunities or to improve margins. Our framework for the 2026 budget and beyond will be based on the following: first, define and ring-fence our strategic growth drivers. This means the new product launches that I touched on as well as key R&D projects, which we have earmarked as nonnegotiable, fully funded programs. Once we predict the growth drivers, we're looking to control costs in areas that add less or minimal strategic value. From there, the savings we've identified and achieved will either be reallocated or banked. This will be a continuous process, not a one-and-done exercise. It's a mindset. As our business evolves, so will our resource allocation. Finally, business development. BD works when you have strong strategic leadership, high throughput and a framework for rapidly triaging opportunities and making decisions, which requires a skilled search and evaluation team and a deep network. To be successful, we need to operate inside the loop in our focus areas. Accordingly, Dave Gardner joined Incyte as Chief Strategy Officer in September, and one of his priorities is to build out this capability. He will play a central role in developing our long-term growth strategy and ensuring external business development opportunities and internal portfolio decisions are strategically sound and financially compelling. We will share more details about our strategic review early next year. Now I'd like to turn the call over to Pablo. Pablo Cagnoni: Thank you, Bill, and good morning, everyone. As shown on Slide 14, our pipeline is strategically focused with numerous high-impact programs currently in development. Over the past few months, we have conducted a thorough pipeline review to ensure we're concentrating our efforts and resources on the projects that are essential to the future growth of the company. As Bill mentioned, this process was guided by a clear set of go/no-go criteria, enabling us to make strategic decisions about which programs to advance. As a result, we have decided to pause or stop several preclinical and early clinical stage programs, including INCA34460, our anti-CD122 program, INCB-57643, our BET inhibitor program and the development of povorcitinib in chronic spontaneous urticaria. By continuing to streamline our pipeline, we will be able to accelerate and prioritize the programs with the greatest potential impact to patients and to drive future growth. Now I'd like to focus on key updates from the quarter, highlighting recent advancements with povorcitinib and our solid tumor franchise. I will also discuss what's expected for the remainder of 2025 from our mutant-CALR antibody program. For povorcitinib, last month, we presented longer-term data in hidradenitis suppurativa at the European Academy of Dermatology and Venereology Congress, which further reinforced the differentiated profile of povorcitinib. The 24-week data demonstrated deep and sustained improvements across key clinical endpoints, including HiSCR 50, 75, 90 and 100, resolution of draining tunnels and effective reduction in flares. Povorcitinib also showed a rapid and robust reduction in skin pain with 62% to 70% of patients reporting mild or no pain by week 24. Physicians experience in the management of HS emphasize that their primary focus when they treat patients with HS is on 2 elements: help patients feel better by addressing the pain related to HS and to effectively control flares. The data presented show that povorcitinib provides rapid and sustained pain relief and reduces the frequency of flares. These positive Phase III results demonstrate the potential of povorcitinib to address the significant medical needs of the more than 300,000 people living with moderate to severe HS, offering a novel, effective and convenient oral treatment option for this underserved patient population. Moving to Slide 16 and the near-term opportunities for povorcitinib. As you know, HS is the most advanced program, and we're on track with our regulatory submissions by the end of the year in the EU and early 2026 in the U.S. with potential approvals and launches in late 2026, early 2027. In addition to HS, we're studying povorcitinib in 3 other indications, underscoring its potential to become a major growth driver for the company. Povorcitinib has been evaluated in Phase III programs in vitiligo and prurigo nodularis as well as a Phase II proof-of-concept study in asthma. We anticipate pivotal data readouts for vitiligo and PN in 2026 with the goal of potential initial regulatory approvals in 2027, 2028. Next, I would like to highlight 2 recent updates from our solid tumor portfolio, beginning with our TGF-beta x PD-1 bispecific antibody program. This month, at the European Society of Medical Oncology Annual Meeting, we presented initial Phase I data for INCA33890, which I'll refer to moving forward 890, our first-in-class TGF-beta receptor 2 x PD-1 bispecific antibody in patients with solid tumors. This is an Incyte discovered compound and one that is truly differentiated from other TGF-beta and PD-1 approaches. The Phase I trial evaluated 890 in solid tumors with a focus on microsatellite stable or MSS colorectal cancer patients. 890 demonstrated durable single-agent antitumor activity and a manageable safety profile in heavily pretreated MSS colorectal cancer patients, a population with limited treatment options and where anti-PD-1, PD-L1 antibodies have historically produced response rates from 0% to 2%. In patients with MSS colorectal, 890 achieved an overall response rate of 15% and most notably, responses were observed in patients with and without liver metastases. The majority of treatment-related adverse events were low grade with no dose-limiting toxicities reported. We have also completed dose escalation of 890 in combinations of 4 cohorts, FOLFOX plus bevacizumab, FOLFIRI plus bevacizumab, bevacizumab and cetuximab. No evidence of additive toxicity has been observed in any of the combination cohorts and dose expansion is ongoing. The initial results provide a strong rationale for advancing 890 into a registrational program. We're planning to start a pivotal Phase III trial evaluating 890 in combination with standard of care chemotherapy and bevacizumab in first-line MSS colorectal cancer patients in 2026. Turning to our KRASG12D program on Slide 18. We recently presented encouraging clinical data from the Phase I trial of INCB161734 or as I'll refer to moving forward 734 in heavily pretreated patients with advanced or metastatic solid tumors harboring the KRAS G12D mutation, including pancreatic ductal adenocarcinoma, among others. Results demonstrated a manageable safety profile with no dose-limiting toxicities observed and predominantly Grade 1 treatment-related adverse events. Importantly, in pancreatic adenocarcinoma patients, 734 showed promising antitumor activity with an objective response rate of 34%, disease control rate of 86% at the dose of 1,200 milligrams. These results are particularly notable given that only 8 of the patients were treated in the second-line setting. To summarize, both our TGF-beta x PD-1 and our KRASG12D programs represent significant opportunities to address large patient populations with high medical need, specifically MSS colorectal cancer and pancreatic ductal adenocarcinoma. As Bill noted, our strategy in both cancers will be to win in frontline in combination with standard of care. For 890, we have demonstrated durable single-agent activity in heavily pretreated MSS colorectal cancer patients, including those with liver metastases and a favorable safety profile and combinability with first-line standard of care regimens. As previously mentioned, we're planning to initiate a Phase III study in first-line MSS colorectal in 2026. Similarly, 734 has shown promising antitumor activity and manageable safety profile in advanced solid tumors with particularly encouraging results in PDAC. We'll share more updates on this program next year. Now to Slide 20. 2025 has been a pivotal year for Incyte, highlighted by multiple new product launches, pivotal trial readouts, Phase III study initiations and proof-of-concept results. These accomplishments reflect the solid progress we've made so far towards the milestones we established at the beginning of the year. As we look at the remainder of the year, we plan to share data for the first time on 989, our mutant CALR antibody in patients with myelofibrosis. We are evaluating 989 in a broad population of patients with MF. There are 3 actively enrolling cohorts. First, intermediate to high-risk patients who are intolerant, ineligible or resistant to a JAK inhibitor. This cohort is evaluating 989 as a monotherapy. Second, intermediate to high-risk patients who are on ruxolitinib, but experienced a suboptimal spleen response after at least 12 weeks of treatment. In this cohort, we are evaluating adding 989 to ruxolitinib. And finally, we're enrolling patients with intermediate to high-risk treatment-naive MF in a cohort evaluating 989 compared to a combination of 989 and ruxolitinib. This will allow us to see how 989 performs as a monotherapy and in combination with ruxolitinib in treatment-naive patients. Our update later this year will include early data from the first 2 cohorts. For the monotherapy cohort, we plan to share data from roughly 50 patients, approximately 2/3 of them will have more than 24 weeks of follow-up. Additionally, data will be presented for the combination cohort and at least 15 suboptimal responders to ruxolitinib. More than half of these patients will have a minimum of 24 weeks of follow-up. Importantly, the update will include response data used in traditional endpoints, SVR25, SVR35, TSS50 and anemia and molecular endpoints like effects on the VAF in whole blood, CD34 positive mutant CALR cells in peripheral blood mononuclear cells and mutant CALR-positive megakaryocytes in the bone marrow. Additionally, we'll provide an update on 989 treated patients with essential thrombocythemia as a follow-up to the encouraging results presented earlier this year. As you'll recall from EHA presentation, 989 demonstrated a rapid and sustained normalization of platelet counts and was well tolerated with only 1 patient discontinuing due to an adverse event. We look forward to sharing updates on the remaining 2025 milestones and to provide further visibility into our 2026 catalysts as we continue to advance our pipeline. With that, I'll turn it over to Tom for a financial update on the quarter. Thomas Tray: Thanks, Pablo. As Bill mentioned earlier, our total revenues and product revenues were $1.37 billion and $1.15 billion, respectively, increasing 20% and 19% from the prior year. Our total GAAP R&D expenses were $507 million in the third quarter. Excluding onetime expenses in the prior year, R&D expenses increased 7% year-over-year, driven by continued investment in our late-stage development assets. Moving to SG&A. Total GAAP SG&A expenses were $329 million in the third quarter, increasing 6% year-over-year, primarily driven by international marketing activities to support product launches. Ongoing operating expenses in the third quarter increased 8% year-over-year compared to an 18% increase in ongoing revenues during the same period, leading to a continued increase in operating leverage and margins. Based on the growth of our product portfolio, we raised 2025 full year net product revenue guidance to $4.23 billion to $4.32 billion. We maintain our prior OpEx guidance of $3.25 billion to $3.31 billion, which reflects combined R&D and SG&A GAAP expenses. I'll now turn the call over to Bill. William Meury: Thanks, Tom. That concludes our prepared remarks. Please open the line for Q&A. Operator: [Operator Instructions] Our first question today is coming from Tazeen Ahmad from Bank of America. Tazeen Ahmad: I wanted to focus on the upcoming mCALR data. You've given us a good preview of how many patients worth of data to expect. I think most people are going to be focused on the monotherapy arm. How important is that going to be for people to believe that you have convinced efficacy as a stand-alone because there could potentially be the view that it could be synergistic when added to Jakafi. So can you maybe level set for us what level of efficacy you're going to think is going to be convincing enough to move it forward even if it's in combination with Jakafi? William Meury: Thanks, Tazeen. I'll turn it over to Pablo. Pablo Cagnoni: Thank you for the question. So I think it's important to remember a couple of things about our mutant CALR antibody program. The first is this is the very first targeted therapy for patients with MPNs, and we're talking about MF, but broadly speaking, for myeloproliferative neoplasms, both MF and ET in this case, this is the first truly targeted therapy as opposed to nonspecific therapies in the past, including ruxolitinib that were mostly symptomatic improvements with very little effect on disease modification. Now you're asking specifically about the update at ASH. I think it's very important for us to demonstrate that there is single-agent activity with 989. That's why the update will include a large number of patients, as I mentioned, 50 patients with somewhat significant follow-up to really prove convincingly that 989 has single-agent activity. The focus will be not just on clinical endpoints, which we believe are critical, spleen reduction, symptom improvement, anemia, but also a set of translational endpoints, which we think are really important to confirm our view that this new medication has potential disease-modifying effects. So in terms of benchmarks around efficacy in previously treated patients with JAK inhibitors, I think the best benchmark we have recently is momelotinib. As you know, momelotinib has an SVR35 of between 7% and 22% in different studies with the TSS50 improvements in the 25% to 26%. Those are some reasonable benchmarks in the second-line setting to look at. But it's very important for us to confirm the single-agent activity of 989 in MF patients, Tazeen. William Meury: Tazeen, thanks for the question. Operator: Next question today is coming from Andrew Berens from Leerink Partners. Andrew Berens: Congratulations on the execution during the quarter. I was wondering if you could give some more color on the decision to terminate the povo program in CSU following your announcement in April that this Phase II is successful. Are we going to see the data at a medical meeting as you previously guided? William Meury: Yes, Andy, I'll start off and then turn it over to Pablo. As it relates to povo for CSU, it came down for us to priorities. We have to and we are prioritizing projects with better returns profile. It was a good Phase II program, but we have better Phase III programs. And the factors that went into the decision included differentiation, competitive intensity, timing to market and market potential, among other factors. And Pablo, do you want to just comment on the release of the data? Pablo Cagnoni: Certainly, we are -- we haven't decided with investigators whether to release the data, but we'll almost certainly do that at some future conference, Andy. The one other point I would add to Bill's point is that in addition to those factors, the regulatory bar in CSU, we discussed with FDA and the requirements for potential pivotal program in CSU were pretty onerous, and we decided we had other priorities to focus on. Andrew Berens: Okay. And then if I could, just a question on the PD-1 TGF-beta. I was at ESMO. I thought it was really encouraging and you guys are advancing into Phase III. Are we going to see combination data before you make that decision to advance? Is there like -- I think there's like a run-in looks like on the clinicaltrials.gov? Pablo Cagnoni: So the decision to advance the TGF-beta receptivity by PD-1 program in combination with chemotherapy in first-line colorectal is made. We're moving forward in that direction. In parallel with that, we're generating data with the combination, and we will release that data at some point next year, Andy. But those 2 things are happening in parallel. We think speed is of the essence here in executing this Phase III trial. So we're advancing this rapidly, and we'll generate the data and release it at some point. Operator: Next question today is coming from Stephen Willey from Stifel. Stephen Willey: Just 2 quick ones for me. So on 989, I was just wondering if you could give a little bit of color around what we should expect to see within the abstract publication next week just relative to the presentation itself. And then just a quick one on Niktimvo. Curious how you're thinking about Sanofi's failed frontline trial with Rezurock steroids in terms of read-through to the ongoing Phase III trial with Niktimvo and just whether you think that might say anything about the biology of the disease being different in a newly diagnosed patient. William Meury: Yes. Thanks for the question, Steve. I'm going to turn the second question about Niktimvo over to Steven Stein, and then Pab will grab the first question. Steven Stein: Yes, Steve, thanks for the question. In terms of first-line graft versus host disease in combination with steroids, there's really a little bit of controversy around how you measure the primary endpoint and event-free survival. And there's some nuances there on what you call events. So we think our definition is robust and is powered to adequately show the difference we need to beat steroids. And as Bill said in his prepared remarks, to also show something doctors very much desire, steroid withdrawal as rapidly as possible to avert side effects. But you're right in the sense that it shows the difficulty in this arena of beating steroids, which are active, but we really think it's around the definition of the endpoint, and we -- our endpoint is robust and meets the need for our program, and we're confident about it. William Meury: Thanks, Steven. The only other thing I would add, Steve, here is we, fortunately, with Niktimvo have 2 shots on goal. We have the combination study with steroids and with Jakafi. Obviously, these are calculated risks. You get a combination study with Jakafi that's positive and you're going to 2x the addressable population and then you have a steroid-free regimen. Obviously, we want both these programs to work. 1 of 2 work, it could change the trajectory of Niktimvo fairly significantly. Pablo, do you want to address the first question? Pablo Cagnoni: Certainly. With 989, I think it's important to focus on the presentation we'll have before the end of the year. That's a later data cut. It's going to have more patients. It's going to have longer follow-up. So I realize that the abstracts will be released, but I would ask you to wait for the update we'll provide before the end of the year and focus on that because it's more substantial and particularly follow-up is substantially longer. Operator: Next question today is coming from Jay Olson from Oppenheimer. Jay Olson: Congrats on the quarter. Can you describe the rationale behind terminating the BET inhibitor program? Was that mostly related to your strategic focus on targeted therapies like mCALR in myelofibrosis? And as a follow-up to that question, since the BET inhibitor was on track to begin registrational studies, how soon can you move mCALR into registrational studies? William Meury: Jay, thanks for the questions. I'll take the first part and then turn it over to Pablo. As it relates to the BET inhibitor, the risk-benefit calculus, as you know, for BET inhibitors right now is complex, differentiating class-wide risks from molecule-specific ones is challenging. And so in general, we're prioritizing programs with a higher PTRS and a clearer path to market. And that was fundamentally why we stopped the BET inhibitor program, and then I'll let Pablo comment further. Pablo Cagnoni: So I don't have anything to add in terms of the reasons for terminating that program. In terms of the CALR antibody program, Jay, the goal is to start one or more pivotal trials in 2026. As we mentioned during our EHA update in ET, ET will likely be the first pivotal trial to start, and that should start at some point in the first half of the year. In parallel with that, we are having regulatory interactions and continue to review the data in order to decide the right trials and the timing for implementing Phase III trials for patients with myelofibrosis that most likely start at some point in the second half of 2026. I think that one thing that I would like to emphasize is the termination of the BET program in no way reduces our ambition in MPNs. As I mentioned earlier this year, our goal by the end of the decade is to have a solution for every single patient with a myeloproliferative neoplasm. We're building a pipeline of targeted therapies to address that need, and we intend to continue to advance those programs. Operator: Next question today is coming from James Shin from Deutsche Bank. James Shin: First one is for Pablo. Pablo, appreciate 989 is a targeted therapy for MPNs. But can you say whether or not we should expect SVR, TSS and anemia burden, at least on the kinetics front to look similar to rux? And a follow-up for Bill, Jakafi's COMFORT-I and II set a high bar for frontline myelofibrosis. So from a timing, financial and regulatory perspective, can you share Incyte's progress on gaining certainty for 989's frontline MF development path? And will that development path align with Jakafi's LOE? William Meury: Yes. All right. Pablo, you can take the first part of the question. Pablo Cagnoni: So thank you for the question. It is very important for us, to address your question directly, it's very important for us to demonstrate that 989 has an effect on clinical endpoints in myelofibrosis. That's why the presentation will include SVR25, SVR35, TSS50 effect and effects in anemia. We realize those are -- a combination of those are the approval endpoints in MF and showing efficacy in those endpoints is critical for this program. So those will be part of the update we provide before the end of the year. Let me pass it back to Bill. William Meury: Yes. And as it relates to both 989 in ET and MF and how we think about the business post 2029, filling a revenue gap is not what 989 does. What 989 does is build a long-duration revenue and cash flow stream well into the next decade. So we don't see the end of the road. And here's how I think about second line, first line. And Pablo commented on this. There are targeted treatments available in many other cancers. That is not true in MPNs. And so for hematologist, there is intrinsic appeal to the first targeted therapy. And when you take a look at ET, hydroxyurea is a standard of care. It's the most widely used cytoreductive agent in ET, but it achieves only a partial response, not a complete response in most patients. And there's 3 consequences to that. The first one is residual symptoms, not as significant as it is in MF, but residual symptoms. The second consequence is residual thrombotic risk. And the third consequence is residual transformational risk. 989 solves the problems that HU created. And even in a second-line single-agent study or with those data, I expect that 989 will reshape the use of hydroxyurea where patients transition off of therapy rapidly because 989 is targeting disease-causing cells. It's better tolerated. For example, HU has got 7 warnings and precautions, and it's easier to dose. The market for ET is about $5 billion, ET/mCALR patients. Roughly half of them are resistant or intolerant to therapy. And so I think there's a clear glide path to growth in ET with the first study. And then as it relates to MF, it's, of course, a completely different type of MPN. The risk of transformation to leukemia is real. It's more aggressive. It's more symptomatic. As effective as Jakafi is, as you know, the SVR35 is between 30% and 40%, right? Symptoms are in the mid-50s. Everybody on Jakafi progresses. And so even in the second-line setting, there is going to be, just like in ET, a move to either add 989, we'll have to, of course, produce that data or use 989 after Jakafi. And I think that the opportunity in both MF and ET is fairly significant. And what we're looking to is build the business well into the next decade. If we start the studies in the middle of '26, give or take, we should be getting out sometime in that '29, '30 period. Thanks for the question. Operator: Next question today is coming from Salveen Richter from Goldman Sachs. Salveen Richter: You've highlighted VAF as an important part of the mCALR story in terms of the MPN story in terms of the drug being a functional cure. And just remind us what you want to see on VAF reduction and level set us on how well understood the ultimate correlation is between VAF and clinical outcomes. And just a second question here, Bill, on your -- you've highlighted your focus on managing operating expenses and streamlining the company. How are you thinking about the evolution of the company's target margin profile over the next few years and also through the Jakafi LOE? William Meury: Great. I'll turn the first question, Salveen, about molecular response over to Pablo, and then I'll address your question about OpEx after that. Pablo Cagnoni: Thank you for the question, Salveen. So we have 3 -- and it's important to remember, we have 3 molecular endpoints that we're going to report data on before the end of the year. One is VAF in whole blood. The other one is CD34 positive mutant CALR cells in peripheral blood mononuclear cells. And the third is malignant megakaryocytes or mutant CALR megakaryocytes in the bone marrow. And the reason why emphasizing those 3 is because VAF is a -- it's in a way, a lagging indicator of what's happening in the bone marrow, which is what truly matters. The disease originates in the bone marrow and reducing malignant megakaryocytes in the bone marrow, which is something we showed for ET at EHA this year is the critical disease-modifying effect. That then will translate into reduction of CD34 positive mutant CALR positive cells in peripheral blood. And that, in turn, over time will be reflected in a reduction in VAF. So I think I would emphasize that it's important to look at all 3 components of the translational endpoints, and we'll talk about all 3 before the end of the year. In terms of correlations, look, we know that how VAF is a bad thing, and we've shown some data in ET that patients with lower VAF -- with slightly higher VAF reductions over time have better hematologic responses in ET. That data are important. We still believe that more likely than not, initial approvals for 989 will be based fundamentally on clinical endpoints, traditional clinical endpoints, a combination of the endpoints that we know, which are spleen, symptoms and anemia. And that's the way we're building the pivotal trials for next year. I'll pass it back to Bill. William Meury: Yes. Thanks, Pablo. And as it relates to OpEx, Salveen, it's a good question. I spent a lot of time thinking about it. And as you implied in your question, we have to take a multiyear view of the budget. And I'm not necessarily hard coding for OpEx as a percentage or R&D as a percentage of sales, but I do expect that the quantum of at least spending growth or the percentage is going to come down. And I expect it to come down because of an increase in sales and leverage. Here's what I will say, every R&D dollar and every SG&A dollar has to serve a business strategy. And budgeting is about distinguishing the high-value projects, as you know, from the low-value projects or another way to put it is good cost from bad costs. What we're really solving for, though, is creating the steepest growth curve possible post '29 and a long-duration revenue and cash flow stream. We will streamline costs where possible, but not underfund critical initiatives and compromise growth. And that is -- those are the principles as I think about OpEx. And I do expect our margins to improve over time in part due to increasing sales and good cost control. Thanks for the question. Operator: Next question today is coming from Peter Lawson from Barclays. Peter Lawson: On Niktimvo, kind of how sustainable is the trajectory on that growth? It's really impressive this quarter. And I wonder if you could also talk around the profitability of that franchise. William Meury: Peter, could you just repeat the question? It was a little hard to hear. Peter Lawson: Yes. Sorry. On Niktimvo, if you could talk through the sustainability of the trajectory. It was really impressive this quarter. And if you could talk through the profitability as well. William Meury: Yes. I'll start off and if Mohamed, who runs that business has any additional comments, he can contribute too. You're right, it's off to a very, very good start. We're annualizing almost at $200 million a year. I think the important point about the launch right now is you have virtually every BMT center in the United States using and purchasing Niktimvo, which I think is very, very encouraging. All the feedback we've got from transplanters is very, very positive. As you know, we're in the third, fourth quarter of a launch and launches early on can be unpredictable from quarter-to-quarter. All I can tell you is I think the growth trajectory of this is solid right now. If you look at the Rezurock curve, when it launched, we're virtually right on top of it. That product -- they had a tough quarter, but it's roughly a $500 million business. So I think the prospects for growth next year are solid. We'll, of course, share guidance in early 2026. But I don't see any red flags right now other than launches can be a little bit unpredictable and uncertain. But I like the way it looks. The next comment I would make as it relates to profitability, one of the nice things about this product is it's a specialty product. And we're not covering 10,000, 20,000, 30,000 physicians or several thousand hospitals. We have a very targeted audience of BMT centers across the United States. And so when you look at the margin profile of a product like this, it's very healthy. That's what I can tell you about profitability. I wish more of them were as profitable as Niktimvo. Mohamed, do you have anything you want to add? Mohamed Issa: Yes. Thanks, Bill. Maybe just to complement and give you some color on the sustainability of the growth. As Bill mentioned, a really broad penetration with 90% of transplant centers picking up Niktimvo, but we're seeing all of them have repeat orders year-to-date, which speaks not only to the trial utilization, but the repeat utilization within these accounts and the feedback continues to be positive. Another point on the sustainability of the trajectory is in line with our expectations, most of the utilization today is happening in the fourth line, but we're seeing a lot more preference and increasing preference in the third-line setting, which gives us a lot of headroom left to go. And maybe one last point on the sustainability. Our goal that we communicated on the last call was to have about 1,000 active patients on therapy by the end of the year. Through the first 9 months, we have about 800 or so patients, well on our way to that 1,000 patient goal by the end of the year, and that continues to be promising as well. And then from a contribution margin, maybe just the last note is this contribution margin for the Niktimvo P&L is one of the higher in our portfolios, and we expect it to continue to be such given the level of focus that we have on the product and the level of focus from a commercial execution. William Meury: Great. Thanks, Mohamed. Thanks for the question, Peter. Operator: Next question is coming from Evan Seigerman from BMO Capital Markets. Evan Seigerman: Great to see a lot of you at ESMO. So I think we'd all agree that mCALR is a very critical juncture for Incyte, but I want to take it out of the picture for a second. So can you walk me through how the current pipeline needs to mature to drive growth to the Jakafi LOE? And then what type of business development, you're not going to be specific, but would you have to do to help also supplement that growth? Essentially, I want to understand what Incyte looks like with and without mCALR by the end of the decade. William Meury: Thanks for the question, Evan. Yes, and it was nice to see you at ESMO, too. Here's how I would look at the pipeline. We're focused on 7 drivers, 7 projects that I think have the potential to create very meaningful value. And not all of them have to work. Not all of them will work. We're not going to be perfect. But we have povorcitinib, which is a 3-indication product. We can build a JAK-anchored franchise in dermatology, where we have differentiated knowledge and capabilities and a very solid data set. The second project is 989, and I can't take it out of the picture, Evan, okay? That's an important project. We have 617F, which is still in early stage, a little bit more opaque. But as we derisk that asset, that could be as big or bigger than 989 in MPNs because it's covering a mutation that's much more frequent. In fact, it could be 2x the size of a 989. Then we have 3 solid tumor programs, which we derisked at ESMO. We still have more data to collect. We have G12D pancreatic cancer, TGF x PD-1 for CRC and CDK2 for ovarian cancer. What I would say here is that we're systematically and deliberately and at least up until ESMO, quietly building a high-impact oncology portfolio. There is a lot of substrate there. I don't expect all these necessarily to work, all right? But if 1 or 2 of those hit, they could be very, very meaningful. As we talked about at the start of the call, novel compounds against novel biological targets in cancers that have missed the IO revolution where there's significant medical need, and we're positioning all 3 compounds frontline in combination with standard of care chemo. And then the seventh project that I focus on is Niktimvo. And as Mohamed talked about, we're off to a good start. And there was a question about sustainability. We have 2 combination trials in place. If one of those combination trials hit, we're 1 for 2, we move this into the second line. If it's the combination trial with Jakafi, we have a nonsteroid regimen and you could 2x the value of that business. And so when you think about the flow across all of our 3 verticals, I&I, hematology and oncology, there's some real substrate there, and we don't need to be perfect. We just need 2 or 3 of these out of the 7 to hit, and we'll build a business that's bigger than the one that we have post 2029. Thanks for the question. Operator: Next question today is coming from Derek Archila from Wells Fargo. Derek Archila: Just curious for 989's pivotal trials in MF and ET expected next year, will these be with IV or with the on-body pump from enFuse? And then just a quick follow-up. In terms of a potential XR launch and kind of the commentary around the launch plans in the prepared remarks, I guess, how do you plan to position with payers? And I guess what's your base case in terms of the amount of shares you can convert from Jakafi pre generics? William Meury: Yes. Good question. I'll make a few comments about Enable and XR and then ask Pablo and Mohamed. First, we're really pleased to strike a partnership with Enable. They specialize in high-volume subcutaneous administration with products with a range of 5 ml to 25 ml. We also like the device because it's at-home, self-administered, comfort, the efficiency of their manufacturing operation. And I think it's a high-quality company. They're expanding their manufacturing site, which is an FDA-approved manufacturing site. And they have commercial devices, I think, in roughly 25 countries and about 8,000 units. And so this is a high-quality company. Pablo can talk more about the program. As it relates to XR, -- let's just -- Pablo, why don't you speak and then we'll go to XR. Pablo Cagnoni: So in terms of the plan to incorporating enFuse into the pivotal trials in MPNs, ET is pretty far along. We showed an update at EHA a few months ago on the data. The data has continued to mature. We have already initiated regulatory interactions around that. So we're probably going to be ready to start pivotal trial in ET before we're ready to deploy the enFuse device. For MF, the goal is to as quickly as possible, make the enFuse device available and ready to go so we can start those studies with the subcu administration. However, I can't be firm at this point. We need a little bit more time to really figure out the timing for the implementation of this, but that would be our goal for MF. William Meury: Mohamed, do you want to talk about XR? Mohamed Issa: Yes. If I can put that in frame for us real quick, Derek. Jakafi XR, as you know, represents a great addition to the portfolio, expected to launch in the middle part of 2026. HCPs and patients now are going to have a convenient once-daily formulation of a brand that they know and trust. We expect about 15% to 30% conversion from the IR by 2028. And with a slower erosion curve than IR, XR can be a solid incremental contributor to top line sales through 2030 and beyond. And as you mentioned, look, our launch strategy is focused on securing quick formulary access, accelerating HCP adoption and patient preference to maximize that uptick in the short term for that long-term value. And if I can just point to our ability to launch Niktimvo, FL in Monjuvi and Zynyz and SCAC, I'm just proud of our team's ability to execute on these launches, and I think XR won't be any different. Operator: Next question today is coming from Ash Verma from UBS. Ashwani Verma: So yes, a lot of focus on 989. Maybe just like looking at the Slide 20, a few different settings that you're exploring in ET and MF, but just wanted to confirm at this point, are you able to pursue first-line or naive patients in registrational studies? And then secondly, on the formulation, like where are you able to get the volume down to like how many ml? And is this something that can be a home subcu injection and not just an on-body formulation? William Meury: Thanks, Ash. Pablo, do you want to take that? Pablo Cagnoni: Thank you for the question. So I think the first part was about first-line MF. And the answer is we fully intend to develop 989 for first-line patients with myelofibrosis. That's why we're running the combination with ruxolitinib in treatment-naive patients. That work is ongoing. We're not going to disclose results on that before the end of this year, but I'm confident that we will find a path there. We have very clear preclinical data showing synergy between 989 and ruxolitinib in the right models of MF. So I'm confident that we will find a path there. In terms of the subcu, our goal is to have a device that patients can use at home for self-administration of 989 subcutaneously. That's the goal. That's why we put in place a collaboration with Enable, and we think we're going to find a path to that in 2026. Operator: Next question today is coming from Reni Benjamin from Citizens. Reni Benjamin: Congratulations on a great quarter. I guess just a follow-up with rux XR. There was a strategy way back when about combining it with a pipeline product to help kind of fight this LOE. Are you looking at any potential combinations to move this forward with either the pipeline or in-licensing a product and staving off this erosion curve for rux? And as a follow-up, you're starting this registrational program with TGF-beta. I'm kind of curious as you think about how large the study is, the delta that you need to show to have a positive study, how you come to the calculus given the kind of limited data that you have so far? William Meury: Ren, thanks for the question. I'll take the first one and turn the second one over to Pablo. Right now, our focus for XR is launching it for the Jakafi indications. We're not working on any combinations in development, and we don't plan to right now. I know that there was a history there, but we're just focused on the once a day and preserving some portion of that revenue stream and getting a more convenient dosing regimen out. As it relates to your second question, I'll turn it over to actually Steven Stein. Steven Stein: Ren, thanks for the question. So it's first-line microsatellite stable colorectal cancer. The combination we'll be advancing there, as we alluded to at ESMO is with FOLFOX and bev. That's used across the board, independent of RAS mutant versus wild type, independent of left or right side of tumor. The enabling safety work has already progressed well and will continue. There's benchmarks available both for progression-free survival as well as overall survival. The primary endpoint, as we alluded to at ASH, will be PFS because OS takes a little longer to get there. And the size we'll put up when we launch the study. But you can estimate it's probably north of 500, and we'll be well powered to show the PFS advantage we want. Operator: Your next question today is coming from Jessica Fye from JPMorgan. Jessica Fye: I had a couple more on 989. So I guess for Pablo, recognizing that we won't have frontline data for 989 by year-end, can you talk about what elements of these data in post-Jakafi patients and Jakafi suboptimal responders could make us come away confident that 989 could be successful in the front line? And I guess, specifically for that combo data set, I know it's smaller, but what are you going to be looking for as proof points that 989 is offering clear clinical benefit on top of Jakafi in the absence of a control arm? I guess is there like a certain magnitude of change from baseline on those key measures that you think would exclude any natural variability in the endpoints over time had the patients just remained on their Jakafi monotherapy? And I have a follow-up. Pablo Cagnoni: Thanks, Jess. So I think that the elements -- look, like with any early development program, early-stage development program, I think looking at the totality of the emerging evidence is important. So the first part here is obviously looking at the safety profile. We showed that in ET early this year. We'll show it in MF before the end of this year. And because of exclusively targeted nature of 989, we think that the safety profile, the really excellent product that we've shown so far is a key element for the future development. So the second part is obviously efficacy. The 2 components, as I mentioned earlier, are obviously the classic clinical endpoints. We need to see as monotherapy in patients that are resistant intolerant or ineligible for Jakafi, we need to see clear evidence of impact on clinical endpoints, spleen reduction, improvement in symptoms and anemia improvements in addition to translational endpoints. Now when you look at the add-on cohort that we're going to show some data, I think it's important to remember that those are the hardest patients to treat. Those are patients that did not respond to Jakafi in an ideal way despite a minimum of 12 weeks of treatment and being 8 weeks on a stable dose. So any improvement on classic endpoints in those patients, we think, is highly meaningful. When you look at what's available in second-line MF, the benchmarks are pretty low, as I mentioned earlier, between 9% and 20% for SVR35, for example. So in our view, when you combine the monotherapy data in second line, together with the ability to combine 989 with Jakafi, together with the safety profile, I think it's very easy to put a story together that increases our confidence in our ability to move 989 to the frontline setting as quickly as possible. Obviously, at some point in 2026, we'll provide an update on the treatment-naive patients, as I mentioned earlier, and that sort of will be the definitive element of that story. Jessica Fye: You mentioned looking at SVR25 in addition to SVR35. How do you incorporate SVR25 data into your decision-making? Pablo Cagnoni: We really don't -- to be honest with you, we report both 25 and 35 as it has been done in other trials in the past. Some of these patients have relatively short follow-up. We have patients enrolled at a range of doses. As you know, these are dose escalation trials. So we think it's important to have directional data where the spleen shrinkage is going. But the key element here is SVR35, make no mistake about that. We report 25 as well, but SVR35 is what we really care about. Operator: Our final question today is coming from Kripa Devarakonda from Truist Securities. Srikripa Devarakonda: Another one on 989. So when it comes to a rux combo, is there a rationale to develop both in suboptimal responders as well as in rux naive patients? Or do you see it as a better strategy to focus on one versus the other for the longer term? And secondly, what's the FDA guidance for the endpoints? Now I know you said you need to show both SVR35 and TSS50, but would they be co-primary endpoints? And do you have to hit on both? Pablo Cagnoni: So let me take the second part of the question first. Look, we'll have discussions with FDA on the appropriate regulatory endpoints for what is a novel treatment paradigm for patients with MF, which we think 989 represents. We think it's going to be based on clinical endpoints predominantly, what those specific clinical endpoints will be, we'll discuss it with FDA. We think there's an argument to be made about modifying some of what has been done previously in terms of co-primaries for SVR35 and TSS50. The impact on anemia, for example, we think could be very important and very interesting for FDA to contemplate. In terms of VAF pivotal trials we will do in MF, those decisions are in the process of being made, and we'll update you over time probably in early 2026. But we intend to develop 99 to try to address the needs of all patients with MF that are mutant CALR positive. That includes patients that are naive or patients that were treated with Jakafi initially and did not respond or were intolerant. And in those 2 contexts, monotherapy and in combination with ruxolitinib potentially can have a role. We'll give you more details over time as we disclose the data. Operator: Thank you. We reached the end of our question-and-answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Hello, everyone, and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions] And with that said, please go ahead with your presentation. Christer Wahlquist: Good afternoon, and welcome to the presentation of Nolato's Third Quarter 2025. This is Christer Wahlquist speaking. During the quarter, we saw organic growth in both our two business areas, approximately 2% if we adjust for currency. And that, in combination with the strong increase of our margins created a strong increase of our EBITDA. So the sales ended up at SEK 2.3 billion on some and the operating profit rose 20% to SEK 281 million, that includes a nonrecurring item of SEK 7 million corresponding to an insurance claim. But as I mentioned, we saw strong improvement of margins in both business areas. We have maintained a very strong financial position with a debt ratio 0.6x EBITDA, giving us opportunity and possibility to expand together with the right business cases from existing and new customers as well as executing on our acquisition strategy. The Nolato Group consists of two business areas, the Medical Solution, being the largest part at approximately 56% of group sales and Engineered a little bit less than 50% and the rest of the business. Starting out with Medical Solutions. Here, we see sustainable growth in global expansions. And on this graph, you will see a 20-year show of our sales over the last 20 years. So we've seen good growth over the years. We have a very spread business with six focused product areas, and there are also well spread sales across global leading customers, creating a strong foundation for continuous growth and focus on these six product areas. If we look into the third quarter for Medical Solutions, we saw a sharp margin improvement, a full 1.4 percentage points, ending up at 12.1% in the quarter. That, in combination with the increase of sales, 2% created, of course, an improved operating profit ending up at SEK 159 million. We are expanding our business, so we have expansions ongoing in Hungary, Poland and in Malaysia. And all of these are according to plan. And in our Hungarian facilities, we have, during the quarter, started validation deliveries during the third quarter. And we expect that these validation deliveries to continue on approximately the same level for the coming quarters. And then subsequently expected to increase somewhere in the late second quarter. Jumping into Engineered Solutions. Here, you also see a graph of the last 20 years, and we are now in a position where we have downsized our VHP business and our building a strong foundation in the focused product areas shown on this page. Here, we have a well spread business, different product areas with a little bit different if we specifically look into the materials, which is then, of course, based on our own recipes of raw materials. If we look into the third quarter for Engineered Solutions, we saw a very sharp margin improvement, a full 1.8 percentage points during this quarter and it's coming from implemented cost savings and increased capacity utilization and of course, some price adjustments. The business sales totaled SEK 1.035 million during the quarter, which was a 2% currency adjusted organic growth. We saw sales to the automotive industry increased through higher product invoicing and more normal vacation shutdowns amongst our customers. We saw a continuous growth in our hygienic area, thanks to investments in Mexico and also a positive performance for our consumer electronics particularly in Asia. Per-Ola Holmström: Good afternoon. Per-Ola Holmstrom commenting on group financial highlights. Net sales amounted to SEK 2.342 billion in the quarter, representing a 2% growth adjusted for currency. Operating profit EBITA increased by 20% to SEK 281 million. And the EBITDA margin for the group improved by 2.2 percentage points to 12.0%, including a nonrecurring positive item of SEK 7 million. The effective tax rate was 19%, which we expected to be for the full year as well. Net investments were SEK 183 million in the quarter, a higher level of CapEx than last year as planned, mainly for the expansion in Hungary. We foresee around SEK 850 million in CapEx for the full year 2025. And by then, we expect to have paid almost SEK 500 million of the total expansion of SEK 600 million in Hungary. Enhanced cash flow after investments was lower than last year, SEK 180 million compared to SEK 191 million. Earnings per share increased to SEK 0.8 million. Return on capital employed improved again to 14.1%, mainly driven by the margin improvement. Christer Wahlquist: Okay. Focusing on the current situation per business area, starting with Medical Solutions. Here, we have our maintained growth strategy, and we see high market activity. We have been focusing on margin, implemented cost adjustment and increased efficiency. Of course, innovation and sustainability based on a broad customer with long-standing close customer relationship. We also are now expanding in Asia, in Poland and also in Hungary. On the Engineered Solutions side, we have advanced our market position. We have a lot of focus on innovative and sustainable solutions. We see success in new market, which is positive for materials and of course, expansion of our operations in Malaysia. We will now open up for questions. Operator: [Operator Instructions] First, we have Adrian from ABG. Adrian Gilani Göransson: Yes, I'd like to start off with a question on the expansion in Hungary and the outlook you gave on deliveries related to that. Are you able to say anything more specific on when you will go from these sort of validation delivery phase that you're in to a more -- to commercial scale deliveries? Christer Wahlquist: Yes. These type of large programs always have a lot of validation and it's different steps of validation. So we foresee that we will have a validation deliveries during this quarter, next quarter and the first quarter in 2026. And then somewhere in the second quarter, we will start deliveries to the outside market to the patients. Adrian Gilani Göransson: Okay. That's very helpful. And a follow-up on that. Do you see any risk related to this contract, given that the customer in question has had a bit weaker development than recently than I think most people had expected. I mean, could this have an impact on the full run rate volumes for your contract? Christer Wahlquist: We are happy with our discussions with our customers that we have not mentioned who it is. But we have good discussions, and we anticipate this program to start serial deliveries in, as I mentioned, then somewhere in the second quarter of next year and then gradually grow from there according to plan. Adrian Gilani Göransson: Okay. Understood. Then on engineered, specifically on the materials business that declined slightly year-on-year. How much should we read into that? Is that just a normal quarterly volatility? Or are you a bit more cautious on the outlook now compared to sort of last quarter, I guess? Per-Ola Holmström: Yes. As we did mention, most of that is coming from the automotive side, which is a bit pressed right now as many areas within automotive, and we foresee that going forward the next quarter as well to be in a similar development. Adrian Gilani Göransson: Okay. Understood. And then when you mentioned the efforts on consumer electronics that are actually yielding results in Asia specifically, does that mean that this Chinese facility that has been on low utilization is back at satisfactory levels now? Or are there more improvements here to make? Christer Wahlquist: We have more capacity, and our ambition is, of course, to gradually fill that with serial deliveries, but it's been improving, and we are gaining new projects and building up. But it's not fully utilized yet. Adrian Gilani Göransson: Okay. Understood. And just a final one from my end, a detail-oriented question regarding this insurance claim of SEK 7 million. Maybe I should know this, but what is that related to? And are there any outstanding claims left that could be booked as income going forward? Per-Ola Holmström: We had a flooding situation in one of the factories we have in the U.S. And this is the financial outcome so far, and it could be that we have some additional money coming from that during the end of this year or the beginning of next year. But it's no major money coming from that left. Operator: Let's move on to Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the project in Hungary, the validation delivery, first of all, can clarify what you mean with validation deliveries? What this means in practical terms? Yes, that's the first one. Christer Wahlquist: Okay. As I mentioned, during ramp-up of these type of very large and complex programs, you have validation of different steps, so you validate individual component manufacturing, some assemblies and then it has to be validated in the filling side of the customer and so on. So there are a lot of products that need to be tested for different variations of tolerances and so on. And this is what we are running right now. And we sell those products and are getting paid for them. So that's a normal behavior in this type of programs. Mikael Laséen: Okay. So is this meaningful in any way or very small revenue that you get right now to understand what will happen in Q4 and Q1 next year? Christer Wahlquist: Yes. The sales from these validations is approximately 1% of business area sales during this quarter. Mikael Laséen: Okay. Got it. And then moving on here, could you also talk to us about the EBITDA margin development for the Medical Solutions segment? It has been relatively stable at around 12% plus two, three quarters now. So what will drive the margins higher than above 12% or well above 12%, which I guess you're targeting? Per-Ola Holmström: Yes. If we look forward, we do see possibilities in increasing the margin towards the 13%. We did have some years back. And One thing that should support that is, of course, the new program ramping up in Hungary. We have commented on that before. And of course, also moving into higher volumes for some of the expansions we're in right now, adding up capacity utilization. Mikael Laséen: Okay. And how is the U.S. side progressing for the medical side? Per-Ola Holmström: Sorry, the new? Mikael Laséen: The Medical segment, how are they doing in the U.S? Per-Ola Holmström: They are part of the long-term improvement we have made when it comes to margins but we would still see the U.S. operations as a possibility to move to improve margins compared to the rest of the business area. Operator: And now we'll give the word to Carl Ragnerstam from Nordea. Carl Ragnerstam: It's Carl from Nordea. A question from my side as well here. On the new contract, I mean, that you're ramping up in Hungary, could you give any flavor on the production efficiency you're seeing right now, potentially bottom mix versus your expectations? And so far, I mean, it's obviously, I mean, validation volumes, but profitability projection so far if it meets your previous expectations? Christer Wahlquist: Since it's validation, there is no sort of feedback on yield and those kind of things. Of course, you can look on the individual cycle times, and they are according to our expectations, but the full yield, it's too early to give any comments on that. Carl Ragnerstam: And the production you're ramping up now, is it covering the cost so far? Is it the burden? I guess it's a burden of margins at such early stage, right? Or -- because its contributed 1% to organic growth in medical. What is the EBIT impact or if any? Per-Ola Holmström: It's, of course, a small EBIT effect, but it is covering its cost right now. Carl Ragnerstam: Okay. That's very clear. And on IVD. I'm a bit curious to hear more about what you're seeing there. Because we've seen -- I mean, as you wrote a weak start to the year, we saw before that early indications of a recovery followed by declines. So it's been a bit back and forth, at least it is that -- how I look at it. So how do you view the current recovery in that segment? Christer Wahlquist: Yes. There is a lot of dynamics behind the IVD as we've been talking about of course, the volatility and the supply chain discussions after COVID, but also the change of one customer changing to our deliveries to an end customer is that. So there is a lot of changes. But we look positive on this market segment. We see possibilities, definitely. We see a growth opportunity going so we are very positive, but we have seen, as you mentioned, some back and forth in the delivered volumes. Carl Ragnerstam: So you see the growth in IVD to be here to say for now, at least what you see? And do you see an acceleration from here? Or what is your feedback from customers? Because they used to be quite a good earnings driver. Christer Wahlquist: Yes. I think the feedback we get from customers is that it's a long-term growth area. They see that and they are adding new test into this type of product. So definitely a long-term growth opportunity. But with some volatility still going on in the single deliveries over quarter-for-quarter. Carl Ragnerstam: Okay. That is very clear. And also, maybe you mentioned it, I didn't hear the full call. But in the materials, you've seen the sort of weakness in automotive. On the other hand, where you've seen telecom, I mean, offsetting it. How do you view the short midterm development here? Because we've seen the deceleration in telecom, if I remember correctly, right, from very favorable comparisons. So do you see it at low single-digit negatives ahead as well short, midterm before automotive picks up pace or how do you view the trajectory from here? Per-Ola Holmström: I think we should see a sequential development for materials, which is very similar as this quarter in the next quarter. That is the best view we can give. Long term, it is a good growth opportunity for us. But this quarter and also in the next quarter, we foresee a bit slower operations in that area. Carl Ragnerstam: And when you see sales sequentially, is it a minus 1? Or is it in absolute numbers or perhaps both? I don't have the comps on top of my head. Per-Ola Holmström: I would say, in absolute numbers similar to Q3. Operator: That concludes the Q&A session here. Thank you very much, Christer and Per-Ola for presenting here today. Thank you, everyone, for tuning into this webcast with Nolato and I wish you all a great rest of the day. Thank you very much. Christer Wahlquist: Thank you. Bye-bye.
