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Juha Rouhiainen: Good afternoon, good morning, everyone. This is Juha from Metso's Investor Relations. And it's my pleasure to welcome you to this conference call, where we discuss our third quarter 2025 results that were published earlier this morning. The results will be presented by our President and CEO, Sami Takaluoma; and CFO, Pasi Kyckling. And after that, we will have a Q&A session. And as usually, we try and limit the length of this call to 60 minutes. Before we go, I want to remind about forward-looking statements that will be made in this call. And I think without further ado, it's time to hand over to President and CEO, Sami Takaluoma. Sami, please go ahead. Sami Takaluoma: Thank you, Juha, and good morning, good afternoon also from my side. Without further ado, let's start to look for the Q3 highlights. The market activity was very much in line with our expectations, and that also resulted us then to deliver healthy order growth. We had also strong sales growth for the quarter, and our adjusted EBITA was good, normal strong. And for this quarter, cash generation was very solid and gave us quite a clean sheet for the Q3. Looking more than from the group perspective of the key figures. So orders received growth compared to the previous Q3 last year was 2%. And as we have highlighted in the Q3 '24, we did have significant large minerals CapEx orders that we did not have in the Q3 '25. Sales growth was then 10% compared to the previous quarter last year. And adjusted EBITA grew by 9%. All in all, the EBITA as the second quarter was having this dip, so we are now back in the normal Metso EBITA numbers. Looking for our 2 segments, let's start from the Aggregates. We had healthy orders growth coming in the quarter, EUR 280 million. That is 13% in constant currencies. This growth was mainly driven by the normalized market in North America and then the pickup that we have seen coming from the Europe. Equipment orders did represent growth of 11% and the aftermarket, 2% of the order growth. Sales was also stronger than a year ago. Equipment sales growth was 14% and aftermarket 1%. Aftermarket share now with these numbers was then 32% compared to 35% that it was 1 year ago. And adjusted EBITA improvement by EUR 3 million, so EUR 48 million for the quarter, and that represents then 15.6% margin for the segment. And Minerals had a very solid quarter in many ways. Orders grew 5% in the constant currencies, and aftermarket orders growth was now 12%. We saw in the CapEx side, very solid order intake when it comes to the small and midsized equipment orders. And in the aftermarket side, increase of the upgrades and modernizations as we have commented that they are in the pipeline. Regarding the sales, EUR 1 billion plus compared to the EUR 928 million a year before. Aftermarket was delivering 4% growth and the equipment side was now a 19% growth for the quarter. Aftermarket share of the sales in this quarter was 60%, and the adjusted EBITA EUR 184 million was reported, and that gives the margin of 18.0%, which is pretty much in line from the last year, 18.1%. And now Pasi, the CFO, will go more in detail the financial aspects. Pasi Kyckling: Thank you, Sami, and good day, everyone, on my behalf. I would like to start by reminding that we have restated our comparative figures for 24 quarters and first 2 quarters this year regarding the Metals & Chemical processing business that we decided to retain. And consequently, we have reclassified the comparative information. Let's then look at our group income statement more in details. I mean, sales increased 12% in constant currencies from the comparative period to EUR 1,328 million. Adjusted EBITA, EUR 222 million, which is EUR 18 million or 9% improvement from the comparison period. Net financials slightly up, reflecting the higher debt load that we have in our balance sheet. And income tax rate for the quarter, 24%, and then for the first 9 months or 3 quarters this year, 25%, so very much a standard -- within the standard range that we expect. Earnings per share from continuing operations, EUR 0.17, up by EUR 0.01 from the comparative period. If we then look at our financial position. The average interest rate for the period was 3.4%. Our net debt, roughly EUR 1.1 billion. Liquid funds continue to be solid, EUR 460 million is end of September. And our net debt-to-EBITDA KPI when using rolling 12 months in EBITDA was 1.3x which is below our 1.5x target and also down from 1.5 that we had end of second quarter, thanks to good earnings in the quarter as well as strong cash flow during the third quarter. When it comes to available credit facilities, our position is unchanged. We have our fully undrawn RCF. And then we have also a CP program, which is currently not in use. And then our ratings also, no changes. So a BBB flat from S&P and Baa2 from Moody's. If we then move to the cash flow. So we delivered a healthy cash flow during the quarter, the strongest quarterly cash flow this year, EUR 266 million from operations. And overall, we have delivered during the first 9 months, EUR 609 million. A positive note is that working capital is not a drag for us anymore. Of course, the release, EUR 12 million is small. But given that we -- that the business growth was solid, we are quite happy with this and continue to work with further working capital efficiency improvements. With that, I would like to hand back to Sami to talk about our strategy execution and outlook. Sami Takaluoma: Thank you, Pasi. So in Q3, we also launched our new strategy. We go beyond. We are very happy of the launch, both internally and also externally. And in a nutshell, we are striving for being the best in the customer experience in our industries. We are working for the higher and higher aftermarket share of our businesses, and we also set a target for ourselves to be the frontrunners when it comes to sustainability and safety. And all this combined will then also ensure that we do deliver the financial excellence. This is a growth strategy. We have set the target for ourselves for annual growth, and excellence means everything that Metso does, and that will be resulting then that Metso will be the #1 in our selected areas. We do count a lot to our very engaged employees, Metsonites out there. So the customer-centric growth culture is one of the key success factors and also ensuring that we do have the industry-leading capabilities in our organization to help our customers for the upcoming years. I'm talking about the revised financial targets, just a reminder here. So annual sales growth target is 7%. And, well, starting point now looking for the year-to-date '25 numbers. So 2% we have been able to do. So this is clearly the ambition to accelerate this growth. Adjusted EBITA margin, we upgraded that to 18% from the 17% previously divided by the segments so that Aggregates to deliver more than 17% and Minerals more than 20%. And year-to-date so far, we are in 15.7%. Net debt-to-EBITDA, the target for ourselves is that we will be below 1.5x. And that one currently, we are well on track already, and we are targeting to keep that, that way. And regarding the dividends, so the payout is going to be at least 50% of the earnings per share. And as you all remember, 2024, that was 63%. The strategy execution is already ongoing. We have done investments, acquisitions to improve our selected areas. Screening business, Saimu, was acquired in China that made Metso to be in top 3 in the Chinese market for this business. And then 2 smaller ones, TL Solution, which is sustainability-related, mill liner recycling technology company. And then Q&R Industrial Hoses, which is linked to our pump businesses where we are also having accelerated growth targets. We are currently reviewing some of our businesses. One of them is the loading and hauling business and looking for the next strategic steps regarding that business. Investments we have done already during the last year, some investments, especially to support our intentions to grow our aftermarket share, and one of them, the latest one is screening manufacturing center that we are currently building up in Romania. And when it comes to the market outlook, we expect that the market activity in both of our segments, Minerals and Aggregates, will remain at the current level. And we also want to highlight in this context now that the tariff-related turbulence is not over. We do hear this from our customers, and there is potentially effect then for the global economic growth and also the market activity. Juha Rouhiainen: All right. Thank you, gentlemen, for the presentation. And operator, we are now ready for Q&A. Operator: [Operator Instructions] The next question comes from Michael Harleaux from Morgan Stanley. Michael Harleaux: I have two, if I may. The first one would be on your impressive aftermarket order growth. If you could help us unpack what's underlying and if there are any one-offs in that, that would be very helpful. And then regarding the Aggregates segment, one of your competitors mentioned dealer restocking. So I was wondering if you could tell us if you are seeing any of that happening? Sami Takaluoma: Excellent questions. Regarding the aftermarket growth in orders especially so, we have commented in these calls earlier that one element of the aftermarket portfolio that we have is the upgrades and modernizations. They do have a small cyclic element, and that has affected them so that the comparison period, especially last year, did not see almost any of those coming through. And then our pipeline has been quite solid at the funnel. We know that the cases are there. There has been slight hesitation from the customers to make the decision, the timing of the decision. And now in Q3, they started to come through from the funnel as an order. So that was in line of our expectation in that sense. When it comes to the Aggregates, the distributor network in -- especially in the U.S. had a situation that 2024, the end customers did not purchase machines at a normal pace, and that created the situation that the distributor stocks were quite full. What we have seen from our side is that the normalization of the U.S. market started to happen at the end of last year, beginning of this year, and that's visible for us when we look at the stock levels of our distributors. They have gradually month after month coming down from the very high levels that they were at the mid '24. So from that perspective, there is element of distributor stock has an impact also to our numbers, but we also see that the market has normalized from that behavior during this year. Operator: The next question comes from Edward Hussey from UBS. The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I want to start on Aggregates. At the CMD, you mentioned equipment utilization was down 20% or so from the year before. Obviously, interested then in the OE order growth in that segment at 11% and some of the comments in the release that you're seeing a better demand environment in both North America and Europe. What's driving that? And also, I wonder if you could perhaps give an indication on the average age of the installed fleet on that side of the business? Sami Takaluoma: Yes. So the running hours is having an impact mainly for the aftermarket demand. Then the new equipment need is not always clearly linked for this because the new technology will enable more cost-efficient operation for the customers. So the renewal of fleet is depending on customers' own behavior in his or hers business case. So from that perspective, it varies based on the customer, normal age, we have a very wide portfolio and deliveries every year, and that makes that there is also second owner or even third owner for the equipment normally. So this is how the aggregate mobile equipment business works. And the typical full lifetime, if well maintained, is between 15 and 20 years when the life is fully ended. Christian Hinderaker: That's helpful. Maybe we can turn to working capital. At the CMD, you set out ambitions to take share in the aftermarket. I guess, keen to understand if we should think about this requiring higher inventory levels over the coming years, either in euro million terms or in percent of sales, or whether you think you can unlock some efficiencies that mean you can grow the top line whilst improving that inventory number? Pasi Kyckling: Thanks, Christian, excellent question. And indeed, one of our pillars -- main pillars in the strategy is to grow the aftermarket business. And I mean, it's not a straightforward question to answer. But of course, if we grow the business in absolute terms, it will require more inventory. But then what we also believe is that in relative terms, when it comes to inventory turns or inventory in comparison to our top line. And there is room for improvement across the board, but then also in the aftermarket part of the business. So that's how we are looking at that. Operator: The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: Congrats on a strong set of results. I have two, please. So my first one is just on the Minerals margin, which was broadly flat at 18% despite the aftermarket mix. Could you provide more color on the organic development here? Sami Takaluoma: Yes. I think 18% is something that at this point, we are happy. It's okay. It's in line of our expectation. As we build the road map in the Capital Market Day that how we are going to be reaching the 20% targeted number for the strategy period, so there are several elements. And in this quarter, the aftermarket was having a good contribution for that one. There is a need for the capital equipment sales to be higher in terms of leveraging that part as well, and then we continue to work with our self-help initiatives, and as 75% of the company is Minerals segment, the impact will be mostly seen there when we do company-wide actions. Pasi Kyckling: Sami, I would like to complete or complement a bit. I think what you have also seen or what we have experienced in the third quarter is the strength of our capital business. I mean, relative share of the capital increase overall, but especially in the Minerals. And we have a good healthy business there and then it supports also delivering this kind of margins, and we are quite satisfied with that. Chitrita Sinha: Great, very clear. So my second question is on the Aggregates margin where you've brought back some costs, I think, in Q2 in anticipation for a ramp. So what is the best way to think about the volume threshold where you can comfortably achieve more than 16% again? I'm trying to drive whether we should expect to pick up in Q4? Will it be more 2026? Pasi Kyckling: Yes. So first of all, this cost that we have taken gradually back in Aggregate refers to our Finnish operations there and the fact that the local legislation here enables laying people off on a temporary basis. And during this low period, we have used that opportunity and are now during first half of this year when our order books have been strengthening, we have taken people back to work, and they are busy, currently working with the order book that we have. Then I'm afraid we are not in a position to give you exact volume guidance on when certain thresholds when it comes to margins are reached, but overall, I mean, we delivered a few percentage points below 16% now in the third quarter. And this is also a volume gain. So there is still capacity in the system to deliver higher volumes without, for example, increasing manpower and then the drop-through from additional business comes with significantly higher margins. Operator: The next question comes from Vivek Mehta from Citi. Vivek Mehta: I hope you can hear me well. It's Vivek on behalf of Klas. First question is around the restatement of the Minerals EBITA from discontinued operations. That impact grew in the second quarter. And curious to know what was the uplift to the Minerals EBITA from this in the third quarter? Was it similar to the second quarter? I appreciate that it doesn't impact the organic growth in margin. Just curious about the absolute impact. Pasi Kyckling: Yes. No, thanks, Vivek, for that, and we published the restated numbers with quarterly breakup of '24 and first half of '26 earlier this month. And while we will not provide a specific third quarter numbers and then going forward, we'll not comment specific business lines, what we can say is that the impact was sort of a similar in third quarter as we experienced in average during these periods that we have restated. And I know that in the second quarter with these numbers, it was slightly higher than in average. But what we had was sort of the average from these restated periods. Vivek Mehta: Understood. My second question is just following up on the outlook and your comments around tariff uncertainty and so on. We're seeing very good growth in Minerals, excluding the larger orders. Appreciate maybe the Section 232 and tariff concerns might be more applicable to Aggregates. So curious, given the strong commodity price backdrop, why you've not potentially raised that Minerals outlook? Sami Takaluoma: Yes. It's true that the tariff situation has impact on both of our segments, but it's also true that the impact potentially is higher for the Aggregate. So, tariff, in Minerals side is a little bit related to the U.S.-based customers and projects. And then generally, globally, the uncertainty, which is not helping making the significant decisions of the investments of multibillion for the new projects. But that, hopefully, is stabilizing and not having impact on that side. And then in the Aggregates, it's really all about how the U.S. market will be reacting because the tariff situation is having an impact on, for example, what is the end customer pricing and these kind of elements. So that might slow down the U.S. now normalized the market from that perspective, potentially. Pasi Kyckling: And also when it comes to Aggregates, and you made a reference to this Section 232. So the cross advance screens have been something that have been earlier excluded. Now it seems that they will be included in the tariff. And then certainly, it will have some impact on Aggregates market in the U.S. going forward. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I have a couple of questions. Firstly, on the Minerals market outlook, how do you see the kind of likelihood of receiving very large orders still in this year? We haven't seen any so far, and it's a bit more than 2 months left. So do you think it's still likely or is it more like 2016? And maybe related to that, what is the kind of pipeline or sales funnel for these large projects now compared to what it was like a year ago, for example? Sami Takaluoma: Yes. Thank you. A very good question. And this is something that we also are very interested to get the answers, but unchanged situation, how we read the customer negotiations and discussions, meaning that there are these projects, they are there, they are having a lot more tangible way of discussing, meaning that there is already customer organizations for the greenfield projects and so forth. And that's answer maybe for your second question, that this is something that we see as a difference for 1 year or 2 years ago that there is more concrete, tangible actions happening already on the customer side. And then we remain in the same view that we have had, 2026 is almost like guaranteed that these orders start to come through and still staying on a positive that one, two might be even coming at the end of this year, but as you said, the clock is ticking, and there is 2 months to go. So that remains to be seen. But then beginning of '26, definitely. Pasi Kyckling: From a commodity split point of view, these are gold and copper projects that are more advanced in our pipeline. Panu Laitinmaki: Okay. Let's hope for that. So secondly, I wanted to ask about the Aggregates and the European outlook. So you talk about European recovery. Can you talk a bit more about like what you see, which countries are driving this? Is it the German infra package already? Or what is driving this? Sami Takaluoma: Yes. We believe that the German infra package actually had an impact. The orders that we have been receiving in the last 2 quarters, they are not so much from the Germany. But that decision created the trust in the European countries close by for the future. So the orders are coming from multiple countries into Europe and they are related to infrastructure projects in those countries moving forward and then the customers making the equipment orders to be ready to serve what they have promised to serve. Panu Laitinmaki: Okay. I have a third one, if I may. On Minerals aftermarket, so really good growth in orders, obviously, from the service projects. But if you take that out, how has the kind of underlying spare parts. Spare parts business growth developed? Is it like at the same level? Or has that accelerated significantly? Sami Takaluoma: No major changes there. We have seen already a long time, solid, good single-digit growth for that, what we call day-to-day spare parts and consumer pools and service orders. So that continues the same way also in the Q3. Operator: The next question comes from David Farrell from Jefferies. David Richard Farrell: I'll go one at a time. First question relates to Aggregates. I was wondering in terms of the 9% organic order intake growth, what percentage of that is related to tariff-related surcharges on your U.S. business? Can you kind of unpick that element for us, please. Pasi Kyckling: Thanks, David, very, very good question. I mean a small part is from that factor. But I mean, it's not very material. I mean, I'm afraid I can't -- we can't quantify it, but that's the way to look at it. David Richard Farrell: Okay. And then my second question relates to the Minerals margin. It looks kind of -- by the increase in OE revenue and the impact that has on absorbing fixed costs probably played quite an important role in driving the margin up. Yet, if I look at the book-to-bill for OE so far this year, we're below 1x. Is there a risk that, that is a bit of a headwind as we think about 2026 margins that you simply don't have the OE levels that you had this year, and therefore, margins will face an incremental headwind? Pasi Kyckling: David, good question there. I mean we are not thinking that way. I think when it comes to Minerals capital, book-to-bill, we have basically sold similar amount as we have gotten orders this year. And obviously, some of the orders that we are receiving now in the fourth quarter, they will still play a role also in 2026 sales delivery. But under the assumption that we continue to get healthy order book build during the fourth quarter, maybe some of those larger projects moving forward that we discussed earlier. So we don't see that situation. And then obviously, already this year and also going forward, when we look at, within Minerals, there is quite different situation in the underlying business lines. Some of them are more busy than the others. And that's also the reason you may have seen that we announced and started some labor discussions earlier this month just to adjust our capacity in some of the business lines where we have less work currently. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: Yes. It's Vlad from Barclays. I'll ask 3 questions, if I may, and go one by one. Firstly, could you give us some maybe initial idea what directional sales growth outlook could we have for 2026. On one hand, commodity prices are super supportive. But on the other, book-to-bill slightly below 1 this quarter, backlog broadly flat. Do you think you could grow next year top line in line with strategic targets, which you recently released or it will be some kind of different phasing here? Pasi Kyckling: Yes, Vlad. Excellent question. And you know also that we are not in a position to give such guidance. However, what we can confirm is that our target is to grow 7% CAGR going forward. And with that clock starts ticking 1 January next year, and we are working hard day in and day out to make sure that we can grow. And if I look at across the portfolio from 1 January onwards to end of September, our order book has increased by EUR 200 million, so -- or EUR 180 million to be specific. So that gives us a much stronger starting point for next year compared to the starting point that we had when we entered 2025. Vladimir Sergievskiy: Excellent, and that's great to hear. And if I could ask you on the consolidation point that you -- the changes you have made this quarter. I appreciate you are not giving the precise numbers for Q3. Would you be able to go to give us some idea what was the impact on the orders because orders for this business that you are consolidating has been super volatile. I think in the comparative quarter, it was almost no orders Q3 last year. Any color you can give us here would be very helpful. Pasi Kyckling: Yes, I can comment on that order specifically. So it was a very low order number also in the third quarter this year. So the order growth is certainly not driven by this MCP business. Vladimir Sergievskiy: Excellent. And the final one from me. On the inventories, trade receivables, obviously, they are optically up sequentially this quarter compared to what we saw before. Is it largely driven by the gain, the consolidation scope that you've done? Or there are some underlying changes there as well? Pasi Kyckling: Yes. Thanks, Vlad. And the consolidation change, for example, in inventory terms has some tens of millions impact on our inventories, i.e., increasing when we brought the MCP business back from discontinued to be part of the normal business, so to say. And then what we see overall happening in the underlying inventories is that we continue to decline the Finnish product inventories. And if I look one level below the balance sheet that we published, the Finnish products have continued to decline from end of June to end of September, order of magnitude EUR 50 million. And then we see a bit growth in the other areas, which is work in process and then raw materials. And you may remember that this EUR 200 million inventory program that we completed by end of June this year, that was really focused on Finnish goods. And then we continue on that journey. And overall, both inventory, trade receivables, but then over the larger working capital continues to be a focus area going forward. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: A couple of questions. Firstly, could you perhaps talk a little about the pricing environment and the price realization you've achieved across Minerals and Aggregates in Q3 in your efforts to fully offset any other remaining inflationary pressures? And secondly, against the review in Minerals of the backlog up and the orders strong in the smaller and conversion business, can you talk a little to the seasonality of the business revenue realization in the fourth quarter? Historically, there has been seasonality. What should we think about the Q4 versus Q3 in this year regarding your bookings and realization of revenues off backlog? Sami Takaluoma: Thank you, William. I can take the pricing one. Two segments. In the Minerals side, we see a very little pushback for our pricing. So we use our pricing power where we see that applicable. And that part is working okay. There is some discussions with the customers when they are not sure when they will be ready to release the orders for the capital side to get the price validity longer than we usually do. And so far, we have not gone that route. Then in the Aggregates side, it is a little bit more the current situation in the markets under pressure. So there, it's difficult to use our normal way, the pricing power, and that is quite obvious at the moment in the Aggregate market. Pasi Kyckling: And then, William, when it comes to Minerals seasonality. Overall, in Aggregates, we see clear seasonality, for example, third quarter, also this year was a slower period compared to some of the other quarters. In Minerals, we see much less of that. And we are delivering, we are completing the projects from our backlog also during the fourth quarter normally. So we don't expect anything specific there. Then of course, if I compare to third quarter, for example, there is Christmas and there is holiday seasons, and that may have some limited impact, but that's how we see it. William Mackie: One follow-up, if I may. Building on the earlier question regarding the order pipeline in Minerals. Can you talk a little to the discussion around the upgrades and modernization pipeline rather than large, normally highlighted projects? Do you see the ongoing trend that we've seen in Q3 with exceptional strength continuing in the fourth quarter? Sami Takaluoma: Yes, that's an excellent question. And as you might remember, I was responsible of this business area. And typically, we had the funnel of these upgrades and modernizations, 6 months ago, it was the largest ever in the euro value. So a lot of projects in a very good state of the discussions with the customer. And now we have started to see that they are released. And typically, I'm now referring what has happened in the past. They tend to then follow for 1, 2, 3 quarters in a row as a cycle when the customers make these orders. So expectation is that we do see also those orders coming in the Q4 and maybe also Q1. Operator: The next question comes from Tore Fangmann from Bank of America. The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I have a few questions. I can take them one by one. So just firstly on the Aggregates business and what you see there, particularly in the U.S. If I hear you correctly, you seem to expect Europe to continue to recover into the fourth quarter, but I didn't really catch your views in the U.S. market clearly. So is it so that you see distributor inventory levels currently at normal levels? Or do you also expect some restocking effects there? Have you seen any negative impact of tariffs thus far? Or is it just an expectation that it must come? Just a bit of a clarification on how do you see the demand in the U.S. Sami Takaluoma: I'll try to open that a little bit up. We have not seen yet, but what we look is the distributor inventory levels. And from that perspective, it supports that the business that we see coming from the U.S. would be the normal as the levels are not over high as they used to be 1 year ago, for example. Then on the other hand, there is a risk that the new tariff included price levels of equipment and also parts might have an impact on how the end customers are evaluating their investment timing. Are they doing it now or expecting to look a little bit later. And even might have some challenges to fulfill the business plans with the new pricing coming through. So these 2 are both there and giving this a little bit uncertain situation, if I put it this way. The other one is supporting that the business continues normally and the other one is putting a little bit of the dark clouds out there. Mikael Doepel: Okay. No, that's helpful. And then second question relates to the mining business and maybe the project pipeline you're talking about. Just wondering, if I'm not wrongly remembering things, I think there should be a bit of a tail still left, for example, from the Uzbekistan, fairly large copper smelting order you got back in 2024. There might also be some other tails from other bigger projects. I assume when you talk about larger projects, you are not referring to these ones, but if you could maybe just give an update on the ones that you have won but haven't yet gotten all the orders from, the bigger ones. Pasi Kyckling: Yes. So first of all, Mikael, you have understood it the right way. So when we spoke earlier about the larger projects, so we were talking about future orders, which we have not yet seen and our expectation when they will realize, et cetera. Then when it comes to sort of existing pipeline, you are indeed correct that there is the Uzbekistan project, Almalyk, which is ongoing. And then there is also a number of other not only tails, but activities from the past, which are under delivery, and they are moving forward as per the plans. And then from financial statements point of view, we recognize revenue based on the percentage of completion. And typically it takes quite some time from the order until we start deliveries because of either engineering needs to go forward or if that is done, then just manufacturing activities with some of these equipment takes quite some time. And then the local construction projects, also, they are not small by nature. So it could be 24, 36 months from the order until we are complete with our deliveries. But yes, that's part of the backlog realization that we see every quarter. Mikael Doepel: That's fair. And maybe just a follow-up on that. So what is the reason? I mean, why the tails from Uzbekistan is not coming through? It's a question about the progress on site, which is slow? Or is it financing? Or is it anything else? Just wondering enough when we should expect that one to go through? Pasi Kyckling: Mikael, which way are you thinking? Because I mean, the project execution is moving forward, and we are realizing revenue and so forth, or how are you thinking about this? Mikael Doepel: No, I think there should be still some order value less from project. Have you already received everything? Pasi Kyckling: No. I mean, there is further potential on this and some of the other cases, but we cannot really comment single customer cases in such manner. Operator: The next question comes from Edward Hussey from UBS. Edward Hussey: Sami and Psi, can you hear me now? Pasi Kyckling: Yes, Edward, we can hear you. Edward Hussey: Okay, cool. Sorry about earlier. Just sticking to the rebuild and modernization theme. So first question is just on the order side. My understanding is that the comps in Q4 were also extremely weak. So should we expect to see a similar growth rate on the rebuild and modernization side in Q4? Sami Takaluoma: Yes. I said that these ones are those aftermarket orders that are not super critical from the timing perspective. And that's also the reason why they have this cyclic element. So we do have -- now we got the orders. We are happy of those. They were expected that they start to come during this year. We also expect that we see some of a similar way coming through in the Q4, but fully to be able to estimate or quantify the amount is challenging because they do not have this criticality the same way as other aftermarket products. Pasi Kyckling: And you are right that it's a -- sorry, you are right that it's a weak comparison point in the Q4. We did not see these orders last year in Q4. Edward Hussey: Okay. And then maybe just thinking about the mix in orders. I mean, is it -- when you think about these rebuild modernization orders, do they make up a sort of normalized mix in Q3? Or are they still below what you'd consider a normalized mix? Sami Takaluoma: I would say that when looking at the backlog, for example, so they look normal, and then orders that we are expecting once again, difficult to really estimate very accurate way that how much we will get those. But I would say that they are normal, if something. Edward Hussey: Okay. That's very helpful. And then final question just on the theme is just on the revenue side. Clearly, it seems to be margin accretive from the aftermarket business. In terms of the revenue mix, the rebuild modernizations, are these at normalized levels now? Or is there -- I mean could we potentially see a sort of acceleration in rebuild modernization revenues in Q4, and therefore, support from a margin perspective? Sami Takaluoma: Generally, I can comment that much that upgrades and modernizations for us, they are good and very healthy business when it comes to the margins. So they are in a good level from our sales mix perspective. Operator: The next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Sorry, can you hear me now? Pasi Kyckling: Yes, we can. Tore Fangmann: Perfect. Sorry for before. A little bit of tech issues and cut out sometimes. So excuse me if this was asked before. Just one more question from my side. The Aggregates margin has recovered quite nicely quarter-on-quarter despite the lower revenues total and also like in equipment itself. I was expecting before that the main kicker for a margin improvement would be basically the volumes coming back for the cost absorption. So what would you say is the reason now quarter-on-quarter with the margin recovery that we've seen? Pasi Kyckling: Yes, it's a good question. And Tore, you may remember that, overall, we had some extra costs in the second quarter. And while, of course, Minerals is the one carrying larger share, Aggregate was also impacted. And from that angle, situation has normalized. And overall, not only in Aggregates, but generally, we had sort of a good cost control quarter, and that helped also Aggregate to deliver the margins they did. Tore Fangmann: Okay. Then just as a brief follow-up, if I remember correctly, then the main part that could have impacted aside from the ramp-up of the production cost would have been the ERP system rollout in Q2? Or am I missing out something here? And then when you say good cost control, is this something that you would then expect to continue into Q4? Is it like basically structurally now better cost control? Or is it a little bit more by circumstance that we have better cost control in Q3? Pasi Kyckling: I mean, I was mainly referring to the extra costs, i.e., ERP that we had in the second quarter, and like we said 3 months ago, that was one-off costs. Those have not repeated third quarter. And from a cost performance point of view, our expectation is to remain in a similar position going forward. Juha Rouhiainen: All right. There seems to be no further questions. So we are able to wrap up this conference call well in time. Thanks again for listening. Thanks again for asking questions. We will be back with our fourth quarter and full year results on February 12 next year. But in the meantime, we are sure to meet many of you on the road in different events during the remainder of this year. Looking forward to that. And now we say thanks again, and goodbye. Sami Takaluoma: Thank you. Pasi Kyckling: Thank you.
Operator: Greetings, and welcome to the Third Coast Bancshares Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Natalie Hairston. Please go ahead. Natalie Hairston: Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bancshares conference call and webcast to review our third quarter 2025 results. With me today is Bart Caraway, Founder, Chairman, President and Chief Executive Officer; John McWhorter, Chief Financial Officer; and Audrey Spaulding, Chief Credit Officer. First, a few housekeeping items. There will be a replay of today's call, and it will be available by webcast on the Investors section of our website at ir.thirdcoast.bank. There will also be a telephonic replay available until October 30, and more information on how to access these replay features was included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, October 23, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening, or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of management. However, various risks, uncertainties and contingencies could cause actual results, performance or achievements, to differ materially from those expressed in the statements made by management. The listener, or reader, is encouraged to read the annual report on Form 10-K that was filed on March 5, 2025, to better understand those risks, uncertainties and contingencies. The comments made today will also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the Third Coast website. Now I will turn the call over to Third Coast's Founder, Chairman, President and CEO, Mr. Bart Caraway. Bart? Bart Caraway: Good morning, everyone, and thank you, Natalie. I'll begin by sharing the highlights from the company's performance this quarter. After my remarks, John will discuss the financials, and Audrey will give a review of credit quality. Finally, I'll cover our merger announcement and share management's outlook for the remainder of 2025. The third quarter was particularly impressive for Third Coast as the company reached several key milestone achievements in growth, innovation and shareholder value. First, the recent listing of TCBX on both the New York Stock Exchange and the NYSE Texas marked a strategic shift aimed at enhancing market visibility and providing shareholders with greater liquidity. Second, we experienced notable growth in the third quarter, creating substantial asset value. For the first time in the company's history, we surpassed $5 billion threshold in total assets with a compound annual growth rate of 19.3% since our IPO in November 2021. Our relationship banking model has remained effective, evidenced by the consistent quarter-over-quarter growth in both deposits and loans. Additionally, we set new records in book value and tangible book value, reaching $32.25 and $30.91, respectively. Our return on average assets also hit a new high, reaching an annualized 1.41% for the third quarter of 2025. These accomplishments not only demonstrate our growth strategy, but also underscored our commitment to creating lasting franchise value for our stakeholders. Third, the successful completion of the bank's first and second securitization transactions mentioned during our Q2 earnings call, received international recognition, winning the SCI Risk Sharing award for North American transaction of the year at a recent ceremony in London. These transactions demonstrated that what we once thought impossible is now within reach. And Third Coast is immensely proud to have set new standards for a bank our size, while redefining risk management for real estate development loan portfolios among our peers. Lastly, our ongoing efforts to optimize operating leverage led to improvements in efficiency, profitability and opportunity. Our efficiency ratio improved to 53.05% for the third quarter. Net income rose driven by enhancements in interest and noninterest-bearing income, while keeping expenses stable, resulting in a total of $18.1 million for the quarter. Collectively, the third quarter results position us as a strong performer and create a solid foundation for potential M&A opportunities ahead, including the definitive agreement with Keystone that was announced yesterday, and I will discuss more in detail later in the call. In summary, the third quarter not only exceeded expectations, but also set several new records for the company. And overall, we remain committed to delivering on our strategic priorities and providing sustained value for our shareholders. With that, I'll turn the call over to John for the company's financial update. John? John McWhorter: Thank you, Bart, and good morning, everyone. We provided the detailed financial tables in yesterday's earnings release. So today, I'll provide some additional color around select balance sheet and profitability metrics from the third quarter. We reported third quarter net income of $16.9 million, up 8.3% versus the second quarter of 2025. This resulted in an ROA of 1.41% and a 15.1% return on equity. The net interest income was up $15 million, or 3% from the second quarter. This increase was primarily due to a better-than-expected net interest margin and growth in average earning assets of $229 million. Noninterest expenses were essentially flat in the third quarter, where salary and employee benefits were up but legal and professional expenses were down. If you recall, last quarter, we noted relatively high legal fees associated with the securitizations. Investment securities were up $21 million to $583 million, and quarterly average balances were up $117 million. Yield on the portfolio at September 30 was 6.07%, and AOCI improved slightly with a gain to $10.9 million. Deposits increased $92 million for the quarter, resulting in a loan-to-deposit ratio of 95%, and our cost of funds declined slightly. Net interest margin declined to 4.10% but was still higher than expected due to relatively high loan fees. In fact, speaking of loan fees, despite higher-than-expected accretion, capitalized loan fees at 9/30 were a record $19.9 million. But with that said, we're forecasting a margin of between $3.90 and 3.95% for the fourth quarter. Third quarter average loans were up $158 million versus the second quarter of this year. Period end loans, however, were up $85.4 million. Loan demand remained strong with loans already up $50 million in October. We've recently hired several new employees that we believe will be significant contributors to both loan growth and deposit growth in future quarters. That completes the financial review. At this point, I'll pass the call to Audrey for our credit quality review. Audrey Duncan: Thank you, John, and good morning, everyone. The third quarter highlighted the stability of our credit quality, a result of our disciplined risk management practices and underwriting standards. Nonaccrual loans declined for the second consecutive quarter, improving by $2.6 million in the third quarter. Quarter-over-quarter, nonperforming loans increased by $1.6 million. However, they are $2.3 million lower than the same period a year ago. Similarly, the nonperforming loans to total loans ratio rose by 3 basis points quarter-over-quarter, but still improved by 10 basis points compared to the same period last year. The 4 basis point increase in provision expense was attributable to growth in gross loans outstanding, and the company recorded net recoveries of $17,000 for the quarter. Our loan portfolio remains well diversified and similar to the previous quarter's allocations. Commercial and industrial loans were 43% of total loans, while construction, development and land loans were 20%. Owner-occupied CRE was 10%, and nonowner-occupied CRE was 16% of total loans. Our office and medical office portfolio exposure was not materially different than previous quarters, and our multifamily exposure has declined slightly. Overall, the stability of our loan portfolio, combined with our team's discipline allows us to maintain strong performance as we navigate market fluctuations strategically. This blend of conservative credit underwriting and careful risk management not only propels our growth but also delivers long-term value to our stakeholders. With that, I'll turn the call back to Bart. Bart? Bart Caraway: Thank you, Audrey. Looking ahead, we are excited to capitalize on the positive momentum generated in the third quarter as we continue to implement strategic initiatives that will drive our company forward. As announced yesterday, Third Coast has entered into a definitive merger agreement with Keystone Bancshares, Inc. Once completed, the combined entity is expected to have a pro forma total assets in excess of $6 billion. We are targeting to close the transaction in the first quarter of 2026. Keystone Bank is headquartered in Austin, Texas. A region known for dynamic economic growth and a vibrant community, making it an ideal location for continued expansion. Keystone currently operates two branches within the Austin market alongside a branch in Ballinger, Texas; and a loan production office in Bastrop, Texas. This partnership presents a compelling opportunity to merge two culturally aligned community banks, allowing us to leverage our shared commitment to relationship banking and customer service. By combining our resources and expertise, Third Coast will significantly strengthen its position in that corner of the Texas Triangle. Turning to our outlook. Management expects the remainder of 2025 to be consistent with prior quarters. Our loan pipeline show even more demand over the robust figures of the third quarter, reinforcing our confidence in meeting our loan growth targets of $50 million to $100 million in the fourth quarter. This aligns with our annualized growth rate of approximately 8%, and as always, we remain disciplined in our underwriting and portfolio management practices to ensure high-quality growth. In closing, I'd like to restate how proud I am of the Third Coast team. We consistently exceed industry expectations, achieving growth rates that surpassed that of our peers. Thanks to the dedication of our bankers and the strategic positioning in Texas' most attractive markets, we have built a strong franchise characterized by desirable banking model, sustained growth and profitability, and long-term value creation for our shareholders. With that, I'd now like to turn the call back over to the operator to begin the question-and-answer session. Operator? Operator: [Operator Instructions] And our first question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: Just curious on the merger of Keystone, the deal closes, or expected to close by 1Q '26. Just any expectations of how long the integration process may take? I know you noted in the deck, it should be straightforward integration given some operational compatibility. Just any color you can share on similar systems. Anything you can break out there? Bart Caraway: Yes. Fortunately, we've coordinated very well with them. So we're looking at a very early second quarter core conversion with them. Fortunately, there are contracts tied to our benefit and expires at -- basically in May. Plus a lot of what they do business-wise is similar to us. So it's pretty easy to map over and their cultural aspects are very much aligned with ours. So we do expect the integration to be fairly straightforward. Bernard Von Gizycki: Understood. And then maybe just following up on the loan growth expected for 4Q. I know, John, you mentioned the $50 million already in October. And Bart, you mentioned the expectations are still the $50 million to $100 million. That seems to be maybe conservative. Just wondering any expectations that November, December might be maybe a little bit slower? Just any thoughts on the pipelines and color you can provide there? John McWhorter: Bernie, last quarter, I said basically the same thing that July loans were up $50 million when we had our earnings call. And they ended up going up as much as $150 million and then we had a bunch of big payoffs towards the end of the quarter. So we're still kind of comfortable with that $50 million to $100 million number. We certainly always want to outperform but we are up $50 million. I mean, that's going to be good for the averages for the quarter. But what happens later in the quarter as far as paydowns, it's just harder to predict. Bart Caraway: Yes, I echo the same thing. Again, I just try to keep the long vision as we're very consistent in year after year whenever you sum it all up at the end of the year, we kind of meet what our projections are. But the volatility gets very lumpy for us on it. So it's just hard to tell year-end. It can even make a difference whether some loans get pushed into this year versus next year. Just everything happening with the noise in the economy. It's just really hard to predict. But what I will say is I feel really good about the loan pipelines and the quality of customers that we're seeing, and a lot of disruption that's happening in our markets we're benefiting from. We're just able to start seeing some of these clients that are really good quality clients. We always talk about punching above our weight class that we're getting to see. And we remain a talent magnet. And so even these last few months, we've picked up a couple of bankers that are really people we're proud of. That we didn't think we'd be able to get. And they're going to also help with that funding part of it in the client acquisition. So I just think we're poised in a great position. I don't want to overpromise and over commit. There's going to be some surprises where sometimes we may be more than what we think on the quarter, but then there's some times where we're going to have some paydowns and be a little less. But overall, we feel like we're right on target with where we're trying to go. Operator: Our next question comes from Woody Lay with KBW. Wood Lay: Wanted to start on the expected EPS accretion of the deal. Is that based on consensus estimates or internal projections? Because I mean just based on the quarter, it would seem like consensus is a little low. John McWhorter: Yes. Woody it is based on consensus. I mean we've talked about that a lot internally. I mean, the hard thing is to know exactly what number to use. I mean, certainly, we think that number is going to change over the next week or so as people saw our current earnings, and that will reduce the accretion a little bit. But we don't think it's going to be material. Bart Caraway: And further, if I can add on to this. The reason why we feel like it's going to be more accretive than even what we announced is because we didn't include any synergies. We're being so conservative on this. There are a lot of things. Just to give you an example of a few where we think are going to fall to our benefit. For instance, we have one branch that overlaps with theirs. And eventually that -- one of those branches is going to get eliminated, and we're going to get some cost saves for that. They view us as a platform to where they can do more with what they have. So as John and I were talking about sending some e-mails around this morning is, we have more than our fair share of derivative income and they don't do derivatives at all. So we're giving them tools on the treasury side, on the loan side that we didn't bake in as far as synergies into this deal that are going to be pretty meaningful with us. So no matter what the numbers are, whenever we talk about the accretion side, there's a lot that we feel very comfortable of a buffer, or padding, that we have on the expense side, or the increase in revenue that we're going to be able to get from this transaction to where hands down, we think this is going to be very, very good for us. And not just because of that because we think the market is a very attractive market that's going to enhance our footprint and our value in the overall franchise. Wood Lay: All right. I appreciate the color there. Maybe just given you're going to be busy with the integration over the next couple of quarters. How do you think about the near-term securitization strategy? And then longer term, just with a bigger balance sheet, does this open the door for additional flexibility on the securitization front? John McWhorter: Yes, it does. Woody, good question. I checked with the team earlier this morning, and we are looking at a third securitization. It's probably not going to be a this year transaction and as always, these tend to be customer dependent. But we do think, at this point, it will be likely that we would do a similar securitization in the first quarter next year. Wood Lay: Got it. And then just last for me. You're now at -- pro forma, you'll be at $6 billion, but your continue to be a strong organic grower. Just with $10 billion, that threshold, do you see any expense investments that need to be made as you sort of approach the $10 billion mark? Bart Caraway: Well, to be honest with you, I think it's kind of already baked in. I mean, I think our -- the examiners know that we've grown fast and they are kind of -- expect us to incrementally build on all of our controls. And what we're trying to do is be smart about it and building a lot more systems and controls instead of just adding people as we continue to grow. I think we're a long way away from $10 billion, but the expectations are always is that you start putting that in place. And I think that's just normal management and normal processes for us to think about that and continue. And I think it's healthy for the bank to be in a position where we have strong controls and reporting in place, period. So I don't think it's going to be a factor where on the P&L that we're going to see some sort of impact as we continue to grow because I think we're doing it along the way. Operator: We'll go next to Michael Rose with Raymond James. Michael Rose: I wanted to just start on the fee side. Another really good quarter. You guys have had some really good momentum here, but the service charge line item up fairly meaningfully quarter-on-quarter. I assume some of it is seasonal, just given what we saw last third quarter. But would just love any updated thoughts on fee income and some of the ongoing efforts that you've talked about, Bart, over the past year or 2. John McWhorter: Yes. Fees have certainly been a bright spot. Remember, we converted to FIS back in, I guess, it was June. And there's better, bigger products. I mean, it gives us more opportunity to sell things that we weren't before. So we think on both the treasury side and the loan side that -- well, I know for this quarter, I mean that's where a lot of it came from. But going forward, I mean, we're not going to see the same kind of growth quarter-over-quarter. I mean this was a particularly good quarter, but we're pretty confident that our fee income initiatives will continue working out and better treasury products and happier customers and it's just all turning out well. Michael Rose: But probably safe to assume we see a little bit of a step down in the fourth quarter just given some of the seasonal aspects. Is that fair? John McWhorter: Correct. Flat to down a little bit, yes. Michael Rose: Okay. Perfect. And then as you guys have talked about the loan growth story continues to be very, very strong. What's the hiring effort look like at this point to kind of support that high single-digit growth aspect? It seems like every bank that I talked to out there is looking to hire folks. And just wanted to see what your guys' plans are and what the expense build could be kind of related to that? Bart Caraway: Yes. I think it's the same story we've talked about for -- like after we went public, obviously, we went on a hiring spree. And then I start talking about the fact that we're going to be very surgical. And once again, I mean, it's continuing down the same path where I think we have become a talent magnet, and that we get a look at a lot of the talent that's in the market that's out there. And certainly, disruptions in the market do help us. But we sort of have our pipeline of people that we want. And I think it's going to be, basically what I would call, almost one-offs or surgical that we get. And these people are going to be highly productive. They probably come with just a small support team, and they're going to generate a lot of productivity for us. And so that's probably from a -- what John and I talked about deploying resources and making sure we control the P&L. We're just getting the highest and best talent that's out there. So we get a return faster. And indeed, some of the people who come on board, I mean, they may be profitable after their first deal or two. So I feel real good about where we are. We're not on a massive hiring spree like we did in the past. But we are still hiring some bankers selectively. And they're just best-in-class folks. And me and Audrey both are like -- we want to make sure not only do they check bucket that are the box, that they are good quality, but they're going to bring the right kind of credits that we want. And so we vet them very, very thoroughly. And I mean, this year has been exceptional. We've made a couple of few hires that I've just -- in 2026, are going to make a big impact for us. Michael Rose: That's great to hear. And kudos to the success and ongoing momemtum as we move forward. Maybe just one final one for me. I didn't necessarily think that a deal was in the cards for you guys. I know the currency is a little bit depressed, but glad to see the transaction. Maybe now pro forma $6 billion, if you can describe kind of would additional deals at some point beyond this one makes sense? And specifically, what would you -- what would you kind of look for? I assume it looks something like this in terms of size, but would just love kind of a schematic of how we should think about M&A for you guys? Bart Caraway: Yes. I think it's the same thing we've been talking about. The first deal we did with Heritage, we called it the unicorn because it was just such a great thing for us. It put us over $1 billion. It certainly helped us scale and efficiencies. It helped us with our market presence. It doubled our branches. And the people that were there, a lot of them have become very valuable members for us in leadership roles. And I view the same thing that's going to happen with Keystone. And Jeff, my counterpart there, is a great banker. And they have -- they're loaded with talent at that bank. And quite frankly, they even surprised me, it's kind of the level of their customer base. I mean, in some ways, they're kind of punching above their weight class too. And because of the cultural fit with it, I think we're going to get a lot of positives, even more than what I think, out of this merger. And -- but it sets the bar very high, right? So it's got to be financially rewarding for us, but it also has to be a great cultural fit. It's got to be the right -- it's got to check a lot of boxes. And those deals are really hard to come by. So what I would say is the bar for another deal is going to be pretty high. It's got to make sense for us. And there's a lot of other things that has to happen. So we're going to continue to execute on the organic story that we've been telling you all about. And we're opportunists. We'll look at a lot of deals, and we'll see where we're at. I mean, John and I have talked about, we looked at the deal earlier this year. And we came in third out of three on a bid process with it. And we're okay with that. We're just going to be very, very disciplined about what we do next with stuff. And so I think it's just more of the same. Operator: [Operator Instructions] And we'll go next to Matt Olney with Stephens. Matt Olney: First question for John around the margin. You gave us the margin expectations for the fourth quarter. Any more details you can provide as far as kind of what's behind that? I just assume it's more of a normalized level of loan fees that you mentioned were elevated this quarter. Anything beyond that? And then just other assumptions behind that with respect to interest rates and additional Fed cuts? And just remind us where you are as far as your rate sensitivity? John McWhorter: Yes. If you look back at our margin over time, we were kind of in the 3.70% to 3.80% range and really jumped up when we did those securitizations. And those were onetime fees that we're obviously not forecasting going forward. This quarter, I mean, it wasn't directly tied to those securitizations, but kind of the same concept of loans paying off. We've booked a lot of loans this year that had a lot of fees that we capitalized. I think I said in my comments that our capitalized fees are now a record $19 million. So maybe I'm being a little conservative in saying 3.90% to 3.95%, but that's still a pretty big jump from where we were just back in the first quarter. Now when I look at the margin on a monthly basis, after the Fed cut rates, our margin did go up 1 basis point. So our Q is going to show that we're slightly asset sensitive. But I think we're going to outperform our assumptions. We pretty aggressively cut rates on all the deposit accounts that we could. And I think we have more to give, if that makes sense. Having a relatively low noninterest-bearing balance, means that we can cut rates on a higher percentage of our total deposits. That's certainly what happened when the Fed cut rates the first time. It's what happened when they cut rates last year, it's what I think will happen when they cut rates this next time. And we've probably become a little bit less asset sensitive just because of the securities that we've been purchasing. Our securities book is much bigger than it was a year ago, and I think that will help in the rates down that -- we had pretty good timing on our investment purchases and our yield on that portfolio is 6%. And I think it's going to throw off a lot of income next year. Matt Olney: Okay. That's helpful, John. And then you mentioned that securities portfolio. What -- remind us what portion of that is going to be variable that we should consider with down rates? John McWhorter: Yes. So I guess, it's close to $600 million, there's about $200 million of that that's variable. Now one thing that's maybe a little hard to predict is we have had a lot of securities called recently. But we don't expect big changes in the portfolio. But basically what we -- held to maturity, Matt. So the $206 million we have in held to maturity, that's all floating, right? And pretty much everything else is fixed. Matt Olney: Okay. And then you touched on some deposit pricing competition in your markets. Anything else to add there? And then same thing for loan pricing competition. Just to appreciate anything that you're still in the market more recently? John McWhorter: We are feeling more confident about deposit growth than we had in quite some time. And this is going to be good core deposit growth where I think we're going to be able to start paying down some of our brokered deposits and improve the cost of funds there a little bit. And we may not be talking about huge number, but saving 10 basis points on tens, or hundreds of millions of dollars. I mean, it can add up in a hurry. But that's kind of what I envision over the next couple of quarters. Remember in recent years, we have one particular seasonal customer. And it seems like every year, they send us more and more in deposits. And those funds, we're kind of already seeing them out there on the horizon, talking to the customer that those will be coming. And I think we'll let some of our brokers roll off and replace it with those. And again, they're not cheap deposits, but they'll be a little less expensive than what we currently have. So that will be a little bit of a tailwind to the margin. Operator: Moving next to Dave Storms with Stonegate. David Storms: Just wanted to kind of ask two maybe around the merger. Could you maybe talk a little bit more about your comfortability with your geographical footprint? And maybe getting back to that last question. Are there any MSAs that you would target to expand into now that you really shored up your presence in Austin? Bart Caraway: That's a really good question and something we think about as well. I think our primary goal is to continue to build around the Texas Triangle with that. And Austin, if you look at the market, if I'm correct, if you look at independent community banks, there was really only two independent community banks over $500 million in assets. So we talk about scarcity value a lot with it. And in Austin is a prime example of that. It's -- we're so lucky with Keystone to be able to get that because it gives us a foothold in that off the market and gives us some assets there, which I think the market that's growing, that is -- has a lot of opportunity for -- to go get some of these different customers from community to middle market side of it, especially as the other banks get bigger and there's more consolidation. So that was kind of a rare opportunity that worked. We would certainly look at our other markets. But we talked a little bit about being a talent magnet. And I think the market, and we have finally seen, that we're able to acquire bankers that are just exceptional. That are working for much larger banks. And being that talent magnet certainly affords us to be able to grow organically. But I kind of think we're almost like a platform magnet for some of these other banks now. We give certain banks the opportunity, if they want to take it to the next step, we have the infrastructure, the technology, now the systems in place that if they're looking for a partnership with it, we offer a platform for them to continue to do what they want to do and grow a certain market. So some of this is about cultural fit and about a partnership that would make a difference for us. And I hope we can continue in that Texas Triangle with all of it, but it could be adjacent to that. Or we're opportunists and look at things that add shareholder value. I mean, ultimately, the way we look at it is what are we going to do that's going to make this franchise more valuable. So I don't know if you were going there, Dave, with it. But it was a really good question that I think it's -- I think we're proving up that we can be a very good partner for other banks. And I'm not so sure that with the Keystone merger that that's not going to open up more phone calls to me about banks that are -- now have another avenue. David Storms: That's great color. One more for me, if I could. Just looking at some of the view of the Keystone credit profile. It looks like they do have really high-quality credit profile, strong asset quality. Is there anything that they're doing that you can see that they're doing now, kind of before you get your hands on it, that you think could be mapped over to Third Coast and improve your underwriting, improve your asset quality even further? Bart Caraway: Yes. So what I would tell you is we really have a good customer base there that we're happy with. And Audrey and I talked about, we wanted to -- we looked at the loans, we felt comfortable. But we also engaged Gateway to do a loan review. And it came out really well, right, Audrey? I mean... Audrey Duncan: Yes. Gateway looked at 80% of their commercial loan portfolio and the results were very, very favorable. But you're correct. They have very strong asset quality. Bart Caraway: So I think what it is, is, again, we layer the tools on top of what they're doing. And I think we can get more wallet share out of some of their large customers. Give them some more products to go out there and compete with some of the bigger banks now. So I'm pretty excited about to see what they're able to do with our additional tools. Operator: This now concludes our question-and-answer session. I would like to turn the floor back to Bart Caraway for closing comments. Bart Caraway: Thank you, Carrie. I appreciate that, and thanks, everybody, for your interest in Third Coast Bancshares, and we look forward to talking to you next quarter. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Welcome to the Oceaneering's Third Quarter 2025 Earnings Conference Call. My name is Tina, and I will be your conference operator. [Operator Instructions] With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations. Hilary Frisbie: Thanks, Tina. Good morning, and welcome to Oceaneering's Third Quarter 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Senior Vice President and Chief Financial Officer; and Mike Sumruld, Senior Vice President of Finance. After Rod's remarks, we will open the call up for questions. Before we begin, I would like to remind participants that statements we make during this call regarding our future financial performance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is posted on our website. I'll now turn the call over to Rod. Roderick Larson: Thanks for joining the call today. In the third quarter, we surpassed the high end of our guidance range, generating consolidated adjusted EBITDA of $111 million marking our highest quarterly performance since the fourth quarter of 2015. These results were largely driven by the ongoing conversion of higher-quality backlog in manufactured products, continued high activity levels and a favorable project mix in our Offshore Projects Group, or OPG. Progression in Aerospace and Defense Technologies or ADTech as they onboard personnel and subcontractors to support large-scale programs and sustained remotely operated vehicle, or ROV pricing and performance. Today, I'll focus my comments on our results for the third quarter of 2025, our outlook for the fourth quarter of 2025. Our consolidated EBITDA and free cash flow guidance for the full year of 2025 and our initial full year 2026 guidance. Starting with our third quarter 2025 consolidated results as compared to the third quarter of 2024. We generated revenue of $743 million, representing a 9% increase and operating income rose 21% to $86.5 million. We made meaningful progress in free cash flow generating $77 million after utilizing $24.2 million for investments in the business. We continue to return capital to shareholders, repurchasing approximately $10 million worth of our common stock shares, resulting in an ending cash position of $506 million. Now let's look at our results by business segment for the third quarter of 2025 also compared to the third quarter of 2024. Subsea Robotics, or SSR revenue and operating income were essentially flat as was the EBITDA margin of 36%. ROV revenue per day utilized increased to $11,254 from $10,576 offsetting the effects of lower but still solid ROV fleet utilization of 65%. Fleet use of 63% in drill support and 37% in vessel-based activity was similar to the same period last year. The revenue split between our ROE business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 77% and 23%, respectively, consistent with last year. As of September 30, 2025, we had 60% of the contracted floating rig market with ROV contracts on 78 of the 131 floating rigs under contract. We maintained our fleet count of 250 ROV systems. During the quarter, we sold a vessel which was underutilized in the survey market. We believe this will yield positive results in our survey business by reducing costs and focusing our efforts on delivering increased efficiencies through the enhanced simultaneous operations capabilities of the Ocean Intervention II. Manufactured Products operating income of $24.7 million and operating income margin of 16% doubled on a 9% increase in revenue. These results were driven by the continued execution of higher-margin backlog through our umbilical manufacturing plants as well as pricing improvements in our Grayloc and Rotator product lines. Order intake during the quarter of $208 million was solid, and our backlog on September 30, 2025, was $568 million. Our book-to-bill ratio was 0.82 for the trailing 12-month period. OPG operating income increased 17% to $23.7 million on a 16% increase in revenue, with the operating income margin flat at 14%. These results reflect healthy vessel utilization in the U.S. Gulf and a favorable mix of intervention and installation projects for the quarter. For Integrity Management and Digital Solutions, or IMDS, operating income and operating income margin improved on a slight decline in revenue. These results reflect the absence of a onetime noncash charge associated with the divestiture of our Marine -- Maritime Intelligence division in the third quarter of 2024. ADTech operating income significantly increased by 36% to $16.6 million on a 27% increase in revenue with operating income margin improving slightly to 13%, driven largely by increasing activity levels associated with contract wins in our defense business. Unallocated expenses of $46.3 million were in line with our guidance for the quarter. Turning to our outlook for the fourth quarter of 2025 as compared to the fourth quarter of 2024. We expect revenue to be lower as improvements in ADTech and SSR will only partially offset the reduction in international OPG projects. Consolidated EBITDA is projected to be in the range of $80 million to $90 million. By segment, for SSR, we anticipate increased revenue and operating income with the EBITDA margin expected to be in the mid- to upper 30% range. Our expectation for improved results is based on continued progression of ROV revenue per day utilized and improved utilization in our survey group with projects starting in the fourth quarter in the U.S. Gulf, Europe and West Africa. For Manufactured products, we expect significantly improved operating income on lower revenue with continued conversion of higher-margin backlog and cost reductions associated with our nonenergy products. For OPG, we project revenue and operating income to decrease significantly due to the absence of large-scale international intervention and installation projects that favorably impacted the fourth quarter of 2024, lower vessel activity levels in the U.S. Gulf and the project timing. With respect to our leased vessel fleet, we have one charter in the international market that is expiring during the quarter that we do not intend to renew due to our expectation for seasonally lower activity and allowing us to better match lease costs to future projects. For IMDS, we forecast revenue to decrease in operating income to decrease significantly due to lower activity. For ADTech, we anticipate significant increases in both revenue and operating income on higher activity levels in our Defense business. We project unallocated expenses to be in the $45 million range. For the full year of 2025, based on our fourth quarter EBITDA guidance, combined with our year-to-date EBITDA results, we expect to generate adjusted EBITDA in the range of $391 million to $401 million. Our strong free cash flow generation in the third quarter gives us confidence to maintain our full year guidance range of $110 million to $130 million. Now looking forward, I'd like to provide you with our initial outlook for 2026. As we announced yesterday, we are initiating consolidated EBITDA guidance in the range of $390 million to $440 million, driving similar levels of free cash flow as we expect to generate in 2025. This is based on our expectations for significant growth in ADTech and stable activity levels across our energy-focused businesses. In particular, for SSR, we forecast similar ROV utilization levels since 2025 at improved pricing levels together with increased volume from survey will generate slight increases in revenue and operating income and stable EBITDA margins. For Manufactured products, we project significantly improved operating income and improved operating margins on decreased revenue due to the continued conversion of higher-margin backlog as well as improved performance and cost reductions from our nonenergy product lines. For OPG, we expect revenue and operating income to decrease on changes in project mix, while significant opportunities exist, customer schedules have not yet finalized. For IMDS, we forecast increased revenue and operating income. And for ADTech, revenue and operating income are expected to increase significantly and operating income margins are expected to be similar to 2025 levels as we execute large-scale projects that have been ramping up throughout the year. Our 2026 forecast is based on the expectation that the government shutdown will be resolved in 2025. We plan to continue share repurchases in 2026 with approximately 5.8 million shares remaining under our existing repurchase authorization. We will provide more detailed guidance for 2026 during the year-end reporting process. In summary, we continue to see growth opportunities in each of the markets we serve beyond 2025, driven by supportive long-term commodity prices improving visibility into an increasing number of contracted floating rigs in the second half of 2026 and beyond. Stability in ROV revenue per day utilized, our ability to optimize our revenue mix between