Operator: Good morning, and welcome to the UnitedHealth Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 28, 2025, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley. Stephen Hemsley: Good morning. Thank you for joining us today. Our enterprise continues to advance on the improvement paths first discussed with you in July. We've been introducing new leaders, strengthening underperforming businesses, identifying both opportunities and inefficiencies and importantly, recommitting to the mission and culture of this company. We're getting at the core of the underperformance issues with fresh perspectives, intent on positioning our organization as a positive and innovative leader helping to advance next era of health care. A keen sense of urgency in this effort is consistent throughout the enterprise. At the same time, recognizing the pace of progress varies across our businesses, depending upon their challenges and opportunities. Some efforts will require more time and investment. Others will show more immediate progress. Repricing within UnitedHealthcare is on track to drive solid operating earnings growth from margin improvement within that business in 2026. In our less mature businesses such as Optum Health and Optum Insight, our efforts to improve operations and make needed investments will show more measured progress in 2026 and will take more time to fully bear fruit. As Patrick Conway will discuss, our belief in the need for an impact of value-based care remains intact, as is our confidence in returning to expected performance standards. And throughout the company, we will ensure we are focused on activities that align with our long-term future and be very disciplined about moving on from those that do not. We're committed to returning to the consistent enterprise-wide performance levels you should expect of us. Within Optum Health, the team has taken concrete steps that will refocus the business back to its original mission, actions that will narrow networks with more emphasis on appropriately aligned physicians, geographies, the right clinical services and the right benefit offerings for the members we serve. We are also keeping sharp focus on the continued competitiveness of UnitedHealthcare as evidenced by our recent Medicare STARS scores showing improvement year-over-year, and that work remains intense now for payment year 2028 STARS performance. As we look ahead to the next few years, we will consistently emphasize the fundamental execution discipline that has long been a key trade of this company, and I'm gratified to see the quick and enthusiastic response to this enterprise -- to this emphasis from our leadership team. External challenges will remain, including continued headwinds in 2026 from the third year of nearly $50 billion in industry-wide Medicare cuts by the previous administration as well as Medicaid funding and program pressures. Even so, I'm confident we will return to solid earnings growth next year given the operational rigor and more prudent pricing. While we are still finalizing 2026 plans and intend to share full guidance with you in January, current analyst consensus captures a likely stepping off point for next year. We intend to balance our earnings growth ambitions in 2026 with investments and actions that will drive higher and sustainable double-digit growth beginning in 2027 and advancing from there. That is the perspective we're keeping front of mind. Our longer-term outlook will be refreshed as we continue to execute over the next year. As we've been doing these last few months, we will continue to engage actively with both investors and the broader stakeholder community and plan to convene our investor conference in the back half of 2026. This morning, Tim Noel and Patrick Conway will provide details on the progress of UnitedHealthcare and Optum, respectively. Our Chief Financial Officer, Wayne DeVeydt; will review third quarter results. I'm pleased to welcome Wayne to our leadership team. He has the right experience, values and expertise to help guide UnitedHealth Group at this moment in our development, and he's off to a fast start. So with that, Tim, you want to take it? Timothy Noel: Thanks, Steve. For the current year, overall UnitedHealthcare performance remains in line with the expectations we offered in the second quarter. Medical cost trends remained historically high but consistent with our second quarter guidance, and we expect that to continue throughout the remainder of 2025. Turning to our efforts for 2026, a vital element has been our pricing. Since our last update with you, we've repriced the vast majority of our UHC risk businesses, including Medicare Advantage and to varying degrees, our commercial fully insured and residual ACA offerings. Trend experience for the third quarter continues to validate the actuarial forecasts underpinning our 2026 pricing actions. Taken together, these actions position each of our businesses on a clear path towards margin growth in 2026 with the exception of Medicaid, which I will discuss in a moment. Our Medicare business continues to perform in line with the expectations we shared last quarter. That's true for care activity and medical cost trends, and importantly, for the mix of clinical activity and utilization across physician, outpatient and inpatient. We forecast a full year 2025 trend of approximately 7.5% in Medicare Advantage, consistent with our previous expectations. As we shared with you last quarter, trend remains elevated across Medicare overall with our Med Sup offerings still seeing medical cost trends in excess of 11%. In individual Medicare Advantage, we continue to believe an expected 10% medical cost trend for 2026 has us positioned appropriately. This trend assumes assumption reflects a continuation of the elevated care activity levels observed in 2025, known impacts from fee schedule changes and continued expansion of aggressive provider coding and billing practices. We have taken a similarly prudent view across all our Medicare product offerings for 2026, including Medicare Supplement, Group MA and stand-alone Part D. For Medicare Advantage, we're now about 2 weeks into the annual enrollment period and early results are in line with our strategic positioning for 2026. Our plan for next year reflects a conservative path focused on margin growth. We made significant adjustments to benefits and executed targeted plan exits and network reductions to offset elevated medical trends and government funding decreases. As a result of our planned actions as well as competitive market dynamics, we expect membership contraction of approximately 1 million members in total Medicare Advantage, including individual and group markets. We expect these actions will drive margin improvements in 2026 with potential for further advancements in 2027 that will position us to reach the upper half of our 2% to 4% targeted margin range, all of which is supported by strong STARS results. As Steve mentioned earlier, we already have shifted focus to the next STARS performance period including incremental investments made in the fourth quarter. Turning to commercial. We are focused on pricing and cost management efforts to support 2026 margin recovery. At this point, approximately 60% of our group commercial insured offerings have been priced for next year. Our commercial pricing reflects the elevated cost levels we've seen this year, which we expect to persist in 2026. While we expect our group fully insured business to contract in line with the broader market, we continue to see strong traction for our self-funded offerings. We expect the vast majority of our employer insurance businesses to be repriced for 2026 and to return to our normal margin range in 2027. Moving to ACA markets. We have submitted rate filings in nearly all of the 30 states where we participate that reflect 2025 morbidity and experience. These include average rate increases of over 25%. Where we are unable to reach agreement on sustainable rates, we are enacting targeted service area reductions. We believe these actions will establish a sustainable premium base while likely reducing our ACA enrollment by approximately 2/3. These actions should drive margin improvement in our employer and individual segment in 2026, though still below our targeted 7% to 9% range. In Medicaid, the path to recovery will be more challenging. States have not funded in line with actual cost trends. So funding levels are not sufficient to cover the health needs of state enrollees. While we're making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity will likely extend through 2026. To date, we have received 2026 draft rates on almost half of our contracts, which have a January 1 rate cycle, and we continue to advocate for rate updates to better reflect our ongoing experience with elevated trends. Our team is focused on addressing drivers unique to these markets, especially behavioral health and will continue to push for appropriate funds. As I said last quarter, wherever states support responsible funding for Medicaid, we remain committed to serving people through that program and view this as integral to our mission. As we indicated in July, we anticipate Medicare margins will be breakeven for 2025. As we look to 2026, we expect margins to decline further as existing cost trends continue and the current rate environment does not change. Looking at UnitedHealthcare overall, the underlying business continues to perform well in serving consumers, plans and program sponsors. To give you some examples of how we're enhancing the experience for these cohorts. Nearly 85% of member inquiries are served digitally. When members call us, 90% of calls are answered within 30 seconds and 95% of members' questions are resolved in the first interaction. Some 95% of our claims are automatically processed immediately. We're delivering more value, ease, simplicity and guidance throughout the UHC member experience. We're also aggressively scaling AI and machine learning capabilities to enhance these experiences and optimize core performance. While 2025 remains a transition year, the pressure we experienced is largely a result of mispricing and suboptimal market positioning. We remain humbled by the challenges of this environment and the lessons we've had to learn once again, but confident that we are in solid footing to recapture our performance potential. With that, I'll turn it over to Patrick Conway, CEO of Optum. Patrick Conway: Thanks, Tim. I will spend the majority of my time today updating you on our efforts to restore Optum Health to its original intent around value-based care, which experienced continues to shows us is the optimal model to deliver the right care at the right time in the right setting for the best outcomes at the lowest cost to the people we serve, particularly in light of current cost trends and the market dominance of the large health systems. Over the last few years, through a period of rapid expansion, Optum Health's strategy around value-based care strayed from the initial intent of the model. 3 critical issues emerged. First, the provider network grew too large; second, the rapid pace of expansion and slower pace of integration resulted in operating inconsistencies exacerbated by relying too much on affiliated physicians who are less aligned with core VBC policies. And lastly, Optum Health was accepting risk in products and services less suited for a clinically oriented value-based model. Understanding these issues has helped us better pursue the steps needed to get back to the original intent of Optum Health and value-based care. Over the past 6 months, we have made significant leadership changes to better drive an integrated VBC provider model. Under the leadership of Krista Nelson, our Chief Operating Officer, we are focusing our efforts on 3 key connected areas to drive better performance. First, returning to the original intended clinical framework that best supports VBC. Second, moving towards narrower, more integrated and dedicated value-based care provider model and network; and third, focusing on the appropriate managed benefit product and patient base. Within this framework, our team has made solid progress, especially in bringing greater discipline to how we approach risk arrangements, which will benefit the business in 2026. This includes partnering with payers on benefit adjustments and appropriate rates to match the risk and mix of the populations we serve. At this point, we are close to completion and over 90% of our value-based payer contracts for next year and are on track to reach our goal of offsetting approximately half of the 2026 V28 headwind through payer contracting. We are also pursuing market and product exits, including from lower-performing PPO contracts. As indicated last quarter, we have finalized exits for 200,000 lives in 2026, the majority of which are PPO. While still early in the Medicare annual enrollment period, we expect total Optum Health value-based care membership to shrink by approximately 10% in 2026 before returning to growth in 2027. We also continue to intentionally shape our care provider network to prioritize high-performing partners who demonstrate strong patient engagement and consistently positive outcomes. We are moving to employed or contractually dedicated physicians wherever possible. We are separating from providers who are less aligned with the VBC model. The targeted network actions we've taken over the last 60 days will result in fewer providers in our networks starting in 2026. Within our markets and their related networks, we are working to more fully integrate our clinical practices to ensure greater performance consistency. The team is refining our portfolio and accelerating a consistent national operating model for regionally led high-performing Optum Health practices that reduces fixed cost, drives purchasing economies, align technology and most importantly, ensures continued high-quality care. These actions increase our confidence in our ability to meet our V28 cost reduction targets in 2026 and strengthen our operating foundations for the long term. Lastly, our engagements clinical work at Optum continue to track with our expectations for meaningfully reducing medical cost trends, engaging with over 85% of our high-risk members in 2025, which accounts for the remaining V28 pressure offsets in 2026. Bottom line, getting back to the basics of our VBC model will be good for the people we serve and for our business. As a point of reference, our 2026 CMS Star Rating projections show 80% of Optum at home members and 4+ Star plans and nearly 100% of our I-SNP members and 4-plus Star plans. Evidence of our quality of care is underscored by a strong NPS of 90 at our highest performing facilities. For the third quarter, Optum Health performance was in line with our expectations, reflecting the natural seasonality in our business and the pull forward of some investments. Within this, we expect to end 2025 with margins of just under 3%, which includes value-based care margins under 1%. We expect margin improvement across all of Optum Health in 2026 even in the face of the third year of the Medicare funding cuts. We believe these efforts will drive further acceleration in 2027 towards our long-term margin targets of 6% to 8%. Turning to Optum Health's fee-based care services, as we discussed last time, these were not performing to their potential. We are adopting more consistent and rigorous processes to better manage these practices for growth and appropriate profitability. We are seeing early results in our East region, which serves nearly 5 million patients, where we have generated a 3% per visit productivity increase quarter-over-quarter, driven by targeted improvements in scheduling, workflow efficiency and patient acquisition. We have similar undertakings in motion in our South and West regions. As for Optum Insight, we continue to perform solidly but not at the level of the potential for these services. Under the leadership of Sandeep Dadlani, we now see the alignment of our end-to-end technology and AI innovation efforts coming into formation. We will make the investments needed to accelerate the advancement of this distinctive platform that serves the expanse of the health system. We are confident in our plan will ignite top line revenue and operating earnings in line with our long-term growth targets. At Optum Rx, we continue to perform well with double-digit revenue growth in our pharmacies and a strong selling season for our pharmacy offerings. Our products are resonating in the market with stronger customer retention and new customer growth. At this stage, we expect new membership growth in 2026 will be more than offset by expected membership attrition from the UnitedHealthcare business. Importantly, our team remains disciplined around pricing, transparency and quality outcomes for our customers at a time when the pharmaceutical industry continues to drive cost ever higher. Today, we offer full rebate pass-through arrangements to all of our customers with nearly 85% of them participating. We were the first in our industry to announce this arrangement back in the beginning of the year and we expect 95% of our customers will be in these arrangements in 2027 with the remainder in full rebate pass-through by 2028. And we have increased payments on branded drugs to over 14,000 and independent retail pharmacies as part of our commitment to a balanced pricing approach. Thanks for your time today. I'll now turn it over to Wayne DeVeydt. Wayne DeVeydt: Good morning, everyone. I'd like to begin by expressing my sincere appreciation to Steve, Tim, Patrick and all of my colleagues at UnitedHealth Group for the warm welcome. It's truly an honor to be part of this team and to contribute to our shared mission. Today, I'd like to cover 3 important topics. First, I'll provide an overview of our quarterly performance and how it informs our outlook for the rest of the year. I will then discuss our capital and liquidity framework as we look ahead to 2026, particularly in terms of resuming share buybacks and strategic acquisition activities. And finally, I'll offer some insights into our expectations for 2026. Moving to the quarter. Today, we reported adjusted earnings per share of $2.92, which was slightly ahead of our expectations. These results reflect steady execution while we work through our longer-term improvement plans. We've balanced immediate performance with strategic investments that will support our future growth and natural diversification. Some details for the quarter. We delivered revenues of over $113 billion, reflecting 12% year-over-year growth driven by domestic membership expansion of over 780,000 lives year-to-date. We ended the third quarter with total domestic membership of more than 50 million. Our medical care ratio of 89.9% in the quarter compares to 85.2% in the same quarter last year, with the full year trending towards the lower end of the projections we offered last quarter. As Tim stated, medical cost trends, while historically high, remain consistent with our outlook for 2025 and align with our pricing actions for 2026. The operating cost ratio of 13.5% in the quarter reflects larger investments in technology and people than originally contemplated when guidance was set in 2Q. Specifically, we invested more than $450 million in broad-based employee incentives and in contributions to the UnitedHealth Foundation, both critically important for strengthening our relationships with our workforce and with local communities in the health system at large. And investments were proportionately greater in Optum Health and Optum Insight. Finally, our earnings were supported by strong cash flows of 2.3x net income and an overall increase in days claims payable of 1.7 days sequentially. Turning to our capital and liquidity framework. As previously communicated, we have paused our strategic acquisitions and share buyback while we dedicate our cash to returning to a long-term debt-to-capital ratio around 40% and interest coverage ratios in line with historic levels. In the third quarter, our debt-to-capital ratio remained stable at 44.1%, reflecting continued actions to improve cash efficiency, offset by the completion of the Amedisys transaction late in the third quarter which represented a net cash disbursement of $3.4 billion. We expect our debt-to-capital ratio to trend closer to 40% in the second half of 2026. Accordingly, while we have not finalized plans for 2026, we anticipate we may be in a position to reinstate our historical capital deployment practices later in the year. Finally, we generated operating cash flow from operations of $5.9 billion. We still expect to close this year with $16 billion in operating cash flow or 1.1x net income. Looking ahead to 2026. As Steve mentioned, we will provide formal guidance with our fourth quarter results in January. We are comfortable with current consensus and within that, we are making the requisite investments needed to accelerate our returns in 2026 and to position our company for meaningfully stronger growth in 2027 and beyond. We are optimistic in our ability to execute on our 2026 plans, but there are remaining headwinds we will have to overcome. Items to keep in mind include, we're entering the final year of V28, which represents a more than $6 billion headwind to the overall enterprise. As you heard from Tim and Patrick, we've taken numerous actions around benefit design, cost control and member engagement to substantially offset this impact. Further investment in Optum Health and Optum Insight is needed and we are accelerating some of those investments as noted in our third quarter results. We are also accelerating our pace of AI applications to fundamentally advance a vast spectrum of processes and capabilities we expect will structurally improve our enterprise performance. Our effective tax rate is expected to return to a more normalized level in 2026 as compared to 2025. And finally, investment income should continue to move lower as interest rates decline. From a tailwind perspective, our repricing efforts will be a catalyst for earnings growth as we begin returning to our long-term target margins with particularly solid year-over-year results expected in our Commercial and Medicare businesses. We also expect stability and a measured return to growth in our Optum entities, with aspects of that growth being reinvested in the business, specifically Optum Health and Optum Insight. These investments may slow 2026 growth, but should accelerate growth in 2027, more in line with historical expectations. We will be paying down debt and identifying opportunities to further reduce our interest expense as a result of the declining rate environment. And finally, we're taking an aggressive step on affordability initiatives that should improve overall medical trend relative to our pricing. While we have a number of moving parts to manage for the remainder of this year, we also have concrete plans to execute on all the items we discussed this morning that will position us for the type of growth you've come to expect from UnitedHealth Group. Thanks for your time this morning. I'll now turn it back to Steve. Stephen Hemsley: Thanks, Wayne. As I hope you clearly -- you heard clearly, this team and our 400,000 colleagues are focused on delivering on all fronts for the people we're privileged to serve and for our shareholders. As I said in the outset, we're being very disciplined. This plays out day to day as this management team recognizes the need to manage our costs, both in the short term as well as structurally. And through another lens, throughout the quarter, we have continued to evaluate the company's businesses with fresh perspectives and with continued confidence in our progress and our overall direction. We expect to complete that assessment in the fourth quarter as we position for 2026 and the years ahead. A few themes emerge from these efforts. We are dedicating our energies to serving U.S. health care needs and we'll be reducing our footprint in international markets that do not support these needs. We will be finalizing our initiatives for recovery of the remaining outstanding loan balances from the care provider support programs associated with the 2024, Change Healthcare cyberattack. For Optum Health, we are consolidating locations and completing plans addressing the geographic markets in which we will serve patients all intended to operationally advance and scale the leading value-based clinical care business of Optum Health. And we are realigning Optum Financial Services within our Optum Insight Services platform. While we have not yet finalized these plans, many of these actions are underway, and we believe they will improve both our focus and long-term performance. We are in the process of quantifying the accounting, tax and cash implications of our plans. At this stage, our preliminary work would imply a non-GAAP substantially noncash low single-digit billion-dollar charge. We will provide further details on our fourth quarter call as we conclude these efforts. Simply put, we will end 2025 well positioned for a return to solid growth in 2026, acceleration in 2027 and a clear focus on our long-standing mission and strategy. An important reason for my confidence in our outlook is the way I see our people embracing a renewed focus on the mission, culture and values of our company. How we go about things in the sensitive area of health care is as essential as what we do, and we are bringing new energy to that imperative each day. Now operator, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Josh Raskin with Nephron Research. Joshua Raskin: I appreciate all that detail this morning. I was wondering if you could just give us a more updated view or a more specific view on the sub businesses in Optum Health. I'm specifically looking to understand how much of the revenue base is coming from capitated premiums from health plans and within that, how much from your biggest customer, UHC. And then how much of the remainder is fee-for-service billings from your employed physicians and then maybe some of the moving parts, I heard a little bit of the membership details as you think about stepping into 2026, at least directionally. Stephen Hemsley: Sure. Why don't we just start with Patrick and then finish with Chris? Patrick Conway: That's great. So thanks, Josh, for the question. High level, the breakdown on revenue is as we described last quarter, 65% VBC, 15% care delivery fee-for-service and 20% are payer, employer services. Within VBC, it's about 2/3 of our book of business is serving UnitedHealthcare, the rest of diverse array of payers. Within growth potential as we close out this year, as you heard, we plan to close 2025 just under that 3% margin with VBC margins under 1%. And then we're taking the actions this year to set us up for '26, and I'll let Krista cover that portion. Krista Nelson: Yes. Thanks for the question, Josh. So I think as we are pacing into 2026, we remain anchored and committed to the long-term potential of this business, the 6% to 8% margin that we outlined in the second quarter. And within that, the 5% commitment to our value-based care agenda. We continue to work a robust set of actions and opportunities with clear line of sight and frankly, a lot of the ambition to the work ahead. And again, just remain optimistic on our positioning for the long term. Operator: And we'll take our next question from A.J. Rice with UBS. Albert Rice: Thanks, everybody. Maybe just I'll stick on the Optum theme. I appreciate the comments on Optum Insight and the comment about need for investment. Can you just sort of comment a little more deeply on your view of where Optum Insight sits competitively at this point? Where are those investments need to go and the time frame for seeing a reacceleration of growth there? Stephen Hemsley: Sure. I actually think that Optum's competitive position is actually pretty strong. We have a really nice base of business and continue to grow that. But I think the potential is much greater. So Sandeep, do you want to offer some views? Sandeep Dadlani: Sure. Thanks, A.J. Look, 4 weeks into the role, I'm super impressed with the talent, the domain knowledge, the customer franchise and the mission. I'm particularly excited by the momentum of some of our AI first new products in the portfolio. I mean just last week, you must have seen we launched Optum Real, which was inspired by innovation at UnitedHealthcare. This is the first real-time platform for claims and reimbursements anywhere in the industry. And just our early pilots are showing dramatic results in streamlining what I think is one of the most complex pain points for payers and providers. I'll give you another example. We recently launched Optum Integrity One. This is the most advanced AI auto coding tool in the market, and it's driving demand among health systems and hospitals looking to improve middle revenue cycle automation and performance. I mean just some metrics for ambulatory outpatient claims coding, this showed 73% productivity over prevailing solutions. And for hospital inpatient coding, it showed 23% increase in productivity. A third one is Crimson AI. This is an AI first clinical analytics platform that has created 6 wins in the last 90 days itself. This helps providers with their surgical costs and operating room optimization, just the average return on investment for any provider system investing in Crimson AI has been 13:1. So look, in my first few interactions with our top clients, they've expressed tremendous excitement and anticipation for our new AI-based offerings. They've also provided feedback on where we can do better. But it's clear that our traditional services in Optum Insight have to evolve to AI-first services, then to products and eventually to platforms. We are well on our way with this journey. We're beginning to build powerful AI products like the ones I mentioned. We are rationalizing and modernizing some of the existing legacy products that have great market presence. And then finally, we're investing in an AI-first workforce. Remember, I come from the tech role where we built 10,000 AI builders and we're building AI for sales teams. So we are investing, as earlier noted, in building, growing new products and offerings, and I'm incredibly excited about the possibilities. We want to simplify health care with AI and Optum Insight is the best company to do it. Thank you for the question. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks. First, let me congratulate and welcome Wayne back to the sector. Good to have you back. My question here is for Tim. Wanted to confirm, you talked about getting your commercial margins back to the 7% to 9% target range for 2027. Just wanted to make sure I heard that right. And then in terms of the current baseline for '25, I'm kind of backing into a margin in the 3% to 5% range for Commercial, Tim. Is that in the right ballpark? Timothy Noel: Yes. Thanks, Justin, for the question. So the commercial business, as we've talked about for 2026 and as a result of our pricing actions, we'll make meaningful progress as you think about the work being done across the ACA and the other commercial products to chip away at a return to that 7.9% long-term margin. We view 2026 as a year where we're probably still 150 basis points below that low end of the margin. But again, given how the pricing is being received in the marketplace, some of the opportunities that we see around controlling our costs in the future. We still feel as though that longer-term margin range of 7% to 9% is attainable. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Just wanted to ask for some additional color on the membership declines you're expecting in Medicare Advantage in 2026. Can you help us think about the breakout between individual duals and group? And then at the industry level, CMS is expecting enrollment growth to be pretty flat in 2025, I guess, first, does the company agree with that assessment? And second, how are you thinking about the type of industry growth you might see as we move into 2027 and beyond? Stephen Hemsley: I think Bobby Hunter is best for this? Robert Hunter: Yes. Great. Thanks, Stephen. So I'll hit the membership item first. Tim mentioned in the prepared remarks, approximately 1 million membership contraction for 2026 across MA. That does include both group and individual. Obviously, we've been pretty clear about the fact that we're exiting products impacting about 600,000 members. So think about that as kind of your first core element of how you build to that 1 million. And I would say the balance of the bridge to the full 1 million is pretty evenly split between the pressure inside of our group MA business as a result of taking a really disciplined approach to pricing there and some dislocation that will exist in the group customers as a result of some other more aggressive competitor actions. And then the other kind of 50% of that bridge from the 600,000 to the 1 million representing a pretty even split across our individual MA business. Obviously, really early in AEP at this point, but that's kind of the way I see it from this distance. When you think about growth overall, I would expect 2026 to be probably more in line with the general progression and growth that we're seeing in 2025. and that's largely a result of continued benefit cuts in the marketplace, continued plan closures and then some disruption in the broker community related to pretty broad commission changes. I absolutely believe in the long-term growth potential of MA, and I think we can grow above those levels as you step out further. Ultimately, right now, though, medical trend pressure is increasing the cost of health care and the funding cuts of the program are degrading choice, access and value to the consumer. And that's a real impact on the 35 million Medicare eligibles who rely on MA right now to make health care affordable. So still absolutely believe in the differentiated value proposition of MA but can I underscore the importance of stability in the program as we look to the longer-term growth rate and opportunity for MA. Thanks for the question. Operator: Next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: I was wondering if you could talk a little bit more about Optum Health. The pullback in retrenchment, I guess, and the refocus on certain types of plans, I guess, if we went back a number of years, I would have thought that value-based care could potentially serve the majority of MA lives. I mean is there a TAM that you're thinking about? Like what -- if you look at the market today and the markets you want to focus on, what percentage of MA really lends itself to a successful value-based care model? And I guess, how penetrated is that today? Stephen Hemsley: I'll have Krista respond to this, but I think we remain very positive and actually think MA should move more to value-based care and those themes just picking up exactly what Bobby said. So Krista, maybe you want to talk a little bit about the future of value-based care. Krista Nelson: Yes, absolutely. Kevin, thanks so much for the question. So as we mentioned in our opening remarks, we are deeply committed to value-based care and research continues to validate the impact that it can have. We know fee-for-service rewards volume. We know that value-based care aligns incentives. And when you look across Optum Health, we've got an incredible set of assets that really enable an integrated delivery system to create value in the market that we are focused in. And so I just think about the potential. It really is limitless. I think what you're seeing from us is a focus and operating discipline and really kind of getting back to some of our core so that we are able to expand and grow in the future. And we're really deepening our presence in the markets. We're focused on the appropriate network, on the appropriate providers, on the appropriate risk, footprint portfolio so that we are positioned for long-term success inside value-based care. Stephen Hemsley: Which implies you have to have it aligned to the right products, you have to have it aligned to the right processes and disciplines, and that alignment is literally what we're returning to. So good question. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: We saw a pretty significant step up in what I would call discretionary expenses in the quarter compared to Q2. You talked a lot about the need for investment in a lot of the business lines. I guess as you think about those numbers, can you talk about -- can you quantify the step-up in investments that were incurred in Q3? And how much of those should we think of as run rate investments versus onetime investments where we'll see leverage going forward? Stephen Hemsley: Sure. Wayne, just take it. Wayne DeVeydt: Yes. Thanks, George. I would say of the $450 million plus that we discussed, about 1/3 of that is a commitment to our foundation, which had not been funded at the levels that it should have been in the past and clearly puts us on a runway for multiple years of activities around the foundation. So view it as not necessarily run rate into next year, but nonetheless, something that we believe is part of our encore and core, and we'll continue to do it in the outer years. The delta of that then is all investments in our people. You heard Sandeep talk a bit about Optum Insight, and that cultivated with the number of resources we have there and aligning incentives around the execution that we expect. So I would view much of that as being recurring in nature, part of our core business and the investments we'll continue to make in the expansion that we see both in Optum Health and in AI specifically. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: I just had a question around utilization and how to think about it here in the back half of the year. Clearly, this quarter came in a little bit better than what we were expecting, but we're looking at what's happening with the exchanges, looking at the step-up in Part D. So can you maybe just talk about your expectation going into the fourth quarter? And specific to Part D, are you expecting a big step-up as we think about the fourth quarter? Stephen Hemsley: Tim, do you want to take this? Timothy Noel: Yes. Thanks, Lisa, for the question. So as I think about utilization, really tracking in line with the expectations that we called out in last quarter's call, really across all of the product lines, the general commercial business, including the ACA as well as Medicare and Medicaid. And also on the Part D portion of the business, also tracking in line with expectations. Clearly, there is quite a bit of seasonality that's always at play in the health insurance business. I think you can think of normal seasonality, first half to second half as 60% in the first half in terms of earnings contribution, 40% in the second half. This year, given some of the trends that we've seen, a little bit more of a bias towards earnings in the first half of the year versus the second half of the year, but really kind of trends tracking with how we expected them to track, consistent with what we guided in the second quarter and the seasonality really just kind of a byproduct of the business. And also some of the additional spend that we have on things like a seasonal ramp in AEP with respect to Medicare. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: I wanted to follow up on the Medicare Part D drug benefit for next year. It looks like the benefit for Tier 3 branded drugs changed from a co-pay to coinsurance across most of your MAPD and stand-alone Part D plans. Can you elaborate on your experience with the co-pay structure in 2025? And what drove that decision to change the benefit structure in 2026? Robert Hunter: Andrew, thanks for the question. So I would say just kind of big picture, we take a multiyear metered approach to our benefit planning that includes, as you can appreciate, managing and balancing many different variables, and that's particularly important given the dynamics around V28 and the phased approach there. The other element, perhaps, just to kind of call out as you think about how we decided the modifications to make the benefit design for Part D in particular. For 2026 with some uncertainty around the demo program and how that would continue to persist or not into 2026. So we took what we felt was an appropriately kind of cautious approach there, pulling all the levers available to us to ensure that we would be well positioned on the overall benefit design regardless of how the demo came into 2026. So as I look now kind of where we sit from a benefit design standpoint with the coinsurance we have on Tier 3, the deductibles that we have kind of broadly across MAPD and PDP. I feel pretty aligned to industry there. And I would expect us to have continued good performance as we step then into 2026. And as it relates to '25, really on the MAPD side, no concerns around selection, mix or outlook given the prevalence of deductibles that we put on our MAPD offerings. And on PDP, really kind of no material contributor or risk to rest of your outlook on that one either. So overall, feel pretty good about how we're stepping into '26 on PDP. Operator: Our next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Great. My question is focused on Medicaid. At the last call, I believe, you said margins should be in the negative 1% to negative 1.5% range. Is that still a good bogey. And just like looking with the One Big Beautiful Bill, is there anything that would prevent like a path to Medicaid margin recovery in 2007 and 2028? Stephen Hemsley: Mike, do you want to take that? Unknown Executive: Yes, Ann, thanks for the question. As Tim indicated, our view for Medicaid has not changed from last quarter. We expect breakeven in 2026 or in 2025. As we think about 2026, we expect some margin degradation due to the continued dislocation of premium funding and what we're seeing in terms of elevated medical cost trends. But we do see 2026 as the trough for that performance. Our elevated trends are driven as the industry has by specialty pharmacy, behavioral health and also as we look at home health services. We think, over time, the One Big Beautiful Bill, there will be some transformation and work as we collaborate with states. But we see over time about an 18- to 24-month period, we will be able to return to a rate of margins of around 2%. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Could you talk a little bit about the employer market? And specifically, what's the medical cost trends you're seeing this year and next? And given the pressures on employers, what are some of the strategies they're looking at for the '26 and looking out to '27 on the selling seasons, in particular, any interest in adoption of value-based care? Are they using more Surest, things like that? Stephen Hemsley: Dan? Dan Schumacher: Yes. Thanks, Lance, for the question. Trends for 2025 and our outlook for 2026 remain in line with what we shared in the guidance last quarter. Trends are approximately 11%, and that is how we have priced into 2026, and I'll just share that with 50% of our January insured business resolved at this point, encouraged by both the yield on persistency and rate to deliver the margin expansion that Tim spoke about in light of that trend of approximately 11%. You're right, health care affordability is top of mind for all employers and we hear that this selling and renewal season, as we always do, but even a little bit louder given the trends and the pricing associated with it. Employers are evaluating a host of considerations, you referenced, Surest and Surest continues to be a leading product for us, continuing to capture share. And that has continued to grow and has a robust pipeline already as we look toward the jumbo selling season of 2027. I might highlight some additional things that employers are looking at as well. Integrated advanced advocacy solutions that we sell in our product portfolio continue to capture employer attention as they help us bring together more synergistic approaches to care. That includes value-based care, as you referenced, tighter coordination between medical benefits and Rx benefits which employers are continuing to do on an increasing basis as we see more and more employers moving to combining medical and Rx benefits and satisfied very much so with how we're advancing in that way with Optum Rx. So those are a couple of highlights that I would offer that are on top of mind for employers certainly for 2026 and already as we look forward into 2027. Thanks for the question, Lance. Operator: Next question comes from Scott Fidel with Goldman Sachs. Scott Fidel: I appreciate the update on the capital deployment timing returning to the normal plan. Can you also just update us on sort of the dividend and what your view is on the dividend and that looking forward. And then curious just around -- I know that there's going to need to be possibly some portfolio rationalizations occurring in Optum Health and other businesses as you pursue the new approach. Is there a way that you can sort of frame that for us in terms of, I don't know, whether it's sort of revenue or just more philosophically, how you're thinking about the asset base in OH and maybe more broadly around where -- and around potential rationalizations that could occur? Stephen Hemsley: Sure. The dividend, we'll start with Wayne and then I'll start with the Optum and give it to Krista and to Patrick. So Wayne? Wayne DeVeydt: Thanks, Steve. Scott, there are no changes in our historical dividend practices nor do we expect those to change going forward. We will maintain the dividend as we've done. The next prioritization as we're paying down debt will then revert back to the buyback program and then our strategic acquisition. So view it as no changes and then hopefully back into our normal capital deployment activities back half of next year. Stephen Hemsley: And then just broadly, related to Optum Health, helping people understand, we are very much committed to this. We are just reshaping it back to the way we had originally conceived it and believe that it has the most impact on value and we're really just taking the right steps to bring that back into form so that we can really move and grow and advance it in the construct of that disciplined model we had going forward. So Krista, do you want to talk a little bit about that? Krista Nelson: Yes, I can just add to that. Thanks for the question. So yes. So Scott, as Steve mentioned, we are really kind of taking a look at the whole like integrated delivery system. We have a combination of value-based care assets, some assets that are focused more on fee-for-service, but truly enable that value-based care agenda. And it's really important to ensure that kind of integrated model can deliver the best outcomes. And so as we're thinking about the portfolio rationalization, we taking into account a combination of things like where we have the right clinical quality, where we have the best operating cost performance, where we have the right engagement and where that model can really be brought to life for both value-based and those kind of fee-for-service service lines as well. And so I think those are the ways in which we're kind of looking at the model. So it's a market focus. We are looking at rooftops. We are again looking at the populations, the risk, the products, and I think through all of that, there will be an output of some actions that we'll take in the near term to position us for long-term success of that integrated model. Stephen Hemsley: Likely withdraw from a few geographic markets, likely reshape the practices within certain markets where we remain, likely shape the, let's say, the primary delivery system along line with the complementary services, things along those -- that nature, all very logical, all actually more constructive, but to be constructive, sometimes you have to take some things away, right? Patrick Conway: In the -- to add one point across Optum and connect a couple of questions. In the face of escalating cost trends, what we hear from our payer partners, from employers and from patients and providers as they want a value-based care system that delivers better quality, better experience and lower cost of care. And that's what Optum is delivering to our various customers. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: So I have a follow-up on that front. Is there anything you can quantify or break down for us in terms of those steps to turn around Optum Health? Like how much is just walking away from risk? How much is fixing the fee-for-service business? And presumably, that could be addressed a little bit quicker, right? And how much is just integrating into a consolidated operating model? And then what sort of incremental investments that you can quantify at this point that needs to go into that business as well? Presumably, does this all get you to 6% to 8% margin in 2028 and that's just back end weighted. Is that the right way to think about it? Stephen Hemsley: I think directionally, I don't think we can achieve the level of precision you might be looking for something like that just because this does blend together. But Krista, do you want to respond? Krista Nelson: Yes. Yes, thanks for the question, Erin. So let me just kind of start where you ended, which is likely more back half weighted, but you should expect progress throughout here. And while we might see faster progress in some fee-for-service improvement, Patrick highlighted whether that's kind of productivity or scheduling or improving access or collection rate, you will also start to see some progress on our value-based portfolio as well. So think of things like medical management, the work we're doing with our payers, the work we're doing to curate our network, also the work we're doing to manage operating cost discipline. So these things really all come together in this integrated model, but maybe some faster progress in certain areas while you'll still continue to see kind of progress against the holistic model. Stephen Hemsley: But for example, you kind of -- a little bit of further ahead in the Eastern region on this and seeing some impact on that, and that's a good example of how this will progress, right? So a pickup in terms of volume there, greater capture, greater reach. Operator: Our next question comes from Dave Windley with Jefferies. David Windley: My question is related somewhat. But I think earlier in the call, you quantified that half of your headwind, I think the V28 headwind for 2026, you plan to mitigate through recontracting. And I wanted to make sure I understood, is that across the portfolio of payers? Are you mostly harvesting that from the UHC portion, the non-UHC portion? And then is the -- did I hear correctly that VBC lives you expect to decline by 10%. Is that interwoven in that at all? Stephen Hemsley: So Krista, do you want to respond? Krista Nelson: Yes, absolutely. So yes, so -- like Patrick mentioned, so we sought to overcome half of the V28 headwind through our payer contracting efforts, which would include all payers. And we have completed that, and we're about 90% complete with our contracting with line of sight to the rest by the end of the year. So I feel good about that. That encompasses rates as well as product and benefits. And we've talked a little bit about some market exits inside of that. So exiting more than 40% of our PPO footprint was also kind of part of that exercise, but again, across all of our payers. And then you asked about membership as well with the approximately 10% reduction as we pace into next year. Again, we probably will see even some additional PPO exit as part of the work we continue to do with all of our payers and the work that we're going to do to finish that work. But then that would be just really a direct result of actions we're taking to optimize our portfolio. So again, products, market, footprint and the risk that is appropriate for this model. Stephen Hemsley: Leaning to products that lend themselves to management. Krista Nelson: Exactly. Operator: Our next question comes from Jessica Tassan with Piper Sandler. Jessica Tassan: Can you describe just the tone of any recent conversations you may have had with CMS, their receptivity and posture towards MA. What do you think CMS is focused on from a STARS risk adjustment and MA rate perspective? And what is UHC lobbying for? Stephen Hemsley: You guys can decide which -- want to respond to that. We're not lobbying for anything in particular. So, please? Timothy Noel: Yes. Thanks, Jess, for the question. As I think about CMS receptivity, we've been encouraged and continue to be very encouraged of the receptivity of this administration to have conversations with industry about ways to modernize and ways to improve this already very popular program. This is in direct contrast to what we experienced over the previous administration. And we've always enjoy and appreciate the efforts to be able to have these fact-based conversations around how to modernize the program and feel like that's the best way to get to constructive answer and a constructive way to move forward. So encouraged again on just the level of activity and the level of conversation that we have with the administration, and we'll continue to do that and continue to bring to them ideas that we think are ideas that are the best path forward that provides some level of stability for beneficiaries and also modernize the program in the process. Stephen Hemsley: Yes, absolutely. So we have time for one question remaining. Operator: Our last question comes from Whit Mayo with Leerink Partners. Benjamin Mayo: All right. Tim, I was just hoping that you could comment more on the provider coding stuff that you were talking about. We hear pushback on that for many health systems. And then maybe any observations that you could share on the independent dispute resolution process and actions you're taking there or the impact on trend. Timothy Noel: Yes. Thanks for the question, Whit. So when I think about some of what we're seeing in trend, there certainly is a meaningful portion of it that is related to more service intensity per encounter being built by health systems and by providers. Some of the ways that's coming through are higher-cost sites of service where lower costs are available, think lab, think ER and surgery. I'm also seeing more services being attached to ER visits and hospital visits, an increase in the number of specialists that are rounding per inpatient stays and then a bias towards some higher DRG weighting than we've seen in the past. And it is happening fairly consistently across the country, but then also have some fairly, very significant outliers. And one part of what we're doing is we are addressing these outliers. We have to. We have to keep medical costs and health care affordable for consumers, affordable for states, the federal government. So we will be taking some network actions where we need you to keep health care affordable. We're also using -- making more use of AI in our payment integrity programs, increasing some of our payment policy efforts as well as our clinical affordability programs to address some of what we're seeing. As I think about the IDR process, it's not something that would spike out in terms of a material trend driver from this distance, but certainly something that we're keeping an eye on pretty carefully. Stephen Hemsley: Great. So thanks, great conversation today. That's all we really have time for. I want to thank you all for joining us, and we look forward to talking with you again and engaging with you before we get to January. And in January, we will provide both our year-end results as well as guidance for 2026. So thank you all for joining us this morning.
Operator: Welcome to Xylem's Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Keith Buettner, Vice President of Investor Relations and FP&A. Please go ahead, sir. Keith Buettner: Thank you, operator. Good morning, everyone, and welcome to Xylem's Third Quarter 2025 Earnings Call. With me today are Chief Executive Officer, Matthew Pine; and Chief Financial Officer, Bill Grogan. They will provide their perspective on Xylem's third quarter results and discuss the fourth quarter and full year 2025 outlook. Following our prepared remarks, we will address questions related to the information covered on the call. I'll ask that you please keep to 1 question and a follow-up and then return to the queue. As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investors section of our website. A replay of today's call will be available until midnight, November 11, and will be available for playback via the Investors section of our website under the heading, Investor Events. Please turn to Slide 2. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur in the future. These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC. Please note the company undertakes no obligation to update any forward-looking statements publicly to reflect subsequent events or circumstances, and actual events or results could differ materially from those anticipated. Please turn to Slide 3. We have provided you with a summary of key performance metrics, including both GAAP and non-GAAP metrics. For the purposes of today's call, all references will be on an organic and/or adjusted basis, unless otherwise indicated, and non-GAAP financials have been reconciled for you and are included in the Appendix section of the presentation. Now please turn to Slide 4, and I will turn the call over to our CEO, Matthew Pine. Matthew Pine: Thank you, Keith. Good morning, everyone, and thank you for joining us. I'm pleased to share that the team delivered another great quarter, continue our momentum with disciplined execution, driving strong results across the business. Revenue grew in all segments and most end markets with double-digit growth in Measurement and Control Solutions and Water Solutions and Services. We also achieved record quarterly EBITDA margin north of 23%, expanding 200 basis points year-over-year and delivering 23% EPS growth. It's a great performance by the team, supported by healthy demand. . While orders were down slightly against tough comps, we saw a notable growth in Measurement and Control Solutions with strong performance across smart metering, underscoring the differentiation of our core portfolio. We continue to see strong demand for our mission-critical solutions across all segments. These results reflect the impact of our commercial and operational momentum as well as the benefits of our ongoing simplification efforts. Our 80/20 implementations continue to drive margin improvement and focus our resources on the highest value opportunities. And we're also moving even faster than anticipated, especially with the restructuring component of our operating model transformation. These changes we've made to culture, processes and structure are enabling faster decisions, clear accountability and better service. The team's impact on increasing quality of our customer experience is a great example. We've again set new Xylem benchmarks for on-time performance. That serves to strengthen our customer relationships and reinforce our reputation for reliability. Solid execution is deepening trust with our customers. At the same time, it's expanding margins, and they see the benefit in how we partner with them on innovation because 80/20 focuses our energy and resources on their most important challenges. As we've often said, 80/20 isn't a cost-out tool. It's about resource allocation, helping us redeploy capacity to the areas of our portfolio and customer base where value and impact are greatest, which is aligned with our strategy of portfolio optimization and disciplined capital deployment. It's that discipline and mindset that led to divesting the international metering business, which we announced earlier this month. The sale concentrates our focus on AMI technologies in markets where we have the strongest differentiation and are best positioned for profitable growth. Turning to our outlook. Given our performance and resilient market demand, we're raising our full year guidance for revenue, margin and EPS. Our guide reflects confidence in the team's ability to deliver our commitments even as we manage through continuing macro uncertainty. We expect our momentum to continue through the end of the year and beyond, and we're solidly on track to deliver our long-term financial framework. With that, I'll turn it over to Bill to walk through the quarter's results, our financial position and our updated outlook in more detail. Bill? William Grogan: Thanks, Matthew. Please turn to Slide 5. We're very pleased with the strong quarter and year-to-date progress. Ongoing simplification efforts have improved our organizational agility and risk management effectiveness, positioning us to navigate uncertainty with confidence. We anticipate further benefits as we continue advancing our simplification initiatives through our operating model transformation and fully leverage the advantages of our 80/20 implementations. Demand across the business is healthy, and our year-to-date book-to-bill ratio remains near 1. Orders were down 2% in the quarter, but against tough comps with softness in China mostly offset by growth in the U.S. and Western Europe. Backlog remains robust, closing the quarter at approximately $5 billion. Revenue growth was strong at 7% in the quarter, ahead of our expectations, driven by outperformance in MCS and WSS. North America was particularly strong in the quarter, while we grew across most regions and end markets. EBITDA margin expanded 200 basis points year-over-year, driven by productivity, pricing and volume, more than offsetting inflation, investments and mix. Increased operational discipline continues to come through in our results, with Q3 EPS of $1.37, up 23% versus the prior year. Year-to-date free cash flow was down modestly, primarily due to outsourced water projects and restructuring payments, mostly offset by higher net income and improved net working capital. Net debt to adjusted EBITDA stands at 0.4x, reflecting our strong balance sheet and capacity for continued investment. Let's turn to Slide 6. We had fantastic results across the segments, starting with Measurement and Control Solutions. Demand for our AMI solutions remains robust as orders grew 11% organically with strength across water and energy metering. Backlog remains healthy at $1.5 billion. Revenue was also up 11%, driven by energy metering demand and backlog execution. EBITDA margin was up 60 basis points year-over-year to 21.8%, driven by productivity, price and higher volumes, offset in part by mix and inflation. As Matthew mentioned, at the end of the quarter, we signed a definitive agreement to sell our international metering business. The business, which includes water and heat meters generated around $250 million of revenue in full year 2024 with a consolidated adjusted EBITDA margin of less than 10%. We expect to close in early 2026 with a selling price of $125 million. This will drive a 100 basis point margin improvement in the MCS segment on a run rate basis. The divestiture will allow us to focus on the North American meter market where we have substantial competitive differentiation with the only FCC-licensed proprietary bandwidth on our FlexNet fixed network, serving water, gas and electric utility customers. In Water Infrastructure, demand remains strong across most regions and end markets. Book-to-bill was above 1 despite orders declining by 2% against difficult comps. Significant softness in China and funding timing from the AMP8 cycle in the U.K. were the primary drivers of the decline. Revenue grew 5%, led by strong demand in transport and treatment and growth in most regions with double-digit growth in the U.S. EBITDA margin expanded a robust 400 basis points to 24.4%, driven by productivity, price and mix, partially offset by inflation, volume and investments. And the team continues to get significant traction with our 80/20 efforts as treatment starts to replicate the success we have realized in transport. Applied Water continued its turnaround in the year with orders growth in the quarter just edging into positive territory, making it its 7th consecutive quarter of gains. The result was driven by strength in the U.S., mostly offset by a significant slowdown in China. Revenue increased 1% with growth in both the U.S. and Western Europe and strength in Building Solutions; again, partially offset by China. EBITDA margin expanded 310 basis points to 21.7%, driven by productivity, mix and price, partially offset by inflation, investments and volume. Applied Water continues to gain traction from 80/20 as it accelerates both productivity and growth. And in Water Solutions and Services, orders were down 11% against really tough comps, driven by timing of capital projects, though year-to-date book-to-bill remains above 1. Revenue grew 10% with contributions from capital projects, dewatering and services. EBITDA margin expanded 160 basis points to 26.3%, reflecting strong execution on price, volume and productivity, partially offset by inflation, mix and investments. Let's move to Slide 7. We're updating our annualized tariff outlook based on the current rates, noting the fluid nature of the impacts. As of today, our updated annualized impact is roughly $180 million with the inclusion of additional Section 232 derivative tariffs. While there remains uncertainty around final timing and tariff levels, we are confident that the pricing actions and available supply chain levers will allow us to substantially offset the current impact, though we expect a slight margin dilutive effect. We have not seen a meaningful volume impact on the business due to tariffs, but decision-making has taken a bit longer than normal given the uncertainty. Let's turn to Slide 8. Given our strong year-to-date performance and execution momentum, we are again raising our full year guidance. We now expect full year revenue of roughly $9 billion, representing 5% to 6% total growth and 4% to 5% organic growth. EBITDA margin is expected to be 22% to 22.3%, reflecting 140 to 170 basis points of expansion versus prior year, up from the previous guide of 21.3% to 21.8%, primarily due to an acceleration of our restructuring and simplification efforts. We are further raising our EPS guide to $5.03 to $5.08, up from $4.70 to $4.85. Free cash flow margin expectation remains at 9% to 10%. For the fourth quarter, we expect revenue of approximately $2.4 billion with 2% to 3% organic growth. And as a reminder, we grew 7% in the fourth quarter of 2024. EBITDA margin is expected to be roughly 23% and EPS is expected to be $1.37 to $1.42. We have a strong trajectory as we close out the fiscal year. While there continues to be macro uncertainty, particularly around tariffs and FX movements, the team is doing a great job controlling what we can control and building a systematic process to deliver results. We have confidence in our ability to meaningfully outperform our initial guidance set out in February, supported by strong demand, backlog execution and accelerated benefits from simplification. Let's turn to Slide 9, and I'll turn it back to Matthew. Matthew Pine: Thanks, Bill. Before we move to Q&A, I want to highlight some great work the team has done with Amazon and 2 of our large municipal customers on a couple of projects we announced during the quarter. They're a great example of how Xylem's leadership in digital water solutions positions us in a global economy being transformed by artificial intelligence. Together with Amazon, we're deploying Xylem's Vue advanced analytics in Mexico City on Monterrey, helping these cities save more than 1 billion liters of water each year. This partnership is a model for how hyperscalers and communities can collaborate to ensure water security for both businesses and residents. And it's a clear example of how our solutions are creating meaningful impact for customers and communities. That's only going to become more consequential as AI infrastructure expands. Attention is focused on data centers, which is understandable. Data centers consume a lot of water, so they present clear applications for water management and reuse solutions, but AI's water footprint is much, much larger. The whole AI value chain runs on water. Alongside data center build-outs, water demand is growing across key verticals like power generation, chip fabrication and mining for essential minerals. In examples like the work with Amazon in Mexico, we see the potential for water solutions that resolve the difficult trade-offs between economic growth and community well-being by effectively providing for both. As AI shapes a new economy, we're optimistic about the opportunity to have positive impact on both customers and on the communities that they serve, increasing water security for both. That optimism is built on both underlying macro trends and on solid foundations the team has been building, positioning Xylem for sustainable long-term growth. The word simplification can make it sound easy, but our strong performance over the last several quarters is a function of the team's dedication, drive and tireless execution. Our self-help initiatives, including 80/20, portfolio optimization and our operating model transformation are all delivering results. If anything, we're moving a little faster than expected. Overall, we have a positive outlook for the remainder of the year. We're well on track to deliver our long-term financial framework, and we are strongly positioned to drive sustainable growth and value creation over the cycle. With that, operator, let's open the line for questions. Operator: [Operator Instructions] And your first question today will come from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Matt and Bill, you're now expecting 140 to 170 basis points of EBITDA margin improvement for '25. I think your Investor Day algorithm has been 100 basis points per year. And obviously, segments such as Water Infrastructure and Applied have had substantial 80/20 benefits so far. So the obvious question becomes how much improvement is still left in the tank? Can you continue to get that 100 basis points off the higher base as you go into '26 and beyond? And is it time to start thinking about a higher potential '27 adjusted EBITDA margin versus your Investor Day target? Matthew Pine: Great question. Just as a reminder for folks that may have not heard our Investor Day numbers, we had put out 4% to 6% growth with 23% EBITDA margin by 2027. Now to be fair, we did finish 2024 at 20.6%. So there was 300 basis points up to 20.6%. We're guiding, to your point, 22% plus for this year ahead of schedule. So there's likely some upside to our long-term targets. Right now, we're focused on delivering 2025 commitments. And quite frankly, working to dial in 2026, there's still a lot of noise out there, macro we're trying to digest. And internally, there's a lot of good things going on that we're trying to calibrate as well. And we'll have a lot more detail in February. But I would say we've made great progress. And I would -- Andy called this the first phase of our journey, and that was really around transforming our operating model, both around our culture, our processes and our structure. And this work never ends. It's always ongoing. But what we're trying to do in the next phase of our journey as we move out of Phase 1, we've taken enough ground into Phase 2, is to leverage that simplification that we created to drive our growth engine in what we call Phase 2. And some examples of that would be enterprise account management, targeted selling, especially with our A customers, customers we call raving fans, and to leverage what we've done in 80/20 to redeploy effort for innovation as well. So maybe the last thing I would also comment what I would call Phase 3 is getting after our long-term competitiveness by doubling down on some of our core franchises like North America metrology. Hence, you saw the divestiture of the international business, commercial services, our transport business, where we really have strong positions. So -- and M&A that aligns to our value mapping and leveraging the strong balance sheet that we have. So I would say that we have a lot left in the tank. There's more on margins. But more holistically, really just in our first phase of our journey and making good progress. Andrew Kaplowitz: Very helpful. And then, Matt and Bill, you had difficult comparisons in Q3 in MCS, yet you still delivered 11% order growth. Is the strength broad-based in energy and water meters? How does that strength sets Xylem up for 2026 in that segment? Does it mean you have good visibility toward growth in both smart energy and water meters in '26? William Grogan: Yes. I mean in MCS, overall demand is still healthy, right? Our pipeline is strong and the fundamental growth drivers for AMI adoption are still solid. We don't have a concern about funding here in the short term. That's been raised a little bit, and we have a long way to go on AMI adoption. We're still less than 50% there. We're through the deployment calibration phase, which took almost a year, but we sit with pretty strong backlog level at $1.5 billion, which is down versus last year, but reflecting a move towards a more normalization to historical levels kind of after the post-supply chain surge and this project redeployment phase. We're typically around 60% of the following year sales, and we're getting closer to that balance. This order strength in Q3, up 11%. It was across both water and energy meters. We have a really strong commercial funnel and continue to gain share with our largest 4,400 municipalities that account for about 80% of the AMI market. Q4, we've talked about all year. We think we're going to be back to a book-to-bill positive as we see some of the water meter project wins convert to orders and our energy funnel still remains robust. So Q4 is shaping up really well. We expected to be up double digits on the water side, making our water growth in the back half kind of mid-single digits. MCS sales will be up sequentially, too, from the third quarter to the fourth quarter. And the outlook for 2026 remains in our long-term framework of high single digits. Operator: And your next question today will come from Deane Dray with RBC Capital Markets. Deane Dray: That was a really nice earnings quality this quarter between organic revenue incrementals and cash flow. So you can check the box there. Would like to hear a bit about the government shutdown. We're getting a lot of questions about that. Just kind of what are the ripple effects into -- from federal funding to state and local? Have some projects been delayed because of that? And just kind of what does that mean for the setup into '26? Matthew Pine: Yes. On the government shutdown front, we haven't seen anything meaningful. Funding mechanisms have always been slow to move in general in this space, especially with the municipalities, and previously allocated funds will still make their way down to fund projects. So right now, we don't see any meaningful impact. In the near term, there could be a pause on EPA grant application reviews, but I don't see that, that's going to have any material impact on Q4 or, quite frankly, on the full year of 2026. So all in all, we feel good about the municipal resilience, not only in the U.S. but more broadly across the globe. Deane Dray: Really good to hear. And I appreciate the answer to Andy's question about the 80/20 implementation and entering Phase 2. But can you just step back on 80/20 because there was such high expectations, and there are still high expectations about the fundamental changes that are happening at Xylem. Broadly, what inning are you in? Have all the businesses gone through their first implementation? And kind of where do you go from here in terms of further divestitures at the margin? Should we be expecting anything like that in the next couple of quarters? Matthew Pine: Okay. I'll start us out here, Deane. 80/20 is, as you can tell by the results, really starting to take hold, almost 2 years into our transformation. And I would say that each quarter, the team continues to take another step towards what we call simplifying Xylem. So it's moving from a tool set to more of a critical piece on how we run the business, which is, in my mind, more cultural. So that's very strong evidence that things are progressing in a positive way. As I said in my opening remarks, it also provides this kind of, what I would call, a maniacal focus on resource allocation, which is really, really important for any company. So to answer your question more specifically, 80% of the business is in some phase of the implementation with our dewatering business globally, our analytics business and our treatment business, the most recent divisions to start the implementation of 80/20. Treatment being probably one of the bigger divisions we have so far to date going into the tool, and we'll see some meaningful impact to that division of our company. As you see from the results, we're moving with more speed, accountability, customer focus. One thing I talk a lot about is on-time performance and quality as metrics of the health of your company. And on-time performance with our A customers reached a record high, and it's nearing what I would deem best-in-class in terms of industrial companies performance to their customers. So maybe the last thing I would say, another proof point is just the margin improvement you're seeing in the legacy Xylem businesses with Applied Water and Water Infrastructure over the past several quarters. So maybe just one thing I just want to highlight for those listening. We're going to continue to walk away from revenue, Deane. We do have divestitures. We, obviously, will have just about 1% this year in divestiture and about 1% of acquisition this year, kind of almost washing. But obviously, the international metrology piece will happen next year. It is a core focus. We've talked publicly about $400 million to $600 million of things that we'll be pruning on the portfolio, and we're still kind of tracking there. But the walkaway business will be a little bit more in 2026 in terms of 80/20. It was just under 1% this year. It will be just over 1% next year. But just to remind everybody, that comes with higher quality earnings. And it's all about simplifying the business so we can really build the long-term growth engine and focus on our customers. Operator: Your next question today will come from Scott Davis with Melius Research. Scott Davis: I'll echo the congrats, not just on the quarter, but it's been a really good couple of years for you guys. I just had to ask, Matthew, this is kind of a strange question, but you led in with culture, processes and structure. What do you specifically mean by structure? I think that can mean different things to different people. So looking for some explanation there. Matthew Pine: Yes. So structure was really getting at -- we were -- prior to this year, we were kind of highly a matricized structure. So we pivoted to more of a -- we had a segment orientation, but more with discrete divisions under the segment, 16 P&Ls with discrete leadership GMs. And it just drives better accountability. I think the matrix structure served us well in the past, but going forward, just to drive better accountability, better empowerment, getting to a kind of a singular access around the segments and divisions, just enables us to make faster decisions. For example, in the prior structure, we would have 20 to 25 people sign off on a delegation of authority. Now we have 4 to 5. And so it just provides us the ability to be more nimble and make our colleagues' lives easier and make our customers happier with our service. And so those were 2, what I would call, pieces of voice of customer that we got 2.5, 3 years ago that we wanted to address. Scott Davis: That makes sense. And then your net debt to EBITDA, 0.4x, I think you mentioned. The -- pegs the kind of question on priorities in the next 12 months. And if you can talk to your M&A backlog or when and if you'd kind of switch to more of a buyback priority and just where your head is in that stuff right now? Matthew Pine: Yes. No, it's a good question. We've always said kind of our priorities are, let's invest in the core. We like M&A. We think it will help us really grow the business in a positive way. Dividends, obviously, would be next. And then we've talked about opportunistic share buybacks. So that's kind of our approach. As I've mentioned in prior calls, we have put a really strong process in place. Before a couple of years ago, we were a bit more top-down in M&A. We're much more bottoms up, assigning targets to our segment leaders that are now focused maybe not equally, but for sure, focused on organic and organic in terms of growing the business. So we've got a very strong funnel, probably the most actionable funnel we've had. And it's largely because of the new process that we've put in place. So we'll continue to be very disciplined, look at things that are strategic fit, meet our hurdles. We've got such a great self-help story right now, Scott, that our real focus is on small to medium bolt-ons. We've talked about deploying $1 billion of capital a year, trying to create $60 million to $75 million of EBITDA. But I wouldn't rule out if there was something very strategic and transformational, we would definitely look at it, but that's not our intent. So our intent is about $1 billion of capital deployment towards M&A each year. Operator: And your next question today will come from Nathan Jones with Stifel. Nathan Jones: A couple of follow-ups on MCS for me. Bill, I think you mentioned in your answer to Andy's question that you're still in the kind of high single-digits framework for 2026. The book-to-bill so far this year is about 0.83, probably gets to 0.85 if you're close to 1 in the fourth quarter. And you have talked about burning off some backlog and backlog being at a more normalized level. I'm just wondering how the math works to get to high single digits for 2026 and why there wouldn't be maybe a little bit of a reset lower because you're not burning off backlog next year. So any additional color you could give on that would be helpful. William Grogan: Well, I think the $1.5 billion that we're at right now, Nate, is still elevated relative to historical. So as we burn existing backlog and start to get to book-to-bill positive, I think that supports that high single-digit framework with -- we talked about the calibration of water getting back to a more normalized growth within that framework and some of the additional projects we have on the energy side that will layer in here over the next quarter or 2 gives us real confidence to get back there next year. Nathan Jones: Great. I guess second follow-up on the margin profile in M&CS, 60 basis points of margin expansion. I think, I probably expected that to be a little higher. I think we're probably expecting the water mix to improve a bit and, obviously, some leverage on volume given the good growth. Maybe you can just talk about what the offsets were to the margin profile for MCS in the quarter and kind of where we should be longer term for that business? William Grogan: Yes. I think, the biggest lever there has been the energy water mix. We talked about last quarter, obviously, the strong performance, there was a pushout in some of the lower-margin energy projects that we've talked about. I think it's calibrated and sequentially, margins for MCS should look fairly similar here with the energy water mix normalization getting back to historical levels later in 2026 with -- that business, though, with some of the structural changes they've made relative to 80/20, you see it come through with Applied Water and with Water Infrastructure. MCS has just been masked a little bit with this mix challenge. So we look for them to continue to expand margins into next year as mix normalizes and the second phase of some of their 80/20 simplification efforts pull through. Operator: And your next question today will come from William Grippin with Barclays. William Grippin: Just a couple of basic ones here, but you had a little bit of M&A spending in the quarter. I'm just wondering if you could provide some color on what that was for. William Grogan: Yes, it's primarily associated with international metering divestiture. William Grippin: Got it. And on that front, are you able to quantify sort of how accretive that divestiture could be to margin for the MCS segment? William Grogan: Yes. In the prepared remarks, we talked about on a run rate about 100 basis points. Operator: And your next question today will come from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Just on the MCS margins related to the divestment, wondering how do we compare you guys versus your larger peers in that space? And I ask that in that can you get to or even above some of those peers that you comp to? And I think divesting that international piece gets you one step closer, but are there other things you think you can do? Or how should we think about that long term? William Grogan: I think, Andrew, if we would bucket our margin profile, our core water business within smart metering is at or above our peer set. I think the dilutive nature is obviously the international metrology business that we're divesting. Within the energy piece, we've talked about as at a lower margin profile. Obviously, the team has done a phenomenal job of identifying opportunities to increase that over time, but there will always be a gap there relative to the technology differentiation and the end market applications. But right, our core water business, the profitability is significantly higher than some of our competitors and at some of the leading margin profiles that you're probably referring to. Andrew Buscaglia: Yes. Okay. Okay. That's helpful. And then, I was hoping you could sort of parse out where you're seeing demand pickup versus internal efforts to improve organic sales. If you could just run through some of the end markets and you talk about what was maybe a little bit better, a little bit worse than you expected demand-wise? William Grogan: From an overall demand perspective, I would say if we ticked off, obviously, we spent a lot of time here just talking about, hey, resilient demand within MCS is still there relative to getting -- it's actually been in excess of our long-term framework here this year with the energy meter refresh cycle and then next year getting back to a combo of high single digits for both water and energy. Water Infrastructure, right, we continue to see resilient OpEx and CapEx demand. Transport has been really strong over the last few quarters. It was 5% growth against this quarter due to its -- mission-critical nature of its applications and gaining shares. The team has identified several different opportunities through segmentation, different regional opportunities where they're underpenetrated. Treatment also has had pretty strong growth as it executes its backlog and focuses on different areas of the portfolio that they have the best profitable growth outlook. They're doing a lot of portfolio and looking at different bidding practices to nail down where they have differentiation and go after those areas. Applied Water, we talked about continuing its growth streak with really strong performance in the Western world and within commercial buildings. They've seen along with the biggest headwind for Applied Water and Water Infrastructure has been China with double-digit decline on sales and orders for both segments. And just to frame kind of China overall for Xylem, it had about 2% headwind on revenue and orders growth within the quarter. So pretty material. It's a smaller part of the overall portfolio, but as that market kind of accelerated its decline from kind of a macroeconomic perspective and then the team is getting much more disciplined with the work that we're going after has created some headwinds. And then lastly, I'd say WSS, obviously, double-digit growth again. Continued strength with our outsourced water projects. That's ramped here over the last 2 years as they focused providing some really differentiated technology to some large customers, along with dewatering was up double digits again this quarter. So we've seen lots of strength across all 4 segments with the only area of watch we dial in on China. And then a little bit in our prepared remarks, just talking about large capital projects, nothing has been canceled, but things relative to conversion from our commercial funnel to an order is taking a little bit longer is maybe one area we continue to monitor. Operator: And your final question today will come from Mike Halloran with Baird. Michael Halloran: Here. First, when you triangulate into all the things you just said, Bill, and some of the comments earlier, is there anything to suggest about underlying dynamics in the marketplace where you would not be at least in the range for kind of normal-ish type growth as you look to 2026, meaning we know China is a little bit of a headwind here, but it seems like you're talking to pretty healthy normal dynamics, resilient dynamics, however you want to characterize it for the majority of your markets. So could you just frame that as a thought process as we head into next year? William Grogan: Yes, I think you're spot on. I think the fundamental dynamics for all 4 segments are strong. Again, outside of a little bit of the China headwind, Matthew highlighted a little bit, there's probably a little bit more walk away as the teams are accelerating like kind of their 80/20 progress. Obviously, you're seeing it in the margin. We expect that to continue. But as we get much more selective and make bigger strides on our customer simplification or product line simplification, there's probably, again, a little bit more headwind, a little under 1 point this year, a little over 1 point next year. But outside of that, I think, as we look out as best as we have visibility over the next 12 months with still macro volatility, I mean, the fundamental dynamics are still strong with resilient demand within muni and I think differentiated technology helping us on the industrial side with some of the fits and starts other companies are seeing in that space. Michael Halloran: And what's the long-term thought process on how to manage China from here? I know it's an area of softness today. It's -- maybe there's some deprioritization of U.S.-based products. What's the thought on how you guys plan on addressing or attacking that market from here? Matthew Pine: Yes. I think, we're staying the course, but we're also rightsizing the business for the demand environment, Mike. We're taking restructuring actions as we speak in China to the extent of around 40% of the workforce is coming out. That's -- we don't take those decisions lightly. It's unfortunate, but it's really just an indicator of the demand that we're seeing in the market and the hyper-competitiveness of the market as well. We like the market long term, but we have to size the business for the market that we're dealing with over the next balance of this year and through '26. That's how the approach we've taken. And we'll just -- it will be a watch item for us as we head into the first half of 2026, but that's really where we are right now. William Grogan: Yes. And I think that the teams are stepping back and looking at what is the greatest market opportunity where we have the technology to match that and then reallocating all of our resources around those efforts to try to spur incremental growth as we move forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Pine for any closing remarks. Matthew Pine: Thanks for joining today. We'll wrap it up there. Appreciate the questions. And as always, we appreciate your interest and support. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Brown & Brown, Inc. Third Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's businesses and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin. J. Powell Brown: Thanks, Deedee. Good morning, everyone, and welcome to our third quarter earnings call. We'd like to first welcome our 5,000-plus new teammates from a session that joined us on August 1. We're excited to be working together to grow our company as these talented teammates bring new capabilities for our customers. I also wanted to talk about leadership changes we announced last Monday. Based on the evolving global breadth of our Retail segment and the importance of continuing our forward momentum, I've appointed Steve Hearn as the new retail President on a go-forward basis. I've known Steve for over 20 years and have admired his leadership style. He brings more than 35 years of deep industry experience, acquisition, integration and a proven record of driving growth and innovation, both in the U.S. and internationally. With his leadership, we will further enhance our world-class solutions and value to our customers, carrier partners, shareholders and teammates. Regarding my brother, Barrett, I have a ton of respect for him as a leader and also I love him dearly. He's taking a personal leave of absence. I ask that everyone respects his privacy. When he's ready to return to the company, I look forward to welcoming him back. Last week, our Board of Directors raised our dividend by 10%, which represents an increase for the 32nd year in a row. In addition, our Board expanded our authorization to repurchase shares up to $1.5 billion. As we've done in the past, we will purchase shares when we believe the company is undervalued and to help manage dilution associated with our equity plans. Our goal is to help drive earnings per share growth and meaningful shareholder value. Now let's transition to the results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A. I'm on Slide #4. As you know, we focus on growth, both overall and organic, margins, earnings per share and cash flow as key metrics that should drive shareholder value creation. For the third quarter, we delivered revenues of $1.6 billion, growing 35.4% in total and 3.5% organically as compared to the same period in the prior year. Our adjusted EBITDAC margin improved by 170 basis points to 36.6%. And our adjusted earnings per share grew over 15% to $1.05. On the M&A front, we completed 7 acquisitions with estimated annual revenues of $1.7 billion, with the largest being Accession. I'm on Slide 5. From an economic standpoint, growth remained relatively stable with the second quarter. We view this as positive since we continue to see businesses growing as consumers are still spending. From a hiring and capital investment perspective, it remained relatively modest for most companies. Depending on the industry, some companies are looking to hire while others are relatively flat. This concept applies to capital investments as well. Generally, concerns over the impact from tariffs sees to have dissipated for many industries, while business leaders continue to have a cautious bias. From a commercial insurance pricing standpoint, rates for most lines were similar to the second quarter. We continue to see CAT property and casualty as the outliers on both ends of the spectrum. Pricing for employee benefits was similar to prior quarters with medical costs up 6% to 8% and pharmacy costs generally up over 10%. We do not see any signs that this trend will slow over the coming quarters, almost all companies are challenged to balance rising health care costs and the impact of their employees and their P&Ls. Management of high-cost claimants, specialty pharmacy and population health continue to be key areas of our focus, which are driving more demand for our health care consulting businesses. Rates in the admitted P&C markets were substantially similar to last quarter and were flat to up 5% versus the prior year. Workers' compensation rates remained similar to prior quarters in most states and were flat to down 3%. For non-CAT property, overall rates were down 5% to up 5% depending on the loss experience. For casualty, we're seeing rate increases of 5% to 10% for primary layers and excess layers increasing even more. We believe this trend will continue over the coming quarters. For Professional Liability, rates remained similar to Q2 and were down 5% to up 5%. Shifting to the E&S property market. Rate changes for the third quarter were similar to the second quarter and were generally down 15% to 30%. Keep in mind that we placed the largest amount of CAT property in the second quarter and the least amount in the third quarter of each year. From a customer perspective, they're managing their total insurance spend, both commercial as well as employee benefits. As rates move up and down for certain lines, this will influence customers' buying behavior and corresponding premiums paid. I'm on Slide 6. Let's transition to the performance of our 2 segments for the quarter. Retail delivered organic growth of 2.7%, which was impacted by approximately 1% due to the adjustments related to certain employee benefits incentives. Isolating this impact, the organic growth was generally in line with our expectations as a result of good net new business performance. As a reminder, beginning this quarter, our previously reported Programs and Wholesale segments were combined into one segment, which is now referred to as Specialty Distribution. The go-to-market brand is Arrowhead Intermediaries, which is comprised of 3 distinct divisions: Programs, Wholesale and Specialty. This segment also includes the 180 division of Accession. We believe that on a combined basis, Arrowhead Intermediaries is the largest global operator of over 100 MGA, MGUs and places approximately $20 billion of written premium. For the quarter, the Specialty Distribution team delivered good organic revenue growth of 4.6%. Organically, wholesale grew high single digits, driven by strong brokerage performance. Programs grew low to mid-single digits, driven by good net new business while being partially offset by our wind and quake programs due to the continued downward rate pressure for commercial CAT properties. Now I'll turn it over to Andy to get into more details of our financial results. R. Watts: Great. Thank you, Powell. Good morning, everybody. Before we get into the details, we want to talk about the impact on our earnings related to the acquisition of Accession and our related debt and equity issuances. As previously discussed, transaction and integration costs related to our acquisition of Accession are excluded from our calculation of adjusted EBITDAC and adjusted earnings per share. For this quarter, acquisition and integration costs were approximately $50 million. Additionally, beginning this quarter, we have a [ legal ] line on the income statement called mark-to-market of escrow liability related to the acquisition of Accession. This account is also excluded from our calculation of adjusted EBITDAC and adjusted EPS. For the third quarter, we recorded approximately $8 million of a noncash charge related to the change in the fair value of our common stock held in escrow. As our stock price changes over the coming quarters, we will have additional noncash movements. For the stub period of August and September, Accession's total revenue was approximately $285 million. The margins were in line with our expectations and were slightly below the full year margin discussed during our announcement call. Due to the seasonality of revenue and profit for certain businesses, the margin will fluctuate by quarter. In addition, we recorded approximately $29 million of incremental investment income for the quarter as a result of the proceeds of our follow-on common stock offering and senior notes issued in June. Now transitioning to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. Now let's get into more detail regarding our financial performance for the quarter. On a consolidated basis, we delivered total revenues of $1.606 billion, growing 35.4% as compared to the third quarter of 2024. Contingent commissions grew by an impressive $46 million in total with $12 million coming from Accession. Income before income taxes increased by 34% and EBITDAC grew by 41.8%. Our EBITDAC margin was 36.6%, expanding by 170 basis points over the third quarter of the prior year, driven by good underlying margin expansion together with increased contingents and investment income. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with the acquisitions of Accession and Quintes. Our effective tax rate for the quarter was 24.7%, substantially flat versus the prior year. Diluted net income per share increased 15.4% to $1.05. Our weighted average shares outstanding increased by approximately 48 million to 332 million, primarily due to the shares issued to Accession's equity holders. Lastly, our dividends paid per share increased by 15.4% as compared to the third quarter of [ 2024. ] Overall, we are very pleased with our performance for the quarter as well as our year-to-date results. We're on Slide #8. The Retail segment grew total revenues by 37.8% with organic growth of 2.7%. The difference between total revenues and organic revenue were driven substantially by acquisition activity over the past year. As it relates to the fourth quarter, we anticipate our organic growth will be similar to the third quarter. This is due to the previously mentioned employee benefits incentive adjustments and the relative impact of multiyear policies written in 2024 in the fourth quarter. At this point, we do not see the same potential revenue associated with multiyear policies in the fourth quarter of this year. Our EBITDAC margin increased by 150 basis points to 28%, driven by the management of our expense base, along with the positive impact of Accession. This was partially offset by revenue seasonality for Quintes, which we acquired in the fourth quarter of 2022. We're on Slide #9. Specialty Distribution grew total revenues by 30%, driven by the acquisition of Accession, contingent commissions and organic revenue growth. Our organic growth was 4.6%, which was a strong performance considering the very tough comparison to the prior year. Our EBITDAC margin decreased by 110 basis points to 43.9% due to the impact of Accession, having a lower overall margin as compared to our existing Specialty Distribution segment. This impact more than offsets the increase driven by higher contingent commissions, organic growth and managing our expenses. Regarding the Q4 organic revenue growth outlook, recall that we reported approximately $28 million of nonrecurring flood claims processing revenue in the fourth quarter of last year. Presuming there are no hurricanes through the end of this year as well as the continued rate pressure on CAT property and we are expecting slower growth in our lender-placed business, we anticipate the organic growth rate for our Specialty Distribution segment could decline in the range of mid-single digits. Taking this organic growth into consideration, it will also impact the margin for the fourth quarter this year. As it relates to the fourth quarter outlook for contingents, we anticipate them to be in the range of $30 million to $40 million, depending on the outcome of storm season. This excludes any contingents that may be recognized by Accession. We had a few other comments. First, from a cash perspective in the first 9 months of 2025, we generated $1 billion of cash flow from operations. This was an increase of over $190 million or 24% growth for the first 9 months of 2025 versus the same period in 2024. From a cash flow conversion perspective, our discipline remains strong, and the ratio of cash flows from operations to total revenues was approximately 23.5% or 100 basis points higher than the prior year. For the full year, we estimate our ratio of cash flow from operations to total revenues will be in the range of 23% to 25%. While we wrap up, we want to provide guidance on a few items. As it relates to Accession, we anticipate Q4 revenues to be in the range of $430 million to $450 million and the adjusted EBITDAC margin to be slightly below the full year margin discussed in our announcement call due to the seasonality of revenue and profit for certain businesses. Regarding amortization expense, we anticipate this to be in the range of $110 million to $115 million for the fourth quarter. Interest expense, we anticipate it to be in the range of $95 million to $100 million and investment in other income to be in the range of $20 million to $25 million for the fourth quarter. As it relates to our full year outlook for adjusted EBITDAC margin, you may remember during our earnings call in January of this year that we anticipated our margins to be flat compared to 2024. Based on our strong year-to-date performance and incorporating the slightly lower margins due to the seasonality of Accession, [ we are ] increasing our full year margin expectations to be modestly. With that, let me turn it back over to Powell for closing comments. J. Powell Brown: Thanks, Andy, and good report. As we enter the fourth quarter, we believe economic growth will be relatively similar to the last couple of quarters. The uncertainty regarding tariffs appears to be lessening as time passes. Interest rates are starting to decrease, and our customer base is continuing to grow and invest. This does not apply to all customers. With our broad diversification across geographies, industries, lines of coverage and customer segments, we will always have certain customer segments doing well and others working hard just to deliver growth. This diversification puts stability in our overall customer base and consequently in our key financial metrics. Overall, we feel the economies in which we operate are generally stable. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the third quarter. As of now, we're not seeing any major disruptors that will cause admitted rates to materially change. We believe casualty and auto rates will continue to increase, which are the largest segments of the market and the admitted property, and that admitted property will continue to be very competitively priced. For the E&S space, we anticipate casualty lines will continue to be challenging to place. This includes both rate and available limits. Unless there is meaningful [ tort ] reform across the country, we expect upward -- continued upward pressure on rates on casualty lines. Presuming we don't have a meaningful late season storm or storms, the capital deployment -- and capital deployment remains active, pricing for CAT property will more than likely look similar to what we experienced in the third quarter. Then once we clear hurricane season, we could see certain markets or carriers get very aggressive at the end of the year utilizing the remaining capacity. This would not surprise us. On the M&A front, our pipeline looks good domestically and internationally. We continue to look to buy businesses that fit culturally and make sense financially. From an Accession integration standpoint, things are progressing well. We're focused on our customers and the solutions we can deliver for them. As we mentioned before, the strategic rationale for this acquisition is to bring together organizations to add new capabilities and enhance existing resources. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. There will be periods when M&A is higher or lower weighting on our total growth. In the past 10 years, our growth has been well balanced between organic and inorganic. We'll remain disciplined in our capital deployment strategy so we can continue to drive long-term shareholder value. Our company is in a great place, and we feel good about the economic outlook. As I mentioned earlier, the third quarter was strong as we look at our key financial metrics, understanding the actual organic growth of retail was lower due to the change in employee benefits incentives for the quarter. Our teams are collaborating well, and we're working hard to leverage our capabilities for our customers and win more new business. We're looking forward to delivering a solid fourth quarter that will be the capstone and a really good year for Brown & Brown. With that, we'll turn it back over to Deedee and open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Mike Zaremski from BMO. Michael Zaremski: My first question is on the relationship of organic growth to EBITDAC margins, not in any given quarter, but maybe over time, there's some correlation to time frames when organic growth is well above historical, there's more margin improvement and vice versa. So I guess I'm trying to get at -- I know you're not going to provide a guidance for '26. But to the extent we're painting a picture of lower organic growth, especially versus recent years or maybe towards the low end of your historical range, too, in the future, should we be thinking about kind of that margin correlation? Or are there just -- there's a lot of moving pieces with the acquisition and just other structural things going on in the company? Or is there something different about the relationship today than in the past? R. Watts: Mike, it's Andy. I think one of the things that is helpful when you look at, at least our numbers and you think about our company, the organic is just a component of our -- how we drive our margins, how we drive our cash flows. Important that you take into consideration contingent commissions inside [ of there ] if you think about just this quarter, right, and you look at the amount of contingents that we grew. So we were approximately $46 million of contingent this quarter, $12 million of that came from Accession. Our organic growth was $40 million. So the contingents are a material portion of the value that we [ do ] in the organization. So we wouldn't want you to do a direct correlation between organic and margins, it won't actually work that way, at least for our business, okay, so that just kind of think about that as you work through calculations. But we still continue to think about our business in that 30% to 35% range, and it will move around back and forth over time. But we feel really, really good with the business, as we mentioned, on just how we're growing this year on an underlying basis and how Accession is performing. Michael Zaremski: Okay. That's helpful. For my follow-up, curious, I believe you have some businesses. I know this is maybe just hopefully short term, but that are impacted by the government shutdown. Should we be -- are you -- should we be factoring in any implications of that in the -- probably your Specialty segment for 4Q? R. Watts: Yes. Mike, we've got a few businesses that are impacted, and it's both in specialty as well as in retail. So we've got a couple of businesses that are in the Medicare [ social ] security set aside. And those get impacted based upon the government. Generally, that revenue kind of gets caught up over time. It just kind of gets backlogged in there. So yes, there could be some impacts in the fourth quarter or even into Q1 despite how [ long it gone ] resolved up there in Washington. And then the other piece is in our flood business. So again, the way that works is we are able to actually do renewals. We just can't -- and nobody -- it's not just Brown & Brown, it's anybody is part of the [ right room ] program, is you can't write new policies right now. But what you can do is once the government opens back up, then you do retro policies in there. So we're in good shape. We kind of -- we're able to [ frontline ] all the renewals for the fourth quarter. Operator: Our next question comes from the line of Alex Scott from Barclays. Unknown Analyst: This is Justin on for Alex. The first question I wanted to ask was on Retail organic. I was wondering if you can provide a little bit more color as to the 1% impact that you had called out in your prepared remarks? R. Watts: Sure. Justin. So the comment we made inside of there is we had an adjustment for incentive commissions in employee benefits. The way those work is, again, we're accruing throughout the year. And then ultimately, we have to do adjustments at the end of the calculations again, and we'll always have positive and negatives. When you look at 2024 for that time period, it was actually a positive adjustment. And then for this year, it was actually a negative adjustment. And normally, how those calculations work is depending upon kind of where you get in an applicable year, the targets are moved in the next year. So we overperformed in '24, and we just didn't get all the way to the targets, the increased targets in 2025. So you have kind of year-over-year and up and down is what causes the spread in there, and that's about 1% of the impact. That will continue. And the other thing I'd just mention is, and we highlighted in our commentary, that will have some impact in the fourth quarter because we are still improving at a higher rate in Q4 of last year. Unknown Analyst: Got it. And I guess just on -- got it. Appreciate it. And just on a related note, I suppose as you guys are kind of gearing up for planning and budgeting for the upcoming year, I just wanted to kind of bring us back to a comment you had mentioned earlier in terms of how -- I think a few quarters ago, you mentioned you see sort of this business as sort of like in the low single digits, like on a longer term through the cycle. I was just wondering whether or not sort of the results in the recent quarters are sort of indicative of whether that mean reversion is starting to kind of happen at the present moment or how you see sort of the trend for sort of the organic as you guys are sort of thinking about planning for next year? J. Powell Brown: So Justin, for the last 16 years, we've been saying that the Retail business is a low to mid-single-digit organic growth business in a steady state economy. And so we're staying [ by that, ] we're consistent. So 16 years running. And the answer is, as you know, we don't give organic guidance for '26, but you have gotten a sense of how the business is running right now with a couple things that are headwinds or actually -- I'm not going to say they're one-off adjustments, but we are not skirting the issue. I mean the state -- the organic growth for Retail is 2.7%. I mean you can look inside of it and say, this could adjust it by 1 basis point, but we're not skirting the issue that was 2.7%. So I think -- I hope that answers your question. So thank you. Operator: Our next question comes from the line of Meyer Shields from Keefe, Bruyette, & Woods. Dean Criscitiello: This is Dean on for Meyer. My first question is a follow-up to just on the Retail segment's incentive commission. I know you mentioned there's some headwinds in Q2. I'm just wondering if that will continue in 2026? Or are we expecting moderating from there? R. Watts: Yes. At least as everything that we can see right now, we think this is more isolated into the fourth quarter and doesn't carry over into 2026. Facts can always change, positive or negative, but at least what we can see right now appears to be isolated to the fourth quarter. Dean Criscitiello: Got it. My second question is on the admitted E&S. Last quarter, you mentioned seeing signs of business going from E&S back to the admitted market. Just curious what are you seeing this quarter? And what do you expect going forward? J. Powell Brown: The short answer is there are admitted markets that are talking about it more and thinking about it as growth for admitted carriers becomes more challenging. And so I think that there will be a lot of talk about it, but I don't think that the movement from -- non-admitted to admitted will offset the increase in the size of the E&S market, if that makes sense. So yes, I think there will be some movement back across. But the E&S market is continuing to grow at a pace that I think that it will not offset that. So thank you. Operator: Our next question comes from the line of Mark Hughes from Truist. Mark Hughes: Yes. Powell, you had suggested that with a clean CAT season, you might see extra capital being put to work, the carriers could be more aggressive at year-end. What do you think that means for rates if you do see that scenario? J. Powell Brown: Well -- and again, Mark, let me say that I am not a reinsurance expert. So let's preface my statement by that. I think that reinsurance rates are going to be under pressure 5% to 15% down and then that's going to translate into admitted primary business in a similar or higher fashion or E&S, maybe I should say. And so I think we could see an environment where it's similar to this year, next year and what we're currently seeing. I do want to highlight something that we have seen before, and we haven't seen it yet that I'm aware of, but you get into the last part of Q4 and you get into December and you get a couple of markets that basically decide to get really aggressive because they still have unutilized capacity. And so I think we could see more rate pressure at the end of Q4 than we currently see. That's not across the board. It's in select. And I'm not aware of any markets teeing up the Blue Light especially yet, but I'm just telling you that is a possibility. And as it relates to next year, again, you have -- I do not believe this is going to have an impact on the United States pricing, but you also have the events that are occurring in Jamaica, and that's going to be on the news and the resulting damage and hopefully, not a lot of loss of life, but it could be. And so you're going to have things that are out there and yet the capital markets as it relates to deploying capital in the United States are not thinking about that here, they're thinking about that there. So that's my impression. R. Watts: And Mark, in our commentary, remember when we said it wouldn't surprise us if it happened at the end of the year. Remember our commentary at the end of the second quarter, and we said what happened in June, right, before storm season. So you can get really unusual pricing, right, at the end of a quarter or whatever. So that's why we said it wouldn't surprise us. Mark Hughes: Understood. And Powell, anything on the construction front, particularly Florida construction? You gave us some good commentary about the overall business environment. How about the construction market? J. Powell Brown: Well, it's interesting. Construction costs continue to go up, but there's a lot of building going on in Florida. As a countermeasure, I would tell you that in real estate, houses are not selling as quickly. And so you see houses sitting on the market much longer today. And if you -- and this is not a Florida-specific thing, but there are some indications as such. You hear a lot about the impact of cost of living, meaning, one, rents, so in apartments and condos; two, food; and three, the cost of insurance. So you hear a lot of that as it relates to people that maybe own second homes here that are in the more modest size homes that are thinking about the cost to operate and cost to live. And so the overall expense -- it's becoming more expensive. It's still relatively affordable. Don't get me wrong. But it's becoming more expensive in Florida for all the reasons I've just said. Operator: Our next question comes from the line of Bob Jian Huang from Morgan Stanley. Unknown Analyst: This is [ Sid ] on for Bob. I wanted to ask about property renewal rates in the third quarter and kind of how you guys are thinking about that in the fourth quarter, if it should be at a similar level or potentially worsening? J. Powell Brown: As we said, Sid, it's similar going into it with the potential as we get into, let's say, December, where there might be some outliers where you get a couple of markets or a market that becomes a little more aggressive. So I would say similar to what we saw with the caveat that in December, there might be some people that are getting a little aggressive and we haven't seen that yet. A little more aggressive. Unknown Analyst: Got it. And then are you seeing a similar trend in the admitted and E&S property markets? Or is there like any kind of divergence going on? J. Powell Brown: Well, the rate pressure, obviously, is much higher on E&S property. But I would tell you, there is continued interest in the admitted market for good property, and I believe that will increase. Operator: Our next question comes from the line of Matthew Heimermann from Citi. Matthew Heimermann: It's actually me. Just a couple of questions. One, just on Wright Flood. You had rolled out or started to roll out private flood product on that platform. I'm just curious how the initial uptake is going on that. And I'm assuming it's not at a development stage in terms of geographic coverage and the like that it could make up for any demand that is not -- that can't be fulfilled through the [indiscernible] your own right now, but just any color there would be great. Sorry for talking over you. J. Powell Brown: Yes. So glad you are who you say you are, Matthew, that's good. I have a couple of things. Number one, yes, we have historically written private flood in our business. And as you know, we've just announced to close effective [ 11/1 Polten ], which is a private flood business, which will be -- which we're very pleased about them joining us and very additive. And so private flood, we believe, can be a very -- is a very good product. I want to caution you by saying that private flood is not the answer for all flood policies, please note. So maybe different than some might say, you -- not every policy in every flood zone can be written in private flood or maybe shouldn't be written in private flood depending on who's underwriting it. And so we do think that there's an opportunity for us. And as Andy alluded to, we believe in our flood business through most of the fourth quarter, we feel pretty good about the renewal streams. And obviously, it depends on when the party in power will make the decisions, some sort of compromises with all parties in Washington to figure out how to get the thing back open. And so we believe that the pressure there will continue to go up, and we like to think, hope it's not a good business strategy, but that they'll come to some sort of conclusion in the near to intermediate term. R. Watts: Matt, I want to clarify one thing that you had mentioned at the beginning of your question. You said that we write private flood on our Wright Flood platform. We do not write on the Wright Flood platform. That is for -- that is part of the NFIP program. Our private flood business that we had before is written under the separate carriers in there. So separate technology, everything else. Matthew Heimermann: Yes. I was aware you had 2 platforms, but I thought I saw a press release that Wright was rolling out, and maybe it's just a distribution thing, not an actual insurance paper thing private, but maybe I could be mistaken, you would know better than I. R. Watts: Yes, that's just around for claims management and everything else. But the actual technology and everything else in the paper, et cetera, is not on Wright Flood. Matthew Heimermann: Yes. I appreciate the clarification. One follow-up on employee benefits is there's -- I feel like there's a number of cross currents affecting the business. And so I'd just be curious on your perspective, right? On one hand, it feels like you've got the dynamics of cost push, which drive a rate need. But on the flip side, you've got what feels like a labor market that's growing less quickly than it had been. You also have just that cost push naturally results in companies wanting to manage costs to some extent. So I'm curious from a subject premium standpoint or what have you, what -- how those dynamics all intersect. J. Powell Brown: All right. So Matt, a couple of things just to reiterate. Remember that smaller group, so let's call it under 100 lives, just roughly, it might be under 50. In many states, you are paid a per head per month compensation. So if you don't add heads, you don't make any more commission dollars. So if people are holding the line on their employment, regardless of increase in cost of health insurance, that's the first thing. The second thing is as people are -- those groups that are not in that area, but even across the board, and Andy has talked about this and I have, too, in the past, people are very focused on trying to contain the spend. And so what that means is they actually are modifying the plans that they offer. So let me give you an example. An example might be a -- let's just say you have a regional manufacturing company, and they have several hundred lives anywhere in the United States. And historically, meaning the last year or 2, they have paid for GLP-1s. So weight loss drugs. I'm not talking about the deal with diabetes. I'm talking about actually for the cause of weight drop. And that has spiked their spend in that particular area. And they make the determination in order to keep the program in a similar structure, they have to basically either place limitations on that or eliminate that for the sole use of weight loss. That would be an example of somebody making a change because of the projected spend because that in and of itself in a self-insured program can drive the cost through the roof. So it very much depends, but I think the important thing is people are trying to maintain quality coverage for their employees. That said, they can only bear a certain amount of increase. And so we are constantly and consistently talking with our customers and prospects about creative ways to deliver value to their employees, but to help manage their cost. And it's not a 1-year plan. If somebody thinks about health care in 1 year, that's transactional. If you're thinking about it multiyear, that's a strategic thought about managing cost over a long period of time, that's different. And I would tell you, it's very important and something that we obviously try to convey to our customers. R. Watts: Matt, these trends -- yes, as these trends here that we started talking about on the back end of ACA that we believe that were going to happen for an extended period of time, and there's even new things that have occurred. That's why we've made significant investments in our employee benefits business. We can handle customers if they have 5 employees, if they have 50,000 plus anywhere in that range, we have those capabilities. And so we do believe that it's a good market backdrop. Yes, there can be some cross wins here and there on things. But we think we're in a really, really good place to help customers of any size, how they manage their health care pharmacy and also their workforce. Operator: Our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is on the risk [ exception ] deal. I just wanted to confirm since the deal is closed, just relative to just the revenue and synergies and just accretion that you guys had outlined that it's all in line with prior expectations. And then I think the plan was to start to see the synergies come online, I think, starting next year. Is that all still the base case expectations? R. Watts: Yes. Elyse, Andy here. Yes, I think everything right now is still in line with what we had communicated back at the time of the announcements. The revenues are right in line. The margins are in line with our expectations, again, knowing there's some seasonality in the business generally has a higher margin in the first half of the year versus second half, not unlike our legacy Brown & Brown business that's there. Teams are working through all the integration plans right now and getting all of those in place. As we communicated on the call, we're going to recognize and realize the synergies over a 3-year period. So our goal is to be done by the end of '28. We still feel like we're on track for all of that process and all the hard work that's got to get done in there, but all the teams are leaning in and working through. Elyse Greenspan: And then just a clarification. On the retail guide for the fourth quarter, you said that, that would be stable with the Q3. Is that stable with the reported 2.7% or the adjusted 3.7% adjusting for the incentive comp impact? R. Watts: No. On the as reported, just -- so as reported, will probably be pretty similar or at least in the same ballpark in Q4 also, knowing that we've got the headwinds on carryover effect of accruing at a higher rate for the incentives and EV that still impacts part of Q4 and then the multiyear policies that were written last year. As of right now, we don't see that same volume of activity in the fourth quarter. And again, things could always change that's out there. Operator: Our next question comes from the line of Gregory Peters from Raymond James. Mitchell Rubin: This is Mitch on behalf of Greg. I wanted to ask about your investments in technology during the quarter. And I was hoping you could touch on the areas of focus and the run rate directionally in '26. R. Watts: Mitch, this must be the morning for everybody else stepping in than the original. So I think we've talked about technology for a number of years, and this started all the way back in 2016 when we made our large investment in infrastructure, and we've kind of got all behind us. And we said our next 2 horizons we're looking at how do we leverage our data analytics and improve the overall experience for our customers and our teammates. We're on that journey right now. We feel really good about the amount of capital that we're investing in, in that area. It's probably a journey, not sure that we ever "arrive" at a destination because you're always evolving in there. We've got a lot of really good things going on across the organization in Specialty Distribution and Retail at the enterprise level, everything from how we ingest data, how we analyze it, underwriting capabilities. We're focused on administrative tasks. So making some really good progress. But probably like most companies, it's still early days of really getting all of the benefits. But we feel good. We've got an innovation council that's set up across the organization, making sure that we're sharing best practices in each of the areas. So we'll continue to work on it, but we're seeing some early benefits from it. Mitchell Rubin: Great. That's helpful. And for my follow-up, I just wanted to ask on your outlook for your debt leverage target range going forward after