our customers' CapEx and OpEx spend, growth in global defense spending and increased market demand for our mobile robotics technologies. Now before we take questions, I want to take a moment to acknowledge an important milestone. As we previously announced, Alan plans to retire from his role as CFO on January 1. During his 30 years with Oceaneering and 10 years as CFO, Alan has been more than a financial steward. He's been a trusted adviser, a steady hand and a thoughtful leader. His ability to challenge assumptions while remaining open to the perspectives of our employees, customers, investors and other stakeholders has helped us to shape our strategy in meaningful ways. More than that, Alan is a true Oceaneer, embodying our culture of innovation, collaboration and a relentless commitment to excellence. His steady presence to shape not only our financial direction but also the way we lead and work together. Alan, on behalf of all Oceaneers' and our Board of Directors, thank you for all you've done for our team and for Oceaneering. We look forward to your continued contributions as you transition to an advisory role. I'm also happy to introduce Mike Sumruld, our Senior Vice President of Finance, who joined the call today. Mike brings deep industry experience, and we look forward to his contributions to Oceaneering's continued growth. And we'll now be happy to take any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Josh Jayne with Daniel Energy Partners. Joshua Jayne: First one for me, just when I think about the business moving forward toward the Ocean Intervention II, I think it was in August, and it was helpful to see the scale and capabilities of the vessel. One of my takeaways from the upgrades was how you'll ultimately be able to perform simultaneous autonomous survey operations. Maybe you could speak to that a little bit more, the advantages that's going to provide and how we should think about that -- those capabilities and the business moving forward? Roderick Larson: Sure. I think, Josh, I mean, you saw some of that in the tour, but the main takeaway is being able to do more with less. So you decrease the service expression, you decrease fuel usage, you decrease personnel on board. So much more efficient, not just from a cost standpoint, but also from a time standpoint, being able to do more. The other thing that isn't necessarily intuitively obvious because we're doing these things simultaneously and we're gathering this data, you're actually cross-checking data. So you're getting data from 2 different sources at the same time, you get a better idea early about your data quality. So I think all in all, it just provides the customer a more robust solution and getting that data into their hands sooner. Joshua Jayne: Okay. And then also this quarter, you announced a significant Subsea Robotics contract with Petrobras. I think it was $180 million. Could you speak to that market in 2026. How you expect it to hold up versus other geographies? And do you expect your market share in Brazil to increase moving forward for your other energy business lines? Roderick Larson: Sure. I would just say, first of all, I was down there just about a month ago and got to meet with customers, including Petrobras. And the market is really robust. I mean they've got some pretty significant plans. They've got -- they've got Pelotos, which is coming up. They've got the -- we just got an approval, I think some of you might have seen in the news. They just got approval to drill up north near the mouth of the Amazon, which kind of puts them in that at Atlantic margin along with Suriname and Guyana. So I mean, very exciting stuff up there. So it is ever forward in Brazil. They're looking really hard at what they have ahead of them. And these are as big opportunities we've probably ever seen in Brazil. I think market share continues to increase. My conversations certainly led me to believe like I would say, even more in the past, but coming back recently, their interest in technology is really big. And they are first adopters of a lot of the most interesting things we do. We've got things like we've got a riser inspection that will actually fly and do riser inspections. And we've done mooring line inspections and some of the things. So both -- I think both those things that drive them to exploration places, but also with an aging infrastructure, the ability to continue to work in places and exploit those investments they've already made in the existing fields. So I just think Brazil is a very exciting market, and we're well positioned there. Joshua Jayne: Okay. And then maybe just one more quick one. Just on the ADTech business, which continues to grow from a number of the awards you announced and you highlighted in your '26 guidance. It sounds like there's confidence it will be an increasing portion of your business going forward. Can you just speak to how that business is expected to compete for capital moving forward and where you ultimately see it as a percentage of your business over the next 3 to 5 years? And then I'll turn it back. Roderick Larson: Sure. I think the nicest thing about it is that business grows, it's really low capital intensity. And so that's one of the most exciting things about scaling up that business. It's a lot of engineering know-how. It's a lot of products we build. It actually allows us to sweat the footprint we already have currently. I've talked a lot about this that people ask about we've got this defense business and we've got this energy business. They're really hard to separate. We do a lot of robotics. We do a lot of vehicle work. And all of those things happen throughout Oceaneering, right? So some of the things those customers want are really well aligned with our IMDS business, for example. Some of them are really well aligned with the SSR business, obviously, with vehicles. But I think that's the exciting part is we are able to scale that up significantly without a lot of capital. The other thing that we're starting to see more and more, as you see NATO spending increase, you see some of the other areas of the world, bearing more of the cost and more of the responsibility for defense. We're seeing more international opportunities come up as well. And that's everything from things we've seen in Taiwan, things that we've seen in -- with August, the Australian, U.K. and U.S. submarine build. So it's growing on all fronts. The big beautiful bill really put a lot of money back in the coffers for this work to go forward. Alan Curtis: Yes. I'll just add one quick comment. It was -- we had management meetings last week and just to see the whole team rallying around this growth aspect of ADTech and all of the people from the energy side of the business. It was just nice to see 80 people sit there and rally around how can we get there faster. Operator: Our next question comes from the line of Scott Gruber with Citigroup. Scott Gruber: I wanted to get some more color on one of the segments in 4Q of Manufactured product, that's been a big source of growth this year. You mentioned the continued strength on a year-over-year basis in 4Q on operating income, but on lower revenues. It looks like it's implying maybe a double-digit decline on revenues. What do you think that means for margins? And kind of what's driving the revenue decline? So maybe I'll pack that for us a bit more. Alan Curtis: Yes. Give me one second here, Scott. I'm looking at -- I don't know if we're implying double-digit decline in revenue. And I think it's really the quality of earnings is where we see the increase in the operating income and EBITDA for the segment. So a lot of the backlog we've been talking about for the last 2 years where we received the improved pricing, a lot of that is starting to flow through as you witnessed this year. There's a good part of that still in backlog that we expect to execute in '26. And at the same time, we've taken some I'll say, operational excellence focus in this area as well and continue to look at how we can improve our cost structure across the board. And I think we're expecting to realize some additional benefit in '26 there. Roderick Larson: Yes, Scott, maybe just while they're doing the calculations, I mean, we're running the plants. The plants are booked. We -- I mean, we've got a great -- we've got a great runway for both what we did in '25, but through '26 as well as I think Alan has mentioned it before, having good backlog in all 3 of the umbilical plants. We've got good throughput at Grayloc and Rotator. Rotators having some of their best quarters ever. So I don't think there's a -- the revenue thing is not to imply that we're not going to have a large book of work. I think it's really just a matter of how that timing happens. I would say the sales funnel looks good. So we're booking into '27. So it's just a matter of when those larger projects hit, but I'm not I'm really -- I mean, Manufactured products is a good story for next year. Scott Gruber: Yes. Yes, yes. I was just a bit surprised that the revenue would be declining sequentially here in the fourth quarter relative to last year. So moving on to ADTech, obviously, another great source of growth for you guys. Can you just give us some additional color on the kind of cadence of ADTech growth that's embedded in the '26 EBITDA guide? Alan Curtis: Yes. I would kind of start with -- we've been talking through, we are adding additional contractors, subcontractors and personnel for the large-scale project that we announced in Q1. The team continues to onboard those subcontractors and looking at how we exit '25. I think, is a good beginning to how we think we'll start '26, but we expect to still continue to ramp up some of the revenue throughout the remainder of '26 as well. So we expect good progression year-over-year really with the new program that we have been awarded. Roderick Larson: And that's just that program because it ramps through '27, but we've got some other things coming on as well, new opportunities yet to be determined. So there's just a lot, lot of excitement in ADTech. I think we talked on the previous -- to Josh as well. There's -- it's firing on all 3 cylinders actually in that business. So it's hard to really quantify until we get those other pieces booked. But we just talked about that one big project. Alan hit it well. It will ramp through '26 and into '27. Operator: And with no further questions in queue. I will now turn the call back to Rod Larson for closing remarks. Roderick Larson: Well, since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. This concludes our third quarter 2025 conference call. Have a great day. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Welcome to the Atlas Copco Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead. Peter Kinnart: Thank you, operator, and a very warm welcome, good morning, good afternoon or good evening to all of? You attending this third quarter 2025 earnings call. Together with me is Vagner Rego, who will guide you through the presentation together. But before we start, I will repeat the same topic I always say when we start the call, and that is when we start after the presentation with the question round, please only ask one question at the time. So we make sure that all participants have the opportunity to raise their most important question. Is there more time available afterwards, you are, of course, more than welcome to line up again to ask your next question. With that, I hand over to Vagner Rego, who will start the presentation. Vagner Rego: Thank you very much, Peter, and welcome to this conference call. We're quite happy to be here once again. So if we go straight to the summary of this quarter, we have seen a mixed demand with stable orders pretty much aligned with what we have said on the guidance for Q3 during the Q2 conference call. So -- and then you can see industrial compressors flat. Gas and process, we see a decline in the orders received when you look to year-to-year comparison was good on the industrial vacuum side, but negative on the semiconductor vacuum side. When it comes to industrial assembly and vision solutions, there, we saw a negative development, mainly driven by automotive due to the conditions in the market. We had a solid growth for power equipment that we were quite happy to see that. And again, good growth on our service business. We see that our efforts to further develop our service business and the implementation of the installed base, I think we managed to capture that installed base that has been deployed over the years. When it comes to revenues, it was somewhat up, and we had 2 business areas with a good organic -- reasonable, let's say, organic development and 2 business areas with a negative development that led us to a growth of 1%. The profit margin has been affected by restructuring costs. We will come back with more details and acquisitions. We have done 6 acquisitions. 2 acquisitions I would like to highlight because they are very important for our strategy. The first one is ABC compressors that is increasing our ability to serve customers in hydrogen and CO2 applications. And the other one is Shareway, which is a joint venture. We acquired 70% of the company, and it's going to be a very important one for our development in China, adding as well technologies that we didn't have in our portfolio. So cash flow was quite solid. We were very happy to see we continue to generate very good cash flow. So going to the next, if we look into the financials, how was that translated? We reached SEK 40.5 billion in terms of orders received, as you can see, SEK 41.6 billion in revenues, orders received more or less aligned with previous quarter, but unchanged organically. And like I have mentioned, 1% organically in the revenues. Operating margin was 20.5%. But then if we readjust for the restructuring cost, we end up at 21.3%. And the operating cash flow, we have mentioned already SEK 7.3 billion, which is quite solid, and we were quite happy to see that development. If we then move to how we have performed all over the world. If I then start with North America, we saw still the environment there is, let's say, has challenges, uncertainty, but we are happy with the quarter with plus 10%, if you correct for currency. So -- and there, we see very strong development in Compressor Technique and Power Technique that it was really good to see. And Vacuum and Industrial Technique were slightly negative, impacted by semiconductor and the automotive market. When it comes to Europe, it was also good to see 10% development. And here, again, Compressor Technique had a good development, positive development, Power Technique, the same, and we had a negative development in Vacuum Technique and Industrial Technique. When it comes to Asia, basically, all business areas had a good development, positive development. The only headwind we had was in Compressor Technique, mainly due to large gas and process compressors and some large industrial compressors where we saw negative development. But combined, we still had a positive development of 1%. Latin America continues -- not Latin America, but South America being more specific, had a positive development, almost basically most of business area with positive development [indiscernible] Industrial Technique negative. And then Africa, Middle East, they had quite a big comparison to be. And there, we saw a negative development that is mainly influenced by Compressor Technique and Power Technique. Overall, if we adjust for currency, plus 2% in orders, which is more or less aligned with what we have seen year-to-date. If we then move -- if we combine again all the figures, we can see that we had plus 2% in structural change. That is basically our acquisitions. In revenues, the acquisitions performed better, plus 3%, quite a lot of currency headwind, minus 6% in orders, minus 7% in revenues, organic growth unchanging orders like we have mentioned, we end up at SEK 40.5 billion in orders received and SEK 41.6 billion in revenues. So if we then see the split among the the business areas. We can see now that Compressor Technique in the last 12 months as an order -- has contributed to 46% of our orders received and this quarter with 0% growth or no growth basically. Vacuum Technique, 21% of our orders with 1% growth, very good contribution from Industrial Vacuum and Service. Power Technique continues a good development in orders, 17% now of our business, plus 5% in the quarter and Industrial Technique with minus 3% in orders received. If we then move to Compressor Technique, it's what we have seen, industrial compressors were basically unchanged. Let's say, a little bit more negative towards the larger compressors, a little bit more positive towards the smaller compressors. That is not a big indicator, but just what happened in the quarter. We saw decreased order intake year-on-year on gas and process compressor, but sequentially, we saw a good development and improvement compared to Q2. Service business continued to develop very well. Once again, quite happy to see that. Revenues as well that shows that the quality of our order book is good, and we continue to develop 4% organic growth profitability, we are quite happy with this level of 25.3%. We should have in mind, we have done slightly larger acquisitions that has a bigger impact, and we are focused to do more integration items at the beginning, meaning deploying our IT, our -- especially when it comes to cybersecurity. So a little bit more cost at the beginning to safeguard our acquisition. So a bit more cost, but we are happy with that level of 23.5%. So ROCE remains at a good level. And we continue our innovation pipeline with Compressor Technique. And here, today, we brought an example of our development in China that sometimes you have to develop to come with more features that you can come with a different value proposition to the customer. Sometimes you have to innovate to cost reduce. And this is a good example of how we innovate also to cost reduce to be competitive in China, but also to create options as well in other regions. A very good achievement now with this new innovation. Then if we go to Vacuum Technique, we saw 1%. It's good to see positive development, although it's not in the semi market, but it's very good to see that industrial and scientific vacuum in terms of equipment continues to develop very well. We still don't see -- we are yet to see a positive development in the semi market, but we still have headwinds, especially for North America when it comes to the semi. In the other hand, it's very good to see the service business developing very well, especially in the semi part of the business, new fabs being built coming into operation, and we managed now to get the aftermarket from these fabs. But also not only on the semi service, but also the industrial service is developing quite well. And then we have headwinds in the revenue. Revenues were down 6% organically. That put pressures in the bottom line, but we see good traction on the restructuring activities that we have announced and performed during the year. But this quarter, we felt that we could -- because of the headwinds we have in the North American organization when it comes to some market and semi as well, we decided to further optimize our footprint there without damaging our ability to grow, to sell, to further develop the business. I think that we didn't touch, but we have reorganized our North America that include to reorganize one factory to adapt one of our service centers to integrate and also to work in our customer center, try to optimize, decrease management structure and safeguard that our ability to support our industrial and semi customers are not touching. I think that was the main target. And that's why we decided to do a new round of restructuring in Vacuum Technique to make sure we safeguard our bottom line. So then the adjusted operating margin was 20.1%. So return on capital employed 18%. And we continue to innovate in the semi market. You know that real estate is very important in the semi market. I mean, the footprint that your product utilized is very important, and we managed to come now with this integrated abatement system that we occupy 30% less space in the fab. That's also important to support our customers in that market segment. If we then go to Industrial Technique, we saw order decline of 3% and is mainly driven by the headwinds in the automotive. And I would say not everything is negative in the automotive. We still get quite a good level of orders when it comes to flexible production lines, meaning if the production line needs to be more flexible, we can support our customers on that. We have more products, more software-driven products as well that can support our customers. And we also see more demand for automation. That is good. But in the other hand, we see less production lines being built, and that means less project. And the project business is having more headwinds. So -- and that's what we have seen. And service was basically unchanged. That has also -- that is also influenced by the number of cars produced. And that's why we see a stable level in Service and Industrial Technique. Revenues were down 1% organically. Operating margin were at 18.8%, excluding the restructuring costs, a minor restructuring cost of SEK 53 million compared to Vacuum Technique. So we keep on fine-tuning our organization in Industrial Technique because we have the headwinds. And it's the same concept. We have optimized management structure, and we try to adapt to the circumstances that we see today in the market. And again, the innovation efforts continue. Here, we develop a product that is reducing the dispensing time in about 50% that definitely can support some of our customers, and we are also quite happy with that development. So if we then move to Power Technique, and that is more a positive picture when it comes to the orders development, solid growth in equipment. Basically, most of the Equipment division had a positive development. Good growth in rental. I think that we continue to develop. Revenues were up 3% organic and operating margin at 17%. And here, we have higher functional cost and then a little bit of dilution from the acquisition. But I think the main topic here is higher functional costs. We have created a new division to sell industrial flow products. We are building up competence in our customer centers. I think that will bring -- is bringing a good organic growth, but I think we haven't seen -- we are yet to see translation in improved margin that will come over time. We believe we can operate in a higher margin with a higher margin in Power Technique. And now it's important as well, the acquired companies, we also invest in innovation. On the functional cost, there is also a component of higher R&D because also the acquired companies, we buy technology, but we believe we should continue to innovate. And this is one example of an innovation of one of our acquired companies, Wangen that they managed to come with a new twin screw pump for applications, pumping high viscous media in demand high flow rates. So also there, very good to see our innovation. So with that, I will transfer to you, Peter, to talk about our profit margin. Peter Kinnart: Okay. Thank you, Vagner. So from the operating profit of SEK 8.5 billion, we go through the net financial items, which are slightly lower due to somewhat lower exchange rate -- financial exchange rate differences to a profit before tax of SEK 8.5 billion compared to SEK 9.2 billion last year. and an income tax expense of SEK 1.8 billion. That means that we have an effective tax rate of 21.1% for the quarter, which is on the low side. Main reason for that is that besides the normal things that we see recurring that we also had a lowering of deferred tax liabilities linked to the lower announced tax rate for the German market. Therefore, this is a fairly low tax rate. It also still includes some of the release of provisions from the past from China high-tech we used to have. And so for the next quarter, we think the effective tax rate will be somewhat higher, probably around 21.5% to 22% in the near term. And that gives us a total profit of the period of SEK 6.7 billion and basic earnings per share of SEK 1.37 for the quarter. Then I will move on to Slide #12, talking a bit more about the profitability in detail. I would say, first of all, overall, I think we were quite pleased with the overall profit level that we managed to achieve in these quite turbulent and difficult circumstances. As already explained by Vagner, we had some restructuring costs. Actually, also last year, we had some restructuring costs. So therefore, you see here in the bridge, the net. For this year, the total cost was about SEK 205 million. For last year, we had a cost of SEK 123 million, leading then to the net SEK 82 million in the bridge, slightly diluting the margin as well as the impact of the LTI programs also having a small negative impact. But the main headlines of the profitability development, I would say, were, on the one hand, a slightly positive currency development. As you remember, last quarter, we had quite significant impacts of currency, but this month -- this quarter, it's much more mild and actually slightly positive. So I will not go into more detail like I did last time. The acquisitions, however, are then a detractor of about 0.6%. And also the tariffs had a bit of a negative impact on the profitability for the quarter. Nothing dramatic, but I have to admit that we did not manage to completely compensate for the tariff impact and the turmoil in that particular area throughout the quarter. And so I think that are the main contributors to the profit development for the quarter. Talking about currency, also for next quarter, we do expect actually, in absolute terms, a continued negative development of the currency contribution due to the fact that the average rate continues to lower, all things being equal. And therefore, we would expect anywhere around SEK 800 million potentially of cost impact, also depending, of course, and that remains to be seen on the revaluation of assets on the balance sheet. If we then take the profitability and dive a little bit deeper into each of the business areas, highlighting the main contributors to the respective profit developments on Slide #13. Then starting with Compressor Technique. First of all, 25.3%, continuing at a very good and solid margin. There was a slight detraction from the acquisitions, which is, in our belief, a very important investment in future growth. We also front-load a bit more with costs in order to safeguard a good, speedy integration process from the beginning onwards. And that is the reason why we see a bit more of detraction from the acquisitions. Otherwise, I don't think anything else was very strong. Secondary, maybe also, of course, the tariffs had to have a minor impact as well. On Vacuum Technique, here, a bit of a mixed picture, a bigger impact from currency, as you can see. The main reason is that last year, we had quite a big negative impact, and that in the bridge then turns into quite a significant positive. Otherwise, it would be relatively comparable to the other business areas, but that's the reason for the high positive. On the other hand, volumes were the main detractor. We see, of course, the top line going down with SEK 591 million, and that has an impact on the profitability on the bottom line. That's the main contributor. But also here, tariffs are part of the equation. Again, a minor impact, but still an impact in our profitability development. And of course, we already mentioned the restructuring net impact in the profit bridge as well. Industrial Technique, also here, the impact of the restructuring cost, as I already mentioned. Further then also revenue volumes being negatively affecting the profitability. The currency also slightly negative impact from a margin point of view. Also, the acquisitions were a bit dilutive. So overall, going to 18%. But I think with the restructuring activities, we are also there working hard to try to turn the corner and improve the profitability. As already indicated, we evaluated quarter-by-quarter how things develop. And whenever needed, we take the necessary measures. And we need to do it cautiously because, for example, in Vacuum Technique, you've seen the very solid development of service. So obviously, we cannot just cut away everywhere in the organization. We need to do it in a careful way, so we don't jeopardize the growth of the respective businesses. And then last, in the table here, Power Technique with delivering a solid margin of 17% again. Here, as we already mentioned, the main topic of the lower profitability from an organic point of view was more the functional costs. We are investing in a new division as one aspect of it. We are also working on a number of transformation projects, rejuvenating some of the old ERP systems we have for specialty rental for some of our production entities, for example. And that also triggers a number of additional costs for the time being. But over time, of course, we expect them to become more efficient and as a result, also improve the margin coming from those different investments. Also investments in dedicated salespeople in Power and Flow also within IFD in the Industrial Flow division, we are working hard to build that organization so we can leverage the sales of all the different technologies we have acquired in the last few years. So I think that explains the overall profitability business area by business area. If I then move to the balance sheet, I would say, relatively uneventful. Of course, on the one hand, intangible assets go up due to the acquisitions. On the other hand, we amortize, so basically quite stable. We see some impact on the inventories, for example, which is beneficial. We are actually indeed improving the inventory levels across the organization with all the different actions that we have ongoing. The receivables overall fairly quite stable, especially from a relative point of view. So we are quite happy with maintaining that good performance on the receivables side. On the equity side, also there, not so much to mention, mainly the equity is changing because of the fact that we are generating more profit, while on the other hand, of course, we are also paying dividends. And on that point, I would like to just highlight the fact that tomorrow, we will actually pay the second installment of the dividend related to 2024, SEK 1.50 per share roughly in total volume, an amount of SEK 7.3 billion. And with that, I turn to the cash flow. In the cash flow also there, I think a solid performance. You could say, well, yes, it's a little bit lower than last year. But on the other hand, quarter-over-quarter or over the different quarters, I think this is quite a significant value of operating cash flow we are generating. On the one hand, we have a little bit lower operating cash surplus, but we have a little bit less taxes paid. On the other hand, we have a slightly less positive impact from the change in working capital compared to the same quarter last year. But we also see a gradually slight slowdown in the increasing rental equipment, but also in the investments of property and plant. We continue to do a number of investments that are necessary for the future to replace some of the old assets, but also to build some new capacity, but at a slower pace than we used to a while ago. Also, of course, given the current climate, I think that makes a lot of sense. And with that, we end up with the SEK 7.3 billion operating cash flow. And with that, I think we have come to the end of the comments to the financial statements. And I would like to hand over back again to Vagner, who will comment a bit more on our near-term outlook. Vagner Rego: Good. Thanks, Peter. And once again, I would like to repeat that our forward-looking statement when it comes to the outlook is not -- is a sequential guidance. It's not a straight projection of our orders received. And again, to do that, to come to that statement, we look to the external world. And once again, we don't see a change in the environment. The world continues with a lot of uncertainty that are not supporting our customers to take decision, especially on large orders. So -- and then when we also look to our business internally, we don't see a dramatic change. We talk with our 24 divisions, look to the pipeline, different market segments, and we see no reason to believe that there will be a dramatic change compared to Q3. So that's why we continue with our statement that we expect that our customer activity to remain at the same level -- to remain at the current level. And then I would like to invite you for our Capital Markets Day that will happen in Germany. We will first go to Stuttgart, and there, we will have some presentation. And after lunch, we will go to our innovation center in Breton, where we will share some of our innovations related to Industrial Technique and Vacuum Technique. And I'm looking forward to see you there. Peter Kinnart: Yes. Thank you, Vagner. And we actually have still a few places left. So if you're really eager to see those products, then please come forward so we can reserve your seats. With that, we come to the end of the presentation, and we would like to start the question round. Again, I would like to repeat, please refrain yourself to only asking 1 question at a time. And then we are looking forward to receiving your questions. Back to the operator. Operator: [Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I want to ask a question about sort of what you mentioned regarding the margin still and the fact that you didn't fully compensate the tariffs entirely. Is this -- do you see that as sort of a delayed impact? We should see sort of eventually the full compensation within the coming quarters? Or is it more sort of an intention to not fully compensate it, I don't know, because of competitive reasons or anything else? Can you elaborate a bit there, please? Peter Kinnart: Sure, Daniela. Thank you for your question. No, first of all, it's definitely not intentional not to fully compensate for the tariffs. I think it's just been a very turbulent quarter with a lot of changes, especially towards the end of August with Section 232 being added to the equation and asking quite a lot of effort from big parts of the organization to investigate more deeply and to qualify a number of products, et cetera. So that has caused, of course, a bit of delay in being able to answer fully to some of these issues. And therefore, we have somewhat higher tariffs. I wouldn't say that it is necessarily so that in the very short term, we would be able to fully compensate, but we are quite confident that over time, over the quarter that we will be able to compensate for the tariffs as they exist today. With that, I also need to immediately apply some caution because as the changes are happening overnight very often, we don't know, of course, what's coming, but we continue to monitor it very closely. Maybe one thing to underline as well is that I did indicate that the tariffs did have an impact on the profitability for the quarter, but I also want to underline that the impact was not humongous that it was not totally destroying the profitability level. But we do admit that we did not manage to fully compensate for the tariff impact for the time being. Operator: The next question comes from Michael Harleaux from Morgan Stanley. Michael Harleaux: I'll limit myself to one as requested. On the large gas and process category, would it be possible for you to help us understand where we are in the LNG ordering cycle? Vagner Rego: Well, I think to say exactly where we are in the cycle, I think it's a bit more difficult. What I can say is this -- our presence in the market, we cover several market segments including LNG. Particularly this quarter, we did have orders on LNG as well. We had orders for fewer gas boosters. There are quite a lot of investments ongoing to increase the energy production capacity with gas-fired turbines. So -- and we do have products for that. And -- but we also saw good order development in industrial gases, for instance. So it's a quite a diverse market, let's say, segments that we cover, and we saw a good development this quarter, including in LNG. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: So I just want to come back on the impact from tariffs. You mentioned Section 232 added through the quarter, but that was 18th of August. And then you probably had some inventory to cover you through September, right? So shouldn't Section 232 hit you harder, Peter, in the fourth quarter when the full effect kicks in from steel and aluminum. So shouldn't we see a weaker drop-through here in the fourth quarter? Or can you take out enough cost to raise prices to mitigate that incremental impact? Peter Kinnart: Thank you, Klas. I think a very fair question and logical reasoning, of course. But I think it's also fair to say that the introduction of 232 didn't allow us immediately to get to lower tariffs with the Section 232. There's a lot of documentation required to pass the customs in order to prove that you don't need to pay 200% tariff or that you pay 50% tariff. So as a result, I think we had a bit of a spike, you could say, maybe in September towards the end of the quarter when it comes to the impact of 232. While now, of course, we have worked with a lot of people in the organization on trying to sort out both through our suppliers, both through our engineering departments throughout different locations, et cetera, how we can document all the products in the best possible way in order to be able to get the best possible tariff, so to say, under the present rules. So as a result, I think in quarter 4, we are better placed to pass the products to custom duties. That being said, I think on the other hand, of course, there will be more products going through the full quarter, as you indicate. And therefore, you could say that in absolute terms, the cost will be higher. But I think overall, and it's hard to really estimate, of course. But overall, I don't think it would result in a dramatic increase of the tariffs in the fourth quarter for us. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: I'm wondering if you could give us some color on what you're seeing in semiconductor demand. I'd say fairly recent news flow has been positive both on the memory side, plus you have better clarity on what Intel is going to do or not do. Can you just tell us what you're seeing in VT right now and how we should think about development into next year? Vagner Rego: Yes. What I can say, I think when it comes to leading edge nodes, I think the market environment is very positive, very good. A lot of investments ongoing, players that are -- some that are more mature on scaling up really the leading-edge nodes. Some are trying. And there, I really cannot say where they are. So we also not -- we don't comment on specific customers. We are not allowed to talk about specific customers. But one thing that is important to remind, leading edge node is going well, and we get orders. We are happy with that business. But of course, the entire market still has quite a lot of capacity. So -- and if you take a little bit advanced nodes and legacy nodes, there -- there is overcapacity. And of course, we need the entire market developing very well in order we can see a bend in the trend when it comes to orders received in that market. John-B Kim: Okay. And can you comment on memory, please? Vagner Rego: Sorry, I didn't get the last comment. John-B Kim: Could you offer a similar comment on memory, memory customers? Vagner Rego: No, we are a bit more agnostic when it comes to memory and logic. We are present in both markets. And I think if there is a good development in that market, we will be able to capture that development. I think we are well positioned to capture any movement in that market. Operator: The next question comes from Sebastian Kuenne from RBC. Sebastian Kuenne: I spoke recently to some of your competitors in Europe, and they speak of a more aggressive pricing behavior of some of your American competitors inside of Europe. Could you maybe give us an idea of what the pricing situation is and whether that's related to the currency differential? Vagner Rego: Yes. I cannot really comment what is happening with our competitor. I must say we do have positive price development in our -- if you are referring to our compressor business, for instance, we do have positive price development, including in Europe. We also have positive development in the U.S. that we try to compensate as well for the tariffs. That's what I can say. difficult for me to judge what's happening. I think our position in Europe remains quite solid. I think we had a good development in Q3. As you could see, I mentioned that we had positive development in Europe. So we are quite happy with the development in the orders that we have had in Q3. So good. That's what I, let's say, I would like to comment when it comes to price. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus from Nordea. Sorry to labor the point about the tariffs. I think you had a 40 bps headwinds on the organic part in the bridge -- margin bridge this quarter. Could you help us frame the tariff impact within that? I'm not sure if you want to comment exactly what it was, but some help on the magnitude would be helpful. Peter Kinnart: Yes, I think it's hard to pinpoint exactly, of course, because, okay, on the one hand, we do follow up quite closely what is the exact impact of the tariffs. As such, the custom duties that we need to pay when we clear the goods. On the other hand, there's, of course, a lot of indirect costs as there's a lot of people in the organization working hard on the whole topic. Secondly, there's also additional storage costs when you are holding goods for a longer time before clearing them into -- waiting for maybe additional information or other type of things. And then last but not least, of course, we also work a lot with extra support external to help us make sure that we don't make big mistakes in the way we assess the value on which the custom duties will be paid. But like I said, overall, I think the tariff impact was not dramatic. It didn't turn around the profitability completely. It was one of the contributing factors. So okay, as you say, minus 0.4% overall on the group from an organic perspective. Tariffs were a contributor to that, but not the only one in there. There was also volume mix and price combined, you could say. So I think, like I said, no very substantial impact, but altogether, still an impact in that I think we didn't -- we don't want to shy away from, so to say, to say that there is a minor negative impact from the tariffs in the profit margin. Operator: The next question comes from Alexander Jones from BofA. Alexander Jones: You mentioned that industrial compressor orders in Europe were up in the quarter, whereas last quarter, you talked about stable. Could you highlight for us whether that's driven by any particular areas? And how are you thinking about that European outlook in the coming quarters? Vagner Rego: I think it came especially from our effort -- we have created as well a new division that we call Air & Gas Solutions. And they managed to have quite a good development for some gas generation project. I think we did quite well. Also, medical air did quite well. There are some pockets where we can find good opportunities for growth. But the industrial market in general, there was not a huge uptick. But in some pockets, we managed to have good business. I think it's also fair to say smaller compressors developed quite okay as well. That was important. So -- but not something that I wouldn't like to say the overall market is bouncing back. It's more driven by the activities that we have done to try to gain market share and in some areas to have -- to capture the opportunities in a market segment that is developing a little bit better. Operator: The next question comes from Rizk Maidi from Jefferies. Rizk Maidi: So the question is, can we double-click, please, on Compressor Technique in 2 regions, North America and China. If you could just walk us through how you've done in small- to medium-sized compressors, gas and process and large industrials and how you feel your competition has done as well, how you feel you've done versus the market? Vagner Rego: I think in North America, to say against the market, I think it's a bit difficult. But in North America, we are quite happy with the development in Q3 because we have all these uncertainties around tariffs and Session 232 and the teams, they did a very good job, very solid job. We had a double-digit growth in North America when it comes to compressors. We also had good development in -- in gas and process compressors. And there is more around industrial gases and fewer gas boosters that they go to gas-fired power plants. So that was the pockets that we're doing quite well. And then if I comment a little bit more about China, there is a little bit more challenging. I think the scenario has not changed. We see less projects in industrial compressors, but also in gas and process gas and process is a little bit more difficult than industrial compressors. Operator: The next question comes from Rory Smith from Oxcap. Rory Smith: It's Rory from Oxcap. I just wanted to sort of double-click on that industrial compressor piece. And if you could add any more color to the difference you're seeing in the quarter between the sort of small and medium-sized industrial compressors and the large industrial compressors. Is that by market, by region? Any color there? And I might try my luck with a follow-up, if that's okay. Vagner Rego: I think overall, like I said, it's a bit more difficult in Asia, particularly in China that we have mentioned already. There is a very small difference between small and large, a little bit more in favor of the smaller compressor, but it's not a huge difference. It's not something that is becoming an indicator, I would not use as an indicator because the difference is very small. But it was more in favor of the smaller compressors. Rory Smith: Understood. And if I could just follow up on that. You obviously called out the investment you're making to innovate to cost compete in China. I was just wondering if you'd be able or willing to put some numbers around that R&D piece, yes, for the investment in sort of, I guess, not lower spec, but yes, innovating to cost compete. Any numbers around that, that would be the question. Vagner Rego: No, I don't have a number to share. But what I can say, we are focused as well to be competitive in China. We have done an investment in our facility in Wuxi that we call now the Wuxi campus, where we have concentrated most of the Compressor Technique facilities in one place. And that gave a lot of R&D capabilities to the team we have in China, capabilities that we didn't have before with more test cells with more R&D facilities to do test, to do design. We are increasing the autonomy that our Chinese teams, they have in terms of design, still with good collaboration with our Belgium team, but a little bit more independence. And I think that is going well. And that's why we would like to share that product because I think that comes out of that reorganization and that investment. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: My question is also regarding semi CapEx. I understand your near-term comments on leading edge and also the overcapacity. I think that is sort of comments you made before, Vagner, if I'm not mistaken. But given all this, a lot of news flows in during Q3 here, when you're talking to your customers about sort of 2026 and beyond, how have they responded to these news and also especially the future CapEx plan from their side because -- I stop there. Vagner Rego: Yes. It's difficult to talk about 2026. We only talk about Q4 first. In Q4, we believe that it's going to be stable. I think it's difficult. You know this market, how it works. It's key account business. When they decide to place order or to populate a fab when they -- first, they do the R&D stage and then they do the pilot, then they need to try to nail that production facility with the right yield and then they scale up and sometimes can come very fast. I think it's difficult for me to comment looking at 2026 or even 2027. What I can say from Q3 to Q4, we see the market -- we don't see any reason to change the trajectory that we have seen lately. Operator: The next question comes from Anders Idborg from ABG. Anders Idborg: Just wanted to ask about acquisitions. So we've seen a very nice flow of bolt-ons. I'm just a little bit surprised when we look at the -- over the last, well, 6 quarters, basically, there's been very little of EBIT contribution on the bridge, and I don't have really the impression that you bought unprofitable companies here. So what is the reason? Is there some just initial cost restructuring going on? Or could you -- would you care to explain that? Vagner Rego: Yes. Thank you for the question. I think we -- definitely, we try to add good businesses to our portfolio of technologies and companies that we have definitely. But we also have an effort to integrate these companies faster and I mentioned during the presentation that we -- for instance, cybersecurity is very important. And we try to -- that is a kind of nonnegotiable. We try to bring that to our spec as soon as possible. We have deadlines to meet because I think it's very important to protect the assets that we have bought. And of course, that incur in some cost at the beginning. We have seen now with the acquisition of Shareway. For instance, there was quite a lot of costs that we had at the beginning. So -- but of course, those companies are profitable. And that happened -- that has happened as well in the years before. So the first year is a bit more challenging. And then we recuperate over time deploying synergies. And acquisition is very important for us. We have reorganize our post-acquisition process to be able to capture the synergies in a good and structured way. We are reinforcing the teams there because we have acquired more companies that required even more structured process that what we used to have. So we are investing on that as well to be able to capture this value that we believe when we -- before the acquisition. So I think we are happy with the companies, a lot of activities. And year 1, we see that is normally challenging because we want to do some of the integration items quite fast. Operator: The next question comes from Sebastian Kuenne from RBC. Sebastian Kuenne: I have a question on VT. You mentioned lower volume as one of the key reasons for the lower margin. But at the same time, you have competition that sits in Japan like Ebara, you have Busch in the U.S., [ Pfeiffer ] in Germany. Is the price situation in the global vacuum pump market stable? Or do you see the pressure from manufacturers in lower-cost countries effectively? Vagner Rego: What is key for the price development is technology, and we need to continue to develop our products to come with better products to be able to exercise some pricing power. And I think that's our focus, and we will continue to develop the products that will allow -- that can deliver superior value to our customers, and that could help us with our price efforts. So -- and I think that's where we are focused on now. Sebastian Kuenne: Okay. So no change in pricing. Operator: Next question comes from Magnus Kruber from Nordea. Magnus Kruber: Just reverting to some of these announcements that has been in the media over the past couple of months with respect to some big framework agreements, particularly on the memory side. Is there any way you can sort of help us scope what these opportunities could mean to you if they come to fruition over the coming years? How -- can you frame them, for example, with respect to sort of how big that potential is compared to your legacy semi business? Vagner Rego: What I can say about the market, we -- let's say, we know all the players in the U.S., in Asia, including China. So we are present in all these players. We have a good position in most of the players. If this comes to fruition, we will be there to capture. I think that is our main focus. We don't know which one we will scale up first or later. That we don't know. I think the most important for us is what give us confidence as well is the fact that we are very well positioned. Any movement we will be able to capture. Magnus Kruber: Got it. And can I just have an additional question. You talked a little bit about ramping up on R&D in Compressor Tech going forward to drive additional growth. Is that sort of a China-focused initiative? Or could you highlight a little bit of potentially how much you would be willing to interest and invest and in which pockets? Vagner Rego: I would say the investment were more in capabilities in facilities, better places where they can test the machine testing environment. So those capabilities we have -- we have created -- we have increased actually. We always had, but we have increased in China. And I think we continue -- this is not a dramatic increase in R&D in Compressor Technique. They have been focused. They will continue being focused. But I think we can get more out of our Chinese organization. That's what we are doing, getting ready for that. Peter Kinnart: Okay. Thank you very much, Magnus, for that question. And actually, with that, we have also answered the last question on the call. I would like to thank you all for your presence and for listening to our presentation. As always, of course, should you have any further detailed questions on any of the business areas or the group overall, you're more than welcome to contact our IR department as always. So with that, thank you very much for attending, and have a great rest of the day. Thank you. Bye-bye.
Linda Hakkila: Hello all, and welcome to follow Konecranes' Q3 2025 Results Webcast. My name is Linda Hakkila. I'm the VP, Investor Relations here at Konecranes. And with me today, as our main speakers, we have our President and CEO, Marko Tulokas; and our CFO, Teo Ottola. Before we proceed, I would like to remind you about the disclaimer as we might be making forward-looking statements. Here, you can see our agenda for today. We will first start with a presentation from our CEO, and he will give us a market update and guide us through the group performance. After that, our CFO, Teo Ottola, will guide us through the business area performance and talk about the balance sheet topics. Before we start with the Q&As, our CEO will still summarize the main points of the quarter. But now, without any further comments, I would like to hand over to our CEO. Marko Tulokas: Thank you very much, Linda. I'd like to start by saying that I'm extremely pleased with our performance in quarter 3 and throughout the year 2025. Konecranes' team delivered a very strong quarter in continuation to our solid half year performance. Under the prevailing market conditions, this is an excellent achievement. This is -- with this kind of market uncertainty, an order intake, a growth of 23% year-on-year is a very good starting -- start for the quarter 3 or is a very good quarter 3. Our demand environment has remained stable despite the market uncertainty and our sales teams have been able to close well despite the timing-related hesitation. Our orders are up now by 23% year-on-year in comparable currencies and our order increased more than 7% -- order book increased, sorry. The order intake increased in all business areas. Our sales amounted to nearly EUR 1 billion in the third quarter. This means a decrease of 5.5% year-on-year in comparable currencies. Despite the decrease in sales, we reached a record high EBITA margin of 16.7%. That is an increase from second quarter level of 14.3%. Our profitability in the third quarter was supported by good execution, as well as some one-off items. We will go through the performance by business area later in this presentation. The next, I will again go through some words to our general market environment. Let's start with our Industrial segment. In general, our demand environment remained good despite somewhat weaker macroeconomical data. The capacity utilization rates are the best macro indicators that describe these conditions for Industrial business area. And from the data, we can see some weakening year-on-year, but still our order intake in Industrial Service and Industrial Equipment grew in quarter 3. That was really driven by good activity in our standard equipment business, as well as some significant modernization and process crane projects. At the same time, within our industrial customers, we have seen somewhat cautious behavior, both in timing of new orders, as well as delay in project delivery acceptance. Our operating environment continues to be impacted by geopolitical tensions and volatility, especially related to tariffs. Now let's then talk about the market environment for Port Solutions. And in Port Solutions markets, we continue to see good activity. The Container Throughput Index, which is the main indicator here, continued at a strong level in the third quarter compared to the historical readings. It is now up by 3% year-on-year. And as we say in our demand outlook, the long-term prospects related to container handling or container traffic remain good overall. Now we will now next take a look at our sales and order intake development. In the third quarter, the group order intake grew by 23% year-on-year in comparable currencies, and that is an increase in all 3 BAs. Looking at geographical markets, we saw some improvement in our order intake in Americas and APAC region, as well as some weakening in EMEA. Our sales in the third quarter decreased both in reported terms and comparable currencies, which was mainly driven by the lower order book in Port Solutions. And in the third quarter, we saw a decrease in net sales for Industrial Service and Port Solutions, but very strong delivery performance in Industrial Equipment after a less strong quarter 2. On a group level, we saw a decrease in net sales in all regions. Moving on to the order book. And our order book reached its highest level since quarter 1 of 2024 and amounted to over EUR 3 billion at the end of the third quarter. We saw an increase in Industrial Equipment and Port Solutions, while there was a decrease in Industrial Service. Our book-to-bill has been positive throughout the year. And looking back to our long-term performance, our order book continues to be on historically good level. And then finally, looking at the EBITA margin development, which reached also a record high level. In the third quarter, we generated EUR 165 million of EBITA. This translates to very strong EBITA margin of 16.7%. And this performance came from really solid execution, as well as some one-off items. And EBITA margin increased year-on-year in all BAs. Industrial Equipment reached its all-time high margin of 14.1% in the third quarter. And Industrial Service and Port Solutions also had very good margins of 22.7% and 11.8%, respectively. Then let's move on to the performance towards our financial targets. Last year was very good for us, and our performance has continued strong also this year. This graph shows the rolling 12 months figures for our sales and EBITA margin and progress towards our long-term financial targets. Our group sales remained flat whilst our comparable EBITA margin increased when comparing the last 12 months to full year 2024. The group profitability in the rolling 12 months, we are at the lower end of our profitability target range of 13% to 16%. Of course, we consistently continue to work towards those targets. While increasing our EBITA margin, we also aim to continue to grow our sales faster than the market. In Industrial Service, our steady progress over the last 5 years continues and the sales in the rolling 12 months remained relatively stable, but our EBITDA margin increased to 21.5%. We are already today well in line with our target range, but naturally still closer to the lower end of the bracket. And in Industrial Equipment, sales in the rolling 12 months remained flat. And also our EBITA margin for the same period decreased compared to full year 2024. That is mainly due to the weaker H1 and particularly the weaker quarter 2. While the quarter 2 performance for Industrial Equipment left room for improvement, our performance in quarter 3 was, in turn, exceptionally strong. Also here, we will continue to work to strengthen the over-the-cycle performance of the Industrial Equipment business. Then moving on to the Port Solutions. We have continuously improved our financial performance during the last 3 years, as you can see from the graph, and we will also continue to so in -- we continue to do so in quarter 3. Our sales increased in the rolling 12 months compared to 2024, which is already a very good year. And our EBITA margin for quarter 3 remained at a high level, which resulted in an EBITA margin of 10.8% for the rolling 12 months. Needless to say that I'm very pleased with this progress. Now, I will hand it over to Teo Ottola, our CFO, for some time, and then I'll return back in a moment. Teo Ottola: Thank you, Marko. And let's move on in the presentation. Actually, before going into the business area numbers, so let's take a look at the comparable EBITA bridge between Q3 of this year and Q3 of last year. As we have seen, the margin improvement is large in a year-on-year comparison. And when we take a look at the euro, so this turns into EUR 22 million improvement. And if we unpack this next a little bit. So first, starting with pricing. So our prices were somewhere between 2% to 3% higher than a year ago, maybe closer to 3% than 2%. But nevertheless, this improvement or increase in prices is somewhat less than what we have been having in the beginning of '25. When we combine this price increase to the fact that our sales declined more than 5% in a year-on-year comparison. So actually, we are looking at quite a significant underlying volume decline in the third quarter in comparison to the situation a year ago. And this, of course, creates a negative operating leverage impacting the profits as well. But there are then several positive things supporting our profits. First of all, net of inflation pricing, so that was slightly positive in a year-on-year comparison, even though the positive impact comes primarily as a result of tariff-related price increases, so we have increased prices in line with the tariffs. But then as a result of the inventory turns being slow, so actually, the benefit comes first and then the cost will be flowing in a little bit later in terms of material consumption. In addition to that one, we had a clearly better mix now than a year ago. But the biggest explanation of all is very good execution that we had. So the performance of the business was excellent, particularly in the project execution, which is visible primarily in the ports, but also in the other business areas. When we combine into this one that our fixed costs actually were lower than what they were a year ago, we were able to create this improvement in the EBITA despite lower sales. When we take a look at the performance a little bit more in detail, so we can note that our performance this time was helped by some one-off type of levers, things. One of them was that we actually received an R&D grant in Finland in the amount of roughly EUR 4 million that was booked in the third quarter. This is, of course, visible in the fixed cost, and that is one of the reasons why fixed costs are now lower than what they were a year ago. I already mentioned the tariff-related price increases and the tailwind that we got there. So that was less than EUR 5 million, but several millions anyway. And then we had also some provision releases within the Industrial businesses. And altogether, these are, let's say, roughly EUR 10 million or so. Then the next one I'm going to discuss is not like a one-off topic. It's normal business practice. But as a result of the good project execution within Port Solutions, in particular, we were able to release provisions and that impacted positively our result in the third quarter. So normal business as such, but this quarter was better than average definitely from that point of view. So they are some of the topics explaining the profitability and the profits within the third quarter. Let's then move into the businesses and start with Service, as usual, maybe here worth noting that exactly as in the second quarter, so also here, the FX impact is quite big. So let's more focus on the numbers with the comparable currencies. In Service, order intake grew by almost 9%, 8.7%. This is clearly higher growth than we have had in the first half of '25. This growth was actually supported by some large modernization orders that were already mentioned by Marko as well. But even if we excluded those ones, or the delta as a result of the modernizations, we still would be having growth even if the majority of the growth is created by these modernization orders. When we take a look at the field service, so actually, our order intake declined in a year-on-year comparison. And in parts, it was an increase. Then taking a look at the regions, we had increase in the Americas and EMEA, but a decrease in APAC, and it's worth noting that the modernization deals took place primarily in the Americas. Agreement base continued to grow more than 5% with comparable currencies and order book was slightly lower than what we had a year ago. Net sales grew only by 1.2%. And this is, of course, less than the price increases have been. So the underlying volume actually was lower than what we had a year ago. There, the reason is basically the slowness of order intake in the field service, and we had a decline in sales in field service within the Service. Spare parts were basically stable in a year-on-year comparison. And then from the region point of view, stable in EMEA, whereas decrease in the Americas and Asia Pacific. Comparable EBITA margin improved by more than 1 percentage point to 22.7% despite the somewhat sluggish sales development. This was primarily driven by very good cost management within the Service business, but to some extent, also by pricing, which was partially in relation to these tariff-related price increases and the timing tailwind there. So then Industrial Equipment, very good order intake, close to EUR 350 million. That is as much as 26% growth in external orders when comparable currencies. When we take a look at this by the business units, so we had actually growth in process cranes and components, but we had a decline in standard cranes. And then of the regions, decrease in EMEA, whereas the other 2 regions saw growth. Then the sequential picture, which is important as well. So in comparison to the second quarter, actually, we saw sequentially a significant increase in process crane orders. Components were more or less flat in a sequential comparison and standard cranes declined slightly. Order book is higher, clearly higher than what we had at the same time 1 year ago. Sales grew very nicely, 6.3%, again, with external sales in comparable currencies after a little bit, let's say, lower first half. We had increase in standard crane and component sales, but a decrease in process cranes, which then also, at the same time, meant that the product mix was somewhat better than a year ago. Then when taking a look at the margin, so excellent EBITA margin, 14.1%, a very big improvement in a year-on-year comparison, of course, driven partially by volume. So the underlying volume improved here in Industrial Equipment quite a bit. There were also some of the one-off items that we already discussed. For example, the R&D grant is mostly visible in the Industrial Equipment. But then also good execution otherwise, as well as the optimization program that we have been running has been giving benefits also for this quarter. And the mix also was slightly better than a year ago. Port Solutions, good order intake or excellent order intake here as well, more than EUR 450 million, that is 36% growth in a year-on-year comparison. We had very good order intake in yard cranes. This would mean primarily RTGs and ASCs. If we take a look at the regions, Americas and APAC improvement, EMEA, a decline. And here also, again, taking a look at a little bit of the sequential topic, but also the so-called short-cycle product categories within Port Solutions. So lift trucks, there we had year-on-year growth in the order intake, but sequentially down. And then from the port service point of view, we had growth both year-on-year as well as sequentially. Sales was clearly down by almost 19%. This was, of course, known from the point of view that the order book was lower for the third quarter than a year ago. So order book overall is in good shape, 10% higher than a year ago, but the same thing continues now for the fourth quarter as we had for the third quarter as well. So we have less order book for the fourth quarter now than what we had 1 year ago for the fourth quarter. So the order book is more beyond this year or beyond the current year than what we had the situation 1 year ago. Comparable EBITA margin developed very well, 11.8%, 2.2% improvement. This is, obviously, not driven by volume because the volume declined very much, but primarily because of the very good execution, supported by some of the provision releases, like I said, and then also the product mix, particularly in Port Solutions was clearly better than a year ago. Then next, a couple of comments on the net working capital, cash flow. We actually had net working capital of only EUR 285 million at the end of the third quarter. That's only 6.7% of rolling 12-month sales. This is very well in line with our target of being below 10%. If we take a look at the, let's say, delta to the situation a year ago, it is primarily inventories where the decline has come. And then in sequential comparison, it's maybe more accounts receivable. This net working capital development, together, of course, with the good result meant a very good free cash flow on record levels, this one as well, more than EUR 200 million, which is then, of course, consequently leading to this slide where we now actually, during the third quarter, have moved from being in net debt situation to being in net cash position, not much, but negative gearing anyways at the end of the third quarter. On the right-hand side, we can then see the return on capital employed, which is 21.7%, and this is a comparable number, but also the reported number is more than 20%. We have added actually a slide on the U.S. tariffs as well because that, of course, continues to be a relevant discussion topic. On the right-hand side of the slide, we have the Konecranes exposure. So these are the numbers that we have already given earlier. So the internal volumes from Europe to the U.S. is EUR 180 million or less than EUR 180 million. And then on top of this internal volume, we obviously then also have deliveries of fully assembled port cranes and lift trucks. We are, of course, subject to the normal reciprocal tariffs of 15% in, for example, in the complete cranes. But then many of our components, particularly spare parts are also subject to so-called steel derivatives where we are then subject to a 50% tariff. And also the tariff codes added now to the steel categories in August was impacting us as well so that we have now more components and parts within the 50% category than what the situation was before. What we have done is that, we have increased prices, more or less, in line with the tariffs. We are, of course, monitoring the situation. We are monitoring what the competitors are doing, how the customer demand is developing. We are discussing with the suppliers to be able to define the steel content of the components because, of course, that can help us to, in a way, get the tariff, particularly the steel derivative tariffs on the right level if we can prove that what is the share of actual steel in the components. So all in all, we have been able to manage the pricing well. This most likely will become somewhat more challenging going forward so that maybe not all of the tariff increases are possible to put into the customer prices. We do not expect this to be having any major impact on the margins, but the situation may be in the future, a little bit more tighter than what it has been so far. This actually was the last slide that I had, and now I invite Marko back to the stage. Marko Tulokas: Right. Yes, let's see how this works. So we had some issues with the first slides earlier. So now this should be now working again. So now let's look at our demand environment, demand outlook. So our demand in the industrial customer segment has remained good and continues on a healthy level. However, the demand-related uncertainty and volatility, due to these geopolitical tensions and trade policy tensions remain, particularly in North America. This translates into higher uncertainty, both in the timing of the order, as well as some postponement of maintenance activities within industrial customers or Industrial Service customers that, of course, may impact also the delivery performance or delivery acceptance of customers. Our sales funnel remained on a strong level and funnel development during the quarter was stable. Comparing against the previous quarter, the numbers of new sales cases is slightly down. Then to our port customers, the global container throughput continues on a high level and long-term prospects related to global container handling remain good overall. And our pipeline of orders is good and contains projects of different sizes. And I'll reiterate our financial guidance for this year. Our net sales is expected to remain approximately on the same level in 2025 compared to 2024. And we continue to expect that our comparable EBITA margin is -- to remain approximately on the same level or to improve in 2025 compared to last year. Now, before we start the Q&A, I'd like to go over 3 themes that we are leveraging to build on our strong foundation and to -- continue to drive the long-term profitable growth. Historically, looking at in the long-term -- long run, these have been and are the fundamentals behind our success, and they are the ones that are still very relevant today and will continue to provide us further runway also into the future. First of all, our Konecranes customer base is diverse and global. Our dual channel market approach gives us the most comprehensive access to customers globally and to different segments. Our broad product and service life cycle offering continues to give us an advantage when catering to the customers' wide needs and create stability against customer segments demand volatility and helps us to address specific customer segments within those markets. This approach to the market, our offering and our customer excellence culture is critical, but personally this -- but it's also personally something that I'm passionate about and I want to continue to foster. And then secondly, I would like to emphasize the life cycle approach of Konecranes. Developing a service and life cycle approach over decades has been and is very much in the Konecranes' DNA. We are not only providing equipment to our customers, but also taking care of them during the lifetime. That long-term customer relationship and focus on servicing all makes and moves -- feeds our service -- sales funnel continuously with equipment and service products. That -- this cornerstone in our operating model has served us well, but it continues to provide us further runway for growth and efficiency. The life cycle approach is naturally our way of doing business, but it's also the only sustainable way to operate in today's world. And thirdly, it is the technology leadership. So Konecranes has been the innovator in this market and reinforcing our technological leadership continues to be crucial. So focusing on technology innovation and development allows us to differentiate our offering versus our competitors. It creates more value to our customers and helps us to leverage the life cycle approach even more in the future. So in conclusion, we have a strong foundation and great teams in place to build on our success and drive for expansion and growth. And I thank you very much for your attention. Now we move on to the Q&A. So Linda? Linda Hakkila: Thank you, Marko, for the presentation, and thank you, Teo also. So now we are ready to start the Q&A session, and we will first start taking questions through the conference call lines. So, operator, we are ready to start taking questions. Operator: [Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I want to ask on 2 things. First, I guess, starting with the growth in Industrial Equipment, given you mentioned sort of like the capacity utilization figures in the beginning, which haven't sort of yet started any big recovery. Can you talk about sort of what drove -- was there any particularly -- particular verticals? Was there some prebuying on the components? Or what has -- or market share gains or something, what has kind of caused really the strength there and how sustainable you see that going forward? That's first. And I'll ask the other one after. Marko Tulokas: Yes. I mean, maybe the key reason there or the main point is to say -- you refer to the segments or the verticals. And, of course, that is -- although the general capacity utilization may not be yet more on the contraction, not reinvestment level, but there are several verticals that are quite strong at the moment and drive demand. I'd just name a few. The obvious one, I guess, on everybody's lips is the defense segment. So that has been, of course, a topic for quite a while already. And in the third quarter, we not only saw more opportunities in the funnel, but we started to also see quite a few actual orders in that segment. That is a clear example. There are other areas where the long-term investment trend for other reasons than just productivity or capacity utilization are strong and maybe aviation is another example of where there's quite a lot of investment activity. And there are a few others. And that, of course, is one of the key reasons why we continue to have a solid order intake there. And then, of course, finally, I would also say similarly in the Port segment, when we talk about larger investments or bigger projects, particularly in the process crane side, they tend to take quite a while to decide and for the customers to make the investment decision and then place the order. And therefore, it is not always exactly easy to forecast or predict. And secondly, not always exactly in line with the macroeconomical indicators. Daniela Costa: And the second one just on Port Solutions. I think in many calls before, you've talked about sort of the opportunity or on the whole STS situation in the U.S. with replacement of Chinese cranes and tariffs there. But the U.S. is just proposing an even bigger scope of what they could be putting in terms of tariffs on China. I know about a year ago, you said that you were building the supply chain domestically there for the STS. Can you talk a little bit about, let's assume, this 100% on STS and the 150% in the remaining port equipment would go through? Where do you stand now in terms of building the capabilities to supply and to get a share of this opportunity domestically? And are there any side effects elsewhere in the world where you're seeing any increase in competition from the Chinese? Just give us a picture of how this has changed given the scope seems to be changing of what will be included there? Marko Tulokas: Maybe I'll start and then you complement in case I forgot some part of the question. First of all, the recent development in those tariffs that was early -- announced in early October, they're, of course, not yet, in our understanding, completely clear on what is the scope of application. And secondly, what is actually how much tariffs are being applied. So there is a certain uncertainty and, of course, what will be the final solution. And that, of course, is for us and also the market, something that needs to be and must be clarified in the end. But that doesn't take away the essence of your question, which was that have we been preparing? And the answer is that, yes, we continue to prepare for the possibility to manufacture in the States. And we have been looking, mainly based on subcontractors and utilization of our own existing facilities and the industrial team that we have in the States, which is more than 2,000 people today in several manufacturing sites. So we have an opportunity to explore that, too. But that is the local U.S.