the close of the Accession deal. R. Watts: Sure. Yes. Our -- as we've stated publicly, our gross debt leverage to EBITDA is 0 to 3x. And on a net basis, it is 0 to 2.5. We have every intention of being right back down in those ranges in about 12 to 18 months with scheduled paydowns that we're committed to. If you look at our 10-year average, we're right at about 2.2, 2.3 on a gross leverage ratio. The organization delevers about 1/4 to half a turn each year just naturally. And then with some incremental payments that we're anticipating, that will pull that down even quicker. Again, we're not overly levered right now anyway, but that's kind of the trajectory of what we're looking at, and that's consistent with what we've done over multiple cycles. Operator: Our next question comes from the line of Brian Meredith from UBS. Unknown Analyst: This is actually Leandro on behalf of Brian. So on the Retail businesses, did new businesses in Retail return to normalized levels after issues in the second quarter? Or is there still room to rebound? R. Watts: Hey, Andrew, you were kind of hard for us to hear. Would you mind repeating that one more time, please? Unknown Analyst: Sorry, sure. Did new businesses in Retail return to normalized levels already after the issues in the second quarter? Or is there still room to rebound? R. Watts: When you -- I guess -- so when you say rebound, I guess, what do you -- what's your expectation when you say rebound? Are you thinking -- I'm trying to acclimate. Are you thinking rebounding back up to Retail business is growing 6%, 7%, 8% organically? Or how are you thinking about it? Unknown Analyst: Accelerating from the second Q levels, I would say. R. Watts: In the second quarter or third quarter? Unknown Analyst: If in the 4Q, we can see an acceleration of new businesses from the bottom of the second quarter, I would say. R. Watts: Yes, I don't think we called out any issues regarding new business in the third quarter. We know we had some of that in the second quarter, but didn't see any issues there in the third quarter. What we highlighted for the fourth quarter is just based upon what we can see today in inventory regard multiyear policies and the volume that we wrote in Q4 of last year. We don't see the same volume in Q4 of this year. But again, that can kind of just move around by quarters. But underlying activity on everything else, we feel good with. Operator: Our next question comes from the line of Rob Cox from Goldman Sachs. Robert Cox: This is indeed Rob. So I just wanted to ask and make sure I understand on the Retail segment. So there's 2 comments in the presentation on the margin that, one was leveraging the expense base; and two, quarterly profitability associated with recent acquisitions. Was there a benefit in the quarter from the seasonality of the Accession acquisition? R. Watts: Rob, yes, there was. So we had a benefit from Accession and a headwind from Quintes, which again, we've kind of talked about Quintes for a few quarters just to help everybody out with that. So you kind of got 3 pieces to it. So a positive on Accession, a negative on Quintes and then a positive on just underlying management of the business. Robert Cox: Okay. Perfect. And then I just wanted to follow up on the international businesses and particularly the U.K. How is the performance there relative to the U.S.? And can you share any color on the market factors? J. Powell Brown: Yes. What I would tell you is the performance is not too dissimilar to the United States. Remember, the GDP over there is growing more slowly. That's number one. And they have actually rate decreased pressure as well. So at present, and I'm just talking about England, but since you asked about it, remember, the liability rates are not nearly as high because the [ plaintiffs ] bar has not gotten as active yet. They're starting. But the answer is they have some continued rate pressure there as well. So you have a slower economy and you have a slower -- and you have rate decreases as well. That's how I would describe it. Operator: Our next question comes from the line of Mark Hughes from Truist. Mark Hughes: Just wanted to make sure I understood the Specialty Distribution outlook for 4Q. I think you said looking for a decline in the mid-single digits, you got $28 million in nonrecurring, which looks like it's about 5 points. And I think you also mentioned lender-placed and then wind and quake programs under a little bit of pressure. Anything else we should think about for the Specialty Distribution? Does that kind of summarize what you've described? R. Watts: Brian -- Mark, no, I think that is -- that's fine. Those are probably the 3 big pieces, Mark, that we also talk about. There's some other moving parts, but those are the main things. Operator: Our next question comes from the line of Mike Zaremski from BMO. Michael Zaremski: I'm going to try to ask a lender-placed question to the extent you're able to add some color. I think over the years, it's been a fantastic business. It appears it's grown much faster -- your business much faster than the marketplace. And just given it's highlighted as being a tough comp in the near term, 4Q, is there just -- is there a trend we should just keep in the back of our heads as we think past 4Q about the lender-placed business just slowing or somehow maybe giving back some market share? J. Powell Brown: So Mike, you're right in saying it's a great business. And we have had a lot of very nice organic growth in the last couple of years. And so what we're saying carefully is we're still growing, but it's just not growing as quickly. And part of that is just because we have had a lot of good growth. And number two, we have competition on our customers. And so your sense of it is correct. R. Watts: And then Mike, keep in mind with that business that -- and again, it's not that we're seeing the actual lender-placed ratio go up. That's not driving the growth, which again kind of is at least an indicator of the health of overall economy and everything. That business, we won a lot of accounts over the years. The sales cycle there is pretty long though. So you could be 12 to 36 months on a sales cycle. And then when the accounts come on, as we've talked about in the past is you will get a bunch of revenue all at once and it kind of works itself out, okay? J. Powell Brown: We'll take one more question, Deedee. Operator: Our next question comes from the line of Josh Shanker from Bank of America. Joshua Shanker: Obviously, no one likes to see their share price going down. You have a $1.5 billion buyback authorization, and there's a decision to whether to put capital to work and buying back your own stock or to [indiscernible] obviously. And there's an arbitrage there. By authorizing the buyback, are you saying that you think that the value of Brown & Brown shares right now is more attractive than doing the tuck-ins? It seems like it should be one or the other, doing both may not be the best use of capital. How should we think about that? J. Powell Brown: The answer to the question is this, we constantly and consistently evaluate the intrinsic value of our stock, and we look at what we believe is the best value overall long term for all parties involved. So we will continue to evaluate that. And if we see or feel that there's an appropriate point at which we think we should buy shares, then we'll consider that. But the Board has given us the ability to invest as we see fit, and that's -- we feel good about that. Joshua Shanker: Is there a math that works that makes both buybacks and M&A equally attractive simultaneously? Or is there -- one is preferred over the other, depending on valuation? J. Powell Brown: Well, let me put it this way. I'm not trying to be evasive, Josh. But if we told you that, then that's where we would be releasing our secret. And so the answer is we will continue to evaluate both. And if we think both work at the time, we will do that or if one is better than the other, we will do that. But please, let's make sure that we don't lose sight of the fact that when we buy businesses, it's about cultural fit and making sense financially. And so having said that, we understand the math between share repurchases and businesses that are ongoing revenue streams with earnings. So we look at all of that. R. Watts: Yes, Josh, as we talked about, we have a very, very rigorous and disciplined approach on how we allocate capital. So we don't share all the details when we do it, but it's -- we get into a lot of detail when we look at all of the deployment options. J. Powell Brown: We like to have options. Operator: At this time, I would now like to turn the conference back over to Powell Brown for closing remarks. J. Powell Brown: Thanks, Deedee, and thanks for joining us today. A couple of final comments. I think that we had a really good quarter, albeit we had Retail in terms of with the modification that we outlined, where top line numbers, our contingents were good. Our margins were great. Our cash flow conversion was very good. And most importantly, in all of that, we -- the integration is going really well. And so I can't stress enough the importance of the cultural fit with the teammates that have joined. We are excited with 23,000-plus teammates now globally and the capabilities and the resources that we can bring to our customers. Hope you all have a wonderful day, and we look forward to talking to you after the next quarter. Good day, and good luck. Goodbye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Stephanie Ruys Perez, Vice President of Capital Markets. You may begin. Stephanie Ruys de Perez: Thank you. Good morning, and welcome to Curbline Properties Third Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes. David Lukes: Good morning, and welcome to Curbline Properties third quarter conference call. Let me begin by expressing my gratitude to the entire Curb team, not only for delivering another strong quarter but also for marking our 1-year anniversary as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. We continue to lead this unique capital-efficient sector with a clear first-mover advantage. Before Conor walks through the quarterly results, I'd like to take a moment to reflect on what we've accomplished in our first 4 quarters since the spin-off of Curbline Properties. We've acquired $850 million in assets through a combination of individual acquisitions and portfolio deals. We signed nearly 400,000 square feet of new leases and renewals with new lease spreads averaging over 20% and our renewal spreads just under 10%. Importantly, our capital expenditures have averaged just 6% of NOI, placing us among the most capital efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class. It's hard to overstate the strength of this business model, but 3 key attributes help explain why we're confident in our ability to deliver superior risk-adjusted returns. First, our investments align with real consumer behavior. Unlike traditional shopping centers built for destination retailers, our properties serve customers running daily errands. According to third-party geolocation data, 2/3 of our visitors stay less than 7 minutes on our properties, often returning multiple times a day. These properties serve large and elongated trade areas along major traffic corridors, not just local neighborhoods. In fact, 88% of our customers live more than a mile away and nearly half live more than 5 miles away. This is not a local business. That's why 70% of our tenants are national chains, eager to capture a share of the 40,000 cars that pass by our properties daily. In high-income markets, supply is limited and tenants are willing to pay a premium for access to this valuable traffic. Second, we invest in simple, flexible buildings. Rather than purpose-built structures, we favor straightforward rows of shops that support a wide variety of uses. This flexibility drives strong tenant demand, rising rents and minimal capital outlay. We don't do loss leader deals, we don't overinvest in tenant improvements, and we don't rely on one tenant to drive traffic to another. Our strategy is clear: provide convenient access to customers running errands woven into their daily lives and leased to tenants with strong credit who are willing to pay top rent to access those customers. The result is a highly diversified tenant base, with only 9 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. Strong tenants drive strong sales which leads to high retention and rent growth with little or no landlord investment. This is the essence of capital efficiency and a key driver of our growing free cash flow. Third, our balance sheet is built to support our growth. We believe we currently own the largest high-quality portfolio on convenience centers in the United States, totaling 4.5 million square feet. The total U.S. market for this asset class is 950 million square feet, 190x larger than our current footprint. While not all of that inventory meets our standards, but our criteria are clear, primary corridors, strong demographics, high traffic counts and creditworthy tenants. Under John Cattonar's leadership, our investment team is underwriting hundreds of opportunities each month. We have the luxury of choice, the discipline to grow 1 asset at a time and the responsibility to maintain our leadership by acquiring only the best. Even in the top quartile of the convenience sector, it's 50x larger than our current portfolio and we've structured our team, our balance sheet and our operations to scale. Curbline has all of the pieces on hand to generate double-digit free cash flow growth for a number of years to come. And based on our implied fourth quarter 2025 OFFO guidance, we're forecasting 20% year-over-year FFO growth, which is well above the REIT sector average. In summary, Curbline has quickly built a track record that highlights the depth and liquidity of the convenience asset class. Our original 2025 guidance range included $500 million of convenience acquisitions. We've obviously significantly exceeded that pace and now expect 2025 investment activity of around $750 million, with potential for additional upside. I couldn't be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience marketplace and delivering compelling relative and absolute growth for stakeholders. And with that, I'll turn it over to Conor. Conor Fennerty: Thanks, David. I'll start with third quarter earnings and operating metrics before shifting to the company's 2025 guidance raise and then concluding with the balance sheet. Third quarter results were ahead of budget, largely due to higher than forecast NOI driven in part by rent commencement timing along with acquisition volume. NOI was up 17% sequentially, driven by organic growth, along with acquisitions. Outside of the quarterly operational outperformance and some upside from lower G&A. There are no other material callouts for the quarter, highlighting the simplicity of the Curbline income statement and business plan. In terms of operating metrics, leasing volume in the third quarter hit record levels even after adjusting for the growth in the portfolio. Overall leasing activity remains elevated and we remain encouraged by the depth of demand for space, which we expect to translate into full year 2025 spreads consistent with 2024. In terms of the lease rate, the strong aforementioned volumes resulted in a 60 basis point increase sequentially to 96.7%, which is among the highest in the retail REIT sector regardless of format. To put some context around that, in February of this year, we acquired a 6-property 211,000 square foot portfolio for $86 million. Since acquisition, just 7 months ago, in that subset of properties alone, we signed 28,000 square feet of new and renewal leases, taking the lease rate up to over 96% from 94% at the time of acquisition. This leasing velocity speaks to the level of demand for high-quality convenience properties and the speed at which leasing can occur given the simple format of the property type. Same-property NOI was up 3.7% year-to-date and 2.6% for the third quarter despite a 40 basis point headwind from uncollectible revenue. Importantly, this growth was generated by limited capital expenditures with third quarter CapEx as a percentage of NOI of just under 7% and year-to-date CapEx as a percentage of NOI of just over 6%. For the full year, we continue to expect CapEx as a percentage of NOI to remain below 10%. Moving to our outlook for 2025. We are raising OFFO guidance to a range between $1.04 and $1.05 per share. The increase is driven by better-than-projected operations, along with the pacing and visibility on acquisitions that David mentioned. Underpinning the midpoint of the range is, #1, approximately $750 million of full year investments with fourth quarter investments funded with cash on hand. Number two, a 3.75% return on cash with interest income declining over the course of the quarter as cash is invested. And #3, G&A of roughly $31 million which includes fees paid to SITE Centers as part of the shared service agreement. You will note that in the third quarter, we recorded a gross up of $731,000 of noncash G&A expense which was offset by $731,000 of noncash other income. This gross up, which is a function of the shared services agreement and that's to 0 net income will continue as long as the agreement is in place and is excluded from the aforementioned G&A target. In terms of same-property NOI, we are now forecasting growth of approximately 3.25% at the midpoint in 2025, but there are a few important things to call out. Similar to our leasing spreads, the same property pool is growing but small and is comping off of 2024s outperformance. And it includes only assets owned for at least 12 months as of December 31, 2024, resulting in a larger non-same-property pool that is growing at a faster rate on an annual basis driven by an expected increase in occupancy. Additionally, uncollectible revenue was a source of income in both the third and the fourth quarter of 2024. As a result, uncollectible revenue will remain a year-over-year headwind particularly in the fourth quarter despite limited year-to-date bad debt activity and very strong operations. For moving pieces between the third and the fourth quarter as a result of the funding of the private placement offering in September, interest expense is set to increase to about $6 million in the fourth quarter. Interest income is forecast to decline to about $3 million, and G&A is expected to increase to just over $8 million. Additional details on 2025 guidance and expectations can be found on Page 11 of the earnings slides. Ending on the balance sheet, Curbline was spun off as a unique capital structure aligned with the company's business plan. In the third quarter, Curbline closed a $150 million term loan and funded a previously announced $150 million private placement bond offering, bringing total debt capital raised since formation to $400 million at a weighted average rate of 5%. Additionally, the company expects to fund an additional $200 million of private placement proceeds on or around year-end at a blended 5.25% rate. Curbline's now proven access to unsecured fixed rate debt is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activities information is that the company is expected to end the year with over $250 million of cash on hand and a net debt-to-EBITDA ratio less than 1x, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess of the REIT average. With that, I'll turn it back to David. David Lukes: Thank you, Conor. Operator, we're now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Craig Mailman with Citi. Nicholas Joseph: It's actually Nick Joseph here with Craig. Maybe just starting on kind of your last point, Conor. Obviously, the balance sheet is in a very good position, but you did institute the ATM program or put one in place. So how are you thinking about equity from here, recognizing the balance sheet is in a good spot, but just given where the stock trades at least relative to NAV and where you're seeing acquisition cap rates? Conor Fennerty: Sure, Nick. So to your point, we put in an ATM on October 1. We also put in a share buyback on October 1. And if you recall from our press release, we simply stated that like all other public companies, we should have all the tools available to us at our disposal for equity at the risk of sounding like a broken record, for us, we look at the source and the use. And so if we had a use of capital that we thought was accretive to fund with equity, we would consider it similar to other public REITs. But outside of that, we're sitting on a significant liquidity position. We've got pretty significant embedded growth. There's a high bar there. So again, to repeat my point, we look at the source and the use at this point. We haven't issued anything to date, but that could be -- that could change depending on what we see from an investment perspective. Nicholas Joseph: And then what's the stabilized yield on the recent lease-up acquisitions? And how does that compare to the in-place cap rates at acquisition? David Lukes: Nick, I would say that our acquisitions this quarter, the going-in cap rate was a bit higher than last quarter. I would say, if you look at over the course of the year, we're still blending to the low 6s, which is a pretty good reflection of where the top quartile of the sector is trading. The stabilized yield, if you look out a couple of years, it's really dependent upon market rents, which appear to be continuing to grow. And you can see that in our spreads. So I hate to even put a number on what I think stabilized looks like in the next 2 to 3 years, but it sort of feels like the indications are that mark-to-markets are growing. Operator: And your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I just wanted to talk about the acquisition activity in the pipeline heading into '26. You talked about $750 million for the year. That's up from around $500 million. So an incremental $100 million or so here in the fourth quarter. How should we think about the pipeline beyond 4Q, how the pace of acquisitions may trend into '26 and whether you're seeing more product come to market as the company continues to be active in the space? David Lukes: Todd, it's David. The amount of inventory we're underwriting is definitely increasing every quarter. I think John's team has built relationships nationwide where we're starting to see things that we might not have seen in the past. I would say we're being highly selective on exactly what we want to transact with and what we don't. And if you think about the prepared remarks, I know you said the guidance was originally $500 million so far year-to-date, we're at $644 million, and we would expect that the full year is around $750 million, but there's potential for upside on that. And I think the pipeline going forward is really going to be more of a result of not only increased visibility and deal flow, but also the episodic nature of some of the portfolio deals that we've done. They're harder to project. They are out there, and we're building the relationships so that we feel like we're going to have the ability to take a peek at those when they come to market. Todd Thomas: Okay. So it sounds like maybe around $500 million is kind of the right target to think about on sort of a recurring basis. And then when you layer in some larger transactions, perhaps that could be kind of the needle mover moving forward? David Lukes: I don't think that's what I was implying. What I said is we feel confident that 2025 is going to be $750 million with potential for upside, and we'll see what happens next year, but we're pretty confident that we're seeing an awful lot of inventory that we like. Conor Fennerty: Yes. And Todd, to David's point, I mean, I think we've kind of built a machine now where we've got visibility on the fourth quarter and the first quarter of next year. And to David's point, it's -- our visibility is a lot higher than where it was when we set our initial bogey. So once we get to 2026 and talk about guidance, we'll provide more of a framework around how we should think about investment volume. But to David's point, I mean, we kind of have visibility now on the next call it, 5 or 6 months, which is a very different perspective than we had at the time to spin-off. Todd Thomas: Okay. And then as we think about '26 and sort of the growth algorithm for the same-store, which I realize is rapidly changing. You have blended leasing spreads have been in the low double-digit cash spread range. Can you just remind us what the portfolios blended annual escalator looks like? And then are there any other sort of considerations that we should think about moving forward? Conor Fennerty: No, it's a good question, Todd. And to kind of the genesis of the question, there is a significant pool change from 2025 to 2026. The good news is the net result is, to David's point, we're buying assets that have very similar characteristics. So there's no material differentiator in terms of structural growth or bumps between the 2025 pool and 2026. If you recall, at the time of spin-off, we said we felt our 2024, 2025, 2026 growth at average north of 3%. And you think about 2024 was 5.8%. 2025, our midpoint of our range is 3.25%, which imply that we would have pretty steady growth over the course of 2026 comparable to 2025. So there's no material considerations to your point on the growth algorithm. This is a really simple company with a really simple income statement. There's nothing for us to call out. There will be headwinds to next year, redevelopment opportunities, though headwinds, nothing like that. So I don't want to make it sound formulaic. There's obviously a lot of work to get there, to your point in terms of leasing and volume, et cetera. But it should be a growth level that's pretty steady on an occupancy neutral basis compared to any portfolio we're looking at in terms of same-store pools. Let me hope I answer your question there. Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: I just want to go back to sort of the cap rate conversation. Obviously, you guys are thinking about IRRs here which I appreciate that. But maybe if you could just double click, I think you said low 6s. Just wondering sort of what are the ranges of those and any difference between sort of larger deal and portfolio deals. And more importantly, as you're sort of a year in and more people are finding out about this business, how should we be thinking about the potential for cap rate compression as you're thinking about the next 12, 24, 36 months? David Lukes: Ron, it's David. I mean, cap rates, as you are aware and you alluded to, we underwrite for IRR, but of course, the result is a going-in cap rate. When the assets are quite small, the cap rate on year 1 can be pretty wildly different most importantly, if there's a vacancy. One of the things we noted last quarter was we had some assets that we bought that had 1 or 2 vacant units, but in a small format strip center, that means that the cap rate can be quite low to make up for that vacant space and the growth opportunity. On the other hand, there could be fully stabilized assets with strong credit that has a little bit less growth opportunity, but it's also a stable growing asset with not a lot of CapEx. So the net result is the cap rate range can be quite wide in this sector. I mean it can be low 5s to high 6s, even for the top quartile. If you're buying assets with worse demographics, pretty low traffic counts and kind of tertiary markets, you could end up closer to a 7%. But those aren't the assets that we've been interested in. And that's why I've kind of averaged it down to say that we're blending to a low 6%, but I'd say there could be a 100 basis point swing on 1 asset to the next just given the fundamentals of that rent roll. Conor Fennerty: Yes. To David's prepared remarks, Ron, so we were just over 6% in the third quarter to David's comments on buying some vacancy. Our fourth quarter blended to 6.25%. So again, that's pretty consistent we've been buying over the course of the year to David's point, vacancy could swing that 20 basis points on a blended basis, but it's been pretty steady. To your point on where they could go. I mean, it feels like that's a macro question as opposed to a sector question. There's a lot of interest in retail in general. I don't think that's unique to convenience assets. But I think it's going to be much more dependent on rates more than anything. Ronald Kamdem: Great. I think that's really helpful. And just going back to the same-store conversation. Look, occupancy has been building this year. So presumably, that's a tailwind for next year. But when you sort of look at the lease rate, where do you guys sort of think is the structural sort of cap that you can sort of get on that? Conor Fennerty: Ron, it's a really good question. So if you look for the total portfolio, we're at 96.7%, the same property pool is 97.1%. It feels like low 97s is probably the peak here. It doesn't mean there's not occupancy upside, though, because we've got a little bit wider lease occupied spread than we historically had run out over the last, call it, 7, 8 years that we've been tracking this for the portfolio. But David, I don't know if you feel differently. It feels like a couple of hundred basis points of structural vacancy is probably the right spread, and that's just churn of a tenant moving out and the time line to put someone back in. David Lukes: Yes. I think the only thing I would add to that is that the SNO pipeline and the amount of occupancy upside, you would typically see in a retail portfolio kind of gives the high watermark for growth. The difference with the portfolio where we're specifically buying a shorter WALT with a higher mark-to-market means that most of our growth going forward is going to come through renewals, not necessarily through occupancy. Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: So 2 questions. I guess, David, let me just go to that comment that you just made about the types of centers you're going for. Increasingly, it seems that just given the dearth of product, people are sort of eager to buy credit or vacancy issues to be able to get at availability to put tenants in. As you guys look at your target convenience centers in the deal flow, are you seeing a lot of opportunities where there is some potential credit or vacancy issues that would allow you to really drive rent increases by taking out a less productive tenant replacing it or convenience centers aren't really -- don't really offer that same potential that you've seen in a normal open-air shopping center. David Lukes: Alex, there's always going to be opportunities to upgrade credit. But I will say that in a larger format retail environment, you might be especially proactive because the benefits of upgrading tenant also have a strong traffic driver and you need that traffic driver to feed your other tenants. What's unique about this business is that there's really not much crossover traffic between the even adjacent tenants. The tenants are leasing space because they want to be near the customers on their errand runnings. So our desire to re-tenant buildings is pretty low. What's most important is that we have tenants that are able to generate enough profit to afford the rents that we want to charge. So I would say we're not going to be very aggressive on retrofitting and merchandising properties. What we are going to be aggressive on is raising rents at renewals. And that's part of the reason why I like the convenience center because you tend to have leases that don't have nearly as many options as a larger format tenant, so we can actually get to the market rents, which are continuing to grow. Alexander Goldfarb: Okay. And then the second question is you talk a lot about sort of the consistency of your earnings growth. And obviously, you're doing that with the balance sheet the way you're mutually funding using debt and cash. But as we think about the spreads to your implied cap rate, is it your view that you will always maintain a positive spread in order to be able to drive the sort of double-digit earnings growth that you aspire to? Or your view is that you could buy inside of your implied cap rate, but through rent outgrow and have that asset be accretive? Conor Fennerty: Alex, it's Conor. I'm going to attempt to answer and let me know if I address this. Our view, our kind of business plan, when we complete the spin-off was to invest over a 5-year period, it's $0.5 billion per year, and that led to double-digit growth, and that required no additional equity. If equity over the course of that 5-year plan was accretive, we would consider it, and that would extend that time line or add to that growth profile. Our view in terms of how we structure that growth algorithm to Todd's point was to say that we could buy at a call it, 100 basis point debt spread over the course of that 5-year period, which is consistent with the last 30 years and kind of the debt spread for high-quality assets. If that spread compressed, it obviously would impact that, but there's other levers we have to pull. And one of the unique and exciting things to David's point to Ron's question was, we can generate pretty compelling occupancy-neutral same-property growth and generate significant free cash flow relative to the enterprise. Those 2 pieces are pretty powerful growth drivers that lead us to, in our view, have the ability to generate better than average versus peers or the REIT sector occupancy neutral growth or leverage neutral growth kind of the genesis of your question. So if spreads compressed, it could impact things, obviously, in terms of relative growth, but we have some other levers that help. The last piece is on G&A, we are still scaling our G&A load over the back half of the 5-year business plan, we start to scale that G&A load, which is pretty impactful as well. So it's a really complicated question. Let me know if I'm addressing it, but there's a lot of levers we have to pull. But there's no doubt that investment spread is impactful to us as it is to other companies that are extremely growing. Alexander Goldfarb: But ultimately, Conor, what I hear you saying is your focus is on FFO growth, not same-store. The focus is on delivering double-digit FFO. Okay. Just want to make sure. Conor Fennerty: Yes, for sure. I mean look, I mean, they should be correlated and our same-property growth, remember, our whole pool is in there. There's no redevelopment pipeline. There's nothing an ebb or flow to growth. So of course, it's important to us, it's important to David's point, for us to express how powerful the organic growth profile is. But for the majority of the business plan, what drives the most -- the biggest proportion of FFO growth is external growth and scaling our expense load. So we're focused on it. It's important to us. But until we are a couple of years in this business plan, it is we're less reliant on organic growth. Operator: Your next question comes from the line of Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Question on your options. I can't actually see what percentage of your leasing activity this past quarter was option renewals and what is that typically? And how do you think about that going forward in terms of limiting that ability for your tenants? David Lukes: I would say that, in general, the option rents for large national chains that do have options are consistent with the rest of the industry, which is 10% every 5. The difference is that they typically don't have as many options as part of the original term and so if a landlord does a 5-year deal with a 5-year option or a 10-year deal with 2 5-year options, by the time we buy the asset, if you look at our WALT, we're buying into that first option or even second option. And so we tend to be able to capture a lot more growth than if you had 5 or 6 options, which is fairly common for a much larger store. Conor Fennerty: Yes. And the only thing to just expand on that, Floris, so the reason the question might be why your spread is less than 10%. Remember, we're getting fixed bumps on an annual basis, which is different than an anchor tenant where you're just flat for a significant period of time, and then you get a big pop after 20, 30, 40 years. And so that's why we disclosed straight-line rents as well. And you can see we're closer to 20 there on renewals. So we're today its point, realizing some of the mark-to-market over the course of the lease. But then we got another bite at the apple earlier than you would from a lease that you signed and sit on it for 20 years. Floris Gerbrand Van Dijkum: Just -- so I think your peers are somewhere around 40% of all leasing activity each quarter is options. Is that something similar with your portfolio today? Or is that a little bit lower already? And do you expect that to trend even lower going forward? Conor Fennerty: Floris, I don't have the exact number off the top of my head. I mean we do skew towards the nationals. So I bet you, we're modestly lower, but I don't have the number available at my fingertips right now. Floris Gerbrand Van Dijkum: Conor. My second question, I noticed you had a couple of larger assets in your acquisitions. I think Mockingbird Central, which is like 80,000 square feet, and you had 1 Springs Ranch at 44,000 square feet. Could you talk maybe about the rationale behind those acquisitions? And are they different assets than the rest of your portfolio? David Lukes: Floris, it's David. The size of the asset in many cases is simply to do with what someone was able to get zoned in a certain submarket. So I think in general, you're looking at assets that we typically buy are significantly smaller. But there are locations, Boca Raton is another one, we have a large asset we bought a couple of years ago. If you're in a market that's highly supply constrained, a lot of the local kind of running errand and shop business is concentrated in certain zoned areas. So you do get larger properties in some of these higher-density markets. And honestly, the big difference for us is when we look at those types of properties, we're just very careful to understand why the consumer is coming there, what their trip generation is looking like and we want properties that have very little control from larger tenants. And so even if the property is larger, it's generally made up of smaller tenants. Floris Gerbrand Van Dijkum: So you're not concerned that you got too much shop space that you have to lease partly because of the supply constraints or... Conor Fennerty: Yes, it's more like if you think of a major thoroughfare through the United States, take Roosevelt Road in Chicago or think of in Phoenix, you're kind of up and down a long thoroughfare. A lot of the supply is just strung out along a long corridor. But in certain older markets where the zoning was different. Instead of being linear zoning, it's more like concentrated pocket zoning. You end up with having the same amount of inventory, but it's just concentrated at an intersection as opposed to an elongated thoroughfare. Operator: And your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: I guess as the mix of institutional competition that you're up against for acquisitions, has it been changing materially, I guess, over the past few quarters? And then just for a second question. How sensitive is the competition to changes in interest rates, say, like the 10-year dipping below 4% again? David Lukes: Mike, I'll start with the second first. I think the competition tends to be very impacted by rates. Most of the competition that we're bidding against are levered buyers, and that's either small families, local investors, but it also could be private equity funds or even institutions that are using an adviser or an operator. The debt component is important. So I do think that they're more impacted than we are because we still remain to be one of the only cash buyers out there. And so I think on the acquisitions front, we're able to be pretty desirable as a counterparty, simply because we don't rely on rates. As far as competition goes, there's definitely competition in the space. I mean these assets are well attended when they come to market. I think I said last quarter, about half of our inventory is off market. And that's really coming through relationships where we have a chance to acquire asset before it's broadly marketed. That, I think, is an earned position if you've got a reputation for abiding by your word and closing. So I think the kind of premarketed or off-market deals are pretty important source of inventory for us. But we are seeing competition, whether it's significantly more than a year ago, I'd hate to say that. There's a lot of assets out there in the market. We tend to be focused on the top quartile in terms of quality. There are others that are focused on the middle or the bottom quartile. So the sector does get a lot of demand, but I wouldn't say there's been an amazing difference in the last 12 months with competition. Operator: And there are no further questions at this time. David, Lukes, I'll turn it back over to you. David Lukes: Thank you all very much for joining, and we'll talk to you next quarter. Operator: Thank you. This does conclude today's presentation. You may now disconnect.
Christopher Eger: Good morning, and welcome to Resolute Mining Q3 Quarterly Highlights. My name is Chris Eger. I am the CEO of Resolute Mining, and I'm joined today by Dave Jackson, our CFO; and Gavin Harris, our Chief Operating Officer. Moving to Page 3. Let's start with some of the key highlights of the quarter. So as you see on the page, we had gold poured of 59,807 ounces, just shy of 60,000. And for the year, that brings us to 211,000 ounces of gold poured. With regards to our group AISC, in Q3, we achieved a $2,205 per ounce cost. It's worth noting though that in Q3, we are paying a much higher royalty expense across the business because of the higher gold price environment. So we estimated that the AISC increased by about $125 in Q3 relative to previous quarters as a result of the higher gold price environment. The business generated a healthy amount of cash in Q3 of around $26 million. Therefore, we ended the quarter with a net cash position of $136 million. Overall, the gold price that we achieved in Q3 was $3,400, which also was an increase over Q2 as the Q2 gold price average was $3,261. Very pleased to say that our TRIFR reduced from the previous quarters, and we're now sitting at 1.95 for Q3. And one of the key developments that we had in the quarter was to increase our resource at the Doropo project in Côte d'Ivoire, and now we're sitting at 4.4 million ounces. As you also see on the bottom right side of the page, we have now narrowed our guidance as we're approaching the end of the year and have much better visibility of our activities in both our operating sites. Our original production guidance of 275,000 ounces to 300,000 ounces has now been narrowed at the bottom end of the range to 275,000 ounces to 285,000 ounces, predominantly from a decrease at Syama, which again, I'll explain in the upcoming slides. Also on the all-in sustaining cost, which was originally guided at $1,650 per ounce to $1,750 per ounce, we have now increased the AISC by $100, really to reflect the higher gold price environment, which is increasing royalty rates, royalty costs, as we say, across the business. But again, this will become clearer as we talk about both Syama and the Mako operations. Moving to Slide 4. I wanted to recap what we believe is a very exciting and attractive organic profile that we put in place at Resolute Mining. As you can see, in 2025, our updated guidance provides a production profile of 275,000 to 285,000 ounces. In the next 2 years, we expect similar type production levels as we will be continuing to process stockpiles at Mako. But with the ramp-up in Syama as a result of the SSCP, we expect to start hitting numbers closer to 300,000 ounces, probably more in 2027 than 2026. But very excitingly, from 2028 and onwards, once we bring Doropo into production, we feel very confidently that the business will start to achieve production levels above 500,000 ounces. But moving beyond 2029, I'm very pleased with the amount of work that we're doing in exploration that the business has real potential to dramatically increase its production profile beyond 500,000 ounces. So in summary, the business is very much on track for this growth profile, and I'm very pleased with the progress that we've made year-to-date with the substantial transformations that have happened in the business throughout 2025. Now let's move into each of our country activities to give a quarterly update on the key progress that's been made across the group. So starting with Mali, let's turn to Page 6. As previously highlighted, Syama unfortunately continued to have operational challenges in Q3, mainly due to supply chain disruptions from explosives. So gold poured was just shy of 40,000 at 39,918 ounces, slightly down from Q2, which was around 41,000 ounces. We saw all-in sustaining costs increasing quite a bit to $2,358, but one of the key contributing factors to increasing AISC was that for the quarter, we saw an increase in royalty rates as a result of the high gold price, and that impact of higher royalty rates resulted in a higher AISC of about $160 relative to our original guidance at the beginning of the year. CapEx was as expected for $26 million for the quarter. And so look, talking about the site, we made some good progress on supply chain disruptions, whereby we have now increased suppliers with regards to explosives, but explosives continues to be the Achilles heel of the operation. Today, we're sitting around 100 tonnes of explosives, which is only about 1 month's worth of stock, not even, to be honest. We have activities in place today to try and get an additional 400 tonnes, which will take us to the end of the year. But unfortunately, the explosives and supply chain situation continues to be very delicate, and we're managing the best possible by trying to bring in as many new suppliers as possible as well as to work with the government in the logistics of those explosives. We're making good progress on the underground even with the explosives that we have. Today, we're starting to mine continuously 8,000 tonnes per day relative to what was half of that at the beginning of the year. So look, the activities on site are going well. We're making some good inroads in reducing costs. We're right now also in the budget season for 2026. And so I'm pleased with how the team is coming together. But unfortunately, like I said before, the explosive situation is really a key contributing factor to the reduced production levels. In Q3, we also made quite a few management changes on site. And today, Gavin, who's here with me, is effectively acting as a General Manager as we are completely restructuring the management team at Syama in order to prepare for a much more profitable 2026 and beyond. The oxide production is also reduced in Q3 because we're very much at the end of the life of the oxide production. And so we experienced expected lower grades as a result of diminishing oxides. So unfortunately, as a result of the challenging year that we've had at Syama, we have decided to reduce the full year production guidance to 177,000 ounces to 183,000 ounces. And I could say probably the vast majority of the reduction in ounces as a result of the lack of explosives, which, as I said before, has been a real frustration for us. Therefore, with the lower production and the higher gold price, we've needed to increase the all-in sustaining costs by roughly $200 to reflect the changes in the business environment. But what I want to highlight is of that $200 increase, probably 2/3 of it relates to the higher gold price environment that we sit in today relative to the beginning of the year. All in all, at Syama, it's been a very challenging year, but I am quite confident that as we look to 2026 and beyond, we are putting in the right people and the right infrastructure in place to start to achieve our historical targets. On to Page 7. One of the key projects that I believe may have gotten lost in the investment thesis of Resolute Mining has been the Syama Sulphide Conversion Project or as we call it, the SSCP. To recap, this is a very exciting project that was commenced back in 2023. And what we're doing here is converting our oxide line to process sulfides. It's roughly $100 million project that is now in the final stretches of completion. This project has run extremely smoothly. It's been on budget, on track. And I'm very pleased to say that after close to 1 million man hours spent, we've had no LTIs. As explained, the project is well on track. This year, we've spent just over $20 million of the planned guidance of $30 million. In Q3, we added 2 additional CCIL tanks that you can see in the top left part of the picture as well as commissioned the pebble crusher. Both of those achievements will add a bit more flexibility to the business with increasing a bit more recovery as we are starting to have increased residence times in the CCIL tanks. However, the main benefit will come next year once the secondary crusher and the ball mills are commissioned as well as the roaster upgrades. So moving into 2026, the site will be fully operational to process 100% sulfide ore, which will dramatically increase the flexibility of the operations and expect to increase the production back over 210,000 ounces for this foreseeable future. So this has been a great project that we've completed or near completion, and it shows the capabilities of our business in building projects on time and on budget, which I think speaks to the team as we're starting to enter operations and constructions at Doropo next year. On to the next slide, Slide 8. I wanted to highlight a few other activities that have been important in Mali. As some of you may know, back in October, early October, I visited Mali and had a chance to meet with senior government officials. Most namely on October 10, I was able to meet with both the Prime Minister and the Minister of Mines in Bamako. This was my first trip to Mali as CEO of Resolute Mining, and I have to say it was a very productive trip. The discussions with both the Prime Minister and the Minister of Mines focused on historical challenges of the business, activities that we're facing today, but most importantly, trying to create a platform for constructive growth. So we had a very open discussion around what's happened in the past, what are the challenges that face the industry today and how to try and work together for the future. It was an initial conversation that will lead to many more discussions, but I have to say, pleasingly, it was a step in the right direction. Other activities at Syama have been focused on exploration, although in 2025, exploration has been less of a priority at Syama relative to other areas in the business. We have targeted a few potential oxide ore bodies, but I have to say they have not come back with meaningful results. Moving into 2026, though, we will look to increase our exploration activities at Syama, but most likely with a focus of really developing additional sulfide ore in order to fill the plant considering the flexibility that's been implemented in 2025. So in summary, before I move to talk about our operations and activities in Senegal, in summary, activities in Mali this year have been very complicated. We've had a lot of changes. We've made a lot of significant management changes, but I'm confident that now we are putting in the right pieces, the right people, the right infrastructure in order to have a much more successful year in Mali in 2026 and beyond. What will be key to the success of Syama will not only be our people and our operations delivering their targets, but maintaining a constructive and productive dialogue with the government, which I'm confident will result in a win-win solution for Resolute Mining, our employees, the community as well as our stakeholders. Now let's move to our activities in Senegal, starting first with our Mako operations on Slide 10. I'm very pleased to say that in Q3, the site produced just shy of 20,000 ounces at 19,939 ounces. And year-to-date, we've achieved 82,000 ounces of gold poured. So as a result of the very strong first 3 quarters of the business and what we expect for the remaining quarter for 2025, we believe that full year production will fall somewhere between 98,000 to 102,000 ounces at this stage. Therefore, we've increased guidance to these levels. As we look at AISC, with the higher production from the site, but a slightly higher AISC as regards to the higher royalty, we believe that AISC will remain unchanged from a guidance perspective between $1,300 and $1,400 per ounce, although I will probably say that we'll end up being at the lower end of that guidance. So all in all, the activities at Mako have had a very robust year. The site has been performing extremely well, and I'm very pleased with the activities at Mako. However, there's a lot of other activities in Senegal that are worth noting, specifically as it relates to our mine life extension projects. Looking on Page 11, as you can see, we have 2 key projects that we are in the process of developing in order to add additional ore and mine life to the Mako operations. As discussed in the past, the 2 projects are Tomboronkoto and Bantaco. Today, both deposits have over 600,000 ounces of known gold that we believe will add at least 5 to 10 years of additional mine life to the Mako operation. But there's a lot of work that needs to happen in order to develop these 2 satellite deposits, which I'll go through in detail in the next couple of slides. Starting with Tombo, on Page 12. In Q3, we had a very key milestone with regards to the fact that the ESIA for the Tombo development was lodged with the government, and we're in active dialogue in discussing that ESIA with the government to get hopefully their approval by the end of this year or in Q1. Having the approval of the ESIA is a key milestone in order for Resolute to file for its mining exploitation permit planned for some time early next year. The other key activities at Tombo was ongoing community engagement to educate the folks that are involved around the benefits of developing Tombo as people remember, we have to move a village. And finally, the other key activities at Tombo was regards to completing the technical reports, namely the DFS required in order to file for that mining application in the beginning of next year. So in summary, I'm very pleased with the activities at Tombo in Q3. Again, I congratulate the team and the filing of the ESIA and looking forward to getting the government's comments so that we can maintain our time line, which you can see in the bottom left of the page. So there's still quite a lot of work that needs to be done. The permitting and licensing will probably be the biggest risk to the overall time line. Once we have the exploitation permits in hand, we can start to really develop the project by moving the village in order to get into mining the ore body in sometime in 2028. Moving to Slide 13. The other key activity in Senegal has been our progress at Bantaco. If you remember back in July during my Q2 announcement, we provided initial MRE at Bantaco, and in Q3 of this year, the key focus for us has been to continue to drill at Bantaco with regards to doing infill drilling at Bantaco South, also at Bantaco West as well as some additional drilling to expand the resource. But really, the focus has been infill drilling. And as we look into Q4 and early next year, we'll be looking to expand the Bantaco resource. That infill drilling was needed so that we can complete the technical studies required as well as the ESIA for Bantaco and get that lodged with the government so that we can be in a position to file for an exploitation permit in Q2 of 2026. There's 2 pictures on this slide on the far right. The picture on the top is Bantaco South, and you can see some of the promising drill results that we've had in Q3 as regards to infill. We believe the deposit continues to extend at strike and also down dips, and we will continue to explore across this area, like I said, in the latter part of this year and into next year in order to make the deposit at Bantaco South bigger. The other picture that you see on the bottom right of the page shows Bantaco West. This is an interesting picture because you can see the Bantaco West potential ore bodies, and you can also see the Tombo ore body in yellow. The magenta line to the left of the Bantaco West ore bodies represents the planned road diversion that we'll have to undertake in order to develop the satellite deposits. So again, congratulate to the team for the significant amount of work that they've done in Q3 in order to progress both Bantaco and Tombo as these are key projects with regards to the extension of the mining activities at Mako. But again, I'm very pleased to say that all the activities are on track, on budget, and the team is doing a fantastic job. Now moving to Côte d'Ivoire. I'm very pleased to say that the Doropo project remains very much on track and on budget at this stage. A key development in Q3 was the fact that we updated the MRE to 4.4 million ounces based off of a more realistic gold price, and this was published in September. The increase in gold price has created a lot more optionality and flexibility for the development of Doropo, and we're in the process today of very much updating the DFS with regards to creating this additional optionality and flexibility. So key activities in Q3 across Doropo was the increase in the MRE, continued work on the updated DFS, community activities as well as permitting, specifically as regards to key activities in updating DFS. The main focus has been to think about increasing the capacity as regards to the fact that we know there's going to be a lot more gold than that was originally anticipated. We're also evaluating different power options. And most importantly, we're updating all the cost figures for more realistic assumptions based off today's environment. So today, we very much see that we are on track to provide an updated DFS at the end of November, early December, which will crystallize the value of the Doropo project. The other key activity in 2025 is around permitting. As flagged in the past, we are in the final stages of getting our exploitation permit granted. But what we knew would be a bit of a complication around the permitting process was the fact that there were elections in Côte d'Ivoire on Saturday, which thankfully, what we hear have gone very peacefully. But unfortunately, because of the elections and the politicking that occurred before the elections, the Minister of Mines office has been preoccupied with the elections at this stage. However, we believe that discussions will resume, and we should be able to get our permits granted by the end of this year, worst case, very beginning of next year. However, none of that changes the overall time line because we still envision that we will proceed with final investment decision post updated DFS and permits, either at the end of this year or early next year and then start early works, complete financing, all with an anticipation of being in production in 2028. So overall, very pleased with how the project is developing. There's been an awful lot of work. There continues to be an awful lot of work in getting all the steps completed. But at this stage, we're very much on track. Moving to Page 16. I wanted to talk to you about some of the other key exciting activities in Côte d'Ivoire, namely on exploration. So first, let's start with the ABC development project. ABC today has over 2.2 million ounces at 0.9 grams per tonne. But as you can see in the picture on the right, those ounces are dedicated to the Kona permit, which is in the middle of the 3 red boxes. In Q3, we did quite a bit of additional work on all the different permits in order to identify where we would like to drill next. And very pleasingly, we are going to start drilling in the permits in the north, the Faraco and Nafana permits with a planned 10,000 meters of RC drilling to commence in November, and that will continue into early next year. We're very excited about that area because, as you can see, it's just southeast of the Awale-Newmont joint venture license, which have had some very high-grade intercepts in the past quarters. However, we're not going to stop doing work at the Kona and Windou permits. We've done quite a bit of surface geochemistry and mapping. And as we've seen, we believe there's additional resources in order to expand and grow that deposit. And so we are targeting at least 15,000 meters of RC drilling in order to develop that deposit. So in combination between the 3 areas, we're very excited about what we see at ABC and has the potential to become a fourth mine for Resolute at some point in the future. And finally, before I turn the page, it's worth noting that we're still active in looking for new permits in Côte d'Ivoire as we find it to be a very interesting area for development. And as you can see on the bottom right side of the page, we were granted a permit called [ Gbemanzo ] which was actually granted in June of this year, and we still have permit applications for 2 others that we expect to receive in 2026. And moving to our final exploration projects in Côte d'Ivoire. On Page 17, I want to give you an update of the La Debo project. So to date, La Debo has over 400,000 ounces at 1.3 grams per tonne, but that resource is dedicated to the northeast of the deposit, which you can see in the bottom left picture between the G3N and G3S areas. In Q3, we finished our exploration activities at La Debo. And today, we're in the process of updating our MRE, which we believe will be a substantial increase in what was previously published, and we're on track to update that MRE by the end of this year. Moving forward, we will look to expand our drilling activities focusing on the middle to southwest parts of the deposit. So again, very pleased with the progress at La Debo. We believe that this project also has very exciting potential. But at this stage, it's a bit too small for us to say it will become a mine, but it has the potential to do so. So with that, let me turn it over to Dave Jackson to discuss the financials of our Q3 results. Dave Jackson: Thanks, Chris. Today, I'll walk you through this quarter's headline financial results, highlighting the key performance metrics. Overall, our Q3 metrics were in line with our expectations as we continue to strengthen our balance sheet and build cash in the business. Looking at the financial highlights, our year-to-date EBITDA was an impressive $293 million versus $225 million in the same period last year. This performance was underpinned by revenue of $664 million. This was generated from the sale of 209,000 ounces of gold at an average realized price of $3,175 per ounce. As previously noted, Resolute remains fully unhedged and continues to sell all of its gold at spot prices. At quarter end, net cash stood at $137 million, marking more than a $20 million increase from Q2. Included in the net cash figure is $58 million of bullion, representing nearly 15,000 ounces of gold that we have sold after the quarter closed. We had $32 million drawn on overdraft facilities at quarter end. These continue to be used locally to optimize working capital. The group has in-country overdraft facilities of approximately $100 million available as we continue to maintain financial flexibility for the group. The group all-in sustaining cost for Q3 was $2,205 per ounce sold, which represents a $500 per ounce increase from Q2. This increase was primarily driven by the expected reduction in gold production at Mako, the impact of supply chain issues, which impacted gold production at Syama and the increased royalties at both sites due to the rising gold prices. This has added approximately $125 per ounce in Q3 at the group level. At Syama, all-in sustaining cost was higher than Q2 due to lower production volumes as we continue to experience supply chain issues. As Chris already mentioned, while we are cautiously optimistic that we're addressing these issues, the situation in Mali continues to be unpredictable. Despite these challenges, we are focused on maintaining strict cost control across the group. Let me now walk you through the key components of our financial results that led to the cash and bullion position of $168 million at the end of Q3. We generated a solid $68 million in operating cash flow during the quarter. CapEx totaled $89 million year-to-date. This includes $20 million allocated to exploration, $28 million in sustaining capital across Syama and Mako and $41 million in non-sustaining capital at Syama, of which $20.7 million was spent on the SSCP. Overall, CapEx and exploration spend was in line with expectations, and we remain on track to deliver our 2025 guidance range of $109 million to $126 million. As previously noted, we made the initial $25 million payment for the acquisition of the Doropo and ABC projects during Q2. These projects represent exciting growth opportunities for the company and are expected to deliver meaningful long-term value for our stakeholders. VAT outflows at the end of Q3 totaled $20 million across Mali and Senegal. VAT remains a source of cash leakage for us, but we continue to engage actively with local governments to recover these amounts. Our recent discussions have been positive, and we remain encouraged by the progress being made. We recorded a $5 million working capital inflow for the year-to-date, primarily driven by a reduction in stockpile balances. Also, we have made solid progress in lowering consumable inventory levels as a part of our ongoing efforts to optimize working capital. Our ending cash and bullion of $168 million marks a $67 million increase from the beginning of the year. This leaves us with ample available liquidity of over $244 million at the end of September. As noted on the 15th of October, Loncor Gold entered into a sale agreement whereby subject to certain conditions, Chengtun Mining will acquire all the outstanding common shares of Loncor in an all-cash transaction. Resolute holds just over 31 million common shares of Loncor that are valued at around USD 31 million at the current exchange rate. The transaction is expected to close no later than Q1 2026, and Resolute expects no tax impact on its proceeds once received. In summary, we're in a very solid financial position and are excited about the growth potential of the business. And with that, I'll hand it back to Chris. Christopher Eger: Thank you, Dave. So look, in summary, I'm very pleased with how the business performed year-to-date, although we had a very difficult time in Mali with the explosive situation. So as such, we're still very much on track for full year group production guidance, albeit at the lower end of the range of 275,000 to 285,000 ounces. The business is performing well. We're producing cash, as you can see through our net cash generation of $26 million in Q3 and therefore, ending the quarter with a net cash position of $136 million. We continue to make good progress across the group, namely in Côte d'Ivoire with our development of the Doropo project. So we're very much advancing all our strategic initiatives across each of the countries that we operate, and we're very much on a pathway to deliver targeted annual production of over 500,000 ounces from 2028. With that, I'll hand it over for questions. Thank you very much. Operator: [Operator Instructions] We'll take our first question from Reg Spencer from Canaccord. Reg Spencer: Congrats on a good quarter. My question relates around what I'm sure is a frustrating issue on explosives in Mali. Can you tell me what you think the circuit breaker to this situation might be? Are we at a stage where we should be concerned about maintaining current levels of production? Or is there really any risk to near-term or medium-term production outlook due to the ongoing issues? Christopher Eger: Thanks for joining the call. So look, with regards to explosives, it hasn't been easy because I think I've highlighted before at the very beginning of the year, we lost our historical explosive supplier. We moved to a new supplier that has not been performing well throughout the year. And so now we've added a second supplier into the mix, which will help. But what complicates matters is the fact that there's been also fuel shortages in country, which you may have heard about from some of our other colleagues. That hasn't impacted ourselves with regards to our fuel activities, but it has impacted the generation of explosives. So that's been a major concern as well because the supply of explosives is just obviously low in Mali. And then look, the last component, which I've also highlighted in the past has been the complicated government regulations required to import and move explosives around. We are making no progress educating the government on this fact, and we've also highlighted to them that, look, we're down a meaningful amount of gold production this year because of their frustrations, and we've seen them react quicker to this. So the way we think about it today is that with additional suppliers, with additional education from us to the government, we do think we're in a better spot. We have more stock than we've had historically throughout the year. And like I said, we're probably building enough stock to get us to the end of the year. But it is unfortunately going to be an ongoing bit of a struggle to have, call it, ample stock for the 2026. So it's a risk, but I do think we've been heading in the right direction. Reg Spencer: I appreciate if you can really give much more color around the situation. I know some of the other operations in Mali may not be actually operating, but it sounds like a countrywide thing, it's certainly not specific to you guys, right? Christopher Eger: From what we see, yes. I mean, look, we are trying to buy explosives from our other -- to the other operators in country, and we're having a bit of progress. But in some cases, we're not having any progress, which just demonstrates that it's not -- there's not a lot of ample supply of explosives in Mali these days. Operator: We are now taking our next question from Will Dalby from Berenberg. William Dalby: Just a couple from me. I think in light of this explosive situation and obviously, the higher royalties, I'm just wondering if you feel there's much scope to improve your group AISC next year versus this year? That's the first one. Christopher Eger: Look, so in short, yes, because we think, look, next year, the production volumes at Syama will go up as we have effectively commissioned and will be commissioning SSCP. So we're obviously in the budget process now, but we expect to be back up above 200,000 ounces. So that will help on one aspect. But look, the gold prices is the other key component. Today, we're sitting at just shy of $4,100. And obviously, that has a meaningful impact in royalty expenses, which will impact the site. But look, on an apples-to-apples basis, we do expect AISC to decrease next year because of the higher production. But I just don't have an exact figure in my head because of the higher royalty expenses today. William Dalby: And then second, sort of just around the VAT receivables piece in both Mali and Senegal, that's sort of been an ongoing challenge there. I wonder if you can flesh out and give a bit more color on that situation? Are you seeing any kind of progress there? And how is that kind of unfolding? Dave Jackson: Yes. Thanks, Will. It's Dave here. Yes, the situations are very different in both countries. So we mentioned in the quarterly release, we are getting VAT back in Senegal, which we used to offset various government payments. So the situation is quite positive in Senegal. But in Mali, it still remains to be a point of cash leakage for us. I mean, we're engaging with the government discussing potential path forward. But as we stand right now, we continue to be not getting any of the VAT back. So there is quite a bit of cash leakage, as I said, in Mali. And until that's resolved, it will be a bit of an issue for us. Christopher Eger: And Will, it's worth noting that when I met with the government officials, namely Prime Minister and the Minister of Mines, we obviously put this as one of the key topics and said, "Look, not getting our VAT refunds is impacting the future growth of the business," and they understood it. So I think they're hearing the message from quite a few folks, but unfortunately, because of their economic situation, it continues to be very difficult to get them. And I'm not optimistic that we'll get any more in the rest of this year. William Dalby: And then maybe just a quick last one. I just sort of know in [indiscernible] on these very helpful development time lines that you have, you have plant modifications at Mako for Tomboronkoto. I just wondered if you could give a bit more detail around what's required there. I see it's in the time line for Tombo but not Bantaco. So is that sort of specific modifications for that deposit? And yes, I guess, how is that working? Christopher Eger: Yes. So look, the ore at Mako, the original ore was quite ore rock. But as we look to mine ore from both Bantaco and Tombo it's a lot softer, and so it's going to require additional capacity. The other key area of improvement in the plant is to increase overall throughput. So today, Mako has a throughput capacity of about 2.3 million tonnes per annum, and we're looking to increase it to 2.9 million tonnes per annum because we've been historically processing ore at probably 2.2 grams per tonne and both Tombo and Mako -- sorry, Bantaco and Mako are going to be closer to 1.1, 1.2. And so in order to try and maintain appropriate production levels, we want to increase the capacity. So that's the main reason for the plant modifications. Operator: [Operator Instructions] It appears we have no further questions. I'd now like to turn the conference back to Chris Eger for any additional or closing remarks. Please go ahead, sir. Christopher Eger: Look, thank you very much for joining the call. And look, like I said, it's been a challenging quarter. But in summary, we believe we're on track to deliver a very robust set of performance for 2025 and the platform for a very robust 2026. Thanks again. Have a good day. Cheers. Bye.
Operator: Welcome to Storytel Q3 Report 2025. [Operator Instructions]. Now I will hand the conference over to the CEO, Bodil Eriksson Torp, and CFO, Stefan Ward. Please go ahead. Bodil Torp: Good morning, everyone, and welcome to Storytel Group's Q3 2025 Earnings Call. We are pleased to report strong financial performance today across both our segments in streaming and Publishing, with robust customer intake and record-high profitability. This performance reinforced our confidence in achieving our guidance for 2025, which we will talk more about today. So I am Bodil Eriksson Torp, the CEO of Storytel Group for a year. Also joining us today is our new CFO, Stefan Ward. So welcome to you, Stefan, to our first call from inside Storytel, and I'm sure that you're going to love it. So, as we just said, we have delivered another strong quarter with over 2.6 million paying subscribers. Most of them, as you know, are highly engaged book lovers, and we increased our paying subscriber base by over 10% year-over-year. We continue a strong financial development, reflecting underlying growth in both our segments, and we delivered revenue growth of 9% in constant currency. The growth was driven by a focus on our customer experience, while the continued operational efficiencies led to our record-high profitability and a strong cash flow generation. Regarding the ARPU, it decreased due to a main factor that is the FX effects of SEK 4, but also due to our continued growth in markets outside the Nordics, where we are having lower price points as we have been talking about before. The Publishing segment achieved strong sales and growth, and also a significant improvement in profitability, partly driven by the successful acquisition of Bokfabriken. But I would also emphasize that the underlying growth, excluding the acquisition of Bokfabriken, remained very solid. So, combined with continued progress in streaming, this is also highlighting our strength of our business model. We delivered a strong Q3 with an increased profitability of 26% year-on-year. And by that said, we also raised our 2025 margin guidance to the range of 18.0% to 19.5%. So here are our group financial highlights. Group net sales increased by 6% year-over-year to over SEK 1 billion. Like many other Swedish companies, we have also been affected by the strong currency headwind. In constant currency, our net sales increased by 9%. The solid development was driven by healthy growth in both our segments, as I said before, and gross profit increased by 6% and the gross profit margin was on par with last year. We reached a record high EBITDA margin of 22.1%. Adjusted EBITDA increased by 26% to SEK 224 million. The net profit for the period increased by 150% to SEK 138 million during the quarter. The significant improvement in profitability was driven by increased operational efficiency. Overall, we are very satisfied with the financial development in Q3. And our financial position provides us with a very high flexibility now for further expanding our businesses. So it's important for us to continue to improve satisfaction and engagement for our customers. So when we look ahead, we will increase our investments in locally relevant content and also the user experience in our services. This will continue to improve both engagement and satisfaction for our current and our future book levers. So when we're looking into rolling 12, we see a strong development with strong momentum. On an annualized basis, our revenues are now close to SEK 4 billion with a margin of 18.4%. This confirms our successful business model, as you can see. So let's continue with our 2 business segments. Over to you, Stefan. Stefan Wård: Thank you, Bodil. We'll continue with a brief overview of our streaming performance. During the quarter, we added 56,000 new subs. And over the past 12 months, we have added 236,000 new subscribers. So solid growth, both on a quarterly and annualized level. Especially the Nordics were strong in the most recent quarter with net adds of 36,000, while we added 58,000 for the full past 12 months. So, a relatively strong intake from the Nordics in Q3. Outside the Nordics, we added 20,000 new subs in Q3 and 178,000 over the past 4 quarters. So relatively softer quarter outside the Nordics in Q3. At the end of the last quarter, our Nordic base was 1.32 million, while our base outside the Nordics was 1.28 million for a total customer base of 2.6 million subs. So we're roughly evenly split between the Nordics and outside the Nordics, and it's a reasonable assumption that we soon will pass the shift will tilt towards our international non-Nordic customer base going forward. As a consequence, we continue to see a decline in ARPU. We have lower average ARPU levels outside the Nordics, but that does not necessarily mean that we have lower profitability on those customers. On the CMB/SAC ratio, we remain well above our target level of 3, supporting arguments for continued subscriber growth. Not only do we have a well-diversified subscriber base in terms of markets, but we also have a highly engaged and loyal customer base, visible in our low churn level, which continued to decline during the quarter to a new all-time low. Looking specifically at the financial performance of the streaming segment, we delivered a reported sales growth of 4% and 7% in constant currencies. Streaming gross margin was unchanged, while our EBITDA margin improved 4.3 percentage points to EBITDA margin for the streaming segment of 17.9%. Operating leverage continued. So our growth in operating profit was 43% year-on-year. In our Publishing segment, we delivered, as Bodil said earlier, a strong growth, 14% year-on-year, SEK 39 million of the annual increase for the first 9 months, a total increase of NOK 39 million, of which Bokfabriken accounted for NOK 22 million. BoKfabriken has, since we acquired the unit, delivered very good results above our forecast. So we're very happy with that acquisition. It's a good example of how we can continue to grow our publishing business. The development was also driven by strong digital and physical sales, with a good performance of new titles. Publishing EBITDA increased by 25% to NOK 108 million for a margin of 33.4%, up 3 percentage points year-on-year. Looking at the cash flow generation, we transform or convert over 80% of our EBITDA to operating cash flow before changes in working capital. So, cash flow grew by 37% and was SEK 203 million in the quarter. On a trailing 12-month basis, it's at SEK 658 million, corresponding to 90% of our run rate EBITDA for the past 12 months  Working capital had a negative impact of SEK 45 million in the quarter. In our view, this is a normal variation, and we will see a release of working capital in the final quarter. A fair expectation for the full year would be to have a relatively neutral impact from working capital in 2025. During the quarter, we also repaid SEK 50 million of our debt. And that, together with the increase in working capital, explains the relatively softer total cash flow for the period compared with last year.  Looking at the balance sheet, it's strong, not much to say there. We have cash and equivalents of just over NOK 0.5 billion. That's roughly on par with our interest-bearing debt. Our equity-to-asset ratio continues to improve, and it's currently at 50%. Speaking of our net debt, it's tiny, it's NOK 23 million. We will go into net cash during the fourth quarter if we don't make any drastic investments. So we have a very good financial position. In addition to our strong operating profitability, we continue to see improved financing costs. So we will have a better financing situation going forward.  We also have a significant amount of deferred tax assets, which are currently off-balance sheet. These are primarily related to losses made in our now very profitable Swedish business. So we are quite certain that we will be able to utilize these deferred tax assets going forward, which will mean that we will have a fairly low paid tax rate, and that is also good for our cash flow generation going forward. With that, I'll hand it back to you, Bodil.  Bodil Torp: Thank you, Stefan. Super good. And thank you for highlighting our strong financials and our position. So we summarized this quarter, and we are satisfied with our operational performance and our solid subscriber growth. And it's also that our highly engaged book levels have led to an all-time low churn rate again. That's really good. So our substantial cash generation provides us with a very strong financial position. And we will continue to expand into new and existing markets in a prudent way. We have launched our services in Estonia during the quarter, while also forming a new partnership in Chile will support growth over time.  So this is to continue the path that we are doing. Our strategic focus is super clear for us. We continue to strengthen our leading position in the Nordics, and we will also accelerate our growth in our core non-Nordics markets. That's super important for us and expand into new adjacent markets. So this strong momentum, coupled with our high degree of financial flexibility, supported by an active M&A agenda, positions us now very well for the future. So we will continue to hopefully end with a really good year here. So now over to your questions.  Operator: [Operator Instructions] The next question comes from Derek Laliberte from ABG Sundal Collier.  Derek Laliberte: I was wondering, you delivered obviously a really strong margin here in Q3, driven by lower costs. It looks like mainly lower OpEx. What were the key components of that? And is this level, so to speak, sustainable into Q4?  Stefan Wård: Thank you, Derek. Stefan here. Yes. So, the primary reason on an annualized basis, we had some costs last year in Q3 that related to headcount reductions that are not apparent this year. Other than that, we just continue to work by improving our efficiencies. As Bodil mentioned earlier, during the first half, we've trimmed the OpEx base. So, part of it will be sustainable, and we definitely see a higher profitability level going forward, hence our raised full-year guidance. I hope that answers your question.  Derek Laliberte: Yes, very clear. And I was also wondering in the summer months here, a strong performance in terms of intake. Can you say something about what you've experienced in the Nordics here with regards to sort of how efficient your conversion of customers has been and what you've seen on the competition front as well?  Bodil Torp: Yes. I think we always, have always increased our efficiency in our MarTech function, and that is also what we are seeing from the figures, while our growth is increasing in the Nordics in a good way. So the competition is what it is. I mean, it's the same as it has been before. So I think we've done a good job during this quarter to also have the increase in the Nordics when it comes to the subscriber base. And that goes to the efficiency and the good function that we have for the Match, I would say. Also, monitoring and being agile in doing the right things in tactical marketing is also important.  Derek Laliberte: Looking at the non-Nordics core markets here, I think you said that Poland and the Netherlands continue to be strong, but is there anything else to highlight in terms of particular tail or headwinds that have had any meaningful impact in any of these countries?  Bodil Torp: I would say we have a strong momentum in Poland and the Netherlands, and that is what we're also telling in the report today. Of course, we are on a good path, and we're taking market shares there. So I won't say that we have any different headwinds than we see. It's more about gaining shares and increasing the momentum that we have in those markets. It's important for us to continue to grow there. And also, as Stefan mentioned in the call that this will, going forward, change a little bit regarding the balance where we see the growth and the customer base in the pay base, regarding Nordic and the growth non-Nordic course. So this is, of course, super important for us, and we have a good momentum there.  Derek Laliberte: I was also wondering, I mean, you've talked for quite some time about further differentiating your product from competitors' offerings. Where would you say you are on this journey? And what benefits are you experiencing from what you've achieved so far? And what should we expect in the future?  Bodil Torp: We increased our efforts to deliver the best streaming service to our customers, of course. So, we have also launched different features during this quarter that go into seamless reading and listening function, for example, and also the audio around Dolby.  So, we are on the right track to increase our deliveries to our customers to actually make it more to increase the customer experience in the app. And that is also important since I mean, we had the big launch of VoiceSwitcher, and then it was a time where we didn't really release any features.  But we are into that momentum now that we have actually launched some features, and we will continue to do that. So, we have good progress in product and tech, and also a new setup there with an organizational setup that is also more focused on delivering the product features to the market to increase our strength in the app, of course.  Derek Laliberte: Finally, you announced yesterday this Klarna partnership. Can you talk about the potential you see in this deal in terms of what it could mean for distribution and conversion?  Bodil Torp: I would say, I mean, we launched it yesterday. So, in the very beginning. But I mean, Klarna's network is reaching over 100 million consumers worldwide, and this goes into different tier models across 14 markets. So, of course, we are very hopeful that this will be a really good partnership for us.  I mean, also, when it comes to Klarna's customers, we know that they are really tech savvy, and they also want to have new services regarding streaming. So, there's a good collaboration, and it's a good fit with Klarna's customers. So, we will come back to this, but we are very happy and have a good forecast that we will have some good business values out of this partnership.  Derek Laliberte: And then I'd also like to ask, I think you mentioned before about adding, I mean, this additional expansion or additional markets. I'm not sure if it was 6 to 8 in total over the years. And we've clearly had your announcements on Estonia here and also the partnership in Chile.  What should we expect going forward here? And what type of approach will you take? I noticed with these 2 launches, so to speak, that you've, I mean, gone for a partnership model to quicker get an attractive catalog up and running in the service?  Stefan Wård: Well, I think you should expect that we continue to add markets to our footprint. We can both reignite existing markets where we've been active in the past and already have a catalog. We can go into new markets, completely new markets, as in Estonia, for example. We can go in organically, or we can go in through acquisitions, and we can also go in via partnerships. These are just 2 examples that we're executing on that strategy, but it's a fair assumption to continue that we will continue to do so. And that's the best answer I can give you there.  Operator: The next question comes from Joachim Gunell from DNB Carnegie.  Joachim Gunell: So, on this raised margin, ambitions for 2025 since we're only 1 quarter to go. And on a trailing 12-month basis, you're already delivering 18.4% adjusted EBITDA. So, how should we think more conceptually about this still fairly broad interval in light of that's only Q4 to go? And then essentially, what scenarios do you play with here in order to hit either the high end or the low end of that range?  Stefan Wård: Well, as you stated, Joachim, we're already delivering within our range. So, we felt that we needed to revise to lift our communication range and notch upwards, and that is what we have done. Other than that, I don't think you should read too much into it. We're confident that we will deliver on our targets for the full year and expect to finish the year in a good way.  Joachim Gunell: There's been a lot of industry chatter about both Spotify launching and also potential relaunch of Audible in the Nordics over the coming quarters. You discussed a bit about the steps you are taking to differentiate the service and then improve the listening and reading experience. But just remind us what you see as Storytel's deepest competitive modes, whether it's, of course, the local content, UI, UX, brand, price, et cetera? And how durable are they?  Stefan Wård: So, our deepest moat is our existing customer base that is not churning and very loyal, and has a very high activity of our content. So, the content that we build over a long time that it's core to our strategy, and it's a very good moat for us. Then hopefully, if new entrants come in, we hope that they will help evolve the entire cake. But we're used to intense competition, and this will be nothing new for us. We have our content-based strategy and think that is what has helped us win so far.  Bodil Torp: Yes. And we should also remind ourselves, this is really a local game. So it's also about having the right competencies and know-how regarding the local game in the different markets. Since we know that over 80% is consumed in a local language, it's super important to have relevant local content, and we are very good at that. So, there's a long history of knowledge in that area in the company.  Also, like Stefan said, it's also about our customer base, who are really engaged book lovers that have been with us for a long time, and the churn is all-time low. So, they're actually having a really good and high engagement and loyalty to Storytel. So, this is also a moat where we know that our customers want to have their bookshelf in our app. So that is the main moat, I would say.  Stefan Wård: We can also add that we are audible has been in the market in the past, as you mentioned, and we face competition from Spotify in, for example, the Netherlands, and we're still able to grow our subscriber base very strongly in that market.  Joachim Gunell: When it comes to providing, say, tools for creators to manage, promote, and grow their audiobook business, I mean, where is Storytel in relation to your ambition when it comes to, say, visualizing different types of data statistics on listeners and those kinds of things to your authors and publishers?  Bodil Torp: I would say we are in the moment where we are digging deep into this. So, we will actually come back on that because we also need to see how we will be better at delivering that kind of data and services to all the authors. So that is a project that is ongoing as we speak.  Joachim Gunell: Just a final one for me. How are your AI initiatives, like the AI generation and then voice switching tracking, versus expectations? I think there was some, of course, initial traction of this, but can you say anything about user engagement trends, suggesting if these are preferred new features? Or do your loyal book lovers prefer the classic experience?  Bodil Torp: There is a good user experience in voice switches. We know that there are a lot of users who actually want to switch the voice when they don't like the voice. So it's 9 out of 10, and there's a high engagement in using the voice switches. So we are actually increasing our voice switches to more titles and more languages as we speak to scale it in a bigger way than we have done. So it's attractive, and it's a really good feature in the app that is highly engaging, I would say. So it's in good traction.  Stefan Wård: And we have an intense AI agenda currently ongoing within the company, both from an efficiency but also from a product enhancement perspective.  Bodil Torp: That goes group-wide in the whole company. And that is an intense agenda, also regarding education.  Operator: The next question comes from Georg Attling from Pareto Securities.  Georg Attling: I have a couple of questions, if I may, just also starting on the margin guidance here for this year. Looking at the financial target in 2028 of about 20% margin, that looks quite conservative considering you're almost there in the higher end of this year's range. I'm just wondering if this is a reflection of you just staying conservative? Or are you seeing areas where you would like to accelerate cost growth?  Stefan Wård: Well, regarding the current year, I think the high end of our updated guidance is not conservative. It's a stretch to reach that. We're at 18.4% on an annualized level, and the update to the high end is 19.5%. So I think we have balanced guidance for the rest of the year that is not too conservative.  Regarding our midterm targets, we say that we're going to be above 20%. That could always be specified, but I think our progress just shows that that is a reasonable expectation to be above 20% in 2028. Then, exactly where we will end up, there will be plenty of time to be more specific about that.  Georg Attling: Also wondering about the Netherlands, you pointed out as one of the markets in the non-Nordic core that's the strongest, which is interesting considering Spotify's sentence there a year or so ago. So I'm just wondering if you can give us some more color on how the market has developed since Spotify entered, because it seems like, if anything, it's been positive for you.  Stefan Wård: Well, yes. So it looks to our best understanding that we do not exactly compete for the same customers in that market, and that they are actually helping to evolve the entire market, and that would be a very positive scenario for the audiobook format. That's our view. Then, the Netherlands is still in a relatively early phase compared to the Nordics. So there's still a lot of growth in the total market to be done. So when we do strategic marketing in the Netherlands, it pays off in a nice way. So we're able to grow our own subscriber base. I hope that helps.  Georg Attling: Yes. Then just a final question from me. There were some comments in some local media here a couple of months ago that you are in talks with Spotify about licensing your content to Spotify, then in the Nordics, if I understand it. Could you give some more color on where you stand with regard to this?  Bodil Torp: I mean, we don't comment on rumors. So we are open to discuss different business agreements when it's having good opportunities, and that goes into all the players in the market. That is all I can say.  Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.  Stefan Wård: We have a couple of written questions here. And the first one concerns AI, if we see a case where AI becomes a threat to our business model, and how we use AI to improve our business. Any comments there, Bodil?  Bodil Torp: I would say that we are actually using AI in a wide range of the company. Every team is now in both educational mode, but also we have been using AI for a very long time when it comes to, for example, product and tech, and also back in days with all the machine learning. So I would say that we are on the front line when it comes to the AI capabilities. And we are searching, of course, for efficiency increase and also getting the best out of it for our customers when it comes to customer value. So there's a big scope for this, and we're having a strong focus on AI in the company. What was the other question?  Stefan Wård: The other one was whether AI will become a threat to our business model, and that could be bundled into whether we think that AI can help large international competitors challenge us in our home market. I can give a short answer to that, that we do not see AI as a threat to our business model nor do we see it as an enabler for international competitors to threaten us in our home market since having a good offering is based on what content you can access, and that is regardless of whether the technique that we use to produce or distribute the content. But we are certain that we need to work a lot with new AI-based technologies to stay competitive with our offering.  Bodil Torp: Definitely.  Stefan Wård: Okay. And we have a final question, whether we have any plans to reintroduce our Storytel reader to enhance the customer experience of books.  Bodil Torp: Yes. We are looking into that, I can tell. So hopefully, we will have some happy customers in the future. So we are looking into it. We know there are a lot of customers who really want us to restart that product. Thank you.  Then there are no further questions. Stefan Wård: No.  Bodil Torp: So thank you, everyone, for joining us today in the call, and we are looking forward to our next quarter, and we are looking forward to meeting you soon again. And as you know, we are confident in achieving our updated 2025 guidance. So thank you, and have a good day.
Operator: Hello, everyone, and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions] And with that said, please go ahead with your presentation. Christer Wahlquist: Good afternoon, and welcome to the presentation of Nolato's Third Quarter 2025. This is Christer Wahlquist speaking. During the quarter, we saw organic growth in both our two business areas, approximately 2% if we adjust for currency. And that, in combination with the strong increase of our margins created a strong increase of our EBITDA. So the sales ended up at SEK 2.3 billion on some and the operating profit rose 20% to SEK 281 million, that includes a nonrecurring item of SEK 7 million corresponding to an insurance claim. But as I mentioned, we saw strong improvement of margins in both business areas. We have maintained a very strong financial position with a debt ratio 0.6x EBITDA, giving us opportunity and possibility to expand together with the right business cases from existing and new customers as well as executing on our acquisition strategy. The Nolato Group consists of two business areas, the Medical Solution, being the largest part at approximately 56% of group sales and Engineered a little bit less than 50% and the rest of the business. Starting out with Medical Solutions. Here, we see sustainable growth in global expansions. And on this graph, you will see a 20-year show of our sales over the last 20 years. So we've seen good growth over the years. We have a very spread business with six focused product areas, and there are also well spread sales across global leading customers, creating a strong foundation for continuous growth and focus on these six product areas. If we look into the third quarter for Medical Solutions, we saw a sharp margin improvement, a full 1.4 percentage points, ending up at 12.1% in the quarter. That, in combination with the increase of sales, 2% created, of course, an improved operating profit ending up at SEK 159 million. We are expanding our business, so we have expansions ongoing in Hungary, Poland and in Malaysia. And all of these are according to plan. And in our Hungarian facilities, we have, during the quarter, started validation deliveries during the third quarter. And we expect that these validation deliveries to continue on approximately the same level for the coming quarters. And then subsequently expected to increase somewhere in the late second quarter. Jumping into Engineered Solutions. Here, you also see a graph of the last 20 years, and we are now in a position where we have downsized our VHP business and our building a strong foundation in the focused product areas shown on this page. Here, we have a well spread business, different product areas with a little bit different if we specifically look into the materials, which is then, of course, based on our own recipes of raw materials. If we look into the third quarter for Engineered Solutions, we saw a very sharp margin improvement, a full 1.8 percentage points during this quarter and it's coming from implemented cost savings and increased capacity utilization and of course, some price adjustments. The business sales totaled SEK 1.035 million during the quarter, which was a 2% currency adjusted organic growth. We saw sales to the automotive industry increased through higher product invoicing and more normal vacation shutdowns amongst our customers. We saw a continuous growth in our hygienic area, thanks to investments in Mexico and also a positive performance for our consumer electronics particularly in Asia. Per-Ola Holmström: Good afternoon. Per-Ola Holmstrom commenting on group financial highlights. Net sales amounted to SEK 2.342 billion in the quarter, representing a 2% growth adjusted for currency. Operating profit EBITA increased by 20% to SEK 281 million. And the EBITDA margin for the group improved by 2.2 percentage points to 12.0%, including a nonrecurring positive item of SEK 7 million. The effective tax rate was 19%, which we expected to be for the full year as well. Net investments were SEK 183 million in the quarter, a higher level of CapEx than last year as planned, mainly for the expansion in Hungary. We foresee around SEK 850 million in CapEx for the full year 2025. And by then, we expect to have paid almost SEK 500 million of the total expansion of SEK 600 million in Hungary. Enhanced cash flow after investments was lower than last year, SEK 180 million compared to SEK 191 million. Earnings per share increased to SEK 0.8 million. Return on capital employed improved again to 14.1%, mainly driven by the margin improvement. Christer Wahlquist: Okay. Focusing on the current situation per business area, starting with Medical Solutions. Here, we have our maintained growth strategy, and we see high market activity. We have been focusing on margin, implemented cost adjustment and increased efficiency. Of course, innovation and sustainability based on a broad customer with long-standing close customer relationship. We also are now expanding in Asia, in Poland and also in Hungary. On the Engineered Solutions side, we have advanced our market position. We have a lot of focus on innovative and sustainable solutions. We see success in new market, which is positive for materials and of course, expansion of our operations in Malaysia. We will now open up for questions. Operator: [Operator Instructions] First, we have Adrian from ABG. Adrian Gilani Göransson: Yes, I'd like to start off with a question on the expansion in Hungary and the outlook you gave on deliveries related to that. Are you able to say anything more specific on when you will go from these sort of validation delivery phase that you're in to a more -- to commercial scale deliveries? Christer Wahlquist: Yes. These type of large programs always have a lot of validation and it's different steps of validation. So we foresee that we will have a validation deliveries during this quarter, next quarter and the first quarter in 2026. And then somewhere in the second quarter, we will start deliveries to the outside market to the patients. Adrian Gilani Göransson: Okay. That's very helpful. And a follow-up on that. Do you see any risk related to this contract, given that the customer in question has had a bit weaker development than recently than I think most people had expected. I mean, could this have an impact on the full run rate volumes for your contract? Christer Wahlquist: We are happy with our discussions with our customers that we have not mentioned who it is. But we have good discussions, and we anticipate this program to start serial deliveries in, as I mentioned, then somewhere in the second quarter of next year and then gradually grow from there according to plan. Adrian Gilani Göransson: Okay. Understood. Then on engineered, specifically on the materials business that declined slightly year-on-year. How much should we read into that? Is that just a normal quarterly volatility? Or are you a bit more cautious on the outlook now compared to sort of last quarter, I guess? Per-Ola Holmström: Yes. As we did mention, most of that is coming from the automotive side, which is a bit pressed right now as many areas within automotive, and we foresee that going forward the next quarter as well to be in a similar development. Adrian Gilani Göransson: Okay. Understood. And then when you mentioned the efforts on consumer electronics that are actually yielding results in Asia specifically, does that mean that this Chinese facility that has been on low utilization is back at satisfactory levels now? Or are there more improvements here to make? Christer Wahlquist: We have more capacity, and our ambition is, of course, to gradually fill that with serial deliveries, but it's been improving, and we are gaining new projects and building up. But it's not fully utilized yet. Adrian Gilani Göransson: Okay. Understood. And just a final one from my end, a detail-oriented question regarding this insurance claim of SEK 7 million. Maybe I should know this, but what is that related to? And are there any outstanding claims left that could be booked as income going forward? Per-Ola Holmström: We had a flooding situation in one of the factories we have in the U.S. And this is the financial outcome so far, and it could be that we have some additional money coming from that during the end of this year or the beginning of next year. But it's no major money coming from that left. Operator: Let's move on to Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the project in Hungary, the validation delivery, first of all, can clarify what you mean with validation deliveries? What this means in practical terms? Yes, that's the first one. Christer Wahlquist: Okay. As I mentioned, during ramp-up of these type of very large and complex programs, you have validation of different steps, so you validate individual component manufacturing, some assemblies and then it has to be validated in the filling side of the customer and so on. So there are a lot of products that need to be tested for different variations of tolerances and so on. And this is what we are running right now. And we sell those products and are getting paid for them. So that's a normal behavior in this type of programs. Mikael Laséen: Okay. So is this meaningful in any way or very small revenue that you get right now to understand what will happen in Q4 and Q1 next year? Christer Wahlquist: Yes. The sales from these validations is approximately 1% of business area sales during this quarter. Mikael Laséen: Okay. Got it. And then moving on here, could you also talk to us about the EBITDA margin development for the Medical Solutions segment? It has been relatively stable at around 12% plus two, three quarters now. So what will drive the margins higher than above 12% or well above 12%, which I guess you're targeting? Per-Ola Holmström: Yes. If we look forward, we do see possibilities in increasing the margin towards the 13%. We did have some years back. And One thing that should support that is, of course, the new program ramping up in Hungary. We have commented on that before. And of course, also moving into higher volumes for some of the expansions we're in right now, adding up capacity utilization. Mikael Laséen: Okay. And how is the U.S. side progressing for the medical side? Per-Ola Holmström: Sorry, the new? Mikael Laséen: The Medical segment, how are they doing in the U.S? Per-Ola Holmström: They are part of the long-term improvement we have made when it comes to margins but we would still see the U.S. operations as a possibility to move to improve margins compared to the rest of the business area. Operator: And now we'll give the word to Carl Ragnerstam from Nordea. Carl Ragnerstam: It's Carl from Nordea. A question from my side as well here. On the new contract, I mean, that you're ramping up in Hungary, could you give any flavor on the production efficiency you're seeing right now, potentially bottom mix versus your expectations? And so far, I mean, it's obviously, I mean, validation volumes, but profitability projection so far if it meets your previous expectations? Christer Wahlquist: Since it's validation, there is no sort of feedback on yield and those kind of things. Of course, you can look on the individual cycle times, and they are according to our expectations, but the full yield, it's too early to give any comments on that. Carl Ragnerstam: And the production you're ramping up now, is it covering the cost so far? Is it the burden? I guess it's a burden of margins at such early stage, right? Or -- because its contributed 1% to organic growth in medical. What is the EBIT impact or if any? Per-Ola Holmström: It's, of course, a small EBIT effect, but it is covering its cost right now. Carl Ragnerstam: Okay. That's very clear. And on IVD. I'm a bit curious to hear more about what you're seeing there. Because we've seen -- I mean, as you wrote a weak start to the year, we saw before that early indications of a recovery followed by declines. So it's been a bit back and forth, at least it is that -- how I look at it. So how do you view the current recovery in that segment? Christer Wahlquist: Yes. There is a lot of dynamics behind the IVD as we've been talking about of course, the volatility and the supply chain discussions after COVID, but also the change of one customer changing to our deliveries to an end customer is that. So there is a lot of changes. But we look positive on this market segment. We see possibilities, definitely. We see a growth opportunity going so we are very positive, but we have seen, as you mentioned, some back and forth in the delivered volumes. Carl Ragnerstam: So you see the growth in IVD to be here to say for now, at least what you see? And do you see an acceleration from here? Or what is your feedback from customers? Because they used to be quite a good earnings driver. Christer Wahlquist: Yes. I think the feedback we get from customers is that it's a long-term growth area. They see that and they are adding new test into this type of product. So definitely a long-term growth opportunity. But with some volatility still going on in the single deliveries over quarter-for-quarter. Carl Ragnerstam: Okay. That is very clear. And also, maybe you mentioned it, I didn't hear the full call. But in the materials, you've seen the sort of weakness in automotive. On the other hand, where you've seen telecom, I mean, offsetting it. How do you view the short midterm development here? Because we've seen the deceleration in telecom, if I remember correctly, right, from very favorable comparisons. So do you see it at low single-digit negatives ahead as well short, midterm before automotive picks up pace or how do you view the trajectory from here? Per-Ola Holmström: I think we should see a sequential development for materials, which is very similar as this quarter in the next quarter. That is the best view we can give. Long term, it is a good growth opportunity for us. But this quarter and also in the next quarter, we foresee a bit slower operations in that area. Carl Ragnerstam: And when you see sales sequentially, is it a minus 1? Or is it in absolute numbers or perhaps both? I don't have the comps on top of my head. Per-Ola Holmström: I would say, in absolute numbers similar to Q3. Operator: That concludes the Q&A session here. Thank you very much, Christer and Per-Ola for presenting here today. Thank you, everyone, for tuning into this webcast with Nolato and I wish you all a great rest of the day. Thank you very much. Christer Wahlquist: Thank you. Bye-bye.
Annukka Angeria: Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2025 Results Webcast. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations. Together with me in this call, I have Nokian Tyres' President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, Paolo and Jari will start by presenting the results. And after that, there will be time for questions. With these words, I will hand over to you, Paolo. Please go ahead. Paolo Pompei: Thank you, Annukka, and good afternoon also from my side. Let's start this presentation with our headline, which is a stronger operating profit improvement in quarter 3, driven by announced pricing in passenger car tire, actions ongoing to further strengthen our financial performance. We are closing an important quarter. And I have to say that I'm very pleased to tell that we are really moving in the right direction. As we said in the headline, our operating profit increased significantly. And obviously, this is very encouraging for the future journey that we have ahead of us. But what we are going to do this afternoon, we are going to talk about our quarterly highlights, the financial performance. Jari will comment on the business unit performance. And then, of course, we will close the presentation with assumptions and guidance. Now let's go to the quarterly highlights. In Slide #4, we had double-digit sales growth. We were able to grow in all the regions. The sales growth was 10.8% in comparable currency. The operating profit improved significantly, plus 427%, and this was mainly driven by our effort in improving our pricing in the passenger car tires. We still have a lot to do. There are still a lot of actions going on in order to improve our financial performance. We're also very pleased about our ramp-up of the operation in Romania that are progressing extremely well, and we are now actually running 24/7. This -- in the month of September, we were also expanding our product offering and brand partnership. We will tell something more in a minute. And of course, there is also starting from the 1st of September, a favorable tariff development in North America for Nokian Tyres. Moving to Slide #5. Let's talk about our new factory in Romania. We are very pleased to say that we are in line with our plan. We will reach 1 million pieces by the end of this year, and we started now operating 4 shifts 24/7. We have now all the people we need to carry on our journey and to make sure we will be able to achieve the target of this year of 1 million pieces. We also released a few weeks ago a new product line that is completing the summer product range at this stage after the all season range that we released only a few months ago with the start-up of the operation in Oradea. Moving to Slide #6. This is also an important step forward for the factory, but also for Nokian Tyres, in particular, for our business in Central and South Europe. We released our Powerproof 2 a few days ago. This is our premium offering in the ultra-high performance segment summer tire. This range is performing extremely well, has been certified in terms of performance and tested by the TUV SUD. And we were able to launch in this new product in the beautiful scenario of our test center in Spain, HAKKA RING, together with more than 160 customers and journalists coming from Central and Southern Europe. This obviously will support our growth in the Central European market, together, obviously, with our winter tire range as well as our all-season tire range. Moving to Slide #7. We're also pleased to tell you that we received once again several testimonies of our premium performance in the winter tire segment, in particular in the Nordics, where we were able to be tested in several magazines or by several associations being scored as #1 tire or on the podium when we talk about studded and not studded winter tires. So we keep our leadership, and we still have new projects coming up in the next few months that will actually reinforce our leadership in the winter tire segment. But we have also some good news related to the heavy tire business. We will receive in a few days silver metal for our Intuitu 2.0 smart tire technology that is going to be fitted in our agricultural tires. This is a very important step forward in terms of connecting the tire to the machine and the operator of the machine, measuring the load of the machine or the pressure and optimizing the operating performance of the machine at the right pressure. Moving to Slide #8. We're also reinforcing our effort in terms of communication. We signed an important agreement for 2 years with the IIHF Association, which is actually Federation, sorry, which is actually going to support the world competition in the Ice Hockey segment in Switzerland in 2026 and in Germany in 2027. We are very pleased to be partner of this important sport because it reflects our value and also it is giving the possibility to Nokian Tyres to be visible to millions of Ice Hockey fans that are obviously happy to view and to support this nice competition. Moving to Slide #10. We are going to look at our performance. Quarter 3 was in some way, stable in Europe, a little bit down in North America. When we look at the performance now year-to-date, we have the market pretty stable in Europe, and we see the market gradually declining in North America when we talk about passenger car tires. The market in truck tires or in the agri tire has been stable in truck tires, while in the agricultural segment is still down compared to previous year, both in the replacement market as well as in the original equipment market. Moving to Slide #11. Despite the, I will say, difficult market condition or stable market condition when we talk about Europe, we are very pleased to say that we were able to grow by 10.8% with comparable currency in the quarter, and we were able to grow in all the regions. But we did really an exceptional good performance in the North American market in a declining market environment. So we are finally doing extremely well in North America, and we are very pleased about the journey that we have done so far. Our EBITDA as well has been increasing up to EUR 65.4 million. This is actually now 19% in percentage of sales. And our segment operating profit has been growing by over 6% to EUR 32.4 million. It's very important to remember that the comparability when we talk about segment operating profit is heavily affected by EUR 13.3 million exclusions or write-down related to the write-down of the contract manufacturing product that we did last year in quarter 3 2024 that are in some way impacting the comparability. This is why we are very pleased about the extremely important growth of over 427% in the operating profit performance that is reflecting really the performance of the company at 360 degrees. Moving to Slide #12. As I mentioned before, we are growing in terms of net sales in all the regions in Europe by 4.6%, in Central Europe and Southern Europe by 9.2%, and we're growing by 27% in North America, supported by good pricing and mix. Moving to Slide #13. We move to the cash flow, in particular, we were able to improve our cash flow performance. This was mainly driven by lower investments, but also by improved working capital as we will see in the next slide. Overall, year-to-date, we are growing in terms of sales by more than 9.4%. And of course, we are improving our segment EBITDA as well as our operating -- segment operating profit. Looking a little bit deeper to the cash flow. You will see that, obviously, the improvement of cash flow was coming, obviously, from the EBITDA improvement of EUR 33 million, then, of course, by an improvement of the working capital, we've been able to grow, reducing our inventory level in our operations. We are also obviously investing less. We are getting step-by-step to a normal level of investments. And of course, we have higher financial expenses. And obviously, we had a lower dividend, but obviously higher debt. So overall, year-to-date, we are improving. And obviously, our target is to become cash positive, meaning generating positive operating cash flow already next year. As we mentioned, we are now guiding EUR 180 million investment level at the end of 2025. This will basically close a long cycle of approximately 3 years that was necessary to reinforce our operations and to build our new manufacturing footprint, in particular, with the latest investment we did in Romania in Oradea. The CapEx are expected to return then next year to a normal level. And of course, we -- as you know, we are entitled to get state aid from the Romanian government up to EUR 100 million, and we are expecting to receive the first part of this incentive by the end of the year or in quarter 1 next year. Moving to Slide #16. I would like to pass the stage to Jari for the performance of the business units. Jari Huuhtanen: Okay. Thank you, Paolo, and good afternoon. I'm moving to Page Passenger Car Tyres. In third quarter, we continued sales and profit growth. Net sales was EUR 234 million and the increase in comparable currencies plus 13.2%. Our average sales price with comparable currencies improved and the share of higher than 18 inches tires increased significantly. Segment operating profit was EUR 38.9 million or 16.6% of the net sales. And the segment operating profit improved due to price increases and favorable product mix. Moving to Page 18. Here, we can see Passenger Car Tyres net sales and segment operating profit bridges in third quarter. Net sales improved from EUR 210 million to EUR 234 million. And clearly, the biggest positive contribution is coming from the price/mix, plus EUR 35 million. Sales volume was slightly down comparing to last year, minus EUR 7 million. And in addition, we had some currency headwind coming mainly from U.S. and Canadian dollars. In segment operating profit, you can see that there are 2 components which are clearly coming visible. First of all, this positive price/mix, EUR 35 million. On the other hand, in supply chain, we have a negative impact of EUR 25 million. Here, the reasons are mostly related to non-IFRS exclusions what we had in last year third quarter. Contract manufacturing inventory write-downs and Dayton ramp-up related exclusions. In material costs, we still had a slightly negative impact, minus EUR 3 million. However, we can say that we are very close to previous year cost level at the moment. Sales volume, minus EUR 3 million, but otherwise, it's very stable performance comparing to prior year. Moving to Page 19, Passenger Car Tyres net sales components, quarterly changes. In price/mix, we can see a significant improvement comparing to last year, plus 16.5%. This is due to implemented price increases and better product mix comparing to last year. In sales volume, minus 3.3% and in currency, minus 1.7% in the third quarter. Moving to Heavy Tyres. In third quarter, we had lower volumes, which affected the net sales and profitability. Net sales was EUR 55.4 million and the change in comparable currencies, minus 4.4%. Net sales decreased mainly due to lower volumes in truck and agri tires. Segment operating profit was EUR 5 million or 9% of the net sales. Profitability declined in Heavy Tyres, mainly due to lower volumes and inventory revaluations, which had a positive impact in last year's third quarter numbers. And in Vianor, in third quarter, we reported improved sales and operating profit. Net sales was EUR 74.9 million and the increase in comparable currencies, plus 7%. Segment operating profit seasonally negative minus EUR 6.4 million or minus 9% of the net sales. However, we can see an improvement both in operating and business profitability. Then I'm handing over back to you, Paolo. Paolo Pompei: Moving to Slide 23 to the assumptions and guidance. Well, we have a very good news in quarter 3 coming from the North American market. As you know very well, we are exporting all-season tire from our factory in Dayton in United States to Canada. And this -- there were obviously counter tariff implemented by Canada in quarter -- at the end of quarter 2. Those counter tariffs have now been removed. So obviously, today, we are in the ideal situation to deliver tires from U.S. to Canada without duties. Anything else remains as it was before 85% of what we sell in the United States is made in United States, and this is making the company much less vulnerable, being -- having a business model that is local for local. And the winter tire business that is going to Canada is supported by our factory in Nokian based in Finland. So moving to Slide 24. Our guidance for 2025 remain exactly the same. We are expected to grow and segment operating profit as a percentage of net sales to improve compared to previous year. We are assuming a stable market to remain at the previous year level. And of course, we are like anybody else, we observe the development of the global economy as well as the geopolitical situation since trade and tariffs are creating some uncertainty and may create some volatility to the company business environment. Of course, we follow our own journey. We have opportunities to grow also in a changing market environment, also supported by our new manufacturing footprint in Romania that is supporting our Central and South European market. We close this presentation. And obviously, we are happy to reply to all your question and answer. Annukka Angeria: [Operator Instructions] The next question comes from Akshat Kacker from JPM. Akshat Kacker: Three, please. The first one on price increases that you implemented, -- congratulations on a good quarter. If you could just put that into context for us, could you just talk about a few regions or product ranges where you've increased these price increases? And specifically, how do you think about the sustainability of these price increases going forward? Because a couple of your peers, the bigger Tier 1s have actually taken down their price/mix assumptions in the last quarter based on the inventory situation and the price mix trade down that they are seeing from the consumers in the market. So just the first question on the price increases and the sustainability of that going forward. The second question is on volumes. I noticed on the passenger coverage that volumes have declined by around 3.5% in the quarter. It's the first quarter where we've seen that volume decline, obviously, somewhat explained by the price increases. But just could you talk to us about overall expectations for volume growth going forward given that the business has been in a supply-constrained mode? And the last one on passenger car margins, please. Again, a very strong development in Q3. Margins have improved to 12% versus the 2% that we saw in Q2. Could you talk about your expectations into Q4? Should we still expect improving mix, improving margins as we go into Q4, please? Paolo Pompei: Excellent. Thank you very much for your question. And obviously, I'm happy to reply to at least the first 2 questions. Talking about price increase, this is a journey that we started already at the end of quarter 1, as you may remember. It was necessary, first of all, to compensate the raw material cost increasing in quarter 1 compared to previous year. And that was mainly valid for all the regions, in particular for Nordics. Then, of course, we combine these price increases also to necessary to gradually reposition our products in Central Europe as well as in North America. The question is if this is sustainable? Of course, we cannot keep increasing pricing. It was extremely important for us, again, to compensate the increasing rising raw material costs and at the same time, to gradually repositioning our products in Central Europe and in North America. Is this affecting volume? Going to the second question, in reality, in a very small part. What I mean is that this important improvement is also related to the strong write-off and consequent sellout of a lot of tires that we did in quarter 3 last year. This is what is affecting the comparability of segment operating profit, but at the same time, it's improving significantly our profit. So this 3% in reality is extremely -- if we take away the action that we did last year in order to release quickly the slow-moving inventory accumulated due to the crisis in the Red Sea, then of course, we can still calculate an important growth for the company. And that is really where the volume effect is coming from. So we are not expecting the price increase to affect volume at this stage and minus 3% is well by the comparability with the previous year due to the action we made in order to release the slow-moving stock that we have accumulated due to the crisis in the Red Sea channel. The margins are improving, obviously will keep improving because at the same time, we are not only improving in terms of prices, but we are also operating more efficiently with our own factories. So obviously -- and now we are moving to the last part of the season, meaning that we will sell in this quarter more winter tire. And so by definition, our margins will keep improving in quarter 4. I hope I replied. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 3 as well, please. The first one is on your planned adjustment measures, the personal negotiations that may lead to 80 permanent white collar job cuts. Could you put that in perspective? Is that part of your better or more efficient operations? Or is that coming on top of what you were describing with the new Romanian plant and the substitution of your offtake by your own production? Second question will be on the EUR 180 million CapEx guide. Could you confirm that it does not include any Romanian state aid that may or not happen in 2025? And finally, you had a tough quarter for your ag and trucks business or what I would call the specialty business or industrial tire business. Could you tell us whether you already see a trough coming for that business and when that would be or whether it's still not visible yet when that would be? Paolo Pompei: Thank you very much for your question. I start with the negotiation. Obviously, this is part of our journey when we want to improve efficiency and productivity. So -- and this is necessary to support the company in this journey, in particular, when we talk about SG&A development. So we start the negotiation. And obviously, we will inform you about the progress. But in general, I mean, it's part of our journey to improve our efficiency and productivity within the company. When we talk about the state aid, I confirm that within the EUR 180 million, there is nothing about the state aid. So this -- at the moment, we are not including the state aid in any calculation when we talk about CapEx as well as cash. About the agri and truck business, well, this is a million-dollar question. However, I believe the agri business, in particular, is subject to cycles. And cycles can be long or short. But in general, obviously, we are now landing at the end of second, I would say, almost second years of downturn. So obviously, I'm expecting the agri business at the OE level in particular, to recover pretty soon in the next 6 to 12 months. Obviously, this is not scientific. I'm just observing the history and the cycle that were affecting the agricultural, in particular, tire business in the last 20 years, and you will see there is a growing trend if you take the last 20 years, but this growing trend has gone through up and down with cycle that were lasting in a positive or negative way 2 or 3 years. I hope I replied to all your questions. Annukka Angeria: [Operator Instructions] The next question comes from Artem Beletski from SEB. Artem Beletski: So I also have 3 to be asked. So the first one is relating to the price/mix development in Passenger Car Tyres. And I guess it's also volume related given the fact that it was a bit messy comparison from last year. I think you agree with it. And maybe just a question on pricing side. So could you maybe comment whether there has been some further price changes, what you have done, for example, during Q3, which are not yet visible in the numbers? Then the second question is related to net debt. So I understand that Q3 seasonally is the peak, what we always see in your case. Maybe you can provide us with some type of indication where you see net debt landing by the end of this year. And the last one is just relating to winter tire season. So how you have seen the demand picture so far when it comes to Europe and also North America? Paolo Pompei: All right. Thank you for the questions. And I start with the first question about price and mix development. I agree with you. Obviously, the comparability with last year is affected by the write-off and consequently by the sale of the slow-moving tires in the Central European market. However, we can say that the price and mix development was good for the company also without this effect. Clearly, we have implemented pricing action in quarter 2 and in quarter 3. There will be a carryover in quarter 4, and that is pretty clear. Then of course, we will not make any comment about future price development for obvious competition rules. Regarding the second question was -- sorry, the third question was about the net debt. As you know very well, considering our seasonality, quarter 3 is always the period of the year where obviously our debts are getting to a higher level. So we are expecting the level of net debt to go down in the next quarter. And about the winter tire season, we can say that obviously, the weather was actually a little bit too warm, let's say, in September, but now it's getting colder, both in the Nordics as well as in North America. So we are expecting the winter tire season to basically start as I speak in this moment in November. We had also a good presales activities, obviously, in the previous month. So the market -- we see the market is still growing. So obviously, we are pretty positive about the development of the winter tire sales. Operator: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'll take the opportunity to ask some follow-up questions, please. First, I'd like to discuss a bit about your working capital, if that's possible. I mean your inventories declined, but receivables increased. Could you indicate whether you see any risk of write-down? And could you talk about your exposure to [ ATD ] Whether it's new, how much it increased? I mean this company went under recently. Did you have any exposure as it moved into Chapter 11 or not? And when I look at your payables, they are higher than usual. Could you explain why and whether this will be a headwind on the working capital front in Q4? And my last question will be on your net interest charge. I mean your net debt obviously has gone up the last 3 years because of your investment program. We've seen the net interest charge in your P&L and your cash flow statement going up. Could you give us some indication about what we should expect for '25, both on the P&L and on the cash flow statement and whether it will already be declining in '26 or be flat in '26 and '25? Paolo Pompei: Okay. Thank you. I will reply to the first one and maybe Jari can also support the discussion on the last 2 topics. About the working capital, the working capital is improving with growing sales year-to-date. So we are very pleased about this development. And obviously, this is really driven in particular by the reduction of the inventory that we have implemented in -- basically during the whole year, in particular now in quarter 2 and quarter 3. The receivables are growing because we are growing in terms of sales. And about ATD, obviously, is a new partnership. I think ATD today is very well supported by strong equity funds, extremely strong from the financial point of view. Of course, our exposure is relative low since we are at the beginning of the journey. So we will grow together with ATD, and we will support -- ATD will support our growth in North America. They are by far the largest national distributor in North America, and they are able actually to very well support our sales in any corner of that country. Payable are higher, obviously, because we are growing in Oradea. But please, Jari, would you like to comment the payable and net interest? Jari Huuhtanen: Yes. Thank you. So first of all, payables, of course, we have multiple different actions ongoing to get a little bit better performance in payables. Unfortunately, at the moment, we are not -- have not been able to see, but of course, we will continue and we want to improve in that respect. And I think the second question was related to net debt and interest expenses in our P&L. Of course, we have more net debt as we discussed earlier and interest expenses are higher than what we had in last year. And then on top of that, you can notice from the report as well that we have some hedging costs, which are related to our Romanian operation and especially to the project to build a new factory in Romania. It's quite difficult to comment anything related to '26 at the moment. So let's come back to that later. But that -- those are the main kind of answers or reasons behind. Annukka Angeria: The next question comes from Rauli Juva from Inderes. Rauli Juva: Rauli from Inderes. A question still on the passenger car tire margins. You touched this already, but just want to be clear, you posted in Q3 now around 16% EBIT margin as in last year and then your Q4 last year was really weak. So I guess you should be improving from that year-on-year. But how do you see the dynamics on the passenger car tire margin from between Q4 and Q3? Paolo Pompei: I think the level of margins that we are reaching today are rewarding really the strong effort of the team globally in improving pricing and at the same time, improving our cost when we talk about manufacturing. So they are a natural consequence of what we are doing around the company. And obviously, we should expect that we are improving because this is what we are here for in order to reach our financial targets. Pricing, as I told you, already has a strong impact, but we should not underevaluate as well the improvement that we are having also from the manufacturing point of view, also considering that last year, we were excluding in quarter 3, the part of the cost that we had in North America in Dayton, while this year we don't have those kind of exclusions. So in terms of comparability, I believe that we are really progressing in the right direction, and this is really encouraging. So you should see step-by-step margins improvement. Akshat Kacker: The next question comes from Akshat Kacker from JPM. A couple of follow-up questions, please. The first one, when I think about your production capacity and your footprint, could you talk about your overall plans for capacity additions going into next year, please? Are you adding more capacity at Dayton or in Finland, please? And the second part of the question is, could you just clarify the contribution from the Romanian plant in terms of commercial tires in this quarter? And how should we expect offtake agreements to progress going into next year? Just a total overview on overall capacity planning, please? Paolo Pompei: Thank you very much. As I mentioned several times, and this is very important, I will focus -- we will focus as a company on profitable growth. So capacity now is there. We were able to build this capacity. We are very pleased about what we were able to do so far, but now it's really time to focus on profitable growth. So the capacity that we have today, it's enough to support our strategic term objective for the next 3 years. So we will not need to implement additional capacity at this stage in -- both in Central Europe as well as in North America. Clearly, we will do specific adjustments on specific lines since we are going, for instance, in terms of mix. So we are producing bigger and bigger sizes. So we will need to do some adjustments in order to increase eventually the capacity on bigger sizes. But in general, I would say, overall, I think it's now time to harvest what we did in the last 3 years and to make sure that we are able to saturate our existing capacity. So answering briefly to your question, we don't see the need to add additional capacity in the next 2 years at this stage. When we talk about offtake, of course, we are reducing the level of offtake. We have indicated that from the strategic point of view, in average, 10% of our total volume will remain in offtake to keep flexibility and to make sure we will be able to get the support of somebody else for product lines that we believe is not strategic to produce internally within the company. Romania start to contribute to the sales in the Central European market. And that is already ongoing since May, June this year. And obviously, we can expect that in the future, more than 80% of what we sell in the European market will be supported by our Romanian factories for Central Europe as well as Southern Europe. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'm sorry for coming back in slot time, but just to come back on the previous question. I just want to make that clear because right now, you're talking about 1 million Romanian capacities, and you said you don't want to increase capacities, but you still aim to have substantially higher production levels in Romania if you plan to be able to supply 80% of your European sales with Romania. So you mean -- I just want to clarify what you said. You mean you're not going to have to add incremental CapEx, but you're still able to increase the absolute level of production in Romania, 2 million, 3 million, 4 million in the next couple of years, knowing that the investment is behind you, right? Paolo Pompei: Thank you very much. And you don't need to apologize if there are questions. So this is really what this section is all about, answering to your question. So we're happy to do it. We need to distinguish about production and capacity. By the end of this year, we will produce 1 million tires, but we have already capacity to produce up to 3 million tires. Step by step, we will during 2026, complete this expansion and obviously, adding semifinished product lines more than curing or building machineries. So this is why we say the investment in Romania for the next 3 years will be really limited because we are at the end of the process. So in total, we will have 6 million pieces capacity already by, let's say, the end of next year, eventually, obviously, we -- this is really how the factory works. So 1 million is the production, but the capacity already by the end of the year will be up to 3 million pieces and up to end of next year up to 6 million pieces, reinforcing areas that are not strictly related to curing and building, but mainly about mixing and semi-finished products. I hope I replied to your question. Annukka Angeria: The next question comes from Artem Betsky from SEB. Artem Beletski: Yes. Also one follow-up from my end. And it is relating to PCT profitability. So what we have seen during years '23 and '24 and also beginning of this year is that margins have been extremely volatile on a quarterly basis. Looking ahead, do you anticipate this type of volatility will be clearly lower? And maybe just coming back to past development, what have been the key reasons in your view that margins have been swinging so much in that segment? Paolo Pompei: For sure. Thank you for your question. Clearly, again, we need to look at the history of this company in the last 3 years. So we came out from the storm, and it was difficult to reach stability when we had obviously the necessity to switch and to change completely our production footprint, moving out from Russia quickly and then building our new footprint, reinforcing our factory in Finland as well as in North America and at the same time, building a new greenfield in Romania. So it was really difficult for the team to manage all this transition. And in some way, we are still managing this transition. But of course, we see finally good progresses, and we see finally a gradual stabilization of our performance and continuous improvement. So answering to your question, of course, you will see more stability in the development of the margins moving forward because now finally, we can leverage our increased capacity. We can leverage efficient and efficient manufacturing footprint. And at the same time, we are improving day by day, as I mentioned, already in placing our product in the market and improving pricing capabilities around the company. I hope this will reply to your question. Annukka Angeria: There are no more questions at this time. So I hand the conference back to the speakers. Operator: If there are no further questions, it is time to end this call. I want to thank you, Paolo and Jari and especially all of you who participated in this call. We wish you a nice rest of the day. Paolo Pompei: Thank you very much, and looking forward to the next call. Jari Huuhtanen: Thank you.