-made scope. There is that, let's say, gradual up parcel or move to that direct -- to that eventual outcome, which means that there are products that would be manufactured in Europe or other parts of Asia. And there, we have even more activities going on and readiness for supplier as it is already today. I recall that your last part of your question is that, do we see increasing activity elsewhere? Then to some extent, might be the right answer, and that is maybe more towards the other parts of Asia as well as in the Southern Hemisphere. Teo Ottola: Yes. Maybe to add on this competition elsewhere topic that, of course, if we talk about the STS', so we will need to remember that the market share for the Chinese competitor is also globally very high. So that this, of course, in a way, it may increase the competition elsewhere, but the market share already is there for the competition also outside of the U.S. And then if one takes a look at the RTGs, so there the situation is that the, let's say, our relative market share in the U.S. is significantly bigger than what it is for STS'. So there, on the other hand... Marko Tulokas: And it would be the same elsewhere also. Teo Ottola: Yes, and would be the same elsewhere. So that these 2 products are from this geographical split point of view, a little bit different. Marko Tulokas: Yes. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I have 2. Firstly, on the margin outlook. So, obviously, Q3 was strong and had some one-off positives that you mentioned, and it was above your long-term target. But how should we think about kind of Q4 and going forward, given that you kept the guidance where the low end of having margins at the same level as last year would imply quite, let's say, lower margin for Q4, if I would read it kind of directly? So, yes, could you explain how should we expect margins to develop going forward? Marko Tulokas: Maybe you start with this, Ottola. Teo Ottola: Okay. I can. So, yes, the short answer to the question that do we expect the fourth quarter margin to be equal to the third quarter margin? So no. So we are expecting fourth quarter to be lower than the third quarter. Third quarter was high. And, of course, there are these topics that we were discussing, there is about EUR 10 million or so, let's say, clear one-offs, one can say the product mix was very good. So this is maybe not a one-off, but doesn't necessarily repeat itself as such. And then the productivity or efficiency or execution, whichever word we want to use, was particularly good in the third quarter. So maybe from that point of view, Q3 was a little bit of exceptional. Other than that, of course, unfortunately, other than what we have in the guidance and what now concluded between, let's say, our expectation on Q3 versus Q4, we are not -- or we have -- we do not communicate more on that, unfortunately. Panu Laitinmaki: Okay. Maybe another one is on the order intake outlook. So, I mean, it's a bit mixed if I listen to you, you say that there are less new cases coming to the pipeline and you flagged increased uncertainty in the market. But on the other hand, we saw pretty good orders in Industrial Equipment and you mentioned these strong verticals. So, I mean, what should we expect going forward? So is it kind of driven by these strong verticals better than the macro implies? Or are you seeing some pressure from macro going forward? Marko Tulokas: Yes. Of course, when we look at these new sales case trends and so forth, that tends to fluctuate a bit month after month, so that's maybe something not to put too much attention. But generally speaking, the -- and it's good to remember that we operate in so many customer segments that quite well kind of evens out these fluctuations in the different segments. And now we are held with certain strong segments that are making up for that, let's say, general somewhat more fluid picture. But what can just be simply said that our sales funnels in the industrial side, and I understand you were more referring to that are stable and they are on a good level on average. Teo Ottola: And maybe to build on that one, I mean, like you pointed out, so the sales funnels are basically stable and the number of new cases is slightly down. I mean, if there's nothing major there. But actually, the average size of the case is slightly up. And that's why the funnel as a whole looks fairly stable despite all macro discussion and topics that there are. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me as well, and I'll start with something that Teo, you said on the EBITA bridge that you flagged that you had maybe a temporary benefit from tariff-related price hikes. So I didn't fully understand what you mean by why would you benefit first? And what were you referring then on the cost impact that might come later? So a bit more clarity on that one, please? Teo Ottola: Yes. The reason is that, when we are increasing the prices at the time when we start to import the goods to, for example, in this case, to the U.S. So first of all, we have old inventory in the U.S., which is with the old prices. That's one thing. And then the other thing is that, when you are using average price in the inventory, so it tends to be so that the material consumption comes through at a different time when the sales number actually comes. And this may create a mismatch, which we are here also seeing. So that's good when it works like this. But then the reality is that, as we have not tried to gain anything on the tariffs as such. So, of course, the disadvantage will be coming a little bit later. It can take a while, depending on the component that we are talking about. In Service, it will come quicker. In Equipment, it will come a little bit later, but it will balance itself over time. Antti Kansanen: Okay. But it doesn't sound like this would be a kind of a major driver for any margin fluctuation that we're seeing, for example, on the Industrial Equipment side, which was obviously a big step-up from the second quarter and maybe there will be a bit of a step down, but this is not a massive driver on the margin? Teo Ottola: The overall number, like I said, is less than EUR 5 million, and it is split basically between Industrial Equipment and Service. So from that point of view also, it's not a massive driver. Plus it will not probably vanish in 1 quarter. Marko Tulokas: Right. Teo Ottola: So it will take a little bit -- it's like a rolling in a way, impact because of the average price that we, in practice, have from the inventory management point of view. Antti Kansanen: Okay. And maybe a second kind of clarification, the EUR 10 million or so that you're kind of flagging as say, EBITA one-offs this quarter. That's mainly on Industrial Equipment, impacting mainly the Industrial Equipment division. Am I correct? Teo Ottola: That is correct. So actually, the tariff-related price tailwind that we just discussed is more in Industrial Equipment than in Service, exactly because of this thing that the impact comes through quicker in Service and slower in Industrial Equipment. And the R&D grant, which is the other big topic is primarily within Industrial Equipment. Antti Kansanen: Okay. And then the second question, maybe this is a similar topic, but project execution on the port side. If I remember correctly, I mean, the previous quarter margins on the ports were very good as well compared to the history. I didn't remember that you flagged mix back then, but that was also kind of a good execution and now continues on the port side. Is there something that we should maybe see as kind of a structural improvement, something that we can extrapolate going forward? Or are we still kind of wait and see whether this is sustained? Marko Tulokas: Well, I'll start again then. First of all, in the ports execution, I mean, always one thing that happens, these are big projects. And when you deliver a big project, of course, you make certain provisions for that project risks. And this execution in this particular quarter, some of those provisions were released. And hence, that's also relative to the sales. So the volume impact wasn't as big. It has some mix impact. But the underlying reason is the same that our project execution has been on rather conditions. There isn't or hasn't been recently any significant, let's say, difficult projects. That, of course, in the nature of the business cannot guarantee that that would not happen at all. But I think our project management capabilities already over the last few years have been improving kind of consistently. And in that way, we are kind of confident that we can do that quite well now. But it doesn't remove the fact that, I mean, in that sort of business that there is some risk involved also. Teo Ottola: Yes. The main point from our point of view is, of course, to be able to have this improvement trend so that, of course, every now and then a quarter is better and then maybe also worse. But when the trend is in the right direction from the project execution point of view, so then things are good from our point of view. From the mix point of view, there probably isn't anything structural that would need to be taken into consideration. We have, of course, consistently been saying that we want to grow more in port services than in other areas there. But as long as we have good order intake from the Equipment point of view, so this will not be visible in 1 quarter or maybe even in 1 year so that this is a much longer sort of project to change that structure. Antti Kansanen: Okay. Then last one for me is on the order side. I mean, I guess there was a couple of bigger ones that you flagged both on Industrial Services, on the process crane side, obviously, on the ports as well. Was this a bit of an active quarter in terms of big projects? And is there something explaining the timing? Or am I just reading too much into it? You also mentioned that the average case size is growing. So was this a particularly active big project quarter for some particular reason or just a coincidence? Marko Tulokas: I mean, coincidence is maybe not the word that I would use, of course, it's part of a consistent and continuous work and working on the funnel and the timing of the orders because the customer-related reasons sometimes, of course, happens. It's not entirely under our control for sure. Maybe I'll answer that mainly related to the process crane business, and you see that the process crane business orders particularly was good. And in that case, I'd say that we had, in the same quarter, several quite successful larger projects, whether it is in power or aviation, or to some extent, also elsewhere. So that is maybe a slightly larger than usual quarter, but that doesn't take away that both in the ports and in the industrial process crane side, there are still further opportunities in the funnel also. This is just timing-wise, particularly in process crane good quarter. Teo Ottola: I would say that it would be a little bit difficult to find the connection between the decision-making timing and something that has happened in the world from the macro point of view or even from the macro point of view to us so that coincidence is not the right word, but there is probably not a big scheme behind that would explain this timing. Marko Tulokas: If you find, please least let us know. Antti Kansanen: I'll do that. Operator: [Operator Instructions] The next question comes from Tom Skogman from DNB Carnegie. Tomas Skogman: This is Tom from DNB Carnegie. Sorry for asking about the margin guidance, but I mean, the January to September margin is already 1 percentage point higher than it was 1 year ago. So is there any reason you did not change the guidance in group that we should be aware of as a risk element for Q4? Marko Tulokas: Maybe, Tom, since they asked the previous related question also, you can start on this, too. Teo Ottola: There is -- we are not expecting anything dramatic in the fourth quarter that would be somehow deviating from the normal course of business significantly. I guess that it is rather that we would be saying that the third quarter was a little bit on the higher side because of the topics that we have been discussing. So fourth quarter -- this year's fourth quarter, like many other years' fourth quarters as well. So it is a combination of primarily of mix and then, of course, the underlying volume. And this balance is then, of course, very important from the margin development point of view as well. Tomas Skogman: Okay. If then looking at kind of building blocks for 2026, I would just like to get a bit of clarification when I do my own EBIT bridge. So to my understanding, there is no cost-cutting kind of program ongoing for next year. So what do you -- what would you like to guide when it comes to fixed costs? And this modularization of products, is that kind of rather a negative or a positive next year as you have indicated you have both the new and the old generation of products in manufacturing next year? Marko Tulokas: I didn't quite get the last part, so I'll let Teo answer that. But the first part when it comes to the fixed things, we first -- we don't guide the fixed cost per se, but there is some tail end of this industrial restructuring program also remaining. And, of course, when it comes to fixed cost, we are closely observing the demand environment. And we have also, during this year, made adjustments to the organization as needed based on the demand environment. Teo Ottola: I guess the other question, if I understood Tom correct, was that is the product renewal/launch in Industrial Equipment going to be a positive or a negative for '26 in comparison to '25? Marko Tulokas: Sorry, Tom, I didn't quite get that. So yes, first of all, those launches are now progressing basically to the second launch year. And during this year, the launch has been towards the second half proceeding all the time better. So I mean the amount of products that we are converting is catching up is probably a good way to say it. So that is proceeding quite satisfactorily, I would say. And now we have in all 3 regions, the new viral posts available also. So in that sense, the readiness is there. It is -- as I think I explained also last time when you have a new product, you run in manufacturing for some time, you will run 2 products in parallel. And that, of course, has the tendency to increase manufacturing cost. And secondly, you have some product cost, variable cost-related timing to catch up with the old legacy product that has been in the market for quite a while. In both accounts, we have still next year, some costs on the new product that are higher than the existing product. But we are moving ahead quite well on that, and we are -- we have been kind of preparing for that for the most part. So I wouldn't take that as a very significant consideration. Tomas Skogman: Okay. And then the big tariffs on RTG cranes, I don't understand why we discussed so much the STS cranes. I mean, isn't the RTG crane the big opportunity for you in the U.S. I mean, that is much more high-margin products than STS cranes and the Chinese companies have been very strong there as well. And in that product, you have already set up to deliver quickly basically. Marko Tulokas: Yes, that is true. At the same time, it is -- although we don't exactly comment on the competitors' market share in the region, but the Chinese competition in this case is not as big on the RTGs as it is on the STS. That's maybe the main reason to your -- or the main answer to your questions. Tomas Skogman: But do you expect kind of a clearly increased market share in RTG crane orders in '26 and '27 if the current tariffs are holding up basically? Marko Tulokas: No, I think, like I said, the Chinese competition where this is facing, of course, is not big on RTGs in the same way as they are on STSs. That's probably as much as we can say on that market topic. Tomas Skogman: You don't want to disclose at all what -- I understood that the Chinese have not 50% of the market, but 30%, 40% of the market in the U.S. Isn't that right? Marko Tulokas: Not in the RTGs. Not on the RTGs. Tomas Skogman: Okay. Then finally, on electrification, it's like a big theme. Do you have -- all companies that operate within electrification show pretty good growth at the moment. But what of these ones are big end customers to you that you see that they are expanding and ordering cranes from you? Marko Tulokas: Did you say -- I think the line is a little bit bad. Did you say what are the big customers... Tomas Skogman: Electrification -- just generally, electrification is a very strong sector when we look at the engineering. And you have a lot of sales -- I mean, it could be Hitachi, it could be ABB or Siemens or whatever, but what type of products do you see strong demand? Marko Tulokas: Okay. So you're asking our demand from that segment that benefits from the electrification. Sorry, I misunderstood. I understood our electrification of the products now I heard that, of course. Yes. I mean, of course, that is one demand driver that when the whole world is more moving towards electrification, automation and in that way, more sustainable, then that drives demand in different ways, more directly and indirectly. And this indirect demand that is coming from the investments to the more sustainable machines and so forth is driving also demand in these customer segments. They are, however, generally speaking, not as large or as big crane users as many others. But it is true that we -- you can see that positive demand in also in those segments and in some cases, also quite large pieces of equipment. So, I guess, the answer to your question is that, yes, that is certainly a one demand driver also. Tomas Skogman: And what about gas turbines? They are investing massively at the moment, for instance, the gas turbine manufacturers. Marko Tulokas: Gas turbines is one way, of course, I mean, besides wind and nuclear and hydro and a number of other things are one way of generating the electricity. We have seen it historically also that demand moving from one technology to others. And now it is more maybe on that gas and, of course, the wind and nuclear and so forth. So that is true. But on the other hand, it is then being -- there is a reduction on the other side at the same time in the other technologies. And those are typically the users for those sort of equipment for gas turbines, there are other large pieces of equipment or bigger projects because of the technology involved. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: Just a follow-up on the order intake here. So, I guess, what you're saying is that you had a few big orders in the quarter across the key segments -- basically across all segments actually. But you're also saying that you have a fairly good pipeline of projects, both in Ports and Industrial. Just trying to get my head around looking at the numbers in Q3, EUR 1.1 billion, how would you describe that? Is that normal in your view? Or is it exceptionally strong? Or how should we think about the level of orders in the quarter and when we think ahead from here? Marko Tulokas: I mean, you're referring to quarter 3 now or the following quarter… Mikael Doepel: Yes. Exactly. Marko Tulokas: Yes. I mean that was the same topic that we discussed a moment ago. So I would maybe reiterate, first of all, the really strong funnel is maybe not what we said earlier. So we have a stable funnel and there are opportunities, large opportunities also in the funnel as there has been on the first half of this year. So that hasn't per se changed. And it's a timing question when those actually realize. That is not something extraordinary. They have always existed there and it's just more -- are kind of timing-related topic that when they actually mature and so forth and now particularly for the industrial side of things. So it is -- it was a good quarter also from a bigger project point of view and hence, the large order intake. But as it was stated by Teo also earlier, we had a rather stable order intake in the other -- very stable order intake in the other areas, broadly speaking, too, and growth in the agreement base and growth in basic service, too, which is in that way, many way, the very important thing also or most important thing. Mikael Doepel: Okay. And on that topic, actually, I missed what Teo said in the beginning on Industrial Equipment when you talked about the sequential order intake increase. If you just could repeat that, please, in Industrial Equipment? Teo Ottola: Yes. Sequentially, we actually had a very big increase in process cranes. So in the heavier side, we were more or less flat on the components. So -- and then the standard cranes were slightly down. So standard cranes were actually down both sequentially and year-on-year, whereas then process cranes this time have done well in the third quarter. So it was up both year-on-year as well as Q-on-Q. Marko Tulokas: With not a very good year last year. Teo Ottola: With -- maybe against easier comparables, that is correct. And components, which is maybe the most important one, taking a look at it from the demand point of view, has been, let's say, up year-on-year and flattish sequentially. So, I mean, very hard to conclude anything significant from that one either. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Linda Hakkila: Thank you very much for all your questions. We have covered a lot of different topics, but I would still have one question left here in the chat. So, can you please talk about the ship-to-shore cranes opportunity? Where can you produce outside of China? And do you need any additional CapEx to start new production? Or is it possible to use the existing plants? Marko Tulokas: Well, for the STS cranes, we have and we have had also the possibility to produce those products also in this time zone in several places. And there are 2 locations in APAC and Southeast Asia, where we have also working on a subcontracting-based model to produce STS cranes. So that is nothing new as such. So that is a typical thing for us that we have to make sure that we have several kind of channels in place all the time. Now because of this situation, we have been, of course, accelerating those activities or those projects to find the subcontractors. Linda Hakkila: Thank you, Marko. I think this concludes our session today. So I want to thank you all for following our webcast, and I want to thank Marko and Teo and wish you all a lovely evening. Thank you. Marko Tulokas: Thank you very much. Teo Ottola: Thank you very much.
Operator: Hello. My name is Megan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Third Quarter 2025 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. [Operator Instructions]. I would now like to hand the call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer. Cyril Grandjean: Thank you, Megan. Good day, and welcome, everyone. Thank you for attending the Garrett Motion Third Quarter 2025 Financial Results Conference Call. Before we begin, I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett Motion's website at investors.garrettmotion.com. There, you will also find links to our SEC filings, along with other important information about the company. We note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. These statements, which can be identified by words such as anticipate, intend, plan, believe, expect, may, should or similar expressions represent management's current expectations and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations. These risks and uncertainties include the factors identified in our annual report on Form 10-K and other filings with the Securities and Exchange Commission and include risks related to the automotive industry, competitive landscape and macroeconomic and geopolitical conditions, among others. Please review the disclaimers on Slide 2 of our presentation as the content of our call will be governed by this language. Today's presentation also includes certain non-GAAP measures which we use to help describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release. Finally, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. With us today are Olivier Rabiller, Garrett's President and Chief Executive Officer; and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Olivier. Olivier Rabiller: Thank you, Cyril. Thank you all for joining the call today. I am pleased to report that Garrett delivered another set of strong financial results in the third quarter, thanks to increased sales in a more stable production environment and disciplined operational execution. Net sales for the third quarter were $902 million, up 6% at constant currency. This growth reflects outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, our gasoline sales grew by 10% in the quarter, driven by our share of demand gains. Thanks to continued productivity and higher volumes, we achieved another quarter of very solid operating performance. Adjusted EBIT was $133 million, and our adjusted EBIT margin was 14.7%, which includes a 20 basis point dilution of the margin rate from tariff recoveries. We also delivered strong adjusted free cash flow of $107 million for the quarter. These results, combined with an improved forecast for the automotive industry for the second half of the year, has enabled us to raise our 2025 outlook midpoint. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders. During the third quarter, we accelerated our share repurchase activity, buying back $84 million of common stock. We also paid a $12 million quarterly dividend. Moreover, our Board of Directors just approved a 33% in our dividend raising it to $0.08 per share for the fourth quarter. Now let me move to Slide 4 to share more about Garrett's continued success across our differentiated technologies. We continue to see growing interest in developing turbochargers for hybrids and range-extended electric vehicles. This quarter, we secured several additional awards for these technologies. In addition, we obtained several awards for commercial vehicles and industrial turbochargers in various regions including over $40 million for products supporting stationary power generation or gen sets. Demand for subunits continues to grow, fueled by the global expansion of data centers in which gen sets are installed for backup power generation. Sales of these products are expected to exceed $100 million in 2025 and represent an important growth opportunity for Garrett. This quarter, we also continued to make progress in developing our differentiated 0 emission products. We secured additional proof of concepts with 2 OEMs in Japan and China for our high-speed 3-in-1 E-Powertrain. In addition, on the E-Cooling side, we progressed with the development of our oil-free centrifugal high-speed compressor technology for industrial and mobility applications. We see strong momentum with customers for our E-Compressor technology, which is driving significant efficiency gains when tested against current industrial technologies. All in all, I'm extremely pleased with our ability to deliver strong financial results while continuing to position the company for years of growth. I will now hand it over to Sean, who will provide more details on our financial results and outlook. Sean Deason: Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered strong financial performance in the third quarter. Our net sales were $902 million, driven by new gasoline launches and ramp-ups across key regions, favorable foreign currency impacts and tariff recoveries, partially offset by continued weakness in aftermarket. We delivered $133 million of adjusted EBIT in the quarter, equating to a 14.7% margin. This represents both a year-over-year and a sequential increase resulting from ongoing operational productivity gains that help to offset an unfavorable product mix. And finally, adjusted free cash flow was $107 million as the business continues to convert earnings into cash. Now moving to Slide 6. We show our Q3 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $76 million versus the prior year or 9% on a reported basis and 6% on a constant currency basis, reflecting favorable foreign currency impacts. We continue to experience strong gasoline growth, outperforming the industry. This growth is driven by continued share of demand gains and new launches and ramp-ups across Europe, China, India and Brazil. Within diesel, we experienced strong performance in both Europe and North America. This was partially offset by lower demand for aftermarket applications, primarily in North America. Additionally, we recovered $12 million of tariffs within the quarter. Turning to Slide 7. During the quarter, we generated $133 million in adjusted EBIT, representing a $16 million increase from the same period last year. This represents a margin rate of 14.7%, which is a 50 basis point improvement year-over-year. The increase in adjusted EBIT was primarily driven by increased volumes and the continued benefits of sustained fixed cost actions and variable cost productivity taken in the current and prior year. These increases were partially offset by an unfavorable mix driven by the strength in light vehicle gasoline applications. In the quarter, the impact of newly implemented tariffs drove a 20 basis point decline in the margin rate. Additionally, we benefited from a $9 million contribution or 60 basis points from favorable foreign currency impacts year-over-year. Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered a strong adjusted free cash flow of $107 million. This was due primarily to increased volumes and efficient conversion of earnings into cash, which was partially offset by changes in working capital, driven by timing of payables and higher inventory due to increased volumes. Cash taxes, capital expenditures, depreciation and cash interest were all in line with our expectations. Now moving to Slide 9. We ended the quarter with a liquidity position of $862 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $232 million in unrestricted cash. I am pleased to report that during the quarter, both Fitch and S&P have upgraded Garrett's ratings by 1 notch for their corporate family rating considering not only our reduced net leverage but also acknowledging the substantial reduction in private equity ownership due to recent sell-downs by some of our top equity shareholders. Additionally, as announced today, we made an early voluntary repayment of $50 million on our term loan, reducing gross leverage. Moving to Slide 10. In the third quarter, our strong cash generation allowed us to repurchase $84 million worth of shares, including 5 million shares directly from Oaktree, our largest shareholder. We continue to target distribution of 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases. The latter of which will vary over time and will depend on various factors, including macroeconomic and industry conditions. As Olivier mentioned earlier today, given our strong financial position, our Board approved an increase to our quarterly dividend for the fourth quarter rising 33% from $0.06 to $0.08 per share, which will be payable in December of 2025. I'll now transition to Slide 11 to discuss our 2025 outlook. We are raising our midpoint outlook for 2025 to reflect the improved forecast for the automotive industry in the second half and the impact of tariffs on sales and adjusted EBIT margin net of recovery. This revised outlook now implies the following midpoints. Net sales of $3.55 billion, flat to plus 1% at constant currency, net income of $280 million, adjusted EBIT of $510 million, net cash provided by operating activities of $415 million and adjusted free cash flow of $385 million. With that, I'll now turn the call back to Olivier for his closing remarks. Olivier Rabiller: Thanks, Sean. Now let's turn to Slide 12. Our strategic priorities remain clear and consistent. We aim to identify and deliver on customer needs by leveraging our capabilities to develop differentiated, high-speed and highly efficient technologies. In doing so, we generate robust returns for our shareholders. Let me wrap this up on our final slide, Slide 13. First, we delivered strong Q3 results, fueled by share of demand gains in gasoline outperforming the industry, and this coupled with disciplined operational execution. We also generated $107 million of adjusted free cash flow in the quarter and $264 million year-to-date. This strong cash flow generation allowed us to invest in growing our turbo and zero-emission technologies. To date, we continue to win greater than 50% of our new Turbo business awards as we have done over the last 5 years. Additionally, we see increased interest in stationary power generation, and we are expecting over $100 million of sales this year from these industrial applications. I am also very pleased with the progress we have made this year on our zero-emission technologies with the first series production award for our high-speed E-Powertrain, which demonstrates the substantial potential of this technology. Momentum and interest continues to build for our high-speed oil-free e-cooling centrifugal compressor with customer testing, demonstrating significant efficiency gains compared to current technologies. This year, we refinanced and repriced our term loan, lowering our interest by 75 basis points and repaid $50 million of this debt this month. We also initiated a quarterly dividend of $0.06 per share in Q1 and announced an increase to $0.08 per share for Q4. In addition, we repurchased $136 million of our common shares through Q3. These actions demonstrate our continued commitment to return capital to shareholders. I am very proud to highlight these achievements, positioning us extremely well for the remainder of 2025 and beyond. Thank you for your time. And operator, we are now ready for Q&A. Operator: [Operator Instructions]. Our first question comes from Edison Yu with Deutsche Bank. James Mulholland: James Mulholland on for Edison. Congrats on the good quarter. Just looking at the volumes for the quarter, they were good, but they were fully offset by the mix. I was wondering if you could double-click on what you're seeing in there? Is it geographic based? Or is it something you're expecting to continue as diesel penetration falls relative to gas? Is there anything we should be specifically thinking about there? Olivier Rabiller: So let me pick that up. That's a very good question. It's an opportunity for us to clarify. The mix that we see the impact is much more coming by 2 things. First, commercial vehicle versus growth in gasoline and gasoline turbos. And second, some weakness we keep on seeing on the aftermarket. So let me explain that. We are seeing, as we have said, a huge growth on the gasoline side, 10%. Obviously, we know that those products, especially when they come from China. When they go for China are not exactly at the same margin as the rest of the business. So this is the first mix impact. We are -- we keep on seeing continued weakness on the commercial vehicle side in some regions, although I would say it's stabilizing, we are seeing some green shoots which makes us a bit more confident for the future. And last but not least, we said that aftermarket was also subject to some weakness. And in aftermarket, the piece that so far has been weak this year is commercial vehicle off-highway aftermarket, where there is some destocking going on at some of our customers. And as the activity stabilize, we expect that this will still go on for some time and then at some point, recover. So these are the 3 drivers. The first driver at the end of the day is a very good driver for us because it's meaning that we have -- we are quite successful versus the rest of the industry, especially in a region that is extremely demanding in terms of competitiveness. The 2 others, obviously, for us, it's much more cyclical effects that are impacting ourselves. And obviously, like any cycle at some point, they will recover. James Mulholland: Got it. Okay. And then just as a quick second question, and then I'll hop back in the line. On that commercial vehicle green shoots comment, is that going to be geographic based? Is it -- are you seeing some strength in certain areas or on off-highway versus Class 8? Is there any more detail that you can give there? Or is the outlook still pretty soft broad-based? Just some high-level thoughts on that, if you wouldn't mind. Olivier Rabiller: It's pretty sub broad-based. But we have seen some signs of stabilization in China, which is a big region for us. And we should expect some stabilization, although at a low level. And then at some point, I guess it's marking the bottom of the cycle on off-highway and when I say off highway, it's mostly agricultural and construction equipment. Operator: Our next question comes from Nathan Jones with Stifel. Nathan Jones: I'd like to talk a bit about the 0 emissions technologies and the progress there. I know you guys have targeted $1 billion of revenue in 2030. Obviously, that number is quite low these days or today as you're in development. Can you maybe talk about the path that you're expecting to take from here to that $1 billion of revenue in 2030? And how we should think about kind of you announcing project wins that actually turn into the platform revenues and just kind of how we view the path of that over the next few years? Olivier Rabiller: So that's a good question and giving me an opportunity to one more time to explain what we do there. First, we have 3 technologies that are counting towards that goal of the zero emission technology revenue. The first one is fuel cell compressors. So although the fuel cell compressor industry is impacted by the slowdown that we've seen on fuel cell compressor in terms of ramp-up, that's already something that we are doing. Quite frankly, it was not the major part of the $1 billion that we had announced and