Operator: Good day, and welcome to the Everest Group Limited 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 Matt Rohrmann, Head of Investor Relations. Please go ahead. Matthew Rohrmann: Thank you, Betsy. Good morning, everyone, and welcome to the Everest Group Limited Third Quarter of 2025 Earnings Conference Call. The Everest executives leading today's call are Jim Williamson, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We're also joined by other members of the Everest management team. Before we begin, I'll preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections and future results are subject to the risks, uncertainties and assumptions as noted in Everest's SEC filings. Management may also refer to certain non-GAAP financial measures. Available explanations and reconciliations to GAAP can be found in our earnings press release, investor presentation and financial supplement on our website. With that, I'll turn the call over to Jim. James Williamson: Thanks, Matt, and good morning, everyone. Since becoming CEO of Everest 9 months ago, I've been focused on resolving the legacy issues surrounding our U.S. insurance casualty book, evaluating how and where capital is allocated in the group and assessing the results, opportunities and challenges facing each of our businesses. Yesterday, we announced 2 strategic actions that position Everest as a more agile and profitable company with greater capital flexibility to invest in developing the group and return capital to shareholders. First, we are exiting global retail insurance. The teams running that business have done an exceptional job improving performance over the last 2 years. At the same time, it's clear to me the ongoing investments required in that business and the capital needed to support it are better placed than Everest's other opportunities. Second, we have established a comprehensive adverse development cover for our North America insurance division covering reserves for accident years 2024 and prior. With $1.2 billion of gross limit attaching at a strengthened carried reserve level, this cover will help ensure the results of prior poor underwriting decisions no longer overshadow our strong current performance. Long-term prospects in our core Reinsurance business and in the Wholesale & Specialty insurance operations we're retaining are excellent. I'll continue to set a simple standard for the businesses we operate. Capital deployed must be properly remunerated at acceptable levels of risk. We will operate in businesses with clear competitive advantage, strong economics and a well-defined forward path. This standard will be applied as we continue to develop our operations and evaluate opportunities to further diversify the company. Turning now to performance in the quarter. Group gross written premium was $4.4 billion, down 1% from last year, largely reflecting targeted re-underwriting in Insurance and careful portfolio mix management in Reinsurance. Our combined ratio for the quarter was 103.4%. Excluding prior year development and net cat losses, the attritional combined ratio was 89.6%, demonstrating the strength of our underlying book. Operating income was $316 million compared with $630 million last year, the difference almost entirely attributable to the reserve adjustment I mentioned earlier. Our Reinsurance business continued to perform exceptionally well in the quarter. Gross written premium of $3.2 billion was down 2% year-over-year, reflecting disciplined cycle management. The combined ratio was 87%, improving year-over-year, driven by lower cat losses and favorable prior year development. Reinsurance reserves are in a strong position. Portfolio mix in Reinsurance continues to develop favorably with property and other short-tail lines increasing by almost 5% year-over-year, while casualty and financial lines decreased by over 10%. This reflects our consistent strategy of reducing exposure to U.S. casualty in the face of persistent legal system abuse. I would also highlight the strong performance of our Global Specialties business, which produced almost $500 million of gross written premium and over $100 million of underwriting income in the quarter. We're investing in this business and expect it to deliver top and bottom line growth in the coming quarters and years. Market conditions in the Reinsurance business, particularly in our cat-exposed lines, should remain favorable through the January 1, 2026, renewal. While market capacity is increasing, Everest is a preferred partner, and we see no barriers to continued attractive capital deployment in this market. Make no mistake, though, where deals do not offer attractive and appropriate returns, we will cut back. Moving to Insurance. The team's execution of our 1-Renewal Strategy remediated the North America casualty book in record time. We're maintaining pricing momentum, improving risk selection and exiting underperforming accounts, all of which position the go-forward Insurance portfolio for increased profitability. In the quarter, 45% of our U.S. casualty business did not renew. We believe AIG is ideally positioned to maximize the value of this portfolio going forward, and we were pleased to conclude our renewal rights transaction with such a close partner. We're now reorganizing our insurance operation to focus on our global wholesale and specialty insurance capabilities and expertise. This is a strategic move that directly aligns Everest with the evolving needs of the market. Historically, our go-forward wholesale and specialty businesses outperformed our retail business by approximately 10 combined ratio points. Year-to-date, total written premium was approximately $1.7 billion. The long-term profitability and growth outlooks for the market segments we're focused on are excellent, while Everest's current share is measured in basis points. I'll have more to say about that business in future quarters. To summarize, I would characterize this past quarter as one of action and clarity. We've confronted our legacy casualty issues head on, optimized the portfolio and positioned Everest for a new chapter. Our core business engines, Reinsurance as well as Wholesale & Specialty insurance are performing well. Our balance sheet is strong and generating meaningful net investment income. Our capital is flexible, and we're moving to a position of significant excess capital to deploy. And our team remains intensely focused on disciplined execution. Before I hand it over to Mark, I want to thank my Everest colleagues around the world. These past months have required both focus and resolve, and our team has handled them with the utmost professionalism and integrity. We're all driving toward a unified goal of a more nimble, resilient and profitable enterprise. And with that, I'll turn the call over to Mark. Mark Kociancic: Thank you, Jim, and good morning, everyone. The transformative actions we announced this quarter helped drive certainty into Everest's insurance reserve adequacy and position the company to focus on well-developed and more profitable lines of business. We expect these moves to yield improved returns on capital for Everest and value creation for shareholders. As Jim mentioned earlier, we sold the renewal rights of our U.S., U.K., European and Asia Pacific commercial retail insurance business to AIG. These businesses collectively total approximately $2 billion in gross written premiums. The transaction will result in meaningful total value to Everest and significant capital will be released over time. We expect to take a pretax nonoperating charge in the range of $250 million to $350 million associated with the transaction with the charge being recognized over 2025 and 2026. The transaction meaningfully streamlines Everest's operating model and bolsters our focus on core Reinsurance and Specialty & Wholesale Insurance businesses. We took further action to fortify our U.S. casualty reserves, strengthening reserves by $478 million on a net basis or 12.4 points on the combined ratio. This was split between the insurance and other segments and follows the acceleration of our global reserve studies into the third quarter. We also entered into an adverse development cover, providing $1.2 billion of gross limit with Everest having co-participation of $200 million. The ADC covers $5.4 billion of North American insurance subject reserves for accident years 2024 and prior with an effective date of October 1, 2025. Everest will be transferring $1.25 billion of in-the-money reserves. As a result, we expect net investment income to be lower by approximately $60 million per year over the next several years. And we will be paying approximately $122 million of premium upon closing of the transaction, which is expected to be in the fourth quarter. Starting with group results. Everest reported gross written premiums of $4.4 billion, representing a 1.2% decrease in constant dollars, while excluding reinstatement premiums from the prior year quarter. The combined ratio was 103.4% for the quarter, reflecting the net reserve strengthening I mentioned a few moments ago. The Reinsurance business had favorable reserve development of $29 million, and this was more than offset by reserve strengthening of $361 million in our Insurance segment and $146 million in our Other segment. The quarter benefited from relatively light catastrophe losses, which contributed 1.3 points to the group combined ratio. The group attritional loss ratio increased 1.4 points to 59.9% in the quarter, with the increase largely driven by our conservative approach to setting initial loss picks in U.S. casualty lines. The attritional combined ratio increased 3 points to 88.8% when excluding the impact of $34 million in profit commissions related to prior year loss reserve releases in mortgage lines, largely due to contingent commissions also associated with our mortgage lines business. Moving to Reinsurance. Gross written premiums decreased 1.7% in constant dollars when adjusting for reinstatement premiums during the quarter. Consistent with prior quarters, we exhibited solid growth in property and specialty lines while remaining disciplined in casualty lines. The combined ratio improved 4.8 points from the prior year to 87%. The improvement was largely driven by lower catastrophe losses, which amounted to $45 million or 1.6 points on the combined ratio versus 9.1 points on the combined ratio in the prior year quarter. Net favorable prior year development also contributed 1 point to the improvement. Our reinsurance reserve studies yielded minor development in casualty lines with continued strength in property, mortgage and international lines. Overall, we believe we are continuing to build upon our embedded reserve margins. The attritional loss ratio increased 60 basis points to 57.5% as we proactively embedded conservatism into our U.S. casualty loss picks. The attritional combined ratio increased 180 basis points to 85.3% when excluding the impact of $34 million in profit commissions associated with mortgage -- favorable mortgage reserve development. And moving to Insurance. Gross premiums written increased 2.7% in constant dollars to $1.1 billion. Strong growth in Other Specialty and Accident & Health was largely offset by the aggressive actions we are taking in U.S. casualty lines. The underwriting-related expense ratio was 19%, with the increase driven by reduced casualty earned premium growth from our 1-Renewal Strategy. The attritional loss ratio increased to 67% this quarter, reflecting our disciplined approach to setting and sustaining prudent loss picks in our U.S. casualty lines portfolio, given the elevated risk environment due to social inflation. As I mentioned earlier, we strengthened our insurance reserves in the quarter, largely driven by U.S. casualty lines in accident years 2022 through 2024. And this was due to an acceleration of large loss activity, particularly in excess casualty and management liability and higher frequency in general liability and management liability, resulting in more conservative assumptions. We believe that increased prudence in loss development factors in 2025 loss picks in conjunction with the ADC transaction we entered into will help us turn the page on the U.S. casualty reserving issues experienced over the past several years. Reserve strengthening in the Other segment was largely driven by U.S. casualty lines, primarily the sports and leisure business. Most other segment reserves are also covered in the ADC, excluding asbestos, amongst other minor items. Moving on to investments. Net investment income increased to $540 million for the quarter, and this was driven by higher assets under management and strong alternative asset returns, which generated $112 million of net investment income in the quarter versus $72 million in the prior year quarter. Overall, our book yield decreased slightly to 4.5% given the large component of non-U.S. dollar assets. Our current new money yield is approximately 4.8%, and we continue to have a short asset duration of approximately 3.4 years and the fixed income portfolio benefits from an average credit rating of AA-. For the third quarter of 2025, our operating income tax rate was 9.4%, which was below our working assumption of 17% to 18% for the year due to the jurisdictional mix of profits in the quarter and a $23 million onetime benefit from our 2024 U.S. tax filing. Shareholders' equity ended the quarter at $15.4 billion or $15.5 billion, excluding $87 million of net unrealized depreciation on available-for-sale fixed income securities. Book value per share ended the quarter at $366.22, an improvement of 15.2% from year-end 2024. When adjusted for dividends of $6 per share year-to-date. We will also realign our reporting segments beginning in Q1 2026 and communicate that once it's finalized in the coming weeks. We did not repurchase any shares in the quarter. However, we continue to view share repurchases as an attractive opportunity to deploy capital, and we expect to resume meaningful share repurchases going forward. With that, I will turn the call back over to Matt. Matthew Rohrmann: Thanks, Mark. Betsy, we're now ready to open the line for questions. [Operator Instructions] Operator: [Operator Instructions] The first question today comes from Josh Shanker with Bank of America. The first question comes from Meyer Shields. Meyer Shields: May I come in, too? Mark Kociancic: Yes. Josh, we hear you. James Williamson: It's -- it's actually, Meyer, but I'm glad you can hear me. Meyer Shields: Yes. So doing some very quick math on the 10 percentage point differential on -- between the specialty and the retail business in insurance, it suggests that it's running at a 95% combined ratio, excluding cat. I was hoping you can get a sense as to what the cat load is for the specialty business, whether 2025 or 2026? Mark Kociancic: Meyer, it's quite modest actually, almost de minimis, definitely very low relative to the overall insurance division burden that we currently have. Meyer Shields: Okay. Fantastic. And when I look at the transferred reserves and the fact that $2 billion of insurance gross written premiums is going to be non-renewed one way or the other. Is there any way of ballparking what that ultimately means in terms of capital liberation? Mark Kociancic: So Meyer, just I want to make sure I understand your question. So the $2 billion of retail business that we transferred to AIG and any other nonrenewal of subject premium over the renewal, you're interested in the capital release from that? Is that accurate? Meyer Shields: Yes, that's exactly right. Mark Kociancic: Yes. So there's multiple components to that. We do expect it to be substantial over time. The -- let me just put a few things on the table because I think it's more of a timing issue than anything else. So the renewal process will take place, broadly speaking, over the coming 12 months. So over that time, we will benefit from nonrenewing that premium on our own paper, and we will start to reduce the capital intensity associated with the premium itself. In the meantime, we will have meaningful net earned premium continue to show up in our P&L from 2025 writings, as you would expect. And that will be accompanied with traditional P&L items, so commission expense, loss expense, G&A, et cetera. And so those loss reserves will also attract some capital charge over that time. In addition to that, we will have the existing set of reserves which have been enhanced by roughly $0.5 billion of casualty reserves running off over time, and that will release capital as well. However, we do have as a result of the extra $0.5 billion charge principally in casualty, a significantly higher level of casualty reserves, which means we'll have less diversification benefit in the coming few quarters of that reserve runoff. So I would expect capital relief from this transaction, the remediation, the runoff, et cetera, to become more visible in the back half of '26, but we certainly see it coming. Matthew Rohrmann: The next question comes from Josh Shanker with Bank of America. Joshua Shanker: There's a lot of moving parts in the announcement. There's the ADC, there's the renewal rights transfer. Obviously, there's the charge related. The one thing that hasn't been announced is a plan of what to do with capital. I think investors might have felt some comfort if there was some announcement that we plan a large repurchase or there was a commitment from management to want to own the shares here. The stock is trading below book, how should we frame the appetite for returning capital to shareholders over the 1-, 2-year period? Mark Kociancic: So Josh, it's Mark. We obviously view capital repatriation, share buybacks very attractively for the several of the points you mentioned. Clearly, trading at a discount to book makes it attractive. We're in a lower growth period of the cycle. And so as we're generating returns, we certainly foresee meaningful retained earnings accumulation. I would say that the kind of activity that you saw in the first half of the year this year would represent a floor on buybacks as we pursue Q4 and then into 2026. And to my earlier point to Meyer, we do expect the transactions that we've entered into to unlock more capital for that purpose over time. Joshua Shanker: All right. And then trying to understand the sort of chronology. Obviously, a little less than a year ago, there was a plan for a 1-year renewal and obviously, the decision that Everest is not the appropriate owner for a lot of its retail risk. When did the company come to understand that? And of the underwriting that had done in like the past 6 months, do we have any concerns that Everest wasn't the right underwriter for that risk and we need to worry about '25 reserves? James Williamson: Yes, Josh. So let me start by talking a little bit about the re-underwriting process and where we are in that process, and then I'll come on to the timing of the decisions around the go-forward business. So just to refresh memories, I took on leadership of the Insurance business last year 2024 at the sort of end of the spring. We had really ramped up the remediation process that you've seen play out that we've called the 1-Renewal Strategy in July of '24, meaning it essentially began to complete itself in July of '25 and with a little bit of tail into the third quarter. And so that re-underwriting is complete. There is no further re-underwriting of the casualty book other than normal portfolio management that is required as we go forward. One statistic that I will share with you, and this is going to be relevant to how you think about the '25 loss picks. But if you look at the development that we've observed in 2025 that led us to an additional strengthening of our back book reserves, 80% of that development in U.S. casualty came from policies that were eliminated from our portfolio during the course of the remediation. And I think that's a good early indicator that we were over the right target that we dealt with the remediation decisively and that the go-forward portfolio will perform extremely well. Now that said, we've still booked it at very, very prudent loss picks. We're not taking credit for any of that, but we do expect it to play out. And then to the broader question you asked, which I think is an important one, and I'm going to spend a couple of minutes on it, if you'll indulge me. In terms of how we got to the decision and the chronology of getting to the decision around the go-forward portfolio, that was a comprehensive process. It was not driven by what we observed in the reserves. It was a process that was led by the management team, included a number of outside strategic advisers and ultimately included our Board of Directors in a very thorough process. And the purpose of that process was to determine what are our best opportunities to drive shareholder value and compounded book value per share growth over time period. We didn't bring any biases into that process around businesses we had built, businesses that we otherwise liked, et cetera. It was purely a strategic review to get at those critical answers. And during the course of that process, as I shared in my opening comments, it became really clear to me, to the rest of the management team, to our advisers and to our Board that our best opportunities are in our Reinsurance business, which is a leading -- market-leading franchise and in our Wholesale & Specialty Insurance operations, which perform at a very high level, which allow us to very nimbly manage the market cycle, which require much less investment in terms of people and technology and therefore, have less execution risk. And we talked a little bit about the performance gap in the combined ratio. And so therefore, the decision was to focus on those businesses. And as a result, we determined that it was best to exit retail insurance, and that's how we got to the transaction that we announced yesterday. But that gives you a comprehensive sense of how these things play together. Operator: The next question comes from Gregory Peters with Raymond James. Charles Peters: So one of the questions that seems to pop up on a recurring basis as you've cleaned up your insurance operation casualty reserves is the potential risk of spillover into the reinsurance book on your casualty business. And since you've completed your full year reserve review a little early, maybe you can give us some perspective on why you're confident your -- the casualty reserves inside your reinsurance business are going to hold up. James Williamson: Yes, Greg, I certainly understand the question, but I think I would really begin by resetting the premise because these are 2 very different portfolios. And one of the things I've been really honest about during the course of this process is where our insurance casualty book performed on a historical basis. And I would characterize it bluntly as squarely in the bottom quartile of performance in our industry. And whether you -- whether I observe our own results, if you talk to brokers who have a fair bit of data, industry observers, there is a huge distinction in performance between bottom quartile underwriters and top quartile underwriters. And I think that's played out over all market cycles in all lines of business. So we were bottom quartile. Now we fixed that. And I think over time, that portfolio is going to perform really well, and I think will be an asset to our partner, AIG, as they take it on. So that's one point. The other is I would not expect, based on the fact that we write a top quartile reinsurance portfolio, there's no basis to expect that portfolio to perform in the same way that a bottom quartile portfolio would perform. Now yes, it's subject to the same issues around social inflation and things of this nature. But the top quartile underwriters, they were consistently doing what we've done over the last year in insurance, which is very closely managed limits, ensure that you're getting top pricing for the exposures you're taking, carefully selecting classes of business to write, leaning on loss-sensitive features to align interest with your clients. All of those things that we've talked about as part of the remediation. That's what our reinsurance clients have consistently done throughout the cycle. And so there's just no reason to expect those portfolios to operate in a similar fashion over time. Charles Peters: And then can we just talk about property reinsurance pricing conditions going forward, considering the light year, I noted in your presentation that your PMLs are inching upwards and that you grew your property cat and non-cat reinsurance business in the quarter. How are you thinking about that business in the '26 period of time, considering what looks to be like a lot of pricing pressure? James Williamson: Yes. Well, first of all, I would characterize it in general as still a very favorable environment. And one of the points that I made on the last quarter's call was that if you didn't know that prices had corrected up by 50% at 1/1/23 and you just looked at the rate level that's currently persisting in the market and compared it to prior historical rate levels, let's say, in the 20 teens, you would say this is a great cat market and people should be writing it. And I think that's true. And I think that's why you're seeing the competition. People recognize that it's well priced and they want to write it. Prices will likely come down. There are various estimates if you believe, let's say, a 10% expectation of price decreases at 1/1. I still think that means that property cat is well priced. And so I think it's still a risk that we will be looking to take. Now as I said in my prepared remarks, when the market moves down 10%, that's going to mean there's going to be some clients where we view the pricing and we don't think it's adequate, and we'll adjust accordingly. In terms of the non-cat or the pro rata growth you saw in the quarter, that was really -- that's more of the flow-through of growth that's occurred over the last couple of years as we've leaned into that market correction. We've been very selective in terms of where we're growing that portfolio and with which cedents. And so I feel very, very good about that book. The one thing I do want to just say, though, and I think this is important, when people talk about a light year, nothing we're going to do at 1/1/26 or in any renewal has anything to do with the fact that it was a light year. First of all, I didn't feel that light. We started with a major wildfire. We've got a Cat-5 hurricane churning in the Caribbean right now. We don't react to one good year and say, well, we're going to do one thing or the other based on that. We're making long-term bets based on where we see the pricing trajectory of the business. And you will not see us be afraid when the time comes, if it comes, to begin pulling back, taking ships off the table if we're not getting paid appropriately for the risks that we're being asked to bear. Operator: The next question comes from Alex Scott with Barclays. Taylor Scott: I wanted to come back to the ADC and just see if you could talk a bit about how you thought about sizing the $1.2 billion gross protection. I mean, can you characterize that in terms of like standard deviations away from your point estimate and that kind of thing, just so we can get a sense for how protected this is? James Williamson: Yes, Alex, good question. Let me start with a little bit of the philosophy or the strategy behind it before we get into the actual ADC numbers. What we wanted to do was to put the issues of our historical casualty reserve challenges behind us. And you've seen this management team, I think, be pretty focused on making that happen and obviously have taken a couple of actions to do that. Obviously, the reserve strengthening that you saw in the quarter was all about getting ultimately to an ADC that would create finality around those issues. This is something we don't want to have to talk about again. So in terms of sizing it, one of the things I would think about is we've talked about reserve margin in the past, and we talked about hundreds of millions of dollars of reserve margin. I would think about the ADC as $1.2 billion of reserve margin. It's about ensuring that -- again, that we create that finality. And so it's less about, well, I need to be at a certain percentage of the actuarial best estimate or a certain standard deviation. It's more about putting this out in the tail so that people don't have to worry about it anymore. So that's really what drove it more than trying to land anywhere on a particular curve. Mark Kociancic: Alex, I would add a couple of points to Jim's commentary. So the subject matter reserve pool is approximately $5.4 billion. So when you take into context the $1.2 billion of cover on top of that, that is very substantial. So if you think about a distribution to the point you were making, I would call that quite broad, quite strong, certainly more than a traditional range of an ACE and certainly nothing that we would expect to blow through, to be quite frank with you, given the overwhelming nature of it. So the underlying reserve base is also somewhat diversified with other lines of business. So the casualty reserves, I would say, are the ones that are currently in focus from a risk perspective. And so this $1.2 billion can really be seen, I think, as to Jim's point, finality on the subject for us. Taylor Scott: Got it. Very helpful. Follow-up question is on the insurance segment, you commented a bit about the profitability of what you're retaining versus what's going in the renewal rights. You also mentioned several times just the conservatism that you're now embedding into loss picks. And so I just wanted to make sure I'm understanding the 2 things correctly. I mean if it's sort of -- I think Meyer mentioned 95% and you didn't correct them on the go forward, is there any kind of conservatism that needs to be thought of layered on top of that for a while before you kind of get to that level? Or is that where it's running right now even with the conservatism that you feel like you're embedding now? James Williamson: Yes, Alex. Look, I would say one of the reasons I didn't correct the 95% is we don't give forward guidance. But I'd say we have tried to create some clarity here by indicating this business performs well. I'd say the lower half of the 90s is a reasonable way of thinking about a conservative approach to booking that business. Given where we've come from, we want to make sure that we are being prudent in the loss picks. And so the way I'm talking about it assumes that we're going to keep some conservatism. The other key point to keep in mind, though, is if you think about the Wholesale & Specialty business on a go-forward basis, the share of that business that's U.S. casualty exposed is something that we're managing very closely. And so the need for conservatism gets affected, obviously, by the mix of the portfolio you're writing, and that's certainly within our control. So I think you can see us print some very solid current period results while also being conservative in the picks, which to me is the best combination. Operator: The next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Hear your comments on the difference between the reinsurance casualty and insurance casualty, but I think you did mention some movement on casualty reinsurance this quarter. Could you just expand a bit on what that was? And I just want to confirm, this was effectively the reserve study for the year across both segments? Or is there still some studies in the fourth quarter? Mark Kociancic: No. Reinsurance is complete in terms of the reserve studies. There might be a couple of very small ones, but they'd be immaterial to this. Clearly, we did all the casualty studies, very minor puts and takes, nowhere close to the magnitude of what we had last year. Feeling very good about it, and it's fully reflected in our Q3 figures. Andrew Andersen: Okay. And on just growth, I suppose if you don't have that favorable view of -- on primary casualty, that somewhat reflects your reinsurance casualty growth. But that line has been coming in for a while. What are you kind of seeing in the pricing environment on casualty reinsurance and your go-forward view there for growth? James Williamson: Yes. I mean the main way that we participate in the casualty reinsurance market is on a quota share basis. And so the real price that we keep an eye on is rate relative to the trend line. I think that's been a pretty favorable story really for the last year plus. I don't really see that changing. It's compressed a little bit, but you still see -- our clients are still keeping rate in excess of trend across those casualty lines. I don't -- I haven't seen any evidence of the quality of underwriting slipping, certainly not among our clients where we've seen that, that those are folks that are no longer our clients. And then the last piece I would say is there has been a persistent stickiness to ceding commissions that I don't think is really all that smart on the part of the reinsurance industry. And so you've seen us act maybe a little counter to what some others are doing insofar as if we're going to take these risks, we want to make sure that the alignment of interest is there and that we're not overpaying for the business. So I don't really see that changing. So I think it's sort of status quo. I think there's plenty of good quality casualty reinsurance to write, maybe not as much as we would like, but plenty for us to focus on, plenty of great clients to participate with. And so I think we're kind of in a -- I think we're at the right level now. And from here, it's just the usual portfolio management work that we are always doing. Operator: The next question comes from Brian Meredith with UBS. Brian Meredith: Jim, first question, I think in your prepared comments, you talked about looking for ways to diversify the company more. Can you maybe elaborate a little bit on that? And why is that important? And why not just kind of stick with your kind of core competencies here right now in Reinsurance and Wholesale & Specialty businesses? James Williamson: Sure, Brian. Yes. I mean, look, what I -- I wouldn't read too much into that comment. We're always looking at opportunities. When we talk about diversification, I would always apply the clear priorities that I signaled or the standard that I set in my prepared remarks, which is if we're going to deploy capital anywhere, it's got to get remunerated at acceptable levels of risk. It's got to be in businesses where we see clear competitive advantage, where the economics are good, where the path forward around execution is strong. And so look, it's a big world. We participate, I think, meaningfully in a number of markets. We're still underweight in a lot of places. And you've heard me talk about them in the past. In the specialties, obviously, and I mentioned our reinsurance specialty performance, $500 million of premium in the quarter, over $100 million of profit. It's a terrific business, lots of room to grow there, which creates diversification because you're not -- that's not property cat, that's not core U.S. casualty. We're still underweight in Asia. The team out there in Reinsurance has done a phenomenal job of growing that business. I think we can continue to play that out over time. We have -- we're organizing now around Global Wholesale & Specialty in a way that we haven't before. We've named Jason Keen, who was the co-CEO of our International Insurance business as CEO of that new division. He will definitely find interesting opportunities to grow again over time. And so that's really what I'm referring to. And we evaluate those very carefully. And I think you can certainly feel confident that we've set a clear standard on how we're going to think about those opportunities as we move forward. Brian Meredith: Great. That's helpful. And then second question, just back on the ADC. I'm just curious, any way you can provide maybe some details on how you think the ADC reinsurers arrived at the attachment point? I mean I look at the adverse development you had in your insurance, it's about 2x your risk margin at year-end 2024 and 1x on the other segment. James Williamson: Yes. I mean one thing that I would point out is I was really, really glad that we were able to do this transaction with Longtail Re, which I'm sure you're familiar with that team and Mike Sapnar. Those are super credible underwriters. They did an excellent job evaluating the portfolio. And so it's -- I would describe it as more of a collaborative process than anything else. Obviously, one of the features of this ADC that I think is really critical to focus on is the fact that there is no loss corridor. And clearly, establishing a stronger reserve base is, I think, a precursor to getting $1.2 billion of gross limit on top of your carry position without a loss corridor. And so that was an important characteristic of how we brought all this together. And I think that was important to us because it now creates certainty and people now understand that '24 and prior North America insurance development, if there is any, which we set our ultimates hoping that there's not. But if there is any, it will be covered under the ADC. And so that's sort of the process they go through. It's a very rigorous process, a collaborative one. And I think it got to economics that will be very, very good for Longtail Re, but are also quite reasonable from Everest perspective. Operator: The next question comes from David Motemaden with Evercore ISI. David Motemaden: I had a question just on the casualty reinsurance reserves. Mark, you had mentioned there was some minor development there in the quarter that was offset by some of the shorter tail releases. I was wondering if you could just elaborate a little bit on what happened exactly there and some of the trends you're observing on the casualty reserves. Mark Kociancic: Yes. A couple of comments. I would say it's definitely subsided. You're looking at a few older years that were getting impacted from a few cedents. We're seeing good signs of adequacy overall. And when I compare it to the trends we saw last year or the previous year '23 or '24, really didn't see the same level of development that we saw there, particularly when we were bridging the data. So we felt quite comfortable with what we were seeing and the ability to offset it. I think the other point that I would make is -- so I mean, it's all U.S. casualty based. There was nothing else from an international basis that was concerning us at all. It's obviously something we're focused on because it is so much in the spotlight with social inflation. So we do a lot of individual cedent reviews as we look at the data. But the other point that I made in my script is the overall strength of the reinsurance segment and the embedded margin that we believe we're building in there. We continue to see very favorable signs of adding embedded margin, waiting for it to season and then releasing it when it's ready. David Motemaden: Got it. And the gross change on the Casualty Re side, is that something you could size for us? Mark Kociancic: A few percentage points, very small on the base. So definitely on the low end. David Motemaden: Got it. And then just quickly, I think just staying on the Casualty Re reserves. I think when we had the reserve update at the end of last year, there was $180 million of risk margin in that book, and you guys had said it was at the upper part of the actuarial best estimate range. I was wondering, has that improved? Is that in the 90th percentile now? I guess, how big is the risk margin? Has that stayed the same? Any sort of detail on those metrics would be helpful. Mark Kociancic: Yes. I want to make sure I understand which segment you're referring to. Was it -- sorry, was it Reinsurance or Insurance? David Motemaden: Yes, the casualty -- on the Casualty Re side. Mark Kociancic: On the Casualty Re side, yes. So we're definitely comfortable with it. I think what we did last year, the concept of the risk margin that we put into the management best estimate was really to deal with uncertainties that we foresaw from a management perspective relative to the actuarial central estimate. And so as we observe the data coming in, the loss experience and how broad-based it was, we could see that, that uncertainty really wasn't crystallized into a loss experience that was more in line with our expectations. And so the point that I would make is that the uncertainty on the higher end is not something that we see today. We're quite comfortable with the loss development factors that we put into our Q3 studies. We're benefiting from this extra data. We're seeing stabilizing trends. The loss picks are in a good spot. It's something we've also taken the time out of prudence to strengthen in the current year 2025. So from a Reinsurance perspective, we're in a good spot. Operator: The next question comes from Ryan Tunis with Cantor. Ryan Tunis: Just, I guess, Jim, kind of a broad question on just the ROE trajectory. At the beginning of the year, you thought the ROE was x, I don't know, call it, 14%, 15%. Just thinking through the moving parts on what that is now. I mean we're losing $2 billion of insurance premium, $60 million of investment income, but obviously, we're getting some costs out and some elevated capital management. So I'm just wondering how you're thinking about the ROE profile of this company. James Williamson: Yes, Ryan, thanks for the question. It's good to hear from you. Let me step back a little bit and paint a little bit of the broader picture and then get into the specifics of your question just in terms of the moving parts around the specific transaction and what it will mean for the group. The first thing I would say is, as you'd appreciate, there's an embedded cost that is included in the P&L that's now going to be transferred, which involves, obviously, employee costs, technology, et cetera. We have a very clear strategy around how we rationalize that in 2026. And as Mark indicated earlier, we're still expecting and just on simple math and accounting, a fairly robust amount of earned premium to flow through our P&L from the portfolio that we're selling in 2026 as it runs down. And so I think the -- on a very rough justice basis, the rundown of the cost and the rundown of the earned premium are moving in the same direction. Not to say there won't be some drag at certain points or things we'll have to manage. But I'm pretty confident we'll get to a good place around that. And so as we sort of exit the transaction and get the business rightsized, I don't expect that to be a long-term headwind for the group as you get out past 2026. The other thing I would say is, obviously, you have a market cycle that is -- it's doing what market cycles do. It's ebbing and flowing. And right now, particularly in short-tail lines, you see a little bit of a takedown both in the primary market and in reinsurance around property pricing, et cetera. But as I indicated in earlier questions, I still think it's very attractive. And so are we still sort of in the mid-teens level of ROE for -- over the cycle? Yes. Are we at a part of the cycle in '26 where maybe it's just slightly below that? Maybe. But lots of levers for us to pull, not least of them will be capital management actions, as Mark indicated, to manage that over time in a really attractive way. Ryan Tunis: Got it. And then just a follow-up on the decision to do the renewal rights deal. Are you describing -- I guess, first of all, I was a little bit surprised that it doesn't sound like there's any overlap on the retail business and the remediation you did. So seems reasonably clean from a reserve standpoint and it's a sub-100% combined ratio business. So why do the renewal rights deal rather than pursue sale opportunities? James Williamson: Yes. Yes. So fair question. So first of all, just to reiterate some things I said earlier, the decision around -- the strategic decision that I made in conjunction with the management team, our advisers and the Board was about focusing on our core reinsurance business and these really attractive Wholesale & Specialty businesses. That's the real primary decision that got made. And so the decision to exit retail insurance is a byproduct of that. And then the question becomes, once you've gotten there, what is the most effective way to create that. And I think from the perspective of a few factors played into why a renewal rights transaction. Well, one, the reality is we're going to need to and we have dealt with the back book of reserves from the ADC, but it's just not a practical thing to try to transfer that at this point. A number of legal entities that support the retail business are also really important to the Wholesale & Specialty businesses that we're persisting. That's important. And then ultimately, we got to a place where we had the right partner to work with to get this deal done effectively quickly with a lot of certainty. And there's also, obviously, the needs of your partner you got to think about. So all those things aligned. And ultimately, it was really clear to me that a renewal rights transaction was the most efficient way to effectuate the strategic priorities that we had set during this process of focusing on our Reinsurance and Wholesale & Specialty Insurance businesses. Operator: The next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: In the past, you've spoken about increasing the international component of the primary insurance book. I guess with all the moving pieces, particularly around the renewal rights and the new focus on the Wholesale & Specialty side, is there any change in that game plan? And then I guess, sticking to that, is there enough runway for you guys to grow that business organically? Or can M&A be a bigger part of the story moving forward? James Williamson: Sure, Hristian. Let me take the questions in turn. So the growth in international, obviously, that was largely a retail strategy, although we also have a terrific wholesale business in our Everest Global Markets, which is our London market business. And I want to be really clear about something important. And I think this is true both on the international side as well as North America post the remediation, there was nothing wrong with the books of business. And there was nothing wrong with the way the teams were executing their strategies. They were getting good results. But the question that we confronted strategically is what is the best use of our capital and our investments going forward. And clearly, as I've said a number of times, the opportunity in Reinsurance and in Wholesale & Specialty Insurance for us at this point in our evolution is just a much stronger proposition than continuing to invest in retail. So yes, the decision to divest the retail business will blunt the international growth in the short term, but it's for strategic reasons that we've spent a lot of time explaining today. So in terms of the business going forward, and particularly that Wholesale & Specialty business, which I said -- as I've said, we've now reorganized into a single business under great leadership. I do think there will be growth opportunities. We're supremely focused on bottom line results. But as market conditions allow, I think there is organic growth that we can pursue. I will stress probably being very repetitive at this point, but we can pursue those growth opportunities organically with far fewer investments in people and infrastructure than is required in the retail business, which I think is attractive for us. And then could M&A be part of the plan? I think that's possible. But we've been pretty consistent on this point, which is if we do something like that in Wholesale & Specialty, it's going to be about bolting on capabilities that are attractive, that are consumable, that have modest execution risk. Those are the sorts of characteristics that I think would you would want to think about if we were to do any M&A in the Wholesale & Specialty space. Hristian Getsov: Got it. And then how are you thinking about pricing at the 1/1 renewals, just given what we know through hurricane season to date? And does the ADC and renewal rights sell, does that increase your appetite for you to go and get new business now that you're done through the 1-Renewal Strategy and you're getting a bunch of capital alleviation over the next 12 months? James Williamson: Yes. So in terms of the pricing outlook, I think the market consensus is prices are going to come off a bit, probably in the range of 10%, depending on who you believe. I think the business is still well priced if that happens in terms of expected return. Now having said that, I would not expect us to look to significantly grow from that point when prices are coming down, I think it's more about being very selective. Capital constraints were never an issue as we've expanded the book. And we had excess capital before this transaction. We have more of it now. That is not a factor in determining how much cat we're going to write. It's really more about the underlying dynamics of the cat market and how it compares to other opportunities to deploy capital. Operator: The next question comes from Tracy Benguigui with Wolfe Research. Tracy Benguigui: Just some clarification on your comment, there was no loss corridor. I mean, I see that in the schematic. But I just assumed that the $539 million of casualty reserve strengthening would have been your loss corridor have you not taken those actions. So I'm just wondering, did Longtail Re come in and say, I will attach $5.4 billion, so you have to fill in the gap? Or would they have done the deal at a lower attachment? James Williamson: Well, yes, Tracy, I'm not going to speculate on what they might have done. But what I would say is it was a collaborative process in terms of arriving at the structure of this deal, and we were sharing a lot of information, a lot of transparency was taking place. But remember, this is fundamentally driven by an appropriate actuarial process within Everest to arrive at what we think the ultimate loss ratios are going to be. And I think -- and again, I'm not going to speak for Longtail, but I think anyone looking at the approach that we've taken to those reserves would say, we believe in the ultimates, and I think that's the real takeaway here. Those are the right ultimate loss ratios given everything that's occurred in the external environment and the underwriting issues that we've had. And so therefore, we can attach at that ultimate. And I think that speaks volumes about how people are feeling about what's going to happen next in terms of those ultimate loss ratios holding from here. Tracy Benguigui: Got it. And I'm just curious how wide of a search did you conduct? This is not a knock on Longtail Re, but just doing a deal with a non-rated reinsurer piqued my interest given the capital discussion on this call. I mean, there's less relief given higher counterparty credit risk. James Williamson: Yes. So just one thing in terms of the deal features, and then I'll come into the process. We are facing off against 2 rated fronting carriers as part of the transaction. So we're not taking credit risk to Longtail Re. We have rated balance sheets, very strongly rated balance sheets facing us as fronts in the transaction. So it's a good question and something we thought carefully about. We ran a very comprehensive process. We use Gallagher Re as our broker in the process. They were -- and if you know their casualty team is world-class. They did a very comprehensive search. We worked with a number of parties. But -- what I really liked about Longtail is a couple of things. One, we have a pre-existing relationship with Stoneridge Asset Management through Mount Logan. They've been very steadfast partners of ours. So that was a feature. And I think there's a lot of our companies do together today and can do together going forward. And then I have enormous respect for Mike Sapnar personally, and I think he's a fantastic underwriter and his -- frankly, his seal of approval on all this was important to me. So I think this outcome is just fantastic for Everest, and I think it will prove to be a really good trade for Longtail as well. Tracy Benguigui: Okay. So you said there were 2 fronting companies. It's like retrocession. Like if you could just share a little bit more detail behind that. James Williamson: Yes. So the deal, the transaction, the $1.2 billion gross limit is split into 2 layers. The first layer is fronted by State National. The second layer is fronted by MS Transverse. Longtail sits behind those 2 carriers and has collateral arrangements, et cetera. But we face off, we are ceding to those 2 rated balance sheets. Mark Kociancic: Yes. Tracy, it's worth pointing out we have an 8-K with all the details on the ADC. I think we issued it yesterday. So certainly, you can get that structure from there. Operator: This concludes our question-and-answer session and concludes our conference call today. Thank you for attending today's presentation. You may now disconnect.