therefore, the slowdown that we have seen so far is just having a marginal impact on that. Most of the $1 billion is coming from the 2 other technologies, the first one, E-Powertrain. As you have seen, we have announced wins and the biggest one being the -- and I say Hande and not Hande for some people that would make the confusion. Hande is a commercial vehicle player that belongs to the Weichai Galaxy. It's the biggest maker of axles and electric axles, not only for China but also for exports. In China, the industry already exists for electric trucks and is growing. So we are not subject to the slowdown of BEV passenger vehicle that we have seen in North America, and the slowdown of the growth that we have seen in Europe. So we are pleased with that. It keeps on growing. We have more to come for both passenger vehicle and commercial vehicle, knowing that the first launch, which is associated to the first award will come in 2027, ramp up from there. From the beginning, we've said that on E-Powertrain, we would start into 2027 and ramp up from there. So we are fully aligned at this stage with the trajectory that we had laid out. Obviously, we are monitoring very closely the developments of penetration in countries subject obviously to the end markets in which we are playing. And then the last one, which is E-Cooling compressors, which we are quite positive about. At the beginning, we are really betting a lot on what we call mobile application, which is equaling compressors for electric vehicles, mostly commercial vehicle for both battery cooling and also vehicle cooling. When you think about buses, we are still seeing a strong traction there. But what we have seen over the last few months, that's what we wanted to highlight in our earnings today is that we have seen an increasing interest from the industrial world. So think about air conditioning systems that are on rooftop, up to some of the systems that are used in some data centers, where we have demonstrated that the technology we bring is having superior performance to what is existing and is using some innovation that are quite unique for us because we leverage the maturity that we have achieved on fuel cells to address fuel cell compressor to address a new vertical. So we are coming with the strength of the size of the auto industry and we are coming from the strength of the maturity that you need to achieve in auto industry when you start production. So I'm extremely positive about this one, which is getting us into the industrial world out of the automotive world. And we cannot say much more than that at this stage, but results are extremely promising, and the interest of customer is quite high. Nathan Jones: In terms of the predevelopment contracts that you've got going on there, is there any color you can give us on timing of when you expect those to become actual awards and what the timing might be on the start of production on those kinds of things? Olivier Rabiller: Usual timing, when you start on preproduction, yes. It's about I would say it depends on the customer, but it can be a few months to 1.5 years, 2 years before we decide to go into production. You may remember that we've announced already some preproduction award already some time ago. So obviously, there are some of them that are getting now much more mature. Although we are not ready to announce any yet. And obviously, for the rest, it will come later on. What's important is that when customers get into these programs with you, they are already committing energy, resources and money to help you assess and develop the technology. So that's already first, a very good sign. Nathan Jones: And then maybe just one more on that. The margin profile for these products as they ramp up, do they start off maybe below corporate average and as volume improves, you get them to a higher level? Or will they be immediately accretive to the company? Just any color you can give us on the margin profile of the 0 emission products. Olivier Rabiller: So the way we measure that is what we call material margin. So the margin we make between the material cost of the products and the price. And what we have always said and we'll keep on repeating that because we have more and more proof points around it, that on average, it's about the same or accretive to what we have on the turbo side. Operator: Our next question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: Could you just elaborate on the recovery you saw in diesel, please? Sean Deason: So yes, that was a year-over-year recovery, mainly in Europe and North America. But again, diesel overall is trending down slowly over time, but not nearly to the magnitude we saw back a few years ago. So diesel still is a very strong business for us. And again, we will be last man standing on the turbos for diesel. It's a vertical that has basically 100% penetration on turbo. And it's a business we like very much. Olivier Rabiller: But let me add to what Sean is saying. The big decrease we've seen on diesel was basically linked to the shift on passenger vehicles from diesel to other technologies like gasoline and hybrid. We are more and more as we have been reducing that share of the business. We have been more and more coming to the end of it and with volumes of diesel remaining much more focused on what I would call light commercial vehicle application. So think about delivery vans, pickup trucks, especially in Asia, all these vehicles are diesel, even in China. And today, the trend is that most of it will stay in diesel for the long run due to the specifics of diesel, which are associated with range gas consumption as well as I would say the truck that you need to move diesel. Hamed Khorsand: Okay. And then, Olivier, if I heard you right, you said there's about $100 million this year from industrial use. Is that going into data center? If not, when does that get implemented and helping your sales? Olivier Rabiller: So that's a good one because we introduced that information for this quarter. So let me explain what we mean by that. Even before we launched the main line of turbochargers, the big line that we launched about 1 year, 1.5 year ago, we were already doing a lot of very big turbochargers according to our range that we are fitted on gen set. And what we've isolated this quarter is this number to give people a little bit of a view that already today, even at the start of the GEM ramp, the mag ramp-up. We are already doing $100 million in that field, supplying those turbos that are ingested that most of them are going already today to the backup power for data centers. So we are not just venturing into something from scratch. We are extending our range with bigger turbos, but we are already doing a significant business in that field to our customers, whether in China, Europe or the U.S. by way. Operator: [Operator Instructions] Our next question comes from Jake Scholl with BNP Paribas.. Thomas Scholl: Congrats on a great quarter. I appreciate you guys providing the color on your stationary power revenue. So as that business continues to ramp for you guys and especially as we see more demand in things like data centers and you roll out the potential industrial applications of E-Cooling compressor, what could that business look like if we out to 2030 or even 2035? Olivier Rabiller: That's a very good question. I may not give you right away and I'll start with the number on this one. But let's keep in mind that first, it's growing and it's growing fast, obviously, from a smaller base. We've mentioned the $100 million for stationary power application. It's already a significant increase. It's already a double-digit increase versus last year and more to come. And including that's also a little bit premature to tell you exactly the numbers as we are really working on that with our customers. But if we were consuming, we expect it to be significant. I don't think it will represent 50% of the sales of the company by any means, but that will be significant in the bond scheme up since. Thomas Scholl: Yes. Got it. And you guys delivered some very impressive capital returns this quarter, between dividends and buybacks totaling nearly $100 million. Is that what we should expect to see going forward, obviously, with some quarter-to-quarter variability? Sean Deason: Yes. Again, as I highlighted in my prepared remarks, we remain committed to 75% or more over time. But again, that will vary, as you noted, especially on share buybacks quarter-to-quarter depending upon macroeconomic and industry conditions. But that's -- we continue to focus in on returning the cash that we're generating to shareholders. That's a core part of our financial framework. Operator: Our next question comes from Eric Gregg with Four Tree Island Advisory. Eric Gregg: Tremendous quarter, everyone. Two questions. One is on the E-Cooling technologies for data center and industrial. What are the performance or form factor potential pricing attributes that you think will make this technology potentially very appealing to potential customers? And the second question is forgive this, but a little bit more on capital allocation. I echo the points made by the prior caller about how strong a quarter it was. But this year, you're down a little bit year-to-date on stock and purchase versus last year and you have a lot more liquidity than you did last year. So should we be looking forward to potentially another very strong quarter in stock repurchase specifically or more weighted towards debt payback even with the $50 million debt pay down? Olivier Rabiller: Yes. So Eric, I'll answer your first question, and I'm sure Sean will answer your second one. So back to E-Cooling question, what makes our product differentiated versus what already exists. A few things. First, we are using high-speed electric models. We are compressing at a high speed. With high speed in compression comps efficiency. We have an expertise into high speed and our concept shows extremely low level of noise. So at the end of the day, weight, efficiency, noise, and we are leveraging a technology. Now I'm getting a little bit technical where the system rotates on the cushion of air that we call air foil bearing that we have developed for the automotive industry. We have developed that for fuel cell compressors and we are uniquely positioned in the industry because we have the scale of the automotive industry. We have the maturity from a manufacturing standpoint. It's a very complex, high-volume manufacturing to achieve that. So from a design, from a manufacturing standpoint, we have an edge with the system. So if you think about the capabilities of the company, high speed, high-speed electric motors, and then everything that revolves around rotating technology, in this case, this famous air cushion bearing are key points for our product that has to provide the benefit to our customers at the end and back to what I've said, it's weight. Sometimes these systems are on the roof of building. So weight is important. More importantly, efficiency. Any kind of percentage you can save on electric consumption, especially nowadays with the pressure that everybody has to reduce their energy consumption is a bit and the maturity of our product versus some others, putting all that in the context of the world that is evolving when it comes to low global warming refrigerant that needs to be used moving forward. So we are coming at the right point in time where the industry is looking for improvements in the face of a change that is driven by this low global warming refrigerant and it shares the benefits that we bring to mobile applications are obviously extremely applicable to the buildings and the industrial applications as well. Now on the question about capital allocation. Sean Deason: Okay, Eric. So look, as everyone knows, there are some -- it's a volatile industry that we're in right now with new news every day, both from governments and the supply chain. But we are committed to returning capital to shareholders. But we're not going to commit to any specific number. But again, we've just raised our dividend, we had a very strong quarter of share buyback, and we repaid a little bit of debt. So those are the -- those are our 3 levers, and we expect to continue to use them going forward over time. Olivier Rabiller: And to get to our goal on average to return 75%. Sean Deason: Correct. Operator: Thank you for joining Garrett's Q3 earnings call. This concludes today's session.
Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Third Quarter Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm joined today by Hans Sohlstrom, our President and CEO; and Niclas Rosenlew, our CFO. The theme for today is good progress in a challenging market environment, which indeed we have done. We'll start with Hans, who will walk us through the key highlights and strategic focus areas. After that, Niclas will take you through the financial performance, and we'll wrap it up with the main takeaways and key focus for the rest of the year '25. Once we are done, we'll open the floor for your questions. Thank you for being here with us today. Hans, over to you. Hans Sohlstrom: Thank you, Jutta. In the third quarter of 2025, despite ongoing challenging markets and subdued demand, we remain focused on the areas within our control, driving progress where it matters most. However, before looking more closely at the third quarter highlights, I would like to announce changes in Stora Enso's Group leadership team. Micaela Thorstrom has been appointed Executive Vice President, People and Legal, General Counsel, as of 1st of January 2026. Micaela has been part of our group leadership team since 2023, serving as Executive Vice President, Legal and General Counsel. Furthermore, Niclas Rosenlew, our Chief Financial Officer, will assume additional responsibilities and represent the Communication and Brand organizations on top of his current duties. I want to congratulate both Micaela and Niclas for their new and extended roles. Then we are ready to look more closely at the quarterly highlights. We have taken important steps to build a stronger and more competitive Stora Enso. A major milestone in the quarter was the completion of the divestment of approximately 175,000 hectares of forest land in Sweden, representing 12.4% of our total forest holdings in Sweden. The transaction with an enterprise value of SEK 9.8 billion, equivalent to approximately EUR 900 million and in line with forest book value, strengthens our balance sheet and improves our financial flexibility. The deal includes a long-term wood supply agreement to Stora Enso. This strengthens our cash flow and reduces net debt, which is a key priority for us. We also made progress on the strategic review of our remaining 1.2 million hectares of Swedish forest, including the assessment of a potential demerger and public listing. This review is central to unlocking further value for our shareholders, as well as strengthening our growth and business focus in both forest and renewable packaging businesses. We'll share updates as that process moves forward, aiming at Capital Markets Day later this year on November 25. On profitability, we continue to act proactively to improve margins. These measures are essential as we navigate challenging market conditions and subdued consumer sentiment. Adjusted EBIT for the quarter was EUR 126 million. Excluding the EUR 45 million impact from the Oulu consumer board ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. And finally, on sustainability, we launched a science-based framework together with IUCN to advance nature-positive forestry practices. This is an important step towards our long-term environmental goals. As we all know, market conditions have been challenging. Therefore, we have intensified our actions to improve profitability. But it's important to emphasize that these efforts are not new. We have been acting on these priorities for a good while now. Since 2023, we have been very clear on our strategic focus; improving profitability, driving performance and shaping the portfolio for long-term strength. This has been our new way of working proactive, not reactive, so we can stay ahead of market turbulence and rapidly changing global trends. On fixed cost reduction, we launched significant cost-saving programs in 2023 and 2024, totaling over EUR 230 million of savings. These include structural efficiency measures, site closures and divestiture across business areas and the group. Operational efficiency has been another key focus. We have implemented FTE reductions, cut external spend and driven value creation initiative across the whole company to streamline processes. Building a strong performance culture has been critical. More than 4,000 improvement measures have been identified with around 800 initiative team leaders, meaning that thousands of our employees are actively driving continuous improvement and cost savings initiatives across the company every day. We have also strengthened cash flow and working capital discipline, reducing operating working capital by about EUR 700 million and improving cash flow from operations. Going forward, we remain committed to disciplined capital allocation. Finally, on portfolio actions. On top of earlier closures and divestments, we completed the sale of 12.4% of our Swedish forest assets and continue the strategic review of the remaining assets in Sweden. At the same time, we are ramping up Oulu consumer board line and De Lier corrugated site to secure cost efficiency and competitiveness. This approach gives us resilience and flexibility. By acting early and decisively, we have not just reacted to market challenges, we are shaping our future and positioning Stora Enso to thrive in a rapidly changing world. And with that, let me give you an update on the Oulu consumer board line ramp-up. Stora Enso's new consumer packaging board line at the Oulu site in Finland has entered the production ramp-up phase earlier this year. While the project remains on track in terms of its original time line and the EUR 1 billion budget, the ramp-up process has progressed slower than initially anticipated, resulting in production volumes somewhat behind the original schedule. Nevertheless, we remain focused on reaching EBITDA breakeven by the end of 2025, which continues to be an achievable target. However, due to the slower-than-expected ramp-up, the EBIT impact for Q4 is now projected to be higher than previously anticipated, estimated at about EUR 15 million to EUR 35 million. Consequently, the full-year EBIT impact is expected to be in the range of EUR 120 million to EUR 140 million. It is important to emphasize that the Oulu investment is a long-term strategic move that will deliver substantial value for Stora Enso over time. This transformation of the Oulu site into a state-of-the-art consumer board production facility is a cornerstone of our strategy to lead in renewable packaging. This investment is not just about near-term volumes, it is about building a competitive platform for the next decade and beyond. As the ramp-up continues, we remain confident that Oulu will become a key driver of profitable cost competitive growth and a benchmark for sustainable packaging innovation. This year, we have seen some remarkable recognition for our design and innovation. Winning the Red Dot Design Awards 2025 underscores our ability to combine aesthetics, functionality and sustainability in everything we create. Our craftsmanship was showcased on the global stage at the World Ski Championships where we designed official medal boxes crafted from renewable materials, fully recyclable and even featuring braille for accessibility. This is not the first time we have been recognized by Red Dot. Earlier this year, we also received the award for our collaboration with Marimekko on a scalable, recyclable gift packaging portfolio. One of the most exciting milestones is our contribution to Atlassian Central in Sydney. Once completed, it will be the world's tallest hybrid timber tower, and the heart of this achievement is massive timber solutions. It's a powerful demonstration of how engineered wood can transform urban skylines while reducing carbon emissions. Closer to home, October brought us the Finlandia Prize for Architecture for our new headquarters at Katajanokan Laituri in Helsinki. This award celebrates not only architectural excellence, but also our leadership in sustainable building practices. Together, these achievements highlights how innovation and responsibility go hand-in-hand in shaping the future of construction. That concludes our review of the key highlights for the quarter. And I'll hand over now to Niclas, who will take you through our financial performance. Niclas Rosenlew: Thank you, Hans, and hello, everyone. During the third quarter, as Hans already mentioned, our own actions resulted in good progress in a market with subdued demand and low consumer confidence. Delivery volumes were relatively low, particularly in containerboard and biomaterials. Sales increased by 1% to EUR 2.3 billion, mainly due to the contribution of the Junnikkala acquisition and the consumer board line ramp-up at the Oulu site. While market conditions continues to be volatile with low demand, we focused on the areas within our control. On that note, adjusted EBIT for the quarter was EUR 126 million. And as Hans mentioned, excluding the EUR 45 million impact from the Oulu ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. This we can see clearly when looking more closely at the EBIT bridge for Q3. Overall, adjusted EBIT decreased by EUR 49 million compared to last year, primarily due to the ramp-up of the new line in Oulu. As said, Oulu had a negative impact of EUR 45 million. In the other bar, where you can see the Oulu impact, you can also see the absence of a EUR 10 million insurance compensation that was received last year in the Wood Products segment, along with some other smaller movements. Looking at the other components, the picture is relatively stable. Given how volatile the markets have been, we are quite pleased with this, as it reflects the result of disciplined execution of our strategy and profit improvement actions. Price/mix contributed positively with EUR 12 million, partly offset by a smaller negative impact from lower volumes. Variable costs were flat as higher fiber costs were offset by lower energy and chemical costs. Fixed costs decreased by EUR 30 million, driven by strong cost control and lower maintenance compared to last year. And FX had a negative impact of EUR 20 million. If we then turn the focus to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities turned positive as expected, following the gradual completion of the investment phase in Oulu. I want to note that in this picture, which shows the operational cash flow after investing activities, the proceeds from the Swedish forest divestment, so the 12% divestment are not included. These proceeds were received in Q3, but they are recorded further down in the cash flow statement under divestments. And on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million to EUR 3.2 billion during the third quarter, reflecting the positive impact of the forest asset divestment. The ratio of net debt to the last 12 months adjusted EBITDA is now at 2.7x after being above 3 for most of the past 2 years. As the intensive strategic CapEx phase of the last 2 years nears finalization and profitability gradually improves, net debt levels and the ratio are expected to improve further. Operating working capital to sales was around 8%. That is at similar levels to the last few quarters. We intend to keep operating working capital at these lower levels and decrease it when possible. So, let's move on to the segment performance. Starting with Packaging Materials, where we continue to implement value creation actions during the quarter to mitigate the impact of the challenging market conditions. Sales declined mainly due to slightly lower consumer board prices and adverse currency effects from a weaker U.S. dollar. Adjusted EBIT decreased year-on-year by EUR 37 million, primarily due to the adverse impact coming from the Oulu ramp-up. In addition, fiber costs remained high and logistics expenses and trade tariffs increased, adding further pressure on profitability. These headwinds were, as said, partly offset by value creation initiatives. As order inflow weakened further during the quarter, we continued to manage capacity and cost levels in line with demand. In Packaging Solutions, we had a similar development, with market headwinds being offset by own actions. Sales increased slightly, with improved product mix offsetting a small decline in volumes. Adjusted EBIT increased year-on-year, supported by higher sales and improved margins driven by value creation initiatives. Despite persistent overcapacity, actions to enhance product and customer mix, combined with continuous cost efficiency improvements helped protect margins. So moving from packaging to Biomaterials. In Biomaterials, market conditions stabilized at low levels during the third quarter. Demand for hardwood pulp strengthened in both Europe and China, while softwood pulp demand in Europe remained weak. Sales decreased driven by lower prices and adverse currency movements, somewhat offset by higher volumes. Adjusted EBIT decreased year-on-year, primarily due to lower prices, but as said, stabilized at low levels. Cost reduction measures also helped mitigate part of the negative market impact. If we then move on to Wood Products, protecting margins has been a key priority mitigating the increase in raw material costs. Sales increased, driven mainly by higher prices and stronger volumes for sawn wood. However, EBIT declined, primarily due to increased sawlog costs in Central Europe and the absence of last year's EUR 10 million insurance compensation, which affects comparability. That said, price increases and value creation initiatives helped cushion the impact and protect margins. The construction market remained weak overall, but we did see improved demand for both traditional wood products and building solutions compared to the previous year. In Forest, sales increased, driven mainly by higher volumes and wood prices. However, EBIT declined slightly due to slightly higher costs. So in sum, Forest continued its stable and strong performance. I'll now hand it back to you, Hans, for the key takeaways and our focus for 2025. Hans Sohlstrom: Thank you, Niclas. Today, we have focused on profit, performance and portfolio, 3 pillars that guide our actions as we navigate a challenging market and position Stora Enso for long-term success and improved profitability. Profitability and cash flow remain top priorities, supported by company-wide initiatives in sourcing, operational efficiency, commercial excellence and cost optimization to ensure resilience and agility. We are finalizing the strategic review of our Swedish forest assets, including evaluating a potential separation and public listing to unlock value and sharpen our focus on core businesses. At the same time, we are ramping up production and leveraging the EUR 1 billion investment in new packaging board line at our integrated mill in Oulu, Finland, strengthening our competitive position in renewable packaging and advancing our ambition to lead in sustainable solutions. These actions are critical steps towards delivering shareholder value and navigating in tough markets. We look forward to sharing more at Capital Markets Day on the 25th of November in London. Thank you for listening. And we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Cole Hathorn with Jefferies. Cole Hathorn: Could I start with the cost positioning that you -- well, the improved costs in the Biomaterials and Packaging Materials division. The cost per tonne has come down. You talk about efficiencies. Are we right to assume that this is your internal actions that have supported the lower cost per tonne rather than lower pulpwood or wood costs feeding through into the business sooner? So that's just the first question, if it's internal actions. The second one is around the Packaging Materials business and particularly consumer board. We've got a lot of oversupply in the market. And I'm just wondering how Stora Enso is thinking about that strategically. You are the market leader. How do you think about improving operating rates as you ramp up Oulu versus the price dynamics of the market? Are you still considering, or are you evaluating capacity out in the industry? Hans Sohlstrom: Yes. Thank you very much, Cole. So first of all, about the cost improvement actions, they are internal actions throughout the whole company. And we have started this very proactive systematic work on reducing our cost base, both variable as well as fixed cost since 2 years back. We are going to give some updates about this in the CMD on the 25th of November, some tangible examples of the way we are working, but it's significant cost reduction results throughout the whole company. And this is not a project. This is our new way of working. This is a continuous improvement work. It's our new culture where basically we have identified over 4,000 profit improvement actions throughout the whole company in every unit, every middle, every single part of the organization. And we have 800 project initiative team leaders working on these. So, we have thousands of people actually actively working on cost improvement actions and profit improvement initiatives as we speak. It's not a project. It's our new culture, and it's a continuous way of working. When it comes to your question, Cole, about consumer board, we know that there is in Europe alone, 1 million tonne of higher cost consumer board capacity than our most expensive, most highest cost line. We also know that we have in consumer board, the most cost-efficient capacities in Europe today. So currently, we don't have any plans to consolidate or close capacity. I'm sure there is considerations in our industry for those who have negative cash flow, for instance. Cole Hathorn: Then maybe just as a follow-up. I'd like some color on what are you seeing from a demand and order book perspective? And could you give some color between containerboard? And then within consumer board, what you're seeing the difference in kind of the traditional folding boxboard as well as your liquid packaging? Hans Sohlstrom: Yes. So first of all, year-to-date, we have increased our top line by 5%. So, we are growing as a company. And also in the last quarter where demand was rather subdued, we grew 1% and we are quite determined to continue growth. We have invested in growth in the Oulu consumer board line, as well as also we have the De Jong corrugated site, which is in a ramp-up phase still. So, thanks to earlier investments, we have cost competitive state-of-the-art capacity that we are ramping up in order to ensure also continued growth for the future. And when it comes to consumer board versus containerboard, I would say that our operating rates in containerboard are quite high. And as you also know, from a global supply and demand perspective, especially kraftliner, which is our strength, our core area in containerboard, that is actually a market where the global supply and demand situation is the best. The market is the tightest. And when it comes to consumer board, we have very cost-efficient, high-quality capacity that we are currently utilizing and then also ramping up in Oulu. Operator: Our next question will come from Andres Castanos with Berenberg. Andres Castanos-Mollor: Can you please help me understand why did you book a gain of EUR 140 million with the forest asset sale, if this was a sale that was done in line with book value? And also, what is your current view about the deferred tax liabilities associated to the historical appreciation of the assets that you sold? What will be the treatment in your view? Niclas Rosenlew: Sure. And it is a bit of a complex accounting issue, but the sale of the 12% was in line with book value. And there was a portion in the book value, which is deferred tax liabilities. As you said, the sale was tax-free according to local tax rules. We sold the company, not the assets. And therefore, from an accounting perspective, we then kind of canceled the deferred tax liability and that portion was then going into the P&L. So it's more of an accounting technical topic. Operator: Our next question will come from Charlie Muir-Sands with BNP Paribas Exane. Charlie Muir-Sands: There's been quite a lot of talk in the industry about falling pulpwood prices and some mixed messaging around log pricing. I just wondered what you're seeing specifically yourselves at the moment and how soon you would anticipate it manifesting, in your opinion, if there are movements? Secondly, I appreciate you're going to give us an update on the possible forest spin-off at the Capital Markets Day. But can you share any early thoughts on what you see as the relative pros and cons of making such a transaction? And then just on De Lier finally. The ramp-up there, you haven't quantified what the profit drag is unlike Oulu. I wondered if you could put any numbers around that? And also, is the constraint for the De Lier ramp-up technical? Or is it that it is constrained by market demand conditions? Hans Sohlstrom: Thank you very much, Charlie. So first of all, wood costs have come down in the Nordics, both in Finland and Sweden since the peak in the summer. However, before they are visible in our P&L, there is a time lag. And actually, in the beginning, there is a negative impact because the inventory values of our wood inventories comes down. But there will be with a time lag of a few months, there will be, of course, a positive impact of lower wood costs in the Nordics. Concerning the forest, the Swedish forest spin-off, 1.2 million hectares in total. I would say that the clear plus is -- and that's also one of the main objectives, shareholder value creation. I mean, we clearly see that now after the sales of 12% of our Swedish forest land, the total value of all our forest holdings is EUR 10.50 per share. And the whole idea here is to unlock value for our shareholders, as well as also being able to focus on the very different businesses of creating value and profits in a forest business, as well as creating value and profits in industrial activities, renewable packaging and biomaterials businesses. Regarding the De Lier markup, the bottleneck is the market. So it's demand. We are gradually increasing volumes there. But of course, in an oversupplied market, it takes time. Charlie Muir-Sands: Got it. So far, you've not identified any cons in terms of the possible price spinoff. Hans Sohlstrom: Can you think about any, Niclas? Niclas Rosenlew: I can't immediately at least. We'll think about it. Operator: Our next question will come from Pallav Mittal with Barclays. Hans Sohlstrom: Very quiet. Maybe we take the next question then. Operator: Our next question will come from Andrew Jones with UBS. Andrew Jones: Can you hear me okay? Hans Sohlstrom: Yes. Andrew Jones: Excellent. A few of my questions have already been answered, but just a bit of color on 4Q first of all. You mentioned that the fixed costs were down EUR 38 million in 3Q, mainly on seasonality. I'm curious like how much of that should come back in 4Q? And taken together all the other moving parts on costs, I'm guessing that the wood costs don't make that much of a difference in the 4Q given the lag. But can you talk us through like wood, energy, some of the other moving parts as to how you see costs evolving into the fourth quarter? And then separately, I've just got a question on FBB sales to the U.S. I mean, is that profitable now? Like how should we think about margins on sales there? Have you changed your sales mix as a result of the tariffs and the currency moves? Like how are you looking at the different markets for your boxboard at the moment? Niclas Rosenlew: All right. Andrew, I'll take the first one. So fixed costs, very much as we said and we've said before, I mean, we are working a lot on cost scrutiny. And this is nothing new. We've been on it for some time, but there's still a lot to do. So, not commenting specifically now on Q4, but even kind of further out. And that absolutely will continue. Specifically in Q4, we continue with the normal maintenance. Maintenance stops should be roughly similar cost to Q3. And then on wood cost specifically, very much, as Hans said, we have seen some downward trend. And now we talk about the Nordics, Finland, Sweden. It's different in Central Europe. But again, very much as Hans said, it comes with a delay and we talk about a quarter or 2 or so. When it first goes into the inventory valuation, inventory value actually goes down. It has a slight negative impact on the short-term result. But then, of course, over time, it should start to help the result. So in that sense, it takes a while and don't expect any major impact or positive impact in Q4. Well, I mean, logistics has gone up a bit, chemicals down a bit, energy down a bit. So it's a bit more of a mixed bag. Andrew Jones: So flattish sounds like the interpretation. Niclas Rosenlew: Flattish, yes. Well, again, not commenting specifically on Q4, but more what we've seen up until now and in Q3. Hans Sohlstrom: And when it comes, Andrew, to your question about folded boxboard and the U.S.A., I mean, we have been increasing prices in folded boxboard sales to the U.S. We have been able to compensate a clear majority of the 15% import duty. But on the other hand, of course, also, as we know, during this year, the U.S. dollar has weakened against the euro quite significantly. We are making positive margins on our business to the U.S., but very thin margins. That's where we are today. However, having said that, I do want to underline that if you consider our packaging materials, our board grades, our main board grades, so consumer board various grades as well as kraftliner and then I exclude recycled fiber-based testliner because that's a very local business. But if you look at consumer board and kraftliner, it's good to remember that the U.S.A. is a 4 million tonne net exporter around the world of these products. So if profitability of sales to the U.S. is challenged, there are also other opportunities around the globe to develop businesses. So, I think one of my favorite sayings is that every challenge is an opportunity. You need to also find the new businesses and the new opportunities, but we have not given up on the U.S. We continue to develop our business there. But of course, in order to improve margins, we need to increase prices further. Operator: Our next question will come from Linus Larsson with SEB. Linus Larsson: First, just to double check here, so we're not missing anything on Biomaterials. It was sequentially somewhat better in the third quarter, although prices were lower and I think your volumes were lower as well. So if you could just maybe elaborate just a little bit about what happened in the third quarter? I think we may have touched on part of it already. And just to make sure that we're not missing anything, any benefits which might not be there in the fourth quarter, please? Niclas Rosenlew: Yes, I'll start at least, Linus. And I mean, what we saw in Q3 was a stabilization at low levels and so stabilization. So, I would say no major movements there, volume, price that I can think of at least in terms of what to miss now going forward. Hans Sohlstrom: If I can build on that, Linus, so I think it's important when you consider our Biomaterials business. So, our market pulp business, we