Tuukka Hirvonen: Okay. [Foreign Language] Good afternoon, and welcome to Orion's earnings conference call and webcast for the financial period of January-September 2025. My name is Tuukka Hirvonen. I'm the Head of Investor Relations here at Orion. In a few moments, we will start with the presentation by our CEO and President, Mrs. Liisa Hurme, after which then we will have a Q&A session where you can post questions both to Liisa and also to our CFO, Rene Lindell. [Operator Instructions] And just before I let Liisa to take the stage, I'd like to draw your attention to this disclaimer regarding forward-looking statements. But with that, it's my pleasure to hand over to Liisa. Liisa? Liisa Hurme: Thank you, Tuukka, and welcome to Orion Q3 webcast on my behalf as well. Here are some highlights from quarter 3 2025. Nubeqa received approval from European Commission for use of darolutamide and ADT, androgen deprivation therapy in patients with metastatic hormone-sensitive prostate cancer. Nubeqa also reached all-time high royalties and product deliveries to Bayer during Q3. Generics and Consumer Health business had a strong quarter, supported by good availability of products in our major markets and very successful new launches. Unfortunately, ODM-105, tasipimidine Phase II trial for insomnia didn't reach its efficacy target, and we decided to discontinue the development of that program. And Q3 financials are here. And before I go deeper into the financials, it is good to remember that the comparative period Q3 2024 was an exceptional quarter. We received EUR 130 million worth of milestones last year's Q3. There was a EUR 70 million sales milestone from Bayer related to Nubeqa and EUR 60 million milestone related to the MSD agreement on opevesostat. So these are quite difficult to compare to each other. And now as I go along, I will talk about the base business. So the business without the milestones. The base business growth was 24% from quarter 3 '24 to this year's quarter 3, totaling to EUR 423 million. The operating profit growth was even stronger, 68%, up to EUR 121 million. And our cash flow grew 15% and was being very solid. Of course, last year's -- during last year's Q3, the milestones were booked, but yet not paid. So they were not yet cash in our bank. And when we look closer, the net sales bridge, we can see the kind of a net effect of the difference between the quarters here regarding the milestones in Innovative Medicines column, which is EUR 59 million, but underlying net sales increased by EUR 71 million. So I think the growth, as I earlier said, of Nubeqa product sales and royalties was very strong, but it didn't fully compensate the previous year's milestones. We can also see here that all other divisions positively developed positively, strongest being Generics and Consumer Health, but also Branded Products and Animal Health showed positive development. And Fermion was more or less on par. And here on the operating profit bridge, we can see the full -- kind of a full effect of the last year's milestones, EUR 130 million, but also the positives on the change in sales volume and change in prices and cost of goods and product mix of almost EUR 20 million. And then the royalties of EUR 50 million. We can also see that our fixed cost increased as well, but this is all planned. It's mainly R&D and sales and marketing costs here. Now let's take a view for the first 9 months from January to September. Again, a very nice 22% growth during the first 9 months and 7.8% growth even though we would compare to the previous year's quarter 3, including the milestones. And the first 3 months ended up with EUR 1.2 billion of net sales. Regarding operating profit, EUR 57 million -- 57% growth and slight decrease if we compare to the numbers, including milestones in previous year. And again, a very positive development on cash flow during the first 9 months. Now to Innovative Medicines. This is a bit different picture than you've used to see. There is the shaded area, which tries to tell you the comparison between the quarters, including everything else, but the milestones from the previous year. And 71% of growth is very healthy for Innovative Medicines and also almost 75% growth during the first 9 months. And on the right side here, you can see this all-time high royalties plus product deliveries ending up to EUR 166 million. And I always remind looking at this picture, the very, how would I say, year is very late ended loaded -- back-ended loaded -- back-end loaded for Nubeqa, as you can see here, when you look at the '24 from the first quarter to the last quarter, but here as well. But I would like to remind that in comparison to '24, we already reached the higher royalty rate in the previous quarter with Nubeqa. So we are not going to see a similar shift and change in the royalty rate as we saw last year between the Q3 and Q4. Branded Products growth during Q3 was somewhat slow. It was 3%. And this slowliness in the growth is mainly due to timing of deliveries to our Stalevo partners. And that will be fixed during the rest of the year. So it's kind of a temporary change here. And the growth for the first 9 months is a healthy 9%. And in Easyhaler portfolio, budesonide-formoterol combination product was the clear driver for the growth. And then on the CNS portfolio, Stalevo Japan contributed to growth in Branded Products. And as I say, Generics and Consumer Health quarter 3 was very, very strong. 5.4% growth is extremely good for any generic business, but especially here when we remember that Simdax and Dexdor are included in this business, and they are constantly sliding down facing the generic competition. So we are able to compensate that decrease, but -- and at the same time, increase and grow our sales. And the reason for good quarter is really the good availability of the products in our Nordic countries. The service level is the thing in the Generic business. You need to have the products at the time of the tender where they should be, and you would need to be able to deliver also for all the different countries in the specific timings of tenders or pricing processes. And also, we had a good launch, for example, for Apixaban in Finland. Animal Health continued the good growth trend, although here, we see a bit of a similar slowdown as with Branded Products, and that partly has to do with deliveries as well. But when we look at the first 9 months, it's a very strong 2-digit number growth. And our top 10 product list is as it has been. Nubeqa, there as a flagship with 83% or 84% growth. Easyhaler product portfolio growth was close to 8% and entacapone products grew close to 5%, mainly due to the Japan sales. And our HRT product, Divina, performed very well here on the row 5, growing almost 23%, continuing the strong growth from earlier this year and some oldies like Trexan even 10% -- close to 10% growth and Quetiapine products, 10% growth. And currently, our business divisions are very healthy. The balance between business divisions is very healthy, approximately 30% for Innovative Medicines and Generics and close to 20% for Branded Products. Now Orion's key clinical development pipeline has clearly become oncology focused as we decided to discontinue the ODM-105 project for treatment of insomnia. We have also removed ARANOTE from this list as it's approved both in U.S. and EU. So we now have the DASL-HiCaP study on this list. and then the 2 OMAHA studies with opevesostat that MSD is responsible for. It's good to mention here for these 2 opevesostat studies that their design or primary endpoints have changed since we last presented this so that for the OMAHA3, which is for the later line patients, the primary endpoint is now overall survival. So the progression-free survival has been demoted and overall survival is the primary endpoint. Also, there are changes for the frontline patients study 004, so that the progression-free survival is now a primary endpoint for this study. And these are changes that our partner, MSD, has done, and it looks in all possible ways very logical. Then we have Tenax levosimendan study for pulmonary hypertension proceeding in Phase III. They are planning to start also another Phase III study by the end of this year, another global study for this indication. And then we have another study for opevesostat for metastatic castrate-resistant prostate cancer and 3 studies ongoing, Phase II studies ongoing for several or 3 different hormonal cancers, women's hormonal cancers, breast, endometrial and ovarian cancer. And still, we continue the CYPIDES, which was the Phase II study that formed the basis for those 2 opevesostat 3 and 4 studies for prostate cancer. And our TEAD inhibitor, ODM-212 for solid tumors is proceeding well in Phase I, and we are preparing to start the Phase II program on the first half of next year. Then a few words on the sustainability this time about decarbonization targets. We have set an ambitious target to reduce absolute Scope 1 and 2 greenhouse gas emissions by 70% by the year 2030, and also have 78% of our suppliers, meaning Scope 3 emissions covered by our targets. Then how do we do this? I think for the Scope 1 and 2, we have very concrete actions ongoing. The steam production is one of the most energy-consuming phase in the chemical industry, especially in the API industry. And we are changing the energy source for steam production in all of our facilities -- manufacturing facilities. In Turku, we are electrifying the steam production. In Oulu, we are changing to biofuels from the fossil fuels. And also, we will start an electrifying project in Espoo. So very, very concrete examples here, and we have even done a lot of concrete actions and projects before this, for example, in our Hanko plant. And in the supplier management, we are targeting to our highest emitting suppliers who are not yet aligned with SBT. And here, we try to offer support and practices and technical expertise with our suppliers. And we have specified our outlook today. Our operating outlook for operating profit, we have narrowed from EUR 410 million to EUR 490 million. So nothing drastic. We've been able to narrow it as the year has -- 10 months have already passed. There are 2 months left, and we have a much clearer view on how the year will pan out. And for the net sales, our outlook is from EUR 1.640 billion to EUR 1.720 billion. And here, you can see the upcoming events for next year. And I thank you on my behalf, and welcome Rene here with me to answer your questions. Tuukka Hirvonen: Thank you, Liisa, for the presentation. As we said in the beginning, we will first take questions from the conference call lines, and then we will turn to the questions you can type in through the chat function in the webcast. But at this point, I would like to hand over to the operator with the conference call. Operator: [Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 4 questions. We'll take this one by one. Firstly, starting from the guidance. Can you elaborate on what is driving the small revisions to the lower and upper ends of the guidance ranges? Is this about third quarter actuals? Or have you also updated your forecast for the fourth quarter? Liisa Hurme: Well, of course, the first thing is, as I mentioned, that we know now how the first, say, 10 months have passed, and there are only 2 months left. But there are, of course, uncertainties for the latter part of the year. Nubeqa is a big moving factor in this, also R&D costs. And the tariffs are not that big of a matter here. We do think that they wouldn't have any effect to this year '25. But there are still uncertainties for the rest of the year. So still, we have this range, but there are less uncertainties, and that's why we were able to narrow the range. Sami Sarkamies: Okay. Then moving on to growth momentum at Branded Products and Animal Health. Third quarter growth rates are clearly weaker than we saw in the second quarter. How would you explain that? And what is your expectation regarding Q4? Liisa Hurme: Well, yes, you are very correct that the Branded Products and Animal Health showed a slower growth than previously this year. And it's mainly due to some delays in our deliveries to partners. We have both Animal Health. Animal Health is actually working closely with. We have some very big partners that we are working with. So there might be a 1-day or 2-day delay for the deliveries, and it has an effect clearly even on the quarter if there are big deliveries going on. Same goes with Branded Products. We deliver still to our Stalevo partners across the world. And it's the same thing. I think we've experienced this earlier years as well that sometimes it just happens that we are not able to ship during the quarter that we had planned. But this should be -- we should be able to sort this out by the end of the year during the Q4. Sami Sarkamies: Okay. Then moving on. The third question is on ODM-208. You mentioned that Merck has been changing primary endpoints for the OMAHA studies. When was this change made? Liisa Hurme: This change became public, I think, a month ago, 3 weeks ago, maybe. Tuukka Hirvonen: It was a few weeks ago. In early October, they changed the protocols. It was visible in the ClinicalTrials.gov. So nothing material because we didn't come out with at that point. But of course, something that is very interesting for all of you. So we wanted to highlight it here. Sami Sarkamies: Okay. And then finally, regarding the R&D pipeline, thinking of next year, can you give a bit more color on when you're expecting Phase I readout for ODM-212? And when would you expect to initiate the first Phase II study for that molecule? And then secondly, at CMD, you talked about 3 biological preclinical programs moving into Phase I during next year. Just wanted to check if these projects are still live as you are currently guiding for at least one new program during next year. Liisa Hurme: Yes. I'll start with ODM-212. The Phase I is almost completed. We are looking at the results, and we are basing our Phase II planning on those results. And of course, we will report the results in some forthcoming scientific meeting. Those are usually on embargo until we release them for the scientific audience. And regarding the Phase II program, it's currently under plans. We have filed IND for that and hope to be starting by hopefully mid-'26. And what was -- then there was one more question. Tuukka Hirvonen: About the biologics status. Liisa Hurme: Biologics. Indeed, yes, we told that we have 3 biologics close to advancing to clinical pipeline. And we think that we will be able to proceed with at least one of them to the Phase I next year. Operator: [Operator Instructions] The next question comes from Shan Hama from Jefferies. Shan Hama: Three from me. Also happy to take them one by one. So firstly, could you perhaps give us some, I guess, guide as to the impact on your OpEx from the ODM-105 failure? I mean I know you weren't planning to take it to late-stage development yourselves. So I assume it's not significant, but perhaps any guidance on the provisions set aside there would be helpful. Rene Lindell: Yes, maybe I can take that one. So of course, ODM-105, it was -- we got the results and in such a way, you could say the project was completed. So for this year's perspective, not a big impact in terms of how we expect this year's R&D expenses to be going as it was in our plans and it was completed. Then of course, for next year, you can obviously think that there is a change in how the budget is allocated. 105 million, of course, is not moving forward. There are some tail costs for next year that we'll be taking in this year. But overall, we see it as being quite neutral for this year in compared to whatever we save and whatever provisions we take for costs that would have occurred next year. Shan Hama: All right. And secondly, I mean, you're able to specify your guidance on this increasing visibility on the performance of the businesses. I assume the visibility on the milestone should also be better. Could you perhaps speak a bit on your expectations for this and whether that visibility has shifted slightly from last quarter? Liisa Hurme: Well, as we have stated, we think that we will receive the milestone next year, '26, but it is possible that we receive that milestone already '25. But it's still not possible to state that as a fact that we get it this year. So we remain where we have been to this date that it's possible this year, but we are -- in our plans, it's next year. Shan Hama: Understood. And then finally, given the delay that you mentioned in the deliveries in Branded Products and Animal Health, is it fair to expect a slight boost to 4Q, assuming those deliveries are made as well as the normal business expected in 4Q? Or is it more of a pull-through dynamic? Liisa Hurme: Now I didn't quite get the question. Is it... Tuukka Hirvonen: It's about the timing of shipments in Branded Products and Animal Health since we now saw some headwinds. Will there be a boost in Q4 now that... Liisa Hurme: No, I think it's just -- it's according to plan that we get them out here. So it's not boosting the Q4. Operator: The next question comes from [ Matty Carola ] from OP Corporate Bank. Unknown Analyst: It is [ Matty Carola ]. I ask 2 Nubeqa related questions. First, regarding the U.S. situation and the pricing. I know you are not willing to say a lot about it, but maybe could you a little bit say about the political atmosphere. Do you or your partner get the pressure to lower the price? Or what's your kind of look right now if you look on another side of the Atlantic? Liisa Hurme: Well, I think that's a good question regarding the U.S. business environment. However, I think a question whether our partner gets pressured or needs to change price, I think it's fair to say that, that needs to be asked from Bayer. It's not my place to comment that matter. But in general, there are a lot of things happening in U.S. regarding the pricing, the most favored nation initiative and also, of course, the tariffs. So we follow the situation carefully. Unknown Analyst: All right. Then the second one, you received the latest permits in the U.S. during the summer and also in Europe regarding the latest indication. Have you seen kind of significant volume change or kind of any change about the sales during the Q3 if we speak about the kind of adoption rates or any other kind of sales indication, which is visible after you got the final sales permits? Liisa Hurme: Well, we don't -- of course, we see that the volumes are increasing. That's a very positive thing. But we don't have a kind of a step change if you're referring to that with the new indication. It's more of a linear growth. So it's very positive. I'm sure ARANOTE has a positive effect as it can be used also without docetaxel. But to have a kind of a step change or big growth there, such we don't see exactly. Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: One question from me, and it's just to double check something you said during the presentation about Nubeqa royalties in Q4 compared to Q3. So I understood that we shouldn't expect similar growth as we saw last year, but anything else to add or comment on Q4 royalty rate? Maybe I didn't catch up everything you said in that comment. Liisa Hurme: Very good that you asked. I was trying to explain that last year, the royalty rate changed between Q3 and Q4. So... Tuukka Hirvonen: During Q4. Liisa Hurme: During -- yes, not exactly between, but during Q4. So it had an impact so that the Q4 was clearly higher in Nubeqa sales or royalties to us. But this year, we already reached that royalty rate during Q3. So even though the royalties will be -- or the sales will be growing, so there will be a kind of a double effect of sales growing and royalties -- royalty percentage increasing during quarter 2. So that's the difference. I don't know if I explained it well or if my colleague wants to explain it even better. Anssi Raussi: Got it. And so is your royalty rate hit the cap during Q3? Was it at the end of the quarter? Or was the average rate already capped and will be similar in Q4? Or is it like the run rate at the end of Q3? Tuukka Hirvonen: We reached the cap during Q3, not going to specifics at which point of time. But like Liisa said, kind of the message is that one should not expect similar step-up as you saw last year between Q3 and Q4 because in Q4 last year, we got the step-up coming from the royalty rate increase, but now that won't be happening between Q3 and Q4. So that was kind of the message that we expect the growth to continue, but similar kind of step-up as you saw last year, one should not expect. Operator: There are no more questions at this time. Tuukka Hirvonen: All right. Thank you, operator. Then we turn on to the chat questions. We have a couple here. You still have time to type in more if you have anything on your mind. Let's start with one. This is actually already covered, but just to let you know that [ Aro ] is asking, is it still realistic to think that the EUR 180 million Nubeqa milestone would come already this year? And actually, you, Liisa, already addressed that question. So that's covered. Then we are having one coming from Iiris Theman from DNB Carnegie. Regarding Nubeqa, have you received any feedback from Bayer how ARANOTE sales have developed? What are Bayer's comments? Liisa Hurme: I think not specific comments on ARANOTE . I think we are more or less following the all sales development. And as I said, it's linearly growing. So there, we haven't really seen any step-up due to ARANOTE. And let's remember that there might have been already off-label use with Nubeqa for this patient segment. So it might be that -- it might not be that dramatic, and that's what we've been trying to tell all along while we've been waiting for the ARANOTE approval. Tuukka Hirvonen: All right. Thank you, Liisa. We have no further questions in the chat, but I got a message. Well, actually, now Iiris has a follow-up here. So why administration costs were lower year-on-year? And what should we expect for Q4? Rene Lindell: Yes, There are typically quite many line items there, and some of those are -- can be just shifting from quarter-to-quarter. There can be also some definition changes, what is considered admin and what is considered in the other line items. There are quite minor changes in terms of the overall admin expenses. There's nothing big changing the normal inflation, which is across the board. But yes, I wouldn't expect any drastic differences. Tuukka Hirvonen: All right. Thanks, Rene. Then we have a follow-up from Sami Sarkamies from Danske. So following changed endpoints for ODM-208, so opevesostat, OMAHA trials, do you still foresee an interim readout in '26? Before you answer, of course, we need to point out that we have never estimated or foreseen that there will be a readout. Liisa Hurme: Interim readout. No, no, no. But I think that's public, the readout for the full year. It's that when... Tuukka Hirvonen: Yes. Yes, the full readout, yes, but interim readout. Liisa Hurme: No, no, no. We are not going to comment that or we have never commented that. But the readout from both studies should be in 2028. Tuukka Hirvonen: Yes, that's correct. Then we have a follow-up from Heikkila. He says that Orion's R&D costs have been increasing clearly. At which point do you expect these increases to show as a growth in terms of net sales? And to which development programs are you focusing the most after Nubeqa? Liisa Hurme: We clearly focusing the development programs that are in our hands, and that's ODM-212 now and of course, the biologics that are following that. And when can we expect that program to turn into sales? I would say that would be early 2030s. Tuukka Hirvonen: All right. Thank you, Liisa. Now we have exhausted all the questions from the chat. And also, I got a message that there are no follow-ups in the conference call lines. So it's time for us to wrap up. Thank you for joining us today, and have a great rest of the day and week. Liisa Hurme: Thank you.
Operator: Welcome to the fiscal 2026 First Quarter Earnings Call for Applied Industrial Technologies. My name is Eric, and I'll be your conference operator for today's call. [Operator Instructions] Please note that this conference call is being recorded. I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin. Ryan Cieslak: Okay. Thanks, Eric, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, just a reminder, we'll discuss the business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents. Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer; and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil. Neil Schrimsher: Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I'll begin today with perspective and highlights on our results, including an update on industry conditions and expectations going forward. Dave will follow with more financial detail on the quarter's performance and provide additional color on our outlook. I'll then close with some final thoughts. So overall, we had a nice start to fiscal 2026. We delivered strong earnings performance in the first quarter with EBITDA and EPS growing 13% and 11%, respectively, over the prior year, which exceeded our expectations. Sales growth was largely in line with our outlook and strengthened compared to last quarter against a still muted and choppy end market backdrop. We converted stronger sales growth into even greater EBITDA growth through solid gross margin execution, cost control and our internal initiatives. As a result, EBITDA margins expanded over the prior year and exceeded the high end of our first quarter guidance. In particular, our service center team delivered a strong quarter on both the top and bottom line, and I'm encouraged by the positive momentum building from our internal initiatives and industry position. Sales across our Engineered Solutions segment were relatively flat versus the prior year, but orders remain positive. Hydradyne contribution continues to increase and the segment has solid growth potential moving forward. Overall, our execution and progress in the first quarter provides positive momentum to achieve our fiscal 2026 objectives and accelerate our value creation potential moving forward. Digging more into the sales trends, broader end market demand remained mixed during the quarter as lingering trade policy uncertainty continued to impact customers' purchasing decisions. That said, we would describe the underlying demand backdrop as stable to slightly positive. And overall, moving in the right direction when looking at it over the past several quarters. Year-over-year trends across our top 30 end markets improved slightly with 16 generating positive sales growth compared to 15 last quarter. We saw stronger trends across several of our primary end markets with strongest growth in machinery, food and beverage, refining, pulp and paper, metals, oil and gas and aggregates during the quarter. This was offset by declines in lumber and wood, transportation, chemicals, mining and utilities and energy. Year-over-year organic sales trends were stronger in July and August relative to September, though partially reflecting more difficult comparisons later in the quarter. Combined with greater pricing contribution, reported organic sales growth of 3% was the strongest in 2 years with a 2-year stack trend improving sequentially for the third consecutive quarter. Organic sales growth in the quarter was led by our Service Center segment with reported growth of 4.4%, accelerating nicely from the low single-digit declines we experienced in fiscal 2025. Growth was strongest across our national account base, while local account sales were up modestly year-over-year. which is an improvement from recent quarters. Strengthening service center sales growth is an encouraging sign for both the segment as well as our broader operations, as the shorter cycle nature of our service center operations is typically a good indicator of underlying industrial activity and potential demand for capital-related spending moving forward. We believe modest firming in manufacturing production and capacity utilization, combined with pent-up demand from deferred maintenance activity is driving more technical MRO and break-fix activity at the margin. We're seeing stronger activity across some of our heavy U.S. manufacturing verticals that are break-fix intensive. This includes primary metals market, where related service center sales were up by a high single-digit percent year-over-year in the quarter. Our service center team also continues to benefit from ongoing sales initiatives technology investments and greater cross-selling opportunities, which is supplementing their performance beyond underlying market demand. It's also important to highlight the strong execution of our service center team in the quarter where they levered 4% sales growth to 10% EBITDA growth, while particularly benefiting from more favorable AR provisioning over the prior year, the underlying earnings leverage was solid and highlights the team's operating discipline, ongoing cost control and effective management of broader inflationary headwinds. Within our Engineered Solutions segment, organic sales in the first quarter finished slightly lower compared to the prior year but remain on a solid path to stronger growth. Of note, segment orders sustained positive momentum, increasing nearly 5% organically over the prior year during the quarter, with a 2-year stack trend accelerating sequentially. Segment orders have now been positive year-over-year for 3 straight quarters with book-to-bill above 1 during the quarter. Order growth strengthened across our industrial and mobile OEM fluid power operations during the quarter. This exceeded our expectations and leaves us incrementally constructive on related fluid power sales trends moving forward. Our fluid power team for leading engineering capabilities and customer reach are driving new business opportunities tied to mobile electrification, next-generation fluid power systems and fluid conveyance. We also believe a lower interest rate environment and tax incentives could be particularly positive for our fluid power customer base, which is primarily comprised of small to midsized domestic OEMs. In addition, new business development and customer indications signal a potentially active backdrop across our technology vertical and discrete automation operations entering the second half of fiscal 2026. This includes an expanding position supporting the data center market with our fluid power and flow control solutions tied to thermal management applications and our automation teams providing robotic solutions supporting material handling applications. Our enhanced technical footprint in the Southeast U.S. region, following our Hydradyne acquisition, has further strengthened our data center position and related order momentum. Demand signals across our semiconductor customer base also remain encouraging and indicate a potential greater ramp in related orders and shipments during the second half of fiscal 2026, as the wafer fab equipment cycle gains momentum. I would also highlight recent investments we've made in engineering, systems and production capacity over the past several years that provide significant support to fully leverage these demand tailwinds moving forward. As a reminder, the technology and discrete automation verticals combined represent more than 25% and of our Engineered Solutions segment sales and could be an increasing contributor to the segment's growth moving forward based on our initiatives, growing order book and broader secular tailwinds. In addition, our flow control team is focused on capturing growth developing within life sciences, pharmaceutical and power generation markets within the U.S. With established product portfolios and leading technical capabilities around calibration services, instrumentation, steam and process heating and filtration we are favorably positioned to win in these markets. On a side note, our flow control backlog ended the quarter at its highest first quarter level in over 3 years, with orders positive year-over-year. Combined with relatively easy comparisons, we remain optimistic on the setup of our Engineered Solutions segment entering the second half of fiscal 2026 as recent order momentum converts and underlying end markets continue to firm. At the same time, we remain constructive on our ability to lever stronger sales and drive greater earnings growth and EBITDA margin expansion. Our first quarter performance is a good reflection on this. Of note, we achieved 17% incremental margins on EBITDA, inclusive of ongoing inflationary pressures, including LIFO and unfavorable M&A mix. We believe our underlying business model, combined with ongoing operational initiatives and structural mix tailwinds provide notable earnings growth levers to achieve our mid- to high-teen incremental annual margin target and continue to expand EBITDA margins in a positive sales growth backdrop. In addition, sales growth and EBITDA margin should benefit from ongoing progress developing across Hydradyne. As we approach our 1-year anniversary of the acquisition, we are very encouraged by the performance the broader team is delivering and the potential we see ahead. Hydradyne earnings contribution continues to improve, with EBITDA up over 20% sequentially in the first quarter and EBITDA margins improving nicely from the prior 6-month trend. We are making strong progress with sales synergies and our teams collaborate and leverage innovative fluid power solutions. This includes connecting Hydradyne strong repair and field service support across our legacy MRO customer base while enhancing their value proposition by providing access to our systems engineering team and complementary product lines. We're also tracking well to our operational synergy streams, including solid progress on harmonizing systems processes and operational efficiencies. Combined with the growing backlog and firming demand across their core end markets, we believe Hydradyne could be nicely additive to our organic sales growth and EBITDA margin trend as we anniversary the transaction into the second half of fiscal 2026. Lastly, we remain on track to have another active year of capital deployment to further supplement our growth potential and shareholder returns. M&A remains a top capital allocation priority for fiscal 2026. Our pipeline is active with varying sized targets across both segments. This includes several midsized targets at various stages of due diligence that could enhance our technical differentiation and value-added service capabilities. In addition, we expect to remain active with share repurchases for the remainder of fiscal 2026 as we balance the cadence of potential acquisitions, our balance sheet capacity and the value we see across applied from our strategy and long-term earnings potential. At this time, I'll turn it over to Dave for additional detail on our results and outlook. David Wells: Thanks, Neil. Just as a reminder before I begin, as in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for your additional reference as we recap our most recent quarter performance. . Turning now to details of our financial performance in the quarter. Consolidated sales increased 9.2% over the prior year quarter. Acquisitions contributed 6.3 points of growth which was partially offset by a negative 10 basis point impact from foreign currency translation. The number of selling days in the quarter was consistent year-over-year. Netting these factors, sales increased 3% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 200 basis points for the quarter. This is up from approximately 100 basis points in the fourth quarter and primarily reflects the effective pass-through of incremental announced supplier price increases in recent periods as previously discussed. Moving to consolidated gross margin performance as highlighted on Page 7 of the deck, gross margin of 30.1% was up 55 basis points compared to the prior year level of 29.6%. During the quarter, we recognized LIFO expense of $2.6 million which was up slightly from the prior year first quarter amount of $2 million. On a net basis, this resulted in an unfavorable 5 basis point year-over-year impact on gross margins during the quarter. The year-over-year improvement in gross margins primarily reflects positive mix contribution from our Hydradyne acquisition, solid channel execution and benefits from our margin initiatives as well as more muted gross margin performance in the prior year first quarter. This was partially offset by mix headwinds from growth in strategic accounts and lower flow control sales. Price cost trends were relatively neutral in the quarter. As it relates to operating costs, selling, distribution and administrative expenses increased 9.7% compared to prior year levels. SG&A expense was 19.4% of sales during the quarter. Excluding depreciation and amortization expense, SG&A was 18% of sales during the quarter and down 10 basis points from the prior year. On an organic constant currency basis, SG&A expense was up a modest 0.7% year-over-year compared to the 3% increase in organic sales. During the quarter, ongoing inflationary headwinds and growth investments were balanced by solid cost control and internal productivity initiatives as well as the benefit of more favorable AR provisioning resulting from our working capital initiatives and collections performance. Overall, stronger organic sales growth, coupled with M&A contribution, favorable gross margin performance and solid cost control resulted in reported EBITDA increasing 13.4% year-over-year, including over 6% on an organic basis. This resulted in EBITDA margins of 12.2%, expanding 46 basis points from the prior year level of 11.7%, which was above the high end of our first quarter guidance of 11.9% to 12.1%. Reported earnings per share of $2.63 was up 11.4% from prior year EPS of $2.36. On a year-over-year basis, EPS benefited from a reduced share count tied to our buyback activity, partially offset by a higher tax rate as well as increased interest and other expense on a net basis. Turning now to sales performance by segment. As highlighted on Slides 8 and 9 of the presentation. Sales in our Service Center segment increased 4.4% year-over-year on an organic basis when excluding a 10 basis point positive impact from acquisitions and a 10 basis point negative impact from foreign currency translation. So organic sales increase in the quarter was primarily driven by ongoing internal initiatives firming technical MRO demand and incremental price contribution. Sales growth was strong across our national account base, reflecting benefits from sales force investments and cross-selling actions. Segment trends also continue to be supported by favorable growth across Fluid Power MRO sales. Segment EBITDA increased 10.1% over the prior year while segment EBITDA margin of 13.9% expanded over 70 basis points. This year-over-year improvement primarily reflects solid operating leverage and stronger sales growth, channel execution and cost control as well as more favorable AR provisioning requirements. Within our Engineered Solutions segment, sales increased 19.4% over the prior year quarter with acquisitions contributing 19.8 points of growth. On an organic basis, segment sales decreased 0.4% year-over-year. The modest decline was primarily driven by muted sales trends during September across our flow control operations, reflecting softer project-related shipments. In addition, sales growth across our technology vertical was softer than expected in September, primarily tied to more gradual or conversions across the semiconductor market. We view this as timing related, considering backlog trends customer indications and broader sector tailwinds, as Neil highlighted earlier. Sales across industrial and mobile fluid power markets were also lower year-over-year. However, the decline was more modest and improved notably from fiscal 2025 trends, primarily reflecting easier comparisons and firming OEM customer demand. Sales across our automation businesses increased organically for the second straight quarter with organic growth of 4% year-over-year, driven by solid robotic solutions demand in the U.S. business. EBITDA increased 16% over the prior year, reflecting contributions from our Hydradyne acquisition as well as solid cost management, which was partially offset by modestly lower organic EBITDA on muted sales trends in the quarter. Segment EBITDA margin of 13.8% was down roughly 40 basis points from prior year levels, primarily reflecting unfavorable acquisition mix and lower fluid control sales. That said, we expect segment EBITDA margin trends to improve as acquisition mix headwinds ease and segment sales improve. Of note, Hydradyne's EBITDA contribution continues to increase as we progress along our integration and synergy initiatives with its financial performance tracking to our first year guidance of $260 million in sales and $30 million in EBITDA with growth and synergy momentum, providing upside support into the second half of fiscal 2026. Moving to our cash flow performance. Cash generated from operating activities during the first quarter was $119.3 million, while free cash flow totaled $112 million, representing conversion of 111% relative to net income. Compared to the prior year, free cash was down slightly, reflecting greater working capital investment balanced by ongoing progress with internal initiatives. From a balance sheet perspective, we ended up September with approximately -- excuse me, $419 million of cash on hand and net leverage at 0.3x EBITDA, which is above the prior year level of 0.1x. Our balance sheet is in a solid position to support our capital deployment initiatives moving forward. including accretive M&A, dividend growth and opportunistic share buybacks. During the first quarter, we repurchased approximately 204,000 shares for $53 million. Turning now to our outlook. As indicated in today's press release and detailed on Page 12 of our presentation, we are modestly raising full year fiscal 2026 EPS guidance to reflect first quarter performance and updated diluted share count assumptions following the first quarter buyback activity. We now project EPS in the range of $10.10 to $10.85 compared to prior guidance of $10 to $10.75. That said, we are maintaining our sales guidance of about 4% to 7%, including up 1% to 4% and on an organic basis as well as EBITDA margins of 12.2% to 12.5%. Guidance continues to assume 150 to 200 basis points of year-over-year sales contributions from pricing. Our sales outlook remains largely unchanged from the views we provided in mid-August. We believe end market trends are moving in the right direction, and we are encouraged by positive order and business funnel momentum. However, we continue to assume industrial activity remains mixed near term, and we expect our conversion across our Engineered Solutions backlog to be more weighted toward the back half of our fiscal year. Combined with sales trends in October, we currently project fiscal second quarter organic sales to increase by a low single-digit percent over the prior year quarter with Service Center segment growth above the Engineered Solutions segment. This is consistent with the midpoint of our initial guidance provided in mid-August and implies underlying sales trends remain relatively stable in the second half of our fiscal year at midpoint. We also acknowledge the low end of our sales guidance would imply a softening market in the back half of the year. We view this as little probability based on our indicators and performance to date. However, consistent with our typical approach to guidance, we believe it remains prudent to maintain our full year range at this early point in the year, pending greater clarity and less volatility across the macro and trade policy backdrop. Overall, we are running in line with our sales expectations year-to-date and remain constructive on our setup moving to the second half of the year. Lastly, from a margin standpoint, we are encouraged by our first quarter performance and reiterating the outlook provided in mid-August. We continue to assume ongoing inflationary pressures and growth investments as well as $14 million to $18 million of LIFO expense. For the second quarter, we expect gross margins to increase slightly on a sequential basis and EBITDA margins of 12% to 12.3%. I would note that we faced a difficult year-over-year gross margin and EBITDA margin comparison in the second quarter. Our prior year second quarter margin was favorably impacted by more modest LIFO expense of $0.7 million and nonroutine supplier rebate benefits as well as record performance across our Engineered Solutions segment tied to favorable mix. We expect stronger relative year-over-year EBITDA margin trends in the second half of the year reflecting greater expense leveraging and ongoing Hydradyne synergy progress as well as the potential for more favorable mix dynamics. With that, I will now turn the call back over to Neil for some final comments. Neil Schrimsher: So to wrap up, we are encouraged by our first quarter performance, including stronger top line trends, sustained positive order momentum and margin execution. We continue to have many self-help growth and margin opportunities that we expect to manifest in coming quarters and provide ongoing support levers. That said, we expect near-term sales to remain choppy, as customers balance production schedules, project phasing and capital investments into the seasonally slower fall and winter months particularly as broader trade policy uncertainty continues to linger. Importantly, we believe the underlying fundamental backdrop within our core end markets is moving in the right direction and has the potential to gain momentum as the year progresses. Feedback and sentiment from customers is gradually improving. Demand indications are more favorable across both traditional end markets, such as metals and machinery as well as emerging verticals, including discrete automation, life sciences and technology. We're seeing encouraging funnels across both our segments that should translate into incremental order growth as additional trade policy clarity emerges, interest rates continue to moderate and capital investment decisions are finalized. Certain U.S. industrial macro data points have trended more positive in recent months, including machinery and metals new orders as well as mining production, which have traditionally correlated well with our underlying core business. While ISM readings remain in flux, we believe the elongated sub-50 trend is positioned to move higher when considering leaner inventories and potential benefits from pro-business policies. In addition, qualitative data points around planned investments in North American manufacturing infrastructure, and onshoring continue to broaden, while our customer service requirements are growing as they face technical labor shortages and an aged equipment base. We are well positioned to capitalize on these trends given our domain knowledge and scale across industrial facilities core capital equipment. This includes our expertise around critical motion and powertrain products in demanding applications, access to premier supplier brands and nonstandard components, nationwide local service reliability. In addition, we have leading channel position in providing advanced robotics, machine vision and high-tech fluid power systems. Combined with our network of service shops, technicians and engineers, we are positioning our strategy and teams to play an increasingly critical role in linking legacy industrial production infrastructure and processes with new advanced applications and technologies, both now and into the future. Lastly, our balance sheet and liquidity provide strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment as well as other capital deployment that could augment returns for all stakeholders going forward. Once again, we thank you for your continued support. And with that, we'll open up the lines for questions. Operator: [Operator Instructions] Your first question comes from the line of David Manthey with Baird. David Manthey: My first question -- first a comment, I mean, the business seems to be tracking really well, and I appreciate the conservative guidance given the many headwinds. And along those lines, as we look forward here into the December quarter, Christmas is on a Thursday this year, which makes it kind of tough for that Friday, December 26 between the holiday and the weekend. Just wondering if you've been hearing anything from your customers in terms of holiday shutdowns as they look forward to the end of the year. Neil Schrimsher: I would say at this stage, still a little early. We plan to be working. I'd say that for one. But I think many dialogue with our customers, they're starting to look at projects, planned maintenance activity out for and looking forward to the -- what they think will be ongoing demand requirements for them. So -- and we're aware of the mid-week seasonal holiday dropping in that, a little early, but I'm expecting some customers are going to be leaning in and active as they look forward at demand requirements and some others may take some time out, but that also opens up doors for additional planned project maintenance. Ryan Cieslak: Dave, this is Ryan. I just would add to that dynamic is taken into account in terms of the second quarter guide that we provided as it relates to maybe some impact from the holiday timing. We do have an easier comparison in the month of December, which could balance some of that as well. David Manthey: Great. I can't promise I'll be in the office on the 26th, but I'm glad to hear you guys will. Second question is, Neil, in the past, you've mentioned that inflation is manageable if your suppliers, a, increase the price as opposed to putting through a surcharge and b, give you 45 days' notice to push that through to the customer base. One of your distribution comps recently noted a compressed supplier notification periods. And I'm just wondering if you've noticed anything, any different behavior from your supplier base along those lines? Neil Schrimsher: David, I'd say overall, no real difference in behavior. I would say the orderly the increases have been orderly notifications. Obviously, the team is doing a very nice job in implementing across price/cost in the quarter, equal into that side, we did see price contribution increased a couple of hundred basis points in that. We're looking at perhaps there'll be the 232 on derivative products. But I think there, some manufacturers, a few moved, and I think some others are just contemplating looking at country of origin and when that -- what the impact will be and when that will come through as a price increase. And so some will organize that for the beginning of the calendar year with the typical notice period. So I'd say overall, it continues to be an orderly environment. Teams are focused. We know how to execute, and we'll continue to do so. Operator: Your next question comes from the line of Brett Linzey with Mizuho. Peter Costa: This is Peter Costa on for Brett. So I think you had said previously that Engineered Solutions would outperform Service Center by about 100 basis points in fiscal '26, is this still something that's possible with a stronger second half? Or are you expecting a more balanced organic mix now? Neil Schrimsher: Yes. I would say as we look at the second quarter, I could see service centers continuing to be ahead. And then as I look at the second half of the year, we could see Engineered Solutions with the order backlog, project conversions to be greater than the Service Centers in the second half of fiscal '26. Ryan Cieslak: Yes, Peter, I'd say that, that assumption for the full year is still in line with our guidance as it relates to overall the Engineered Solutions segment around 100 basis points. Peter Costa: Awesome. And then maybe just on consolidated incrementals as you get Engineered Solutions comes back and Hydradyne's less dilutive. Could you actually see upside to incrementals as we go into the second half? Neil Schrimsher: Yes, we think there could be the setup also a broadening of local accounts, greater engineered solutions. So I think clearly, that potential exists. Operator: Your next question comes from the line of Sabrina Abrams with Bank of America. Sabrina Abrams: Can you help me understand like the orders growth has been quite good for the past few quarters in both fluid power and I think on the flow control. And my understanding is the projects, the lead times are not particularly long, maybe 180 days or less. So just trying to understand the dynamic. When these orders do turn positive and when you do convert out of backlog, are customers delaying? Because it seems like it's taken longer than usual. Neil Schrimsher: No, Sabrina, I would say there's just variance in projects on the time to convert based on sometimes complexity of the project or the overall status of the project and the schedule and where we sequenced into that. So I'm encouraged by the continuous orders expansion into that. Fluid power was up nicely, 9% in the quarter. Flow control, nice order growth in as well. I think there, there is some pivot in some of the projects where previously they would add projects around carbon capture and some other activity. There's a little more around power generation, life science and pharmaceuticals, but we're encouraged that, that work will continue to be in the U.S. markets. And then on the automation side, we had a tough comparable, plus 25% from an order standpoint last quarter, down slightly on order this side, but a 2-year stack that's over 23%. We take that as very encouraging across our discrete automation opportunities in robotics and vision. So good coming input on projects. We expect the conversion will be occurring. Some of it may sequence more in with calendar year-end into the second half of our fiscal 2026, but we've got a good pipeline to execute on. Sabrina Abrams: Okay. Great. And just want to ask again about pricing. I think last quarter, the thought was that pricing would ramp through the year with Q1 maybe not quite -- like it seems like pricing came in better than what we had spoken about. Have you changed how you are thinking about the cadence of pricing throughout the year? Because it seems to me not raising the pricing guide. It seems like you're being conservative here. Neil Schrimsher: I think, Sabrina, we're just early into it. We did come in at that 200 basis points. We've guided to 150 to 200 basis points. Could it develop more as we look out, I think that will be a little bit contingent on market activity and the rate of additional supplier increases at that time. So we think coming offsetting those expectations mid-August to looking at now, perhaps it's a little early to say it will ramp beyond the 200 basis points that we had in the quarter. Operator: Your next question comes from the line of Ken Newman with KeyBanc. Kenneth Newman: Maybe for my first one. Neil, on the Engineered Solutions side, it's good to hear that the orders they are improving. I'm just curious, do you have any color on what you're seeing out of that segment through October? Any help on whether that's kind of improving from what you saw at the end of September with maybe the fall off in activity there and just confidence on the timing of the conversion of that backlog. Neil Schrimsher: Yes. We continue to see good order activity. Teams are engaged and working on that order conversion and working on those projects. I would say also there is an MRO component in those businesses that we're working on. A little bit of the flow control group as they work through chemicals, perhaps there's a little bit of softness on the MRO side that played into the quarter. We expect that to continually improve, especially as we get into calendar 2026, with that interaction of customers. And then I just think that the setup and the dialogue, and we touched on it in the remarks. I think there's greater wafer fab equipment activity in calendar 2026. We know there's increased life sciences and pharmaceutical interest on that side. Our participation in data centers continues to grow and things that we're doing in thermal management, liquid cooling, but also our robotic solutions in that. So I'm encouraged that our Engineered Solutions business has great breadth. When an end market is shifting or changing, the teams are very focused on being where growth is occurring and positioning ourselves very nicely. So as we work through the second quarter, we feel very good about the second half of fiscal 2026. Kenneth Newman: Got it. That's helpful. And then just thinking about capital allocation, it was good to hear that the pipeline is still pretty active for M&A you did buy back some stock this past quarter. How do you think about the priority or the opportunities to put capital to work here in the second quarter or into the back half? And with automation starting to pick up on demand, is that making it easier or harder to get deals done? Neil Schrimsher: I would say a few things there. Priorities remain, right? We very much are going to be focused in funding our organic growth opportunities like we have to support automation and our fluid power technology segment businesses in that. So we'll continue to have organic growth also in systems remains a priority. We are active, busy on multiple fronts. Pipeline continues to have bolt-on opportunities in both segments as well as some midsized opportunities. So we'll continue to be busy on that front. And then we'll have other ways to return capital to the shareholders, increasing dividend as well as remaining active in share repurchase. So we think we're in a good position, continuing strong cash generation in that area. And I don't think the deal environment is more difficult in that front. We're going to continue to be a disciplined acquirer. We have clear priorities. We work to have ourselves in good positions when those opportunities arise. We say we can't perfectly control timing, but we feel good about our setup and opportunities for increased capital deployment in 2026. Operator: Your next question comes from the line of Chris Dankert with Loop Capital Markets. Christopher Dankert: Congrats on a nice start to the year here. I guess, first off, I'm looking at the margin guidance, calling for gross margins up a little bit sequentially, nice to see that. I guess I appreciate the year-over-year comp headwinds from rebates and mix and whatnot. But why wouldn't the EBITDA gross margin -- or excuse me, the EBITDA margin improved sequentially as well? And what are some of the maybe the sequential offsets that we should be thinking about? Neil Schrimsher: Yes. I think as you get in, Dave touched on it a little bit as we think about LIFO, the LIFO expense in the second quarter last year, $700,000. As we think about LIFO this time, it could perhaps be $4 million or greater into the site. So I think that is one different point Dave touched on the nonroutine rebate that would have occurred last time. And then perhaps some of the mix headwinds, still the M&A integration is lower as it would come in for now into that front. And then I think on a little less engineered solutions in the quarter and perhaps local accounts on the service center side ramping, but ramping less than some of the national accounts will all be influences on that side. David Wells: Yes, on that, Chris, we did see some modest benefit in the first quarter. You recall we took some provisioning charges in our Q4 based on our formulaic approach with customers and a couple of payment delays, vast majority of that came back to us in the quarter. So that was a modest benefit as well that would play through to EBITDA versus beyond the gross margin step-up that we talked about. Neil Schrimsher: And then I think, Chris, right, if we look past the second quarter, we feel like we've got a nice opportunity for greater expense leveraging in the back half of our year, probably increased in ongoing contributions from Hydradyne and then potentially mix benefits that we would get there of greater engineered solutions as well as local accounts as we think about the back half of the year. Christopher Dankert: Got it. I guess as a follow-up, thinking about the Hydradyne synergies, anything you can give us there in terms of is that still on track from both a cross-selling and a cost reduction perspective? Any anecdotes in terms of cross-selling wins you highlight there? Neil Schrimsher: Yes. So I would say on track to deliver first year synergies. So we feel good about that, growing opportunity on the sales and the repair. So they have very good capabilities there. And so we would see it on the maintenance side, cylinder repair and other opportunities, just where we have capability and resource in an important geography and then continued progress on the work streams on the cost side, use of technology in that front, standardizing on some processes, supporting them for the internal back-office capabilities in that front, all of those developing nicely. And then as we think about ongoing growth, they're well positioned from a data center standpoint. We think there's more we can do there and then how we support them from a central engineering standpoint, especially as fluid power technologies continue to increase around electrification in some of those electronics and controls can be positive as well on the growth side as we look forward. David Wells: We did highlight too in the comments, Chris, the EBITDA for the quarter did step up another 20% sequentially following the increase that we saw in Q4. So we continue to be pleased with the progress the team is making there. Operator: Your next question comes from the line of Patrick Schuchard with Oppenheimer. Patrick Schuchard: I wanted to ask about automation growth in Engineered Solutions. Can you contrast how much of the positive sales growth is secular market pickup versus internal initiatives and/or market share impact? Neil Schrimsher: Well, I think it's still early. We got a good run rate of the businesses probably scaling nicely at $250 million or so. So we're doing a nice job in ramping. I think we are opening and serving more industrial customers opportunities with these capabilities as well as participating in some nice projects around traditional industry segments. So we expect robotics as a general market to continue to grow, and we're well positioned there, both collaborative and autonomous mobile robots into the site. But we're also doing a nice job in the vision offering and where customers can see the benefits of quality control and inspection and what those solutions provide in there. So I think it's a combination, Pat, that we're just well positioned. We're opening up more opportunities with existing customers as well as serving traditional verticals with those companies that they had previously and growing them. Patrick Schuchard: Okay. And you talked about cross-selling as an organic driver. And you've mentioned in the past these initiatives were in the early innings of getting going. So just looking for an update there, what are you guys seeing in terms of revenue at cross-selling tool overall? Neil Schrimsher: Yes. I'd still say we'd characterize it as early innings. Our funnels are growing, project opportunities are expanding. Teams will be together in the coming weeks to further that planning and execution, some key suppliers there as well. So pleased with the progress. We know we have even more impact that we can have with our customers. And as the customers deal with aging equipment, perhaps an aging technical workforce, they're looking for someone to help them on broader needs, broader solutions, and we're well positioned to continue to do that. Patrick Schuchard: And if I could just squeeze one more in. You talked about some of the sequential margin dynamics in the guide, but I wanted to dig a little bit deeper on the top line. You mentioned demand is stable. The engineered business had positive book-to-bill this quarter, but the guide implies the second quarter might be down slightly sequentially versus normal seasonality, up low single digits. So just kind of curious if there's anything we should consider there. Ryan Cieslak: Patrick, I would say nothing different than how we typically think about it. The guide for the second quarter top line is in line at the midpoint with what we guided in August. We continue to expect a choppy environment near term, as we talked about in the prepared remarks around the slower seasonality, also earlier talking about the timing of holidays, taking that into account as well. And then just the backlog conversion of the Engineered Solutions segment, we expect that to be more of a back-half weighted dynamic. And so taking, taking that into account, but really is no change to how we view the year setting up in the original guidance that we established in August. Operator: Your next question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh: Apologize if you mentioned this earlier and I missed it, I was kicked off the call middle of the way through. First, your end market vertical commentary was fairly similar to your #1 competitor with a couple of exceptions, which would be pulp and paper and oil and gas, which you called out as favorable and they called out as headwinds. What specifically happening in those 2 particular verticals that's conceivably allowing you to pick up some incremental business? Neil Schrimsher: Yes, I don't know that I've got a great comparison contrast in that. I think a broadly energy markets seem to be active and doing well into the side. And just paper, we've got a good position, and we continue to look at how do we create value add for those customers and perhaps expand our offering and capabilities with them. But in a comparison contrast, I don't know if they had anything else to point out. Sam Darkatsh: Got it. And my last question. And again, I'm sorry if you've already mentioned this. The 2% pricing that you realized in the quarter, how would that break out service center versus engineered? Ryan Cieslak: Yes. Yes. Sam, I'd say relatively similar. Not a huge change or difference in the -- by segment if I had to push it one way, maybe a little bit higher in the service center side of the business, but pretty consistent. Sam Darkatsh: Are there particular product categories or verticals in which pricing was more pronounced, I'm guessing product categories more so than verticals? Ryan Cieslak: Yes, nothing that we would call out as materially different. I mean, it's been generally a pretty broad-based impact across the product and you're seeing inflation as well as just general price updates come through really across the board. So nothing that we would call out as materially different in one category versus the other. Sam Darkatsh: So as an example, then what I'm getting at, I guess, is bearings is not like something steel related or something along those lines would not be a material outlier? Ryan Cieslak: No. I mean, I think in the context of really our core products in general, a lot of steel content across all of them, particularly on the service center side. So we would not call out bearings as an overweight in terms of what we're seeing from a pricing standpoint right now. Operator: At this time, I'm showing we have no further questions. I'll now turn the call over to Mr. Schrimsher for any closing remarks. Neil Schrimsher: I just want to thank everyone for joining us today, and we look forward to talking with you throughout the quarter. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Jan Strecker: Good afternoon, ladies and gentlemen, and thank you for joining us today to review financial results for the third quarter of 2025. Present on today's call are Stephan Leithner, our Chief Executive Officer; and Jens Schulte, Chief Financial Officer. Stephan and Jens will provide an overview of our performance and key developments during the quarter. Following their remarks, we will open the line for your questions. As usual, the presentation materials have been distributed via e-mail and are also available for download on our Investor Relations website. This call is being recorded, and a replay will be made available shortly after the conclusion of today's session. With that, let me now hand over to you, Stephan. Stephan Leithner: Thank you, Jan, and welcome, everyone. I'm pleased to present our third quarter results, which once again demonstrate the strength, resilience and strategic balance of Deutsche Börse Group's diversified business model. Despite a more challenging backdrop in select areas, particularly index derivative at Eurex, ESG & Index at ISS stocks and some FX headwinds, we delivered solid net revenue growth without treasury results. This performance was driven by broad-based momentum with 5 out of 8 business units achieving double-digit growth in the quarter. That's a clear reflection of the robust diversification of our franchise. Our portfolio's balance enables us to consistently deliver even when individual segments faced temporary headwinds. By combining businesses with distinct growth drivers, we maintained a steady and scalable performance trajectory. Let me begin the review of the quarter with Investment Measurement Solutions. As expected, Software Solutions was the key growth driver delivering a solid 10% increase in net revenue. Importantly, annual recurring revenue is trending towards the upper end of our guidance range, supported by a robust client pipeline as we head into the fourth quarter and beyond. The recent acquisition of Domos marks an important strategic step for us in the Software Solutions business. Paris-based Domos is a leading provider of technology-driven solutions for managing and administering alternative assets including private equity, real estate and infrastructure investments. By integrating Domos' advanced digital platform and specialized expertise, we can offer clients a broader range of services, great operational efficiency and enhanced transparency in the alternative investment space. This positions us to capture the growing demand for alternatives among institutional investors and strengthens our footprint in a rapidly evolving segment of the financial industry, especially with the general partners, this opens up many new client opportunities. As we explained last quarter, the environment in the second part of our Investment Management Solutions segment, ISS STOXX remains challenging, especially for the ISS part. While we acknowledge the headwinds resulting from a changed attitude towards certain products, especially in the U.S., we believe this is largely temporary dynamic similar to historic cycles. We remain confident in a return to stronger growth in the medium term. In addition to market dynamics, this business saw the biggest impact of the weaker U.S. dollar on the top line. Regarding the 20% minority stake in ISS STOXX held by General Atlantic, nothing has changed, and we are under no pressure to make a decision this year. A buyout remains an option, and we will continue to carefully evaluate all alternatives with a focus on long-term value creation. Let me turn to the second area to Trading & Clearing. We saw strong contributions across several areas. Cash Equities delivered an impressive 21% net revenue growth driven by robust demand for European equities, in particular, from retail flows. Commodities advanced by 10%, continuing their secular growth trajectory, while FX rose by 7%, supported by market share gains. In Financial Derivatives, fixed income products performed well with 11% net revenue growth without treasury results. We're already seeing initial benefits from the active account requirements under EMEA for example, in OTC clearing with a noticeable step-up in volumes, and this puts us on track with our fixed income road map for further momentum in the coming months. As we have explained before, clients have some flexibility for activating accounts, but the overall potential has not changed. Equity index derivatives, however, remained under pressure due to subdued volatility and challenging market conditions. We believe this is primarily driven by cyclical factors, and encouragingly, we have already seen some improvement in volumes in October as volatility has picked up again. Our Fund Services and Security Services businesses, #3 and #4 of my outline, have also delivered excellent results with net revenue growth without treasury results of 15% and 13%, respectively. These gains were driven by record activity levels, supported by continued expansion of debt outstanding, healthy equity market valuations and sustained inflows into European assets, while double-digit growth in our fund business was in line with expectations. The performance in Security Services clearly exceeds them. In addition to strong custody activity, we saw new all-time highs in international settlement and collateral management, which further underscores the strength and scalability of this business. Let me especially applaud the teams in the new client wins and fast onboarding, like with German neo-brokers and Asian clients. On the cost side, for the entire group, operating expense growth came in slightly below our expectations. FX tailwinds and lower share-based compensation helped offset higher investments and inflationary pressures, keeping us firmly on track to achieve our full year target of around 3% cost growth. Based on our new steering methodology without treasury results, this translates into significant scalability, a 7% increase in revenue drove a strong 16% increase in EBITDA for the quarter. Even when including the treasury results, we maintained solid scalability underscoring the strength of our operating leverage. Looking at the 9 months of the year, we are fully in line with our expectations, delivering 9% net revenue growth without treasury results. Based on this performance, we confidently confirm our guidance for 2025. Our outlook remains supported by strong secular growth trends and continued inflows into European assets even as we experience slight FX headwinds. We're also confirming our overall targets for next year under the Horizon 2026 strategy. At our Capital Markets Day on December 10 in London, we'll provide an update on our progress and introduce new midterm guidance beyond 2026. We firmly believe that the secular growth drivers addressed by our strategy will continue to support our performance at least until the end of the decade. In addition, we see new growth themes emerging across the group that we will focus on to further fuel long-term growth. Taken together, these factors will enable us to consistently deliver growth levers going forward comparable to what we have achieved over the past several years. Artificial intelligence will also play a positive role in this journey. Let me emphasize this. It is certainly not a disruption risk, but as a powerful enabler of revenue growth and operational efficiency. We have performed an AI assessment across the group, and the results are very clear. We see our overall portfolio as extremely robust because we operate regulated system-critical infrastructure at scale. Today, I cannot replace. Instead, we are well positioned to capitalize on the AI opportunity. Our cloud-first infrastructure strategy, coupled with our current cloud adoption rate of over 74% has laid the groundwork for rapid, cost-effective and secure scaling of AI. We expect AI to generate tangible value for our clients and shareholders in 3 key areas. First, although most of our core process is already highly automated, AI will help us create greater efficiencies in our internal processes. Currently, we are focusing on automations across the software development life cycle, corporate center optimizations and improvements to client service and processes. Second lever that we see, we are actively rolling out algorithmic and domain-specific AIs across our products to enhance client productivity and initial results are very promising. AI also provides an additional distribution channel for our proprietary financial market data. And as a third lever, we are seeing positive secondary effects in our core businesses. For example, in our commodity business. Europe's power demand is estimated to increase by 10% to 15% due to AI data center energy consumption. Just like AI will drive further noncorrelated trading and small-sized high-volume trading in all of our asset classes. To hear more about this and much more, I warmly invite you to join us in London on December 10. It will be a great opportunity to engage with our leadership team, gain deeper insights into our strategy beyond Horizon 2026 and explore the exciting growth opportunities ahead. With that, I will hand it over to Jens for a closer look at the financials and segment details. Jens Schulte: Yes. Thank you very much, Stephan, and welcome, everyone, also from my side. Let's start with a quick look at our performance over the first 9 months as shown on Page #2. As you recall, the first half of the year came in slightly ahead of expectations. This was largely driven by elevated equity market volatility in March and April, along with strong inflows into European assets. In Q3, we experienced the typical summer seasonality, coupled with lower equity volatility. This had a somewhat greater than anticipated impact on equity derivatives, particularly index products. That said, our year-to-date results remain firmly in line with our full year expectations and our Horizon '26 growth path. Net revenue without the treasury result rose by a solid 9%, underscoring the strength and resilience of our business model. Now turning to operating costs. We saw a few moving parts across the 3 quarters, but overall, the picture is consistent with our planning share-based compensation provision fluctuated during the period but ultimately were flat year-over-year in the first 9 months. The U.S. dollar-euro exchange rate, which started the year as a headwind turned into a modest tailwind. While the impact was less than 1 percentage point, it still contributed positively to the cost development. We also benefited from lower exceptional costs this year. This reflects last year's termination fee related to the EEX NASDAQ agreement as well as the wind down of costs tied to IMS synergy realization. All in, operating costs increased by 3%, exactly as expected. This uptick was primarily driven by inflation and targeted investments in our strategic growth areas. Bottom line, our EBITDA margin without treasury results improved significantly to 53%, up from 50% in the prior year as our businesses continue to scale. And we also made further progress with our share buyback program. By the end of last week, we had repurchased Deutsche Börse shares worth around EUR 441 million. This leaves approximately EUR 59 million remaining to be executed by the end of November. Let's move to Page #3 with our third quarter results. As Stephan already mentioned, net revenue without the treasury result grew by a strong 7%. Given the cyclical headwinds we faced this quarter, this performance highlights the breadth of our diversified portfolio. Total net revenue rose by 3% to EUR 1.44 billion. This was driven by the continued decline in the treasury results, primarily driven by lower interest rates and despite stable cash balances. Operating costs remained stable in the third quarter, while inflation and increased investments played a role. These were fully offset by favorable FX movements, lower share-based compensation expenses and a reduction in exceptional costs. Overall, our cost discipline remains strong and fully aligned with our strategic priorities. We continue to strike the right balance between investing for growth and maintaining operational efficiency. As a result, EBITDA without the treasury result showed high operating leverage increasing by 16%. Lastly, our effective tax rate came in slightly below expectations, thanks to smaller onetime positive effects. Looking ahead, we continue to plan with a 27% tax rate for '26 and beyond. Let's now turn to Page #4 and take a closer look at our segment results, starting with Investment Management Solutions. This segment is composed of 2 key areas. First, Software Solutions, which combines SimCorp's software business with Axioma's analytics capabilities. Within this area, we saw SaaS revenues grow by 22% and while on-premise revenues declined slightly by 1% as expected. This reflects a clear and ongoing shift. Existing clients are increasingly migrating to the cloud and new clients are typically SaaS-based from day 1. Our annual recurring revenue reached EUR 632 million at the end of the quarter, an 18% increase year-over-year at constant currency. Growth was particularly strong in North America with 27% and APAC with 37%. EMEA delivered a solid 17%. These figures compare very favorably with our main peers and reinforce the strength of our global footprint. The second part of the segment is the ESG & Index business of ISS STOXX, which saw flat net revenue development. However, on a constant currency basis, the picture is more encouraging. Net revenue in ESG & Index grew by 4% in Q3, supported by a solid contribution from the ESG business with 6% revenue growth. Similar to previous quarters, the Market Intelligence business experienced flat growth and low equity market volatility negatively impacted the exchange license business in the Index segment. Importantly, the segment's EBITDA saw a significant increase, driven by disproportionately lower operating cost growth, highlighting the scalability and efficiency of our model. Now let's turn to Slide 5, which highlights the performance of our Trading & Clearing segment. Starting with Financial Derivatives. We continue to benefit from strong fixed income activity. Net revenue without the treasury result increased by 11%, driven by double-digit growth in fixed income futures and repo revenues. OTC clearing all saw high single-digit growth, supported by record clearing volumes following the implementation of the EMEA 3.0 active account requirements in June. On the Equity Derivatives side, volatility moderated significantly in the third quarter, creating a headwind for index products. As markets trended upwards to new all-time highs, hedging activity also declined. However, we partially offset the effects of volume through an increase in average revenue per contract. This was in part due to the decommissioning of the Korea Exchange Link for after hours KOSPI trading as mentioned in our last call. Our Commodities business delivered another strong quarter with double-digit growth once again. In gas, revenue rose 31%, fueled by robust activity in European gas markets amidst supply uncertainties and below target storage levels. We also saw continued momentum in power derivatives in the U.S. and APAC, while activity in Europe moderated slightly due to reduced hedging needs. In Cash Equities, we benefited from strong demand for European equities and significant inflows into European ETFs. This reflects a broader investor rotation into European markets and growing interest in passive strategies. Additionally, we recorded a onetime revenue effect of approximately EUR 3 million from the sale of a T7 license to a third-party exchange. Finally, our Foreign Exchange business achieved net revenue growth across most product lines supported by new client wins and geographic expansion. This diversification continues to broaden our revenue base and enhance the resilience of the FX franchise. Turning to Slide #6. Let's look at the continued strong performance in our Fund Services segment. We are seeing positive momentum across the board, supported by higher equity market levels, new client wins, portfolio growth and ongoing inflows into European assets. As a result, we recorded a further increase in assets under custody and sustained high volumes of settlement transactions. Notably, our fund distribution business saw a significant step up in assets under administration, which now exceeds EUR 700 billion, a major milestone. This growth underscores the increasing relevance of our Fund Services offering and our ability to support clients across the full investment life cycle, from custody and settlement to distribution and administration. With disproportionately lower operating cost growth, the segment delivered significant operating leverage, resulting in strong double-digit EBITDA growth, both with and without the treasury results. Lastly, let's move to our Securities Services segment on Page #7, which has seen a further acceleration of growth compared to the strong first half of the year. The segment continued to benefit from strong capital markets activity with ongoing fixed income issuance and higher equity market levels, driving sustained growth in assets under custody and settlement transactions. We also saw record levels of collateral management outstanding this quarter, which contributed to the strong performance in custody revenue. These trends reinforce our central role in the post-trade infrastructure and the strength of our platform. On the interest income side, cash balances remained stable, averaging around EUR 17 billion for the quarter. As expected, we saw seasonal lows in July and August followed by a recovery in September when market activity picked up and balances rose to slightly above EUR 18 billion. The main driver behind the decline in net interest income was the lower interest rate environment. The ECB rate was 1.5 percentage points below the prior year quarter. And the Fed rate was 0.75 percentage points lower, both in line with our expectations. To wrap up, let's take a look at our full year 2025 outlook on Page #8. We are confirming our guidance for the year, supported by our expectations of continued secular growth and sustained inflows into European assets. This is despite the modest FX headwinds and the low equity market volatility and also aligns with the current sell-side consensus. In addition, we continue to expect a treasury result of more than EUR 0.8 billion for 2025. Based on current interest rate assumptions and stable cash balances, we forecast around EUR 825 million, which is also in line with analysts' expectations. On the cost side, we are very well on track to meet our guidance of around 3% growth in operating expenses for the full year. This reflects our disciplined cost management and strategic investment approach. That concludes our presentation. We now look forward to your questions. Operator: [Operator Instructions] And the first question comes from Arnaud Giblast, BNP Paribas Exane. Arnaud Giblat: One question then. I was wondering if -- I mean, you mentioned during the call that the IMS [ STOXX ] was postponed and that you are still considering a potential buyout. But I'm just wondering if you could update us whether there's an actual time frame on giving the [ minority ] shareholders a liquidity event? And if I may, secondly, there's been quite a lot of news around political comments made by German Chancellor around the potential -- around their willingness to see further consolidation in cash equities. So I was just wondering if you could update us on your thoughts there. I mean, historically, we know that cash equities hasn't necessarily been your priority in terms of consolidation. I'm just wondering if that might have shifted. Stephan Leithner: On your first, Arnaud, and I just looked it up last call, we also took you as the first one on the question. So you've got a [ pull ] position. On the first one of your questions regarding to the minorities, there's no change to what we said before. There's the dual track. As we have always said, we're not alone, there is a partner, and we jointly manage the time line. So no changes in that overall. I think second, on the remarks that Chancellor made, I will put them into the context of a broader, very encouraging commitment that is made around strengthening the European capital markets. So really a push that wasn't there historically around capital markets unions, progressed a number of levers in that context. I think for us, we are a big contributor to that. We have made a lot of progress in terms of European full coverage in terms of infrastructure. This isn't only about the cash markets. So there's really no change with respect to our position and our strategy. Operator: Next question is from Benjamin Goy, Deutsche Bank. Benjamin Goy: One question on your excess cash. Maybe you can remind us of the likely position at year-end and how this impacts your capital allocation policy other than the potential minority buyout? Any other major files you're looking at. Jens Schulte: Yes. So thank you very much, Benjamin. So in terms of excess cash, probably this will play out somewhere in the magnitude of EUR 1.5 billion to EUR 2 billion towards the end of the year. In terms of share buybacks that you alluded to, we have our program running, right, as I said, and we will complete the EUR 500 million. And the further story we will communicate when time is there. Operator: The next question is from Enrico Bolzoni, JPMorgan. Enrico Bolzoni: One, I wanted to go back on your comments about AI and being an opportunity, not a risk. And of the 3 elements you listed, I was particularly interested in the second one. I think you quickly mentioned that it might create new distribution channel. Can you perhaps expand a bit more and let us know if, for example, you are signing or about to sign partnership with, for example, third-party AI engines and whether you think that we might see a monetization of these agreements? And then related to that, if I actually have to take a more bearish stance, there's been a lot of rumor about potential disruption for software solution companies. Can you just remind us of what is the position of SimCorp in this regard and why you think is not subject to perhaps AI disruption? So that's my first question. And my second question is, in a way also related to technological disruption. I know you -- when it comes to the ledger, so the blockchain technology [indiscernible] in the past agreement with HQLA. Can you remind us what do you expect will happen to post services in an environment where there is basically a rising velocity of collateral and perhaps the settlement cycle compresses further, maybe also beyond T+1. So how do you think the business should be positioned and is that a risk? Stephan Leithner: Thank you very much, Enrico, taking up both of your questions. Let me first start on the AI side. And I really emphasize and appreciate you taking up SimCorp. I think the uniqueness of SimCorp is that contrary to sort of any ancillary type services on the software side. SimCorp is very much a front-to-back sort of backbone type business. Therefore, it is really anchored at the core of what is the clients' operations, and that really sets it apart. That's why I think we see a lot of positive enhancement possibilities. That's what SimCorp has started to put in place with the copilot for example around their front office reporting capabilities. Many of those tools give improved usage capabilities for the clients. But I don't think there is any way similar to many of our operations type businesses and execution services. This is a real backbone type system that we operate for the clients in the cloud increasingly as we have said. I think the second point with respect to the data, we have a broad set of data points. And let me just highlight 2 or 3 examples out of that. One is the proprietary data that we can provide on collateral management. One of the themes that you later come back with the DLT and blockchain. So we have a pretty unique capability. In terms of the data understanding, both on collateral as well as on settlement that allows us to deliver services directly to clients because we have that connection to the clients. So therefore, our focus is not signing up a wider distribution agreement, but it's really delivering and optimizing what we can do directly with the client. I think that economically is a much better, much stronger way to monetize AI as well as proprietary data, which we have in so many areas. On your second theme around the blockchain and DLT, HQLAX is one good example of a very advanced and broad industry partnership where Deutsche Börse or Clearstream in this case, has carved out a pretty unique position because within that ecosystem of HQLAX with most of the relevant market participants, the only TTP, so the only trusted third party that is able to confirm the portfolio composition similar to a tri-party agent role is really the Clearstream side. So I think it shows that in these network environments, even if there is DLT used, there is a very strong ability for Clearstream to position and have a unique starting point. Now you also inquired around the implications, if I get it correctly, on the T+1, the higher settlement cycles. We overall see this as something that we don't expect material extra costs on our side, very different from many custodian firms who have a big rewiring to do. So there is no material cost because today, we are really able to operate. Most of this process is already on a T+1. This doesn't fundamentally change. So we also don't see an erosion of our position coming out of T+1. It's really strengthening the strongest operators in the CSD space, and that's where certainly there's not more than 2, if I look those that are able to operate. We have just announced the pan-European footprint operation by basically operating direct services on settlement across all 28 CSDs. Again, it's a unique partnership, a unique link up network that Clearstream has, no others have it. I think it will be strengthened if we move into T+1. Operator: Next question is from Tobias Lukesch, Kepler Cheuvreux. Tobias Lukesch: Also one or two questions from my side, please. Touching on the costs, you mentioned some active cost management and also some investments. I would be interested how active were you in Q3? Should we consider the 3% guidance to be more of a 2.6% for this year, and in terms of investments, is there more to come on the AI opportunities that you're seeing? Or is that something we should consider for '26? Or is that not all really impacting your investment cycle that you have planned so far? And very quickly, you touched on the OTC derivative clearing again and said, with EMEA, this is well on track. Maybe you could give us a bit more insight on the business development since also your competitor kind of doubled down on the business with Q3. Jens Schulte: Good. So I take -- first of all, I start with the OpEx question. So in terms of just generally active cost management, we continuously do active cost management, for example, in terms of expanding our location footprint currently moving parts of the business to India and other locations and gaining further efficiency from our systems. So that is an ongoing process that is not only -- has not only been relevant for Q3. Now very specifically to your question in terms of guidance, we do confirm that guidance at the moment. Keep in mind that as in previous years, if you look into '23 and '24, we usually in Q4 have some seasonality, for example, driven by investments being a bit back-end loaded, driven by merit increases, severance and several other things that typically tend to come more out towards the year-end. So for the moment, we do plan with the 3% and that is the target and then let's see how we come in. But we are well underway. I mean that is certainly true. On the second point, OTC clearing, and the EMEA side, so what I alluded to in my part is that we actually did increase the number of accounts from about 1,600 to 2,200, so by 600 accounts. It is fair to say that the activation rate of those accounts is still relatively muted. So it's overall around 20%. However, what we do recognize now is that after a technical implementation standards have come out and after the clients have started to sort themselves, they are now making specific plans as to how to route their flows. And so we do expect the activity to increase next year. Bear in mind on this topic, that the -- basically, the activation requirement needs to be fulfilled throughout the first full year, so until basically May of next year, so the customers still have time and they take the time to organize themselves properly, but we do expect a significant increase of activity beginning of the next calendar year. Stephan Leithner: Let me take your third part, the investments impact of AI. First of all, let me give you a context that I think is truly very important and sets us apart, which is we have gone very much an advanced investment cycle when it comes to a number of items that now really benefit us on the AI journey, and that's, in particular, the transition into the cloud. We have a mid-70% of our portfolio that is in the cloud that allows us much faster and much more efficient. We have in parallel done and made the transition on the IT security side. So again, these are all areas where we have, over the last years, run significant investment portfolios from which we are now benefiting, that's why we also don't expect any requirements or change when it now comes on the AI invest because we can really build on that effectively and efficiently work together with major model providers and deploy very fast into our organization. So that's one of the items that I think truly from a wider market debate that I've seen around the margin impact of AI is something that we, in our scan and in our review process that we have run have really not seen happen. And I think that's very encouraging to us in terms of the speed and the implementation environment. Operator: [Operator Instructions] And now is from Hubert Lam, Bank of America. Hubert Lam: I've just got one of them. Can you talk about a bit about the pipeline of new clients or upsell for SimCorp into Q4. Usually, I think there's more seasonality in Q4. Just wondering if we should expect a big quarter and what kind of growth to expect heading to the end of the year? Stephan Leithner: Thanks for asking the question, Hubert. I think the seasonality of Q4, we have now explained a number of times and documented in the past years. I think we have given the guidance that in the remaining quarters, we'll see 10% quarter-by-quarter or that's what we said after the first quarter, I think we continue to stick and believe. And if we look at the pipeline, that's what we actually see. But software is every year back-end loaded sort of environment, and therefore, I think it's a lot of hard work, but signs are all on track. Operator: And the next question is from Tom Mills, Jefferies. Thomas Mills: You've alluded to the setting up of new medium-term targets at your CMD on the 10th of December, which I guess means to out sort of 2028. There's obviously been a change of CEO and CFO since the current medium-term targets were put in place. Could you maybe talk a bit about how you fear about getting to the '26 targets? Is it your intention to kind of maintain those or do you step back from them at all? Just because I see sort of consensus is a little below where you're currently expecting to get to? Stephan Leithner: Thank you very much, Tom, for giving me the opportunity to reiterate and emphasize what I said earlier. I think we both really very much confirming our 2026, Horizon '26, as we had talked about it before. I think there is no change and December 10 will not make us change their position. And secondly, also emphasize what I alluded to earlier, which is we see that many of the new growth themes that we see emerging are really fueling us for a long-term growth that goes beyond 2026. So we have a very comfortable outlook there. Operator: Next question is from Jochen Schmitt, Metzler. Jochen Schmitt: I have one follow-up question on custody revenues. You have already mentioned higher revenues from collateral management. Would you see those revenues as partly nonrecurring? Or would you see Q3 as a reasonable starting base for modeling purposes? That's my question. Stephan Leithner: So we do see that as recurring revenues. The settlement business, settlement custody business has a very good run at the moment, and we do see that carrying into the future. Operator: At the moment, the last question comes from Michael Werner from UBS. Michael Werner: I got two, please. First, on the [indiscernible] products. I was just wondering if you can update us on your thoughts about the fee holidays that you currently have on them and whether that could potentially lift in 2026? And then just looking at IMS, I know there was some decline in exceptional costs. But the underlying cost base in IMS year-on-year has been pretty steady, showing quite decent operating leverage. Is that something we should expect going forward? Was there any kind of moving parts on the cost base as I assume SimCorp is a place you want to continue to invest? Stephan Leithner: I think with respect to the fee holiday outlook, we have said we will work on establishing a very stable sort of business base before we really change. So we'll continue to monitor that in Q1, how far out that is going to go. We will decide in the course of the year. So there is no prediction that we're giving at this point. I think the second question that you had with respect to the IMS cost operating leverage, indeed, sort of clearly with respect to some of the areas that have shown slower growth or we have been active and the management teams have been working on the cost. So I think you need to look at that in the aggregate of IMS. I think it doesn't signal at all. And our investment commitment around the SimCorp momentum, as we speak, is very unchanged and there's important product enhancements on which we're working. There have been recent product introductions that have also been fueling some of those big wins, in particular, in the U.S. that we have been very proud about and that we reported on basically a named basis, if I can say, in Q2 already. Jan Strecker: There are no further questions in the pipeline. So we would like to conclude today's call. If there's anything else, then please do feel free to reach out to us directly. Thank you very much for your participation, and have a good day.
Operator: Good day, ladies and gentlemen. Welcome to KPN's Third Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Matthijs van Leijenhorst, Head of Investor Relations. You may begin. Matthijs van Leijenhorst: Yes. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Today, we published our Q3 results. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. And as usual, before we begin the presentation, I would like to remind you of the safe harbor on Page 2 of the slides, which applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now let me hand over to our CEO, Joost Farwerck. Joost Farwerck: Thank you, Matthijs, and welcome, everyone. Let's start with the highlights of the last quarter -- third quarter. Our group service revenues increased by 1.7% with growth across all the segments. In the mix, consumer was supported by ongoing commercial momentum, both in broadband and mobile. Business was driven by mainly SME and LCE. As expected, growth slowed in the third quarter, mainly due to the tailored solutions parts and wholesale continued to grow mainly driven by sponsored roaming. Our EBITDA grew by 2.3% on a comparable basis. And as expected, our free cash flow rebounded in the third quarter, up 12% year-to-date, driven by EBITDA growth. We further expanded our fiber footprint together with our joint venture, Glaspoort. And finally, we remain confident to deliver on the full year 2025 outlook and our 337 midterm ambition. As a reminder, our Connect, Activate and Grow strategy is supported by 3 key pillars. First of all, we continue to invest in our leading networks. Second, we continue to grow and protect our customer base. And third, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow our service revenues and adjusted EBITDA by approximately 3% on average and our free cash flow by approximately 7% over the entire strategic period. And given that we are now nearly halfway through our strategic period, we look forward to sharing a strategy update with you next week, November 5, and we hope you will join us online for the webcast. Let me now walk you through the business details. We lead the Dutch fiber market. In the third quarter, we expanded our fiber footprint by adding 74,000 homes passed together with Glaspoort, and we connected 82,000 homes, bringing us close to 80% homes connected within the fiber footprint. And the rollout pace slowed compared to previous quarters due to timing. We stick to our ambition to cover 80% of Dutch households with fiber. During our strategy update next week, we'll share how we will get there within our financial framework. Let's now have a look at the consumer segment. Consumer service revenues continue to grow, driven by consistent fiber and mobile service revenue growth. Customer satisfaction remains a priority, and thanks to our CombiVoordeel offer supported by super Wi-Fi, our Net Promoter Score rose to plus 15 year-to-date and Net Promoter Score even reached plus 17 during the quarter, showing how these improvements are making a real difference for our customers. Let's take a closer look at our third quarter KPIs. We saw another quarter of double-digit broadband-based growth despite a challenging competitive environment. Thanks to a steady and healthy inflow of new fiber customers, combined with a growing ARPU, our fixed service revenues continue to grow. In mobile, we maintained a strong commercial momentum, adding 47,000 subscribers. And this was partly offset by ARPU decline driven by ongoing promotional activity in the no-frill segment. So overall, our mobile service revenue grew by 1%. Let's now turn to the B2B segment. Business service revenues increased by 1.4% year-on-year, driven by SME and LCE and good commercial momentum. Net Promoter Score rose to plus 5 in the third quarter, reflecting customer appreciation for stability, reliability and the quality of our networks and services. SME service revenues increased by 3.3% year-on-year, driven by growth in Cloud and Workspace, broadband and mobile. LCE service revenues increased by 1% year-on-year, supported by growth in mainly IoT, Unified Communications and CPaaS. Mobile service revenues were impacted by ongoing price pressure, though this was partly offset by a growing customer base. And finally, and as expected, I must say, Tailored Solutions service revenues decreased by 2.5%, reflecting a further focus on value steering. And then wholesale -- our wholesale service revenues continue to grow, mainly due to a strong performance in mobile, driven by the continued growth in international sponsored roaming. Broadband service revenues increased despite a decline in copper base driven by fiber and other service revenues increased mainly due to an update in visitor roaming. Now let me hand over to Chris to give you more details on financials. Hans Figee: Thank you, Joost. Let me now take you through our financial performance. First, let me summarize some key figures for the third quarter. First, adjusted revenues increased 2.4% year-on-year in the third quarter, driven by service revenue growth across all segments and higher non-service revenues. Second, our adjusted EBITDA after leases grew by 4.4% compared to last year, supported by higher service revenues, the IPR benefit and contribution from tower company, Althio. This was partly offset by the holiday provision effect. As a reminder, starting this year, most employees no longer register holiday leave, resulting in a lower provision release in Q3 compared to last year, impacting therefore, the distribution of EBITDA growth over the year with a specific negative accounting impact in the third quarter. Finally, as anticipated, our free cash flow rebounded in Q3 and is now up 12% year-to-date. I'll share more details on the underlying cash developments later in this presentation. Group service revenues grew by 1.7% year-on-year, supported by all segments. And within this mix, consumer revenues increased by 1.1%, driven by, as Joost said, continued solid momentum in both fixed and mobile. Business service revenue growth tapered off somewhat in the third quarter compared to previous quarters, mainly due to developments in Tailored Solutions and timing effects. And finally, wholesale service revenues increased by 5.2% year-on-year, driven by ongoing growth in our international sponsored roaming business. Our adjusted EBITDA grew 4.4% year-on-year in Q3 or 2.3% on a comparable basis if we adjust for the IPR benefits, the Althio contribution and the holiday provisioning effects. Direct costs remained broadly in line with last year, reflecting shifts in the revenue mix, particularly within Tailored Solutions, where our continued focus on value and margin steering is shaping direct cost dynamics. On a comparable basis, our indirect cost base decreased by EUR 5 million, driven by lower energy and billing costs. We further scaled down our workforce, resulting in a reduction of over 300 FTEs compared to previous year. Our year-to-date operational free cash flow increased by 12% compared to last year or 8.6% excluding the IPR benefit and Althio, driven therefore by EBITDA growth. As expected and communicated to you, free cash flow generation rebounded in the third quarter, mainly due to improved working capital and lower interest payments. Year-to-date, our free cash flow is up 12% compared to the first 9 months of last year, again, supported by EBITDA growth and partly offset by higher interest payments and cash taxes paid this year. Finally, we ended the quarter with a cash position of EUR 373 million, absorbing the impact of the interim dividend over '25 and share buyback payments. We continue to run with a strong balance sheet. At the end of Q3, we had a leverage ratio of 2.5x, in line with our self-imposed ceiling and remained stable compared to the previous quarter. We expect our leverage ratio to return to 2.4x by the end of the year, supported by increased free cash flow generation. Our interest coverage ratio was sequentially a bit lower at 9.5x, and our cost of senior debt decreased slightly, mainly driven by lower floating interest rates. Our exposure to floating rates, by the way, remains limited at only 16%. Our liquidity position of around EUR 1.4 billion remains strong covering debt maturities until the end of '28. We are on track to deliver the 2025 outlook we shared with you in July. And on 25th of July, we completed our EUR 250 million share buyback program for the year. The cancellation of about 60 million treasury shares will be finalized in Q4. And August 1, we paid out an interim dividend of EUR 0.073 per share in respect of 2025. And finally, we reiterate our midterm, also known as our 337 targets as presented at our previous Capital Markets Day. As outlined back then, both service revenues and EBITDA are expected to grow 3% per year on average over the plan period and our free cash flow by 7% per annum on average with growth in cash back-end loaded due to our CapEx plans. Until 2026, our free cash flow growth is expected to grow at a low single-digit rate per year since we face increasing cash taxes year-on-year. Now let me briefly wrap up with the key takeaways. We continue to see service revenue growth across all segments. While revenue growth moderated somewhat in Q3, we anticipate a recovery in the fourth quarter. Our commercial momentum remains solid, and we continue to lead the Dutch fiber market. Our net add developments in both fixed and mobile and both in consumer and business was quite satisfactory in Q3. As expected and planned for, EBITDA growth was relatively soft in Q3, but is set to recover in Q4. Cash flow generation was strong, up more than 10% year-to-date. Overall, we're on track this year and continue to make good progress towards our annual and midterm targets, and we reiterate our guidance for the year. Finally, as we approach the halfway point of our strategy, we can't wait and look forward to providing you with an update of our strategy next week, on November 5. Thanks for listening and turn to your questions. Matthijs van Leijenhorst: Yes. Thanks, Chris. Operator, please open the line for the Q&A. Please limit your questions to 2 please. Operator: [Operator Instructions] Our first question is from Polo Tang of UBS. Polo Tang: I have 2. The first one is, is there any update in terms of the Glaspoort acquisition of part of the DELTA Fiber footprint? And my second question is, we have a general election in the Netherlands this week, but is this having any impact on public sector spending in terms of your B2B segment? Joost Farwerck: Yes, Polo, thanks for the questions. The Glaspoort acquisition, it takes our regulator a very long time to come to a final opinion. So as you know, Glaspoort intends to acquire a rural fiber footprint of approximately 200,000 house passed from DELTA Fiber, and it's still under ACM review. We expect, well, something within 1, 2 months because it takes really too long. We think it's still no reason to refuse it. This could reduce overbuild risks for both parties and supports healthy market development. Then elections coming up in the Netherlands, that's tomorrow, by the way. We -- on the midterm, we see limited impact on KPN. Major topics in the elections are immigration, health care, housing markets. Well, the government wants to build more houses, and we think that's a good one because then we can take them into the house pass footprint. Topics that could affect KPN on the longer term are about investments in defense, and we're in good position on that. We are selected as the main digital provider for the Ministry of Defense and discussions around fiscal affairs, for instance, the innovation box facility and the share buyback taxation, but that's a vacant faraway remark somewhere from one of the left wing parties. So all in all, I don't expect that much impact for KPN. Polo Tang: Just on public sector, can I just clarify if there's any freezing of public sector spend into an election or out of an election because we see that sometimes in other markets? Joost Farwerck: No, not really. We have some kind of a framework. So when elections are coming up and when a Cabinet falls in the Netherlands, then they select a couple of topics that they have to continue to run. And we are all convinced in the Netherlands that we should keep on investing in the themes I just mentioned. And also when it comes to cybersecurity and digital, there's no slowing down there from the government, and we are heavily involved in there. Operator: And our next question comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: My first question is on B2B. You have said that you've seen some price pressure in mobile and B2B. Could you give us a little bit more color on this? Are you seeing this dynamic both in LCE and in SMEs? And to what extent should we consider this when we're looking at longer-term trends going into 2026? And my second question is just on the B2C competitive environment. What are you seeing in terms of competition? And have there been any incremental differences versus last quarter? Hans Figee: On your question on mobile price pressure, mostly in LCE and larger corporate tickets, there is some price pressure going on. I think that I would say from our point of view, there's still some of the decline, but the decline is declining. So you can say the second derivative is positive, but that's a bit of a nerdy view. But I would say expected LCE, some repricing of our base into next year, but then probably we have good hope it's going to be bottoming out, at least. So there is some price decline, but it's getting a bit better. We saw something similar in SME, but SME, we especially be able to counter that with value-added services by selling more security solutions to customers. So keeping our ARPU up. So there is some price pressure, most notable in LCE, but gradually abating. So we'll go into next year, but I think somewhere during the course of this year, that effect we hopefully [ achieve that ]. And SME, it's much less prevalent. And there, we see and have experienced good opportunities to counter that with additional value-added services like additional bundlings, but mostly security services around SME to keep your ARPU stable there. Joost Farwerck: Yes. And on the competitive environment, well, like in Q2, the market remains competitive in consumer markets, so Odido and VodafoneZiggo, especially. VodafoneZiggo launched a new proposition, broadband fixed on their cable network, a 2-gig proposition recently announced. So interesting to see how they will do there. But impact on KPN expected to be limited because our first proposition is 1 gig, and we also offer 4 gig. So most of the new customers land in 1 or 4 gig via our fiber network. And for us, it's very important to play our own game. So we focus on base management, for instance, on convergence households via CombiVoordeel, resulting in lower copper and fiber churn and 11,000 net adds. We also are very happy with the acquisition of Youfone because on the lower end of the market, you call it that way, there's true competition going on. So Youfone covers that. And currently, more than already 2/3 of our broadband base is on fiber, and that's leading to lower churn and higher NPS. So that's how we position ourselves in this competitive environment. Operator: And our next question comes from Paul Sidney of Berenberg. Paul Sidney: [Technical Difficulty] revenue growth, it did slow into Q3 at the group level. There's obviously lots of moving parts... Matthijs van Leijenhorst: Paul, paul. Paul Sidney: Can you hear me? Matthijs van Leijenhorst: We couldn't hear the first part. Could you start over again? Thanks. Paul Sidney: Sure. Can you hear me now okay? Matthijs van Leijenhorst: Perfect, perfect. Paul Sidney: Okay. Great. Yes, just a first question on service revenue growth. We did see it slow into the quarter at the group level. There's lots of moving parts, and you've given some great granularity in terms of the drivers of that. But as we head into Q4, how confident are you that we can see an acceleration in that service revenue growth trend? And then secondly, just looking a bit bigger picture, you report very comprehensive KPIs, very detailed guidance, net add, service revenue growth, NPS scores, free cash flow and returns guidance. I was just wondering, if we take a step back, which of those is most important to KPN as a business in terms of what really is sort of driving the business? And maybe we get more detail on next week, but just really interested to hear your views on that. Hans Figee: Yes. Paul, let me give you some more granularity on how we see service revenue growth developing. I'm going to just walk you through the business. I think the second question is a typical CEO question. Joost Farwerck: Yes, for sure. Hans Figee: I'll leave that to you. Look, on consumer, fixed is showing 1% service revenue growth. We've had tailwinds from a price increase, some headwinds from migration from front to back book discounts, et cetera. I think overall, the good news is that churn is actually reducing. The churn is doing better than ever. It's one of the best churn quarters in fixed in some time to come. Also please note, we have a CombiVoordeel product, which we give customers with multiple products, additional discounts leading to lower churn. That additional discount feeds through the top line. So that affects top line and fixed service revenue growth by almost 0.5% this quarter and even more in next quarter. So for Q4, we expect fixed service revenues to come in at a 0.4%, 0.5%, but that's really the accounting and the upfront payment on these additional discounts that lead to churn. So the discount, especially to multi-converged customers, and we're seeing benefits of churn on that. We'll give you more intel next week because that feeds into [ '26 ]. In mobile, you see a price increase coming in has already come in, has landed pretty well. So I would expect mobile consumer to be around 1.5% in the fourth quarter, fixed below 1% and mobile well above 1% then go to B2B. I see SME recover. I mean there was some technicality in the SME numbers, but it's also, I think, good base and ARPU development, especially in the third quarter. And a little bit easier comps, I would say SME should be 4% to 5% again in the fourth quarter and also in that into the next year. LCE hovering around 0. And on the Tailored Solutions business, there's always some volatility in this business that has to do with the timing of projects. For example, if you go back to last year, we saw growth -- service revenue growth in Q3, from 5% to 2% back to 5%. There's always a bit of volatility in this business due to the nature of these activities. In the third quarter, we saw the effects of KPN condition more steering on margins. So we lost some business. Some of it we didn't actually mind because there was actually 0 margin revenues and underlying this growth in defense spending. So I'd expect the Tailored Solutions business to be back around 2% to 3% in the fourth quarter, which should bring B2B to around 3%. Wholesale, I would say, probably around 4% to 5-ish in the fourth quarter. So that means overall service revenues in Q4, I would say, around 2%, probably 2% or a bit up. But that's the moving parts. Some of it has to do with technicalities. For example, as I said, in fixed service revenues, the accounting for the [indiscernible] cost shows up to revenues. It is showing up to churn, so it leads to real value, but short-term service revenues are a bit affected. Mobile should recover, SME should recover and the rest, I think I explained to you for probably around 2%-ish service revenue growth in Q4. Joost Farwerck: Yes, Paul. And then your question on all the KPIs and the main target. I mean, yes, we try to keep things simple in our strategy. We're a single country operator. We're healthy, and we build a plan for all stakeholders. So we invest in the Netherlands, we invest in customers, we invest in our own people, and we want to reward our shareholders in a decent way. And for that reason, you're right, we give a lot of KPIs, which is about broadband base growth or base growth in broadband, mobile, SME, CAGRs on revenue, net Promoter Score, you name it all. At the end, we simplified everything by saying it's a 337 CAGR. So that's a top line EBITDA and cash. And if I have to make a choice, I say the 7, the cash is the most important one of those 3. And the rest is all leading. So sometimes you're a bit behind on the subsegment. Sometimes you're a bit speeding up somewhere, sometimes NPS is lower or higher. But at the end, it's very important that we get to that financial promise, and we're on track. So -- but it depends a bit on the stakeholder, I -- when it comes to the KPIs we focus on. Operator: And the next question comes from David Wright of Bank of America. David Wright: Just on VodafoneZiggo, they obviously announced their strategic shift earlier this year, pushing a little more into Q2. I'm sure we'll get a similar message on Q3. Are you observing -- how are you observing the sort of retail pushback now? They've obviously branded the 2 gigabit product. We've got a slightly keener pricing. Do you observe anything else? Is there a lot more marketing spend? Is the marketing different than it was before? Just any casual observations you might have on how they've changed [ TAC ]. Joost Farwerck: Well, the change we saw was the announcement on Superfast Internet. I think for the market, that's not that bad. I mean, on mobile, we all 3 move to unlimited, which is a good development for the total market. And if the total market moves to higher speed broadband, wouldn't be that bad, I guess. But we play our own game. So like I mentioned, customers come in on 1 or 4 gig, and that's difficult to copy. So, so far, it's more an announcement then I see real movements in the market. Chris, anything to add on? Hans Figee: Yes. I mean when I look at, for example, our broadband net adds and fiber net adds, fiber net adds have been steady, net adds. But if you exclude all the copper migrations, fiber real new clients come in around 60,000 to 70,000 for quite some time now. So it's pretty steady. We've seen churn coming down. So we've seen churn coming down in both fiber and copper. That churn reduction started in Q2 and continued in Q3. So that's actually positive. And we don't want to steer just by the month, but when I look at just the simple October numbers, the order balances and the early indication of the month of October are fine. So at this point, it feels that we are obviously cognizant that it's a serious competitor out there. But in terms of underlying performance, no change in recent trends from where we are right now. In fact, churn has come down and things have not fallen off a cliff in the month of October. Operator: And our next question comes from Joshua Mills of BNP Paribas. Joshua Mills: A couple of questions from my side. Firstly, it's been about a year since Odido launched FWA services across the Netherlands. I wondered if you could give an update on how you think that's impacted the competitive landscape and whether it is impacting on your wholesale line losses as well or whether that's due to other factors? And then secondly, if I just build on that wholesale line loss question, trends look to be similar to the last couple of quarters. How would you expect that to develop over the next couple of years? And do some of the more aggressive promotions we're seeing from your ISP partners go anyway to help with that trend going forward, even if it's painful on the retail side? Joost Farwerck: Yes, fixed wireless access from Odido, we see activations on fixed wireless access, but it's also a different market than the broadband market in general in the Netherlands. So it's also a bit of a niche market for people camping, people on holiday, people in boats. So therefore, it's useful. It's also used as another option than whole buy on our network or on DELTA's network. So for Odido, they are asset-light on fixed and they are asset-heavy on mobile. So they try to clearly sell more customers, fixed wireless access to leverage the asset and to avoid the wholesale payments. But it's not really impactful when it comes to total broadband market share. So we use it as well, by the way, in super rural areas, but we always use it in combination with the fixed line. So for us, convergence is, as you know, the strategy. So in copper areas, the speed of the Internet connection can be supported by bonding via fixed wireless access. And probably, we're going to use that more frequently in the rural areas. Hans Figee: Yes. And Joost, on the wholesale side, if you look at the line losses in wholesale, that's really only copper. So wholesale fiber is growing from our main customer and wholesale copper is declining. As we understand, that decline is mostly related to the switching of the Tele2 brand, so the switching of a brand and the switching of the brand leads to customer migration. That's the main driver for losses in copper and wholesale. I expect that to continue in Q4 and possibly in Q1, but that's probably -- then the light at the end of the tunnel. I think that's the end in sight on that development. And then, for example, broadband service revenues, I think we're up about 2% this year. I think broadband service revenues in mobile will be plus 2% this year. Next year, around flattish is a combination of fiber growth indexation and the decline in that copper part. So I think when I look at it, it's mostly the line loss in copper related to the switching off of a brand, and that is a project that will come to an end, I would say, next -- somewhere mid- to early Q1, I would expect that impact to really to fade away. Operator: And our next question comes from Keval Khiroya of Deutsche Bank. Keval Khiroya: I've got 2 questions, please. So you've done quite well on consumer broadband despite the competitive backdrop. But how do you think about the gap between front and back book pricing in broadband? Do you get many requests from customers to move to the current cheaper promos in the market? And secondly, helpfully, you commented on wholesale broadband. But how do we think about the level of mobile wholesale growth next year? Obviously, sponsored roaming has been quite helpful. And does that continue? Any insights on the level of growth next year would be helpful. Joost Farwerck: Yes. So we shifted a bit on strategy as we announced last year, and that is invest more in existing customers instead of playing the acquisition game. We think it's very important to make a difference against the more challengers in the market. And investing in the customer base also leads to back book front book migrations. So that's how revenues in broadband are impacted, and that's why you only see 1 point something on service revenue growth while we do a price increase of 3. Having said that, that's part of our plan. And so when we move customers into what we call combination -- CombiVoordeel, then they have to sign up for 2 years, and that's leading to a back book front book migration. But -- so we made it part of our strategy. Hans Figee: Yes. And Keval, on the wholesale side, yes, indeed, we've been quite successful in mobile service revenue growth in wholesale. I expect that to continue. I don't plan on this level of growth going forward. But we have a decent funnel of potential new counterparties signing up in these type of businesses. And then we have a number of these clients that we help to win new business. So we work them for them to win new businesses. So I expect continued growth in this business going forward, perhaps not at the same pace. I think wholesale should be able to grow around 4% or so top line growth next year, all in with flattish broadband service revenue growth and the remainder is mobile. So continued growth, but let me be a bit conservative and not project the same level of growth, but wholesale around 4% service revenue growth next year is definitely feasible with all of this. Operator: And our next question comes from Ajay Soni of JPMorgan. Ajay Soni: Mine is just around the FTE reduction. So I think you're 300 lower year-over-year, which seems to be around 3% of your employee base. So my first question is just around why is this not being reflected maybe more obviously within your EBITDA bridge? Are there any other headwinds which are -- which means it isn't reflected? And I think looking further ahead, can you accelerate this FTE reductions over the next year, so they are more meaningful in 2026? Joost Farwerck: Yes. Thanks for the question. And next week, we will update you on what we are doing on transformation programs and how we look at the company in a couple of years from now and what kind of operating model we're building. And as a result of that, yes, we expect more FTE reduction. So why don't you see the minus 300 already impacting our EBITDA. First of all, we have a CLA increase. We -- other increased pension costs. So we have to cover up for, I don't know, 6% something of increasing wage costs. And secondly, it's also about the timing in the year. So the 300 will kick in on a higher scale next year than this quarter. But moving the company to a lower FTE base as a result of quality improvements and digitalization is very important also to cover costs and to make a step down. Operator: And our next question comes from Siyi He of Citi. Siyi He: I have 2, please. The first one is really on the comments of the Q4 service revenue growth of 2%. Just trying to think about the trend for next year. I think you mentioned that the B2B and wholesale trend probably is going to be similar level to Q4. And I'm just wondering if you can comment what kind of tailwinds that you would expect to basically help the service revenue growth to accelerate from the 2% to the midterm guidance of 3% and my second question is basically on fiber rollout. I'm sure that you will cover it next week. But just wondering if you can give us some color of how should we think about the fiber CapEx considering that there seems going to be a decent acceleration needs to be done to meet the above 80% coverage target. Joost Farwerck: Well, on the fiber CapEx, we clearly guided to the market that we will make a step down in 2027, and we still plan for that. So we expect a step down of at least EUR 250 million. That's in our guidance, and we stick to the guidance. Chris? Hans Figee: Yes. I mean on the service revenue growth, we'll give you a lot more details -- next week on our capital strategy update -- on the full capital market strategy update, we'll give you more details. But think of consumer to be growing around 1.5%, I think B2B north of 3%, B2B around 4%, and that should make for top line growth, but more in details next week. B2B 3, wholesale 4, yes. Operator: And the next question comes from David Vagman of ING. David Vagman: The first one, coming back on the competitive environment in broadband. If you can comment on your view on your expectation rather on the potential ARPU evolution, in mind speed tiering, but also competition, the announcement of VodafoneZiggo and the tweaking of offers by Odido yesterday. And then second question on the broadband wholesale market in the Netherlands, also your expectation on the ARPU side for KPN? Joost Farwerck: Yes. So on the -- I mean, the market is competitive. It will stay competitive, and I don't expect that to change. The difference between the Netherlands and most other markets is that we have a fully fiberized country already almost. So we're -- 90% of the households already are covered by fiber networks. All households are connected to at least 2 networks fixed. So what I want to say, our digital infrastructure fixed is of a super high level compared to other countries. So there is a competition between the fixed players, but I don't expect much competition coming in from fixed wireless access or satellite or other things you see in countries covering more rural areas as well, like -- and then -- so the competition will be firm, but we positioned ourselves, and I'm glad we did, by the way, we built a fiber footprint of almost 70%, more or less clean. And there's not that much appetite to overbuild us there. It will be more competitive in the new areas for us. So there, we can say to overbuild. We're waiting for our regulator to see what they do with that Glaspoort deal. But compared to other countries, I would say, yes, it is competitive. It is challenging, but we build a strong fiber footprint in the core of our strategy. Hans Figee: Yes. And to your point on wholesale ARPUs in broadband, a couple of things at play. Of course, every year, we have indexation. There's a schedule approved and agreed with the regulator, effectively around 2% indexation every year. Our ARPU is supported by the mix shift from copper to fiber. So we see a decline in copper and increase in fiber, that is supportive. And then any ARPU actions that we do to support our broadband -- for broadband partners tend to be linked to retention, tend to be for specific higher speeds or tend to be around linked to volume commitments. So basically, I would say ARPUs in wholesale broadband are pretty much the same and often linked to a combination of mix, price increases and/or specific agreements on retention and volume. Operator: And the final question is from Ottavio Adorisio of Bernstein. Ottavio Adorisio: A couple of follow-up questions. On Slide 8, you effectively stated that you expect bottoming up on the mobile. And during the call, effectively, you highlighted the price increases. But when someone look at the chart, you can see that, that revenue trends bottom up already in Q4 and deteriorated afterwards. So my question is that what makes you confident that the price increase will stick this time around, we don't go to promotion later on and the revenue trends deteriorate again? The second one is on the broadband. The churn for copper for your copper customers is stable, you stated that one. But looking at the numbers, you look at the migration from copper to fiber to be the lowest this quarter over the past 2 years. So my question is that there is any plan to encourage migration by reducing the price gap between copper and fiber? Hans Figee: Yes. On the first question, what happened -- what will happen from Q3 to Q4, what happened last year? Well, Q4 last year was a very particular quarter where a few things happened. We saw a temporary drop, actually, an accounting drop with roaming that actually reversed in the first quarter. You can see in the first quarter, sales revenue growth in mobile going up had to do with the accounting and booking of some roaming revenues. Second, we had an iPhone credit. If you recall well last year, we had some iPhone disturbances for which we gave some of our customer specific credits to compensate for that. I mean the iPhone disturbances are on hold for the end customers. And thirdly, we had a special offer in the market in that very fourth quarter. So a couple of particular trends that took down growth in the fourth quarter to a low level after which it rebounded in Q1 last year. So those were particular impacts on that third quarter, fourth quarter, and I don't expect them to repeat. So that gives me some comfort that, that blip that you saw last year will not come again this year. And the second question on copper upgrades to fiber. We really try to upgrade customers to fiber. It's a function of network rollout. It's a function of planning. It's a function of access to customers that fluctuates a bit over time. There's no strategic or technical retweet in this part, if you see what I mean. It has to do with timely and operational execution. We will continue to migrate customers from copper to fiber. We might actually, at the point in the midterm, try to accelerate that to enable the switch off of our copper network to accelerate. Joost, do you want to add? Joost Farwerck: Well, the unique thing of our fiber footprint is that we're building a fiber footprint with 80% of the households homes connected. And that's first of all to migrate all existing customers of KPN to the fiber network. That's the copper churn or the urban copper migration. Then we want to connect a lot of new customers, and then we want to connect as well a lot of wholesale connections. So there's more room on the network of households already prepared for an activation from a distance. So the copper migration is something that's really in our system to finalize to switch off the copper network as well. Matthijs van Leijenhorst: Okay. One final question. Operator: And our final question comes from Joshua Mills from BNP Paribas. Joshua Mills: Possibly a pedantic one here. But if I look at Slide #6 in the presentation where you have homes passed as a percentage of Dutch households, you have the target of 80%. And I don't see a year associated with that. I think in previous presentations, you were highlighting that you'd reach 80% homes passed coverage by the end of 2026. Can you just confirm that that's still the guidance and there's no change there, just so I'm clear. Joost Farwerck: Well, so yes, we are expanding our fiber footprint this year, next year and the years after, 74,000 homes passed, 82,000 homes connected this quarter. We stick to 66,000 because if you read it as well as you did. And last quarter, we also reported 66,000, but that's because of annual addition of households by CBS, the Central Bureau of Statistics in the Netherlands. And we stick to our ambition of 80% of Dutch households on fiber. But next week, during our strategy update, we'll share how we will get there within our financial framework. So we aim for 80%, and we confirm our midterm ambition of 3 targets, including the CapEx step down of to EUR 1 billion in 2027. Joshua Mills: Okay. And just -- so to be clear, the explicit target previously of reaching 80% by the end of 2026 is... Joost Farwerck: I've said earlier in previous calls as well that there's a lot of KPIs like we just discussed out there. And sometimes we meet -- we're getting faster, sometimes we're slowing down. The 80% is also a target, which is a very important one for us, and we will meet it for sure. But on the timing part, we will get back to you next week. And at the end, it's for us very important that the overall total strategy works, and that's working. Matthijs van Leijenhorst: Okay. That concludes today's session. Obviously, we will see -- we'll meet online next week during our strategy -- next Wednesday on the 5th of November. See you then. Cheers. Operator: Thank you. Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your line. Have a nice day.