have -- the majority is cost-efficient eucalyptus from Veracel and Montes del Plata, as you know very well. And they are among the world's most cost-efficient pulp mills in the first quartile when you take, for instance, Safra's cost competitive -- cost capacity competitiveness considerations. So, great cash machines in every situation. And then the market pulp mills we have in the Nordics, so Skutskar in Sweden and Enocell in Finland. They are producing specialized niche pulps. So Skutskar, the majority is fluff pulp, where we are clearly the largest producer in Europe. Most of the fluff pulp in Europe is imported from the U.S.A. So it's a specialty pulp grade. And also in Enocell, we are gradually increasing the amount of specialized pulp grades, among others, unbleached kraft pulp for electrotechnical end uses and other special niches where you can get a better price compared to the volume grades. So, that perhaps also explains somewhat our position in Biomaterials. Linus Larsson: And if you compare the various units within Biomaterials, is there a material profitability difference in, say, the third quarter? Or are they all doing pretty well? Niclas Rosenlew: Again, we haven't really split out the profitability of every mill. I mean, as we've commented before, I mean, we very much look at -- I mean, each and every component, mill needs to be profitable, goes without saying, deliver positive cash flow. But of course, as Hans said, I mean, the South American operations are kind of absolute cost leaders. So no answer, Linus. No direct answer, at least. I hope it's okay. Hans Sohlstrom: Building on that, I would say that based on this product differentiation and specialization in the Nordics, I'm pretty sure that there are lots of pulp mills in the Nordics producing standard volume grades that are not doing as well as we are doing. Linus Larsson: That's helpful. And then just one more follow-up on Oulu. And maybe if you could just briefly touch on or give an update on your commercial plans for the output from Oulu, 750,000 tonnes, that's a big amount of paperboard. Where will you allocate those volumes? And have plans possibly changed from your original plans? Hans Sohlstrom: Well, Linus, first of all, I think it's important to remember that the line will be, as we have said from the beginning, fully ramped up and in full capacity in 2027. So also next year will be a year of gradually increasing production and sales volumes. Quality is good, really good. We have received very good customer feedback. It's also important to remember that that Oulu is not producing only folded boxboard. It's also producing CKB, for instance, where there are only 2 producers in Europe. We are producing CKB on 3 production lines, and then there is a competitor producing on only one small production line. So it's not only folded boxboard. We also have some other consumer grades in the Oulu production unit. Then also, I want to remind everyone that Oulu is not only for us an increase in carton board capacity because we are also transferring carton board volumes from our liquid packaging board mills, for instance, Skoghall into Oulu, which gives us an opportunity to grow in liquid packaging board. So basically, Oulu is providing opportunities for us to grow in all the product areas we have within consumer board, both carton board, liquid packaging board, food service board and so on. And when it comes to our sales plans, so, of course, I mean, our job is to maximize profitability. Our job is not to follow a certain plan, but to maximize profitability in every situation. And therefore, as we discussed before, it's clear that the margins in the U.S. because of the 15% import duties are thinner than what we anticipated before the tariffs came in place or the plans for import tariffs came in place. And we are actively looking to maximize profitability by optimizing our market mix and our customer mix as well as product mix. So, we really look to place those volumes wherever we can maximize profitability and value. Niclas Rosenlew: So it's not any board, it's the best board. Hans Sohlstrom: Well said. Thanks, Niclas. Operator: Our next question comes from Pallav Mittal with Barclays. [Operator Instructions] Pallav Mittal: Can you hear me? Hans Sohlstrom: Yes, we hear you, Pallav. Good to hear you. Pallav Mittal: Sorry about that. Some technical issues at my end. A couple of follow-ups on some comments that you've already made. So firstly, on Oulu, I appreciate all the commentary that you have made and clearly, volumes you have highlighted are currently running behind schedule. So, what gives you confidence that you are still on track to reach full capacity by 2027, especially given the overcapacity issues in Asia? And then secondly, in the third quarter, EBIT, you have almost 30 million-odd fixed cost savings, and these are your cost savings program over the last couple of years. Can you help us understand how much of those 2 programs is already in the numbers so far? And how should we think about further improvement in Q4 and also in 2026? Hans Sohlstrom: Yes. Thank you very much, Pallav. So if I take the first question and Niclas, the second one. So first of all, Oulu, I mean, we are ramping up. And I would say that especially the last months have been very encouraging in terms of optimizing the production processes there. And that gives us really confidence that we will be able to reach the full capacity from a production perspective in 2027 as we have forecasted. Then, of course, with a relatively weak oversupplied market that also, in a way, restricts the speed of ramp-up and ramping up the volumes. Then you mentioned China. We were just last week in China. We know that what is happening in China is that, for instance, there is a lot of the local folded boxboard, which is called Ivory board, taking market share from higher cost recycled fiber-based grades, so what they call Duplex there, which we call testliner in Europe. We can see similar trends in Europe, folded boxboard, virgin fiber-based top quality carton board, taking market shares from recycled fiber-based white-lined chipboard. You can, for instance, with our folded boxboard, you can basically with 30% lower basis weight, you get better characteristics, product folding characteristics, printing characteristics, a cleaner sheet, better looking board than with white-lined chipboard. So, we see also migration there from the European 3 million tonne annual white-lined chipboard market into carton board. And in China, there is a 6 million tonne of white-lined chipboard or Duplex market that is gradually being substituted with the local folded boxboard. So, we cannot only look at the specific product segments as such. There is also important movements happening between these product categories. But now over to you, Niclas, for the second question. Niclas Rosenlew: On the costs, so what comes to the previous programs, more than EUR 200 million, they are done. But as I said earlier, we are very active in terms of looking at our competitiveness, our cost base throughout. So, we'll continue with scrutinizing fixed costs. We'll continue with scrutinizing variable costs. We have, as discussed earlier, we have the programs with more than 4,000 initiatives, 800-plus initiative owners and they continue. And they are now -- it's not a program. It's more of a culture. And that we intend to keep up and if anything, speed up. At the same time, -- as you know, we made a big organizational change in the summer, 1st of July. We have 7 P&L responsible BAs, 22 P&L responsible BUs. And then we moved some of the functions to cut across the company. And now there, we are taking the next step and looking at how do we make this new kind of construction to make all it so more efficient. And there's been some articles or some press picking up on some of our actions we are doing across, but that's just some of the actions we are doing a lot under the hood. And that's the whole idea. These are not programs per se, but we are day in, day out looking at how we make sure that we are competitive and create value for our customers. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I got thrown out earlier due to power cut. Not helpful, but back on again. So essentially, a couple of questions for me still. Coming back to wood markets. Obviously, there's been an exceptionally tight market now in the Nordics. Now the industry certainly from the pulp and paper industry is not running full. Prices are starting to get a bit. But what is your thinking in an upturn in this market again in terms of the wood supply that is available? And in that context, coming back to what you said earlier, Hans, about maximizing profitability. can you operate everything, including your new assets from a wood supply standpoint on a competitive level? The other thing that you mentioned earlier was disciplined capital allocation going forward. I just wanted to understand what does that mean? You put in a lot of money on growth. You continue to talk about growth. And if I'm looking at some of the markets you serve, in particular the consumer packaging, there's no growth in this market since 2016. The volumes are the same. So, how should we think in that context, your focus on growth versus what's happened in the market and in the context of capital discipline what does it really mean? And the final point then. Holmen earlier today talked about stable generally prices on consumer boards for the contract business. But if you try to go after new volumes, there's a tremendous amount of pricing pressure. So the question is, what are you finding on that incremental volume that you're trying to place relative to the contract business in terms of pricing pressures? Hans Sohlstrom: Yes. Thank you very much, Lars. I'll let you take the second question, but a couple of comments. First of all, starting from your last question about pricing, yes, we see consumer board prices or board prices in general, stable. When we are now introducing our own new volumes to the market, very much we gain business, we gain volumes with yield advantage. Our folded boxboard, for instance, from Oulu has a 30% to 40% yield advantage compared to white-lined chipboard or SBS, some of the other board grades. So also with a higher price point for folded boxboard, you can basically prove to customers that the total cost of ownership goes down when they move to our grades instead of what they are using currently. Then regarding -- and also one point on growth. If you look at Stora Enso during the last 10 years, you will notice that our core packaging business has been growing an average 5% per year. That's the growth we can demonstrate since 10 years back in our packaging business. So yes, our top line has been about unchanged, around EUR 10 billion, but we don't have basically any printing papers anymore and we have a significantly bigger packaging business. So, 10 years ago, packaging and printing papers were roughly equal size, representing almost 40% of our total turnover each. And today, packaging is representing 60%, whereas printing paper is almost 0. When it comes to the wood costs and the supply and demand situation for wood in the Nordics, I think that we have seen here this year that the wood costs have reached the pain point, the pain levels. There has been significant curtailments in pulp capacity without mentioning any names of our competitors, but there have been very long curtailments, showing that when you are producing standard volume bulk pulp grades, it doesn't make sense to run at these higher wood cost levels. So, I think the proof is in the pudding, and we have seen that these levels basically forces the volume producers of pulp to take curtailments and shutdowns, extended shutdowns. And as I said, since the summer, we have seen wood costs now moving downwards. But then over to you, Niclas, for the other part of it. Niclas Rosenlew: Yes. So Lars, on capital allocation, and this is something we'll come back to as well in the CMD, but as we all know, I mean, we've had over EUR 1 billion CapEx now for a couple of years. This year, we'll go down to some mid-700s and likely down from there somewhat. We've done a lot of work internally, thanks to great efforts by the team to kind of create -- really kind of categorize our assets, run for cash assets, key growth assets and so on. And we see that we can become more disciplined by just doing internally being very structured, having criteria, return criteria, of course, but also other criteria for where to allocate the capital when talking about CapEx. So, there has been a lot of work going on recently on this, and we'll come back and explain a bit more what it means in detail. But CapEx is now on a downward slope. And as Hans said here earlier and as you know, we have made quite significant investments. Oulu is one, of course. De Lier, De Jong is another. And now going forward, we, of course, need to show the results of these and reap the benefits of them. So, essentially kind of no major CapEx kind of initiatives here in the near horizon. We have what it takes essentially to -- sorry, we have what it takes to grow essentially. Lars Kjellberg: Yes. So in '26, what does that mean for CapEx? What do you think you're going to land roughly? Niclas Rosenlew: Let's come back to that. As you know, we are typically in the beginning of the year in connection with Q1. We'll give an idea of next year, but down from where we are this year. Operator: We have reached the end of the time for the Q&A session. I shall now hand back to Hans Sohlstrom and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Well, thank you very much for your attention. Thank you for joining this call. And just -- we are powering ahead. We are focusing on profit, performance, as well as our portfolio to maximize shareholder value. That's our ultimate goal to create the best possible value to our shareholders. Thank you very much. Looking forward to meet with you then in the next quarter. Bye-bye.
Operator: Greetings, and welcome to the First American Financial Corporation's Third Quarter Earnings Conference Call. [Operator Instructions] A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13756641. We will now turn the call over to Craig Barberio, Vice President of Investor Relations, to make an introductory statement. Craig, please go ahead. Craig J. Barberio: Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2025. Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wagner, Chief Financial Officer. Some of the statements made today may contain forward-looking statements that do not relate strictly to historical or current fact. These forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10-K and subsequent SEC filings. Our presentation today also contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non-GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Mark Seaton. Mark Seaton: Thank you, Craig, and thank you to everyone joining our call. Today, I will provide a brief review of our earnings and share our outlook on the market. Today, we announced adjusted earnings per share of $1.70 for the third quarter, another strong result that highlights the resilience of our business. We continue to see 2 distinct market dynamics. Our commercial business delivered outstanding performance, while the residential market remains in a period of transition. Even so, our adjusted consolidated revenue grew 14% and adjusted EPS increased 27%. Commercial revenue increased 29%, and we set a record for average revenue per order at just over $16,000 per closing. The rebound in the commercial market began in the third quarter of 2024, which means the year-over-year comparisons are becoming more challenging. Nonetheless, even against tougher comps, we delivered another strong quarter with a 29% growth rate. We continue to see broad-based strength in commercial, led by the industrial sector which includes data center transactions, a consistently high-performing sub-asset class. Even excluding data centers, the industrial market remains robust, driven by sustained e-commerce demand for logistics and warehouse space. Multifamily was our second strongest asset class with solid performance across a wide range of geographies. Investment income grew 12% this quarter. Our investment portfolio, and particularly our bank continues to serve as a countercyclical earnings driver. The residential side of our business continues to navigate challenging market conditions. Purchase revenue declined 2%, primarily due to reduced demand for new homes. The purchase market has remained soft over the last 3 years, largely driven by affordability challenges and elevated mortgage rates. However, when purchase volumes begin to normalize and return to long-term trends, we are well positioned to capture growth, thanks to our operating leverage and strong relationships with local real estate professionals who play a critical role in driving purchase activity. Refinance revenue was up 28% this quarter. Although we've seen an uptick in volumes, the refinance market remains at historically low levels. Our home warranty business continues to post very strong earnings. Our pretax income was up 80%, driven by a lower loss rate, and we continue to grow our direct-to-consumer channel, which is offsetting the ongoing weakness in real estate. I'm optimistic about our long-term outlook. We're at the early stages of the next real estate cycle and our industry-leading investments in data, technology and AI position us to outperform as the market strengthens. By modernizing our platforms and integrating AI across our operations, we expect to drive significant productivity gains, reduce risk and unlock new revenue opportunities. further extending First American's leadership in the industry. Now I would like to turn the call over to Matt for a more detailed review of our financial results. Matthew Wajner: Thank you, Mark. This quarter, we generated GAAP earnings of $1.84 per diluted share. Our adjusted earnings, which exclude the impact of net investment gains and purchase-related intangible amortization was $1.70 per diluted share. Adjusted revenue in our Title segment was $1.8 billion, up 14% compared with the same quarter of 2024. Commercial revenue was $246 million, a 29% increase over last year. Our closed orders increased 6% from the prior year, and our average revenue per order was up 22%. Purchase revenue was down 2% during the quarter, driven by a 5% decline in closed orders, partially offset by a 3% improvement in the average revenue per order. While refinance revenue was up 28% compared with last year, it accounted for just 6% of our direct revenue this quarter and highlights how challenged this market continues to be. In the Agency business, revenue was $799 million, up 17% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to second quarter economic activity. Information and other revenues were $276 million during the quarter, up 14% compared with last year, primarily due to refinance activity in the company's Canadian operations, revenue growth in the company's subservicing business and higher demand for noninsured information products and services. Investment income was $153 million in the third quarter, up 12% compared with the same quarter of last year, primarily due to higher interest income from the company's investment portfolio partly offset by a decline in interest income from operating cash due to lower balances and lower short-term interest rates. Net investment gains were $6 million in the current quarter, compared with net investment losses of $308 million in the third quarter of 2024, which were primarily due to losses realized from the company's investment portfolio rebalancing project. Personnel costs were $543 million in the third quarter, up 10% compared with the same quarter of 2024. The increase was primarily due to incentive compensation expense resulting from higher revenue and profitability and higher salary expense and employee benefit costs. Other operating expenses were $276 million in the quarter, up 9% compared with last year, primarily due to higher production expense driven by higher volumes and increased software expense. Our success ratio for the quarter was 62%, which is in line with our historic target of 60%. The provision for policy losses and other claims was $42 million in the third quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year. The third quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11 million in the loss reserve estimate for prior policy years. Pretax margin in the title segment was 12.9% on both a GAAP and adjusted basis. Looking at October, we are seeing a similar pattern in opened orders to what we have experienced so far this year with a strong commercial market and sluggish residential market continuing. For the first 3 weeks of October, commercial orders are up 14%, while purchase orders are down 6%. The strength in commercial order activity is positioning us well for the remainder of the year and into 2026. Turning to the Home Warranty segment. Total revenue was $115 million this quarter, up 3% compared with last year. The loss ratio was 47%, down from 54% in the third quarter of 2024. The improvement in the loss ratio was primarily due to lower claim frequency, largely driven by favorable weather conditions. Pretax margin in the Home Warranty segment was 14.1% or 13.5% on an adjusted basis. The effective tax rate in the quarter was 23.1% and which is slightly below the company's normalized tax rate of 24%. Our debt-to-capital ratio was 33.0%. Excluding secured financings payable, our debt-to-capital ratio was 22.5%. This quarter, we raised our common stock dividend by 2% to an annual rate of $2.20 per share. We also repurchased 598,000 shares in the third quarter for a total of $34 million at an average price of $56.24. Now I would like to turn the call back over to the operator to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: On the commercial ARPO revenue per order, obviously, 3Q is very strong. Could you talk about that, the sustainability, perhaps what you're seeing so far in 4Q? Mark Seaton: Thanks for the question, Mark. Yes, I would say it's sustainable. I mean typically, in commercial, there is some seasonality to ARPO, right? It usually builds throughout the year. And we think it will continue to build in Q4. We're just seeing a lot of momentum in commercial. There's a lot of big transactions. We track 11 asset classes. 10 of our asset classes were up in the third quarter year-over-year. The only one that wasn't up was energy, which has historically been a really good asset class for us, but Q4 is typically a big energy quarter. We've got some big deals in the pipeline. So just in terms of Q3, it exceeded our expectations. And we're really optimistic about what we see in Q4. So it's been a really good story for us. Mark Hughes: Yes. How about the outlook currently for investment income? I know you've talked about some historically some sensitivities, but kind of what should we anticipate in Q4? Matthew Wajner: This is Matt. Thanks for the question, Mark. So for Q4, we continue to see -- we think it will be down slightly sequentially just due to kind of some of the headwinds from rate cuts. But it should be modestly down sequentially. It's the expectation right now. Mark Hughes: Okay. And then when we think about the refi orders, what's the kind of recent trend in refi per day? Matthew Wajner: The -- so for the first 3 weeks of October, we're opening about 875 open orders per day in refi. Operator: The next question comes from the line of Terry Ma with Barclays. Terry Ma: I was hoping you could give an update on maybe just Sequoia and Endpoint in terms of the time line for the pilots. I think last quarter, you said Endpoint pilot was going to roll out December. Is that still on track? And then for Sequoia in the markets that you're piloting currently, any kind of early results? Mark Seaton: Yes. Thanks, Terry. Well, first of all, in terms of Endpoint, yes, we're still on track with everything we talked about in the third quarter. We -- the product is ready for testing. In fact, we got people here on campus last week and this week testing the product and testing is going well, and we are still on track to roll it out in our first office in December. And we're -- right now, we're planning on sort of a broader rollout in the springtime to kind of start rolling it out throughout the country. It's going to take us roughly 2 years or so to get it national, but it's something we're really excited about. Our current system, which we call FAST, we rolled it out in 2002, and so we've been on the system for 23 years. It's been a good system for us for a long time. But obviously, technology has changed and AI is here and we're really excited about Endpoint. It's going to give us productivity improvements we haven't seen before. It's going to be a great user interface for our escrow officers and it's really going to amplify their talent. It's going to reduce the mundane task or part of the escrow transaction and free up more time for our escrow officers to spend more time with the client. We're really excited about it. And we're really on track with everything since last quarter, since we talked about last quarter. So that's we keep hitting our milestones. In terms of Sequoia, we're also very optimistic about Sequoia. We really started Sequoia with the vision of having instant title for purchase transactions. It's never been done in the industry. There's instant title for refinance transactions. We've got a solution for that. Our competitors have solutions for that. Nobody has it for purchase transaction. And we're continuing to make milestones with Sequoia too. We have rolled out our AI engine for Sequoia and we're running live refinance orders through Sequoia today, and that's a big milestone. The product is out there. It's in production. It's in 3 counties. We've sort of exceeded our expectations in terms of the hit rates that we can get. And as of right now, the plan is to have our first purchase transaction go live in the first quarter. And so we -- that's been our plan, and it continues to be our plan, and we see really good progress with Sequoia as well. So we're going to start testing the purchase product in the first quarter. And that's similarly, it's going to take us roughly 2 years or so to do a national rollout. But when we do, we'll be able to produce a commitment faster arguably with more accuracy and cheaper than anything that's out here in the market. So we're really excited about really both Endpoint and Sequoia. Operator: The next question comes from the line of Bose George with KBW. Bose George: Just sticking to Sequoia and Endpoint, can you remind us just what the margin impact of those programs are of just running the 2 platforms and just the way to think about the time line for that kind of rolling off? Mark Seaton: Yes. Thanks a lot, Bose. One thing I would say is we initially broke out our -- we call it our margin drag from Endpoint and Sequoia early on because we really wanted investors to be able to evaluate the performance of our core title business without these investments that we were making with Endpoint and Sequoia. And at the time, we didn't know if they were going to work or not. There were big technological hurdles. We weren't sure it was going to work. Well, now we're -- we know it's going to work. I think there's still -- there's always questions on the timing of things, but we know that they're both going to work. And so we are integrating them into our core operations now. It's just part of our title segment. So we're not going to disclose the drag with endpoint Sequoia anymore. A, because we don't feel like it's fair to back that out. We want investors to judge us on our core operating performance, including those. And b, is because they're being integrated in their core operations before they were really stand-alone entities. But now it's just being -- it's harder and harder for us to track it just because they're being more integrated into what we're doing. So we're not going to give that anymore. Bose George: That makes sense. But I guess I'm just trying to think about -- but there will be a benefit as once they rolled out and your old platforms are shut down, right? So I guess because it's hard to quantify at the moment, but there is going to be that sort of benefit at the end of this process. Mark Seaton: There's no question about that, Bose. The last time that we have talked about the drag, it's been roughly 100 basis points. And so you don't spend 100 basis points just to get nothing. I mean, you spend 100 basis points to get more than 100 basis points, right? And so there's a few different ways to get value. The first is we're really supporting 2 different systems. I think for both Endpoints and Sequoia, we've got our old system where our business is running on the old systems. And then we have the new systems which are showing a lot of promise, but they have very little volumes, right? So we're really double paying with technology right now. And eventually, we'll get everything on the new systems, and there'll be some savings by shutting down the old systems. That's the first thing. The second thing is -- the thing we're excited about is it's not just a copy and paste in terms of productivity. I mean the new system is going to create a lot more productivity, and we'll see that. And the third is I really believe that we can gain market share for both of those products. And that remains to be seen. It's tough to gain market share in our business, but I think there's a lot of reasons to believe that more customers are going to want to do business with First American because of this modern platform that we have. And so I think there's 3 different levels of value creation and that will happen over -- gradually over time, you'll see incremental improvements. Bose George: Okay. That's helpful. And then actually just on the order count, the default and the other -- that line item has gone up quite a bit again. Is that -- I mean, are those like you sort of clients allocating product? Or just curious what's going on there. Mark Seaton: Just so you're looking at the default and other, Bose? Bose George: Yes. Just -- yes, the order count, just the increase in the order count in that other line item. Mark Seaton: I would just say, first of all, it's -- of all of our order counts, we look at purchase commercial refi and then of course, what you're referring to is the other. We have seen an increase in default activity. It's there, but it's -- I wouldn't say it's material and it's really not a material part of our business right now, but we have seen it. And there's like -- it's not necessarily like foreclosures. There could be some foreclosures. A lot of it is like loss mitigation work that we do in some alternative products. Operator: The next question comes from the line of Geoffrey Dunn with Dowling & Partners. Geoffrey Dunn: Mark, back on Sequoia, it doesn't seem like there's a demand for instantaneous title. So it really sounds like it's more about efficiency gains. But then obviously, you have political pressure picking up every so often according to the cost of title. So as you think about the longer-term profile of the business, is this just naturally where the business is evolving to and maybe you struggle to keep those gains? Or do you think that there's something more sustainable in those efficiency gains over time? Mark Seaton: Well, I think it's -- well, there's a few things there, Jeff. And I want to make sure I answer your questions, if I don't call me back, call me out on it. But first of all, I think for Sequoia, I don't know, I would take issue that the demand isn't there for instant title. I mean I've heard that, but I'll tell you, I've talked to customers and our sales team that think that instant title for purchase transactions is a big deal. And so maybe it is, maybe it isn't, but we're going to test it. We're going to be the ones that test it. And even if it's not, even in the worst case that it's not helpful to have an instant purchase transaction, right? And you can have an instant purchase transaction when the transaction won't close in 55 days. Even if it's not, we're really turning a labor product into a data product. And it gives us a lot more flexibility and innovation to create new products out there. So I think that it will be at advantages. And I think particularly on the agency side, if you can have a lower cost to produce your products, you're going to have an advantage out there. In terms of like the title waivers and where the market is going and are these sustainable? I mean we're in the title insurance business. We're not in the title waiver business. I think we've got a responsibility to consumers to not only a, protect consumers and lenders, but also to do it at a reasonable price point, too. And so there's been a lot of talk about the title waiver pilot. I just think the title insurance is going to be here, it's necessary. And the title waivers, we all, as an industry, have an obligation to do what's best for the consumer, both in terms of protection, protecting their property rights, but also we've got an obligation to make it affordable, too. And so we'll see what happens -- we'll see what happens and how the market develops. But I think particularly with Sequoia it just gives us a lot of strategic optionality going forward once it's naturally rolled out. Geoffrey Dunn: Okay. And then I thought it was interesting, you brought up AI directly in your press release, you mentioned again on the call. Can you give some examples of how you're using AI? And I guess, in particular, how much is AI coming into play with your kind of living title initiatives? Mark Seaton: It's a huge deal for -- well, okay, for both Endpoint and Sequoia, which we were reading a lot of questions on this call. And for good reasons, we're spending a lot of time talking about it internally and focusing on it. We started both of those initiatives and without AI. We started to reimagine the title production process through Sequoia and the settlement process through Endpoint, and it wasn't AI-driven at first. We wanted to build modern platforms. And really about 6 to 12 months ago, these AI models came out. These new LLM models came out, Agentic AI has come out, and it's really changed our thinking on how to do things. And so we pivoted -- and both of those are AI-native platforms. Now both Endpoint and Sequoia, they leverage AI at the core to build a better product than we were on pace to build just because these technologies have become available to us in the last year. So those are AI-driven and AI-native products that we're very excited about. And they're going to be -- they're just going to be better than the track that we were on. So we have this top-down approach with leveraging AI, but we also have a bottoms-up approach with leveraging AI. And we've got ChatGPT enterprise for all 19,000 of our employees. We just rolled it out in October -- October 1. And I'm very excited to see what that produces to. And I have anecdotes of us keeping customers because of AI, us reducing risk, us thinking about new ways to do our process. And so we have a top-down and bottoms-up approach. And I think the gains are going to happen over time. We're not going to wake up 1 quarter and see 300 basis points up margins because of AI. But I think over time, gradually, we will start to become more and more efficient as we as a company, learn how to use these technologies. Geoffrey Dunn: Okay. And then just specifically to the living title efforts, is AI a big part of that? Mark Seaton: It is, yes... Geoffrey Dunn: Or is that still... Mark Seaton: No, it's -- so the living title it is AI. And so I could go into more details on this. I'll just say that when I think of Sequoia now, it's an AI-driven product that is producing an automated title commitment for refis today and purchase tomorrow using AI. Operator: The next question comes from the line of Mark DeVries with Deutsche Bank. Mark DeVries: Looks like you only purchased about 20,000 shares after you reported 2Q results. Is there any color you can provide on why you pulled back and what you need to see to get more active? Matthew Wajner: Mark, thanks for the question. This is Matt. So yes, I mean we're continuing to focus on returning excess capital to shareholders. During the quarter, we raised our dividend. And like you mentioned, we repurchased some shares during the quarter. We purchased $122 million worth of shares this year. But at the time -- at this time, we paused our buyback program to just evaluate how things develop and consider whether there may be better uses for the capital. But we continually evaluate it, and we will be buying back shares opportunistically. Mark DeVries: Okay. It looks like you ended up delevering a little bit in the quarter. Could you just kind of discuss the range of debt-to-capital ratios you'll look to operate in and kind of where you'd expect to get more aggressive on using excess capital? Matthew Wajner: Yes. So over the long term of the cycle, we targeted debt-to-capital of 20%. Right now, we're a little bit over that at 22.5%. And which we feel very comfortable and because we're at the lower part of the market right now, lower part of the cycle. So it's okay for us to have a little bit of a higher debt-to-cap. And when you say we did levered, we didn't pay down any debt. We just -- as we generate earnings, we obviously generate additional capital. So it went from, I think, 23% to 22.5%. So we're comfortable where we're at. As the market continues to increase in the cycle turns, we look to get back towards the 20% over time. Mark DeVries: Okay. And are you guys seeing more of potential interest on the M&A front that could be a use of some of that excess? Mark Seaton: Yes, we are. We are seeing it. When the market initially fell in the first half of 2022, I think we were really hopeful that there would be acquisitions and deals to do. And we just really didn't see much. And over the last couple of years, we've really kind of leaned into the buyback, and we were -- felt really good about that. But now there are more things that are coming across our desk. And so we'll see if those deals close or what happens, but they're both on the title side and the non-title side. And there's just more opportunities today than there have been in the last couple of years. Mark DeVries: Yes, it makes sense. I mean is it fair to say that some of the weakness in the residential side is creating more and more pressure from potential sellers at this point? Mark Seaton: Yes, we're seeing that. We're definitely seeing that. So we're disciplined. I mean I would just say just on the M&A side, too, Mark, is we don't feel like we have to do anything. We're not just trying to grow for the sake of growing. The deal has to make sense and it has to be strategic, and we have to make sure we have a good expected outcome in terms of the financials. So if we don't do any deals, we're fine with that. But we do think what we know, there's just more and more opportunities that are rising because the sluggish market has lasted a long time. And I think more and more people are calling us now. Operator: The next question will come again from the line of Mark Hughes with Truist Securities. Mark Hughes: Yes. Mark, you'd mentioned the title waiver, you're proposing a title solution. Anything new on the regulatory front, either on the demonstration project or maybe even on the rate front at the various states, anything new? Mark Seaton: I would say there's nothing new since last quarter. I mean, the title waiver pilot is still going on, and we're just on the sidelines waiting to kind of -- and we're sort of monitoring results and seeing where that goes. There's been nothing new on that front. On the state front, I would say there's nothing new. I mean the most material thing that is the Texas rate issue. And again, that's not new from the last call, but there's -- the industry now is expecting a 6.2% rate cut in Texas in March. It's not final yet. There's still another hearing that needs to happen, but I think that's the -- that's what we're sort of expecting internally. That's probably the biggest news on the rate side. But again, that's not new since the last call we had. Mark Hughes: Yes. And then when we think about net investment income for 2026, any early thoughts there? Matthew Wajner: Yes, Mark, from an early thought perspective, when I look out into '26, right, the obvious headwinds for interest -- for an investment income are the expected rate cuts and then we've already gotten a rate cut this year. So as a reminder, each 25 basis rate cut -- basis point rate cut impacts us by $15 million on an annual basis. So each rate cut will reduce investment income by approximately $15 million based on kind of current balances. I would say the offsets that we have potentially for next year that could help that are, one is we are expecting growth in kind of all of our markets that matter to us, specifically commercial and moderately in purchase. And if we get growth in transaction levels and transaction volumes, we can -- we'll get growth in deposit balances. So we'll have a higher balance rate or a higher level of balances, which will be helpful. The other thing that we did recently towards the end of Q3 is we made some operational enhancements at our bank, which now allows us to put 1031 exchange deposits at our bank. So historically, we had to put those positive third-party banks, and now our bank can handle those deposits, which will just increase the economic value of those deposits. And that will be a tailwind going into next year. That will hopefully offset any impacts of rate cuts. Mark Hughes: And just a follow-up on that. So the -- is the kind of takeaway message, the balances, the operational enhancements, maybe offsetting the rate cuts and so therefore, kind of a more stable outlook for '26? Matthew Wajner: I'd say it's too early to say, right? And it's dependent on the level of activity and the level of rate cuts. But right now, where we sit, we would probably see investment income being down year-over-year. Operator: Thank you. There are no additional questions at this time, and this will conclude this morning's call. We'd like to remind listeners today that today's call will be available for replay on the company's website or by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13756641. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson-UTI Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Michael Sabella, Vice President of Investor Relations. Please go ahead. Michael Sabella: Thank you, Rebecca. Good morning, and welcome to Patterson-UTI's earnings conference call to discuss our third quarter 2025 results. With me today are Andy Hendricks, President and Chief Executive Officer; and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations or predictions for the future are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward-looking statements. Statements made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures are included on our website at patenergy.com and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson-UTI's Chief Executive Officer. William Hendricks: Thank you, Mike, and welcome to our third quarter earnings conference call. The performance of Patterson-UTI has continued to demonstrate resilience this year. And our teams have done a great job executing in a challenging environment and staying focused on optimizing our business in the areas that we can control. We are continuing to see success as we enhance our commercial strategies through additional service and product line integration and performance-based agreements, while at the same time lowering our cost structure, which is helping us to lessen the impact from moderating industry activity this year. Headlines over the past 6 months have highlighted cautionary signals, including oil supply growth from OPEC+, shifting demand patterns as trade policies evolve and overall global macroeconomic uncertainty. But the U.S. shale picture today is more constructive than many expected just a few months ago. Oil prices have fallen, but overall, have so far remained more resilient than many predicted, with long-term global demand growth continuing, and anticipated supply additions slower to translate into physical barrels than headlines have suggested. At Patterson-UTI, while the business environment this year has brought unique challenges, we are adapting with the market, both commercially and structurally, and we continue to generate healthy levels of free cash flow, while still investing to expand our technology edge. Our efforts and focus today center on driving improvements in our outlook for profitability and cash generation against a steady market backdrop. And each of our businesses are stepping up to this challenge. In the U.S., oil production does not yet fully reflect the impact of activity reductions over the past 6 months. And we believe current industry activity is already below levels needed to hold U.S. production flat. Any further activity reductions from current levels would likely result in additional pressure on future U.S. output, which could negatively impact global oil supply in 2026. On the natural gas side, the outlook as we move into 2026 appears to be favorable. Physical demand growth from LNG is now starting to come online, and our customers are beginning to make plans to satisfy the expected multiyear growth in demand, which is likely to require higher drilling and completion activity compared to current levels. Even as U.S. shale drilling and completions activity has moderated through 2025, our teams have delivered results that are far more resilient relative to prior periods of activity moderation. Our customers are sophisticated, and they are demanding innovative technologies from both our drilling and completions businesses, which is widening the performance delta among service providers. The increasing reliance on differentiated technologies puts Patterson-UTI in a strong position given the high quality of our operations. We expect this relative margin resiliency to continue as customers rely more on high-end service providers. Operationally, our teams are functioning at a high level in a competitive market. Our drilling team has seen activity stabilize, and our rig count today is slightly above where we were at the end of the third quarter. Our completion activity continues today at a similar level relative to where we exited September, and we expect completion activity will remain steady for most of the quarter, although typical seasonality is likely to impact the segment during the holidays. As the market steadies, we see opportunities in both our drilling and completions businesses to invest in technologies that are in high demand and short supply, with our expectation that any incremental investments will earn strong returns. As we prepare our 2026 budget, we are working with technology-focused customers on opportunities to deploy new technologies in both drilling and completions, and expanding our competitive edge should widen the advantage we believe we have over much of the industry. As we approach 2026, while we are not ready to give specific guidance for what we expect next year to look like, we are comfortable saying that we do expect lower capital expenditures compared to 2025. Even on lower CapEx next year, we expect to fully maintain the high demand portion of our fleet as well as invest in new technologies across our businesses, while still generating meaningful free cash flow for our investors. We remain committed to returning at least 50% of our annual free cash flow to shareholders through a combination of dividends and share repurchases. Moving to capital allocation. We are operating with significant flexibility, with the expectation for continued solid free cash flow and a strong balance sheet, giving us optionality for 2026 and beyond. Our leverage remains low, with net debt to EBITDA of just over 1x. We closed the quarter with $187 million in cash and an undrawn $500 million revolver. And the fourth quarter should deliver our strongest free cash flow quarter of the year, which should strengthen our capital flexibility as we head into 2026. We will continue to deploy capital only towards opportunities we believe will deliver high long-term returns, including the option to further accelerate our share repurchase program. Our U.S. contract drilling business saw activity stabilize as we exited the third quarter, and we expect this stability to continue through the rest of 2025. Recent revenue per day for drilling rigs remains in the low to mid-30s range. Our directional drilling business is performing exceptionally well, benefiting from strong service quality and new technology deliveries as well as further integrated offerings with both our drilling rigs and our drill bits. Today, we are focused on driving further improvement beyond relying simply on a recovery in industry activity. We are looking to expand our technology-driven commercial models by growing integration across our products and services and through additional performance-based agreements, as we also work to lower our costs. Our drilling team is delivering strong operational performance for our customers by utilizing our Tier 1 APEX rigs and our suite of proprietary Cortex digital services, including adaptive auto driller and predictive models, which become platforms for future artificial intelligence to enhance the quality of the service we are delivering for all of our customers. Our customers are seeing the benefits of using a Patterson-UTI rig and our suite of digital solutions and complementary services and products. The digital and technology package remains a key factor to delivering differentiated solutions for our customers, and the investments we have made have helped margins hold above what our drilling business has achieved in previous periods of activity moderation. Our Completion Services segment demonstrated strong relative performance in Q3, with activity holding steady compared to the second quarter. Our commercial team did an outstanding job managing the frac calendar and aligning us with high-quality customer base, while our operations team executed at an exceptionally high level. Pricing per horsepower hour in our frac business was steady compared to the second quarter, with lower sequential revenue, mostly a function of less sales of low-margin sand and chemical products. We also started to see benefit of cost reductions in the first half of the year. The completions market remains competitive, but our operational quality is proving to be a major differentiator. We recently set a record for continuous pumping for one of our customers in the Northeast, where we safely pump 348 hours straight on a single fleet. This record highlights the capabilities of our digital performance center in Houston to implement new operating techniques with the support of our local field teams. Our new proprietary EOS completions platform is advancing our technology edge through 3 primary products: Vertex automation controls, Fleet Stream and IntelliStim. This platform will allow us to further implement artificial intelligence and machine learning into the completions process. After successful deployment in the third quarter, we continue to deploy our Vertex automation controls across all company fleet, with projection for full deployment by year-end. This will allow us to implement closed-loop automation for all pump types to improve our operating efficiency and asset management, while delivering optimized completion designs for our customers based on real-time surface measurements. Fleet Stream will provide data visualization and analytics, a platform to acquire and analyze reservoir measurements and streamline data workflows for our customers and provide a new revenue stream for our Completion Services segment. Finally, in combination we worked on our drilling rigs and through modern machine learning, our IntelliStim reservoir technologies leverage artificial intelligence to provide real-time reservoir insights to better understand rock properties and optimize completion designs to maximize well performance. We see multiple ways to monetize our digital investments. We are already seeing the investments lower operating and capital costs through higher asset turns. Additionally, on the revenue side, we've already signed 2 customers to commercial deals for 2026, specifically for our EOS platform. And we think there is significant revenue opportunity as well as a path to create closer and more integrated long-term relationships with our customers. Our Emerald fleet of 100% natural gas-powered equipment remains in high demand, and we continue to strategically invest in new technologies that are driving accretive returns for the business. We've recently taken delivery of our first commercial direct drive pumps, which will allow us to deliver 100% natural gas-powered solutions for our customers with significantly less capital deployed relative to electric frac fleets. The direct drive pumps are scheduled to begin long-term dedicated work in the fourth quarter. We think recent advancements made in high horsepower direct drive natural gas engines have helped make this the most capital and cost-efficient solution for our business. Our Drilling Products business had another good quarter in North America, where our U.S. revenue per U.S. industry rig set another company record. Since we acquired Ulterra in 2023, we've seen a roughly 40% increase in U.S. revenue per U.S. industry rig, with a more than 10% increase in market share for our drill bit products on Patterson-UTI rigs. In Canada, we saw a strong recovery in revenue coming out of spring breakup even as total industry activity was slightly below expectations. International revenue declined, mainly in Saudi Arabia's drilling activity in that country slowed. Outside of Saudi Arabia, revenue was strong internationally, and we expect international revenue to increase in the fourth quarter. On the margin side, the quarter did see higher-than-normal bit repair expenses in July, which resulted in lower margins for the quarter, although margins recovered towards historical levels later in the quarter. Our fully integrated PTEN Digital Performance Center located in Houston is the backbone for the entire company. The digital center has been critical as we execute and optimize drilling and completion designs for our customers. The information that we can provide both our team and our customers has improved the efficiency of our operations and brought us closer to our customers as we strive to provide differentiated service. While U.S. shale activity has moderated this year, we have not stood still. We are focused on finding ways to make our business more competitive, even as industry activity appears likely to remain in a tight range for the foreseeable future. We're using this relative stability to prepare for what we think the industry will look like over the next several years, commit capital to the right areas and execute our own strategy to maximize shareholder value. We will continue to target profitable technology investments that we believe will drive strong cash returns for our shareholders, and we intend to be a leader across all of our business as shale evolves. I'll now turn it over to Andy Smith, who will review the financial results for the quarter. C. Smith: Thanks, Andy. Total reported revenue for the quarter was $1.176 billion. We reported a net loss attributable to common shareholders of $36 million or $0.10 per share and an adjusted net loss of $21 million. Adjusted EBITDA for the quarter totaled $219 million. Other operating expenses for the quarter totaled $23 million, of which $20 million resulted from the accrual of expenses associated with personal injury-related claims for incidents that occurred several years ago, partially offset by a favorable contract dispute resolution. Our weighted average share count was 383 million shares during Q3, and we exited the quarter with 379 million shares outstanding. During the first 3 quarters of the year, we generated $146 million of adjusted free cash flow. As expected, during the third quarter, we saw working capital benefits, and we expect working capital will be a tailwind again in the fourth quarter. During the third quarter, we returned $64 million to shareholders, including an $0.08 per share dividend and $34 million for share repurchases. Over the 2 full years since we closed the NexTier merger and Ulterra acquisition through September 30, 2025, we have repurchased 44 million Patterson shares in the open market. We have reduced our share count by 9% since that time. This is in addition to reducing net debt, including leases by nearly $200 million, and paying a dividend that is currently an annualized 5% of our share price. In our Drilling Services segment, third quarter revenue was $380 million and adjusted gross profit totaled $134 million. In U.S. contract drilling, we totaled 8,737 operating days for an average operating rig count of 95 rigs. Geographically, compared to the second quarter, activity was flat outside the Permian Basin, with Permian activity responsible for the sequential decline in our rig count. For the fourth quarter in Drilling Services, we expect an average rig count to be similar to the third quarter. We expect adjusted gross profit will be down approximately 5% from the third quarter. Revenue for the third quarter in our Completion Services segment totaled $705 million, with an adjusted gross profit of $111 million. We saw flat activity on a pump hour basis compared to the second quarter, with margins benefiting from improved operating efficiency and some cost reductions that were initiated in the segment during the first half of 2025. We saw improved efficiency as several of our larger fleets that saw gaps in the second quarter had more consistent schedules. Additionally, our power solutions natural gas fueling business saw an improvement as natural gas demand in the Permian continues to grow as customers look to take advantage of weak regional natural gas prices by using more of the commodity as fuel. Overall, completions revenue was lower on a decline in sales of low-margin sand and chemicals products. For the fourth quarter, we expect completion services adjusted gross profit to be approximately $85 million, with less seasonality compared to the fourth quarter last year. Third quarter Drilling Products revenue totaled $86 million with an adjusted gross profit of $36 million. Performance was strong in our U.S. and Canadian businesses, while international revenue was impacted by lower activity in Saudi Arabia, which is our largest international market. Margins were affected by higher bid repair expense in July, although they returned closer to historical levels by the end of the quarter. For the fourth quarter, we expect Drilling Products adjusted gross profit to improve slightly, with relatively steady results in the U.S. and Canada and higher revenue and gross profit internationally. As a reminder, roughly 70% of the revenue in our Drilling Products segment is generated in the U.S., with around 10% in Canada and 20% international. Other revenue totaled $5 million for the quarter with $2 million in adjusted gross profit. We expect other adjusted gross profit in the fourth quarter to be steady compared to the third quarter. Reported selling, general and administrative expenses in the third quarter were $62 million. For Q4, we expect SG&A expenses will be relatively steady sequentially. On a consolidated basis for the third quarter, depreciation, depletion, amortization and impairment expense totaled $226 million. And for the fourth quarter, we expect it will be approximately $225 million. During Q3, total CapEx was $144 million, including $47 million in Drilling Services, $81 million in Completion Services, $13 million in Drilling Products, and $3 million in Other and Corporate. For the fourth quarter, we expect total CapEx of approximately $140 million. Our full 2025 CapEx is now expected to be less than $600 million, even before considering the benefit of $33 million in asset sales we have realized through the third quarter. Our updated capital expenditure budget is lower than previously expected. We closed Q3 with $187 million in cash on hand, and we did not have anything drawn on our $500 million revolving credit facility, and we do not have any senior note maturities until 2028. Through the first 3 quarters of 2025, we have returned $162 million to shareholders through dividends and share repurchases. Free cash flow is likely to remain strong in the fourth quarter, which is expected to be our highest free cash flow quarter of the year. Our Board has approved an $0.08 per share dividend for the fourth quarter of 2025, payable on December 15 to holders of record as of December 1. I'll now turn it back to Andy Hendricks for closing remarks. William Hendricks: Thanks, Andy. I want to close the call with some comments on our company and the industry. I'm very pleased with our team's execution in the third quarter, where we are outperforming our competitors in many areas of our market. As well, we continue to make the necessary cost reductions to align the company with the projected levels of activity and maximize long-term free cash flow. This past year has been one of the most unique years since shale emerged as a major source of oil and gas over a decade ago. In many ways, the U.S. shale oil field services industry has outperformed each previous cycle. Our margins are holding up far better than what is typical in periods of activity moderation. Equipment bifurcation and capital availability is leading to disciplined behavior across our industry. And customer consolidation is leading to a more constructive environment at the high end of the oilfield services market relative to the overall market. Our third quarter results reflected a stabilization of industry activity as we exited the period. And absent normal seasonality in our completions business, we expect activity to remain relatively steady through year-end. We fully recognize and acknowledge that the macro outlook is a driving force and investment decisions. Lower commodity prices have slowed overall activity in the U.S. for the past couple of years. However, our business has remained resilient, and we are focused on investing in technology, maximizing our long-term free cash flow and returning cash to shareholders. And we think our strategy will create the most value for Patterson-UTI shareholders over the long term. There is much to be proud of with the way our teams are operating. But even as the outlook has stabilized, we are not content to simply wait for a market recovery. We intend to stay focused on our plan to maximize the value of our unique commercial model and technology offerings across drilling and completions. And we see evidence that customers are becoming increasingly receptive to more integration and performance-based pricing, as they too search for ways to improve their own returns. We are just at the beginning of realizing the benefits of that journey for the company. The goal for our business leaders is clear. We need to improve our position in the markets where we operate. We are confident that our teams are focused and up to the challenge, and we look forward to proving that out over the next year. As we start to prepare for 2026, what we see right now is another year of strong free cash flow. Our balance sheet is in great shape, our liquidity is strong, and we are operating with an extreme degree of capital flexibility. Our focus on capital allocation should allow us plenty of opportunities to use our free cash flow to maximize the long-term value for our shareholders, including through a potential acceleration of our share repurchase program. We are pleased with the quality of our operations, and we are confident that we can make our business even better. With that, I'd like to hand the call back to Rebecca, and open up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Andy, I wanted to talk a little bit about completion services. One of the narratives we've heard from your peers is pricing trends continue to moderate even at the higher end of the market yet. You highlighted how your trends on a horsepower basis were relatively flat. I was wondering if you could maybe elaborate on what you think is maybe driving that differential performance there. William Hendricks: Listen, I think our teams are just doing a great job out there and executing in the field, some of the really high-end work that we've done with large simul fracs and trimul fracs. We're burning significant amounts of natural gas. We're delivering that natural gas to location. We're maximizing displacement of diesel in some cases or on full electric jobs or full Emerald jobs, providing significant amounts of natural gas and fuel savings. And everything that we have to convert natural gas is out and working. And so we don't feel a lot of pressure to reduce pricing from where we're at. Now as you know, the industry discussed, there's been some big tenders over the last few months. Some of those are still in process. But I think, overall, the industry is showing a lot of discipline from where we are right now as well. Arun Jayaram: Great. Great. And maybe, Andy, you could talk a little bit about your fleet renewal programs as we think about kind of 2026, you highlighted how you expect CapEx to be down at a corporate level. But talk to us about planned investments in Completion Services. It sounds like you're pretty excited about the direct drive pumps in that. So how should we think about fleet replacement for PTEN on a go-forward basis? William Hendricks: Yes, the 100% natural gas direct drive Emerald systems that we've just taken delivery of this quarter and just deploying. We're excited about what we believe is a better use of capital -- better allocation of capital and trying to provide 100% natural gas services out in the field. And so we're excited to have a number of those out working this quarter after shaking that technology down for the last 2 years. When it comes to 2026, we certainly haven't finalized the budget yet. But what you've seen us do over the last several years is invest at the high end without investing at the low end and just letting the lower end of the equipment just move away from attrition. We've reduced the overall horsepower we've had over the last few years, from 3.3 million at a peak, down to 2.8 million just by letting that lower-tier equipment go away. And so I think there's a chance we'll make some similar decisions next year. We haven't finalized that yet, but we're not investing at the low end. And I think that helps keep the market tight. And if we see more demand next year for more of 100% natural gas equipment, we'll continue to invest because we're getting good returns on that technology. Operator: Your next question comes from the line of Scott Gruber with Citigroup. Scott Gruber: Yes. So power is a hot topic and Patterson has expertise in running microgrids for drilling. So Andy, if we see the data center market pull more megawatts for on-site generation, do you think that opens an opportunity for Patterson to enter the power market within the oil field? How are you viewing that opportunity today? William Hendricks: We have significant technical expertise in power. We have our electrical engineering division that can engineer and manufacture microgrids. On any given day right now, we're producing around 500 megawatts of power across drilling and completions. We operate generators from 1.1 megawatt recips, all the way up to 35-megawatt turbines. And so we have a lot of technical expertise. But when we look at some of the opportunities as you get into the larger power structures, the AI and data centers are demanding, you're at the 200-megawatt plus. And some, they're up to 1 gigawatt of power. That's not a mobile power solution, that starts to look more like an EPC contract where you've had a lot of big construction going on. So we're focused on what we can do and where we can bring value. We've discussed with some of our customers, and still do from time to time, to rely power for them in their own operations and production. And if we think that there's a reasonable market there, then we'll provide power for them. But we're very focused on delivering free cash flow. We don't want to spend a lot of capital on things that we don't think are going to bring immediate value for shareholders right now. Scott Gruber: So the oilfield production power opportunity for Patterson is still kind of TBD. Is that the right way of saying it? William Hendricks: I would say we have discussions with our customers. These are customers that we're close to. But there's a number of companies that provide PowerForm already and have historically. So it's still a competitive market. If we think we can get a good return doing it, we'll do it. Scott Gruber: Okay. And then I wanted to ask a question on the completion side. I know you guys have made some real strides in developing frac optimization software. Can you provide some more color on this, expanding opportunity -- sorry, expanding offering. How many fleets are deploying optimization software today? And is this contributing to the improvement in segment performance despite the micro headwinds? William Hendricks: Yes. So we're excited about what the team has done in terms of digital on the completion side. So they rolled out the EOS platform, and that's an evolving platform that constitutes a large number of products both at the digital center here in Houston, but also in the field. And one of those products is Vertex automation for the frac operations. And so we've already rolled that out in the field and we continue to deploy, and it's going to be on all fleets by the end of this year. And when we say all fleets, our automation can work on our Emerald, electric Emerald, 100% natural gas direct drive. It can work on our Tier 4 dual fuel. So we're not limited as to where we deploy the automation. And as we've discussed with a lot of you, sometimes we're running blended operations with Tier 4 dual fuel and electric or 100% natural gas direct drive combined. And so our automation controlled software allows us to be able to work across all those platforms and combined situations as well. And we have a number of customers that that's what they want to do. And so we don't have any limitations on the type of equipment we're deploying automation on, and really excited about what that's going to do for us. It's certainly a product we'll be able to charge for. As I mentioned earlier, there's a number of products coming out of the platform that we believe we can monetize, and this is one of them. It's going to probably provide some improvement to overall reliability of equipment. It's going to help us differentiate on how we deploy fracs in the well, and excited about what we can do with it. Operator: Your next question comes from the line of Saurabh Pant with Bank of America. Saurabh Pant: Great. Good. Andy, maybe I'll start with a bigger picture question as you talked about macro uncertainty, things seem to have stabilized a little bit where we see where they go from year-end. But as you talk to the customers, Andy, right, be it on the drilling side and the completion side, how does that uncertainty manifest? I'm just thinking on the drilling side, do they want shorter-term contracts to give them more flexibility on the completion side, maybe this more frequent pricing reopeners as an example, right? How are these discussions going, just given the uncertainty in the environment? William Hendricks: So yes, as we mentioned, activity is stabilized where we're at right now. The rig count for us has come down this year. And -- but the pricing has held up pretty well. There is some pressure. It's a competitive market, but we're still in the low 30s on average. And so if you compare that to what has happened in previous cycles of moderation, we're certainly in a better position today than we have been in the past with an industry. The industry is showing good discipline overall. In terms of what our customers are saying, our customers are trying to keep their production up. And the wells that we're drilling, while we're becoming more efficient, are also becoming more challenging, both on the drilling side and the production side. We're drilling deeper wells. We're drilling longer laterals. And our customers are dealing in the Permian with wells that have a higher gas ratio. And so all those things combined to where our customers are trying to keep up the production. And even though we're in a softer commodity environment right now, they're trying to keep their production up for their shareholders. And I think that you're going to see continuing intensity for what we do grow, and we're getting requests to add more technology to be able to meet the needs. Saurabh Pant: Right, right. No, that makes sense. That makes sense. And I agree, by the way, with your views on the activity levels. They seem like we are right at or below maintenance level, right? So if you want to keep up your production, you're going to keep up your activities. Okay. Makes sense. And then a quick follow-up, maybe, Andy Smith, for you on the 2026 shareholder returns. I don't know you'll give the framework over time, right? But at this stage, how should we think about share repurchases? It's good to see you spend that up a little bit this quarter versus last quarter, but just maybe refresh us on the framework as we think about 2026. C. Smith: Yes. I mean, look, it's a little early to be talking about 2026 and what our plans are. We're just on the beginning of our budget cycle. And as we get through that, we'll finalize. And we'll give more color around that going forward. Again, we've kind of given you the backdrop of the market. We're very focused internally, again, on our performance and making sure that we can be as efficient as we can be. And that's really where our focus is today, and we haven't really focused yet on kind of what our buyback program might look like next year. Operator: Your next question comes from the line of Ati Modak with Goldman Sachs. Ati Modak: Andy, you talked about the production impact of the activity changes. But I'm wondering if you see anything in the cycle times or efficiencies across the value chain that could potentially impact the response expectation you laid out? William Hendricks: Well, I think that what we're seeing, where activity is right now, it has the potential to negatively impact U.S. production a little bit. And just voicing that if oil were to stay in the upper 50s for a little while, that probably bring U.S. production down further. And if you're going to bring U.S. production down further next year, well, the next reaction is, you're going to have a commodity price reaction. And I think there'd be nervousness in the market. So I think it'd be self-adjusting and self-correcting. So when I think about the long term, I think we're in really good shape from a fundamental standpoint. We may have some changes in commodity prices over the near term, that may affect some activity levels. But over the long term, I think the fundamentals are still good. We're still seeing long-term demand for oil growth over a multiyear period. And the U.S. has to be part of that production as well. It has to be part of that equation. The discussion for OPEC+ to bring on physical barrels, they haven't really brought as much in terms of physical barrels as has been discussed. And I think that's baked into what we're seeing, too. So I think there's still a balance that we have right now between supply and demand. So -- and we see that with some of the decisions that our customers are making too. And like I mentioned before, we have customers that are trying to maintain production for their shareholders, but also balance capital spending in a little bit lower commodity environment. But we're staying relatively steady in our activity levels as a result of that. We have customers that are wanting to deploy more technology. They're willing to pay us for it. And to help them with their efficiencies in how they drill wells and how they complete wells in order to maintain their production. Ati Modak: Got it. So for '26, when you are guiding to steady activity levels but also highlighting that gas could drive some, is that -- should we think about that as gas potentially driving upside to that steady expectation? Or is that offsetting some softness in oil? William Hendricks: I think there's upside in gas activity next year. I don't think it's right away in the first quarter. I think that as we see more physical demand from LNG next year, that we've already been doing a lot of frac work in areas like the Haynesville. And there is -- there are wells that have gas behind the valves right now and ready to go. And so I think they're going to address the immediate physical needs in early '26, but eventually, it's going to drive activity later in the year. And I think that's upside for us even if oil is holding steady next year. Operator: Your next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: Two questions from me. Maybe I'll start with -- when we think about sort of RFP season and thinking about what E&Ps may or may not do next year, how are you guys thinking about pricing in the completion market next year? As I'm just sort of thinking about what margins may look like on a year-over-year basis. Any color you can provide around that? William Hendricks: I think that what you'll see is that most of us have already gone through a lot of the tenders that you're having to go through right now. And so what we're saying for projections in the fourth quarter have kind of already locked in some of that pricing. And there could be a little bit of movement in next year. But as I said, everything that we have that converted natural gas today is sold out, and there's still demand for equipment that can burn natural gas because our customers are getting a good fuel savings out of that. So I don't see pricing as a huge headwind. Are things still competitive? Sure. And if there's any white space in the calendar, which we all know happens from time to time, and we have to fill some dedicated work with some short-term spot work, maybe we take a little bit lower price to do that in the Midland Basin or something like that. But overall, I don't see like a huge headwind on the pricing because I think that the work is relatively steady outside of fourth quarter holiday slowdown. Stephen Gengaro: Great. And the other question just sort of ties into the capital allocation strategy. How do you think about -- you obviously have a view on the market, things seem to be stabilizing. But how do you think about capital returns versus balance sheet strength? And what sort of signs do you look for to give you confidence in accelerating or continuing to return capital in a market that has kind of disappointed us for 6 or 7 straight quarters? C. Smith: Yes, Stephen, this is Andy Smith. So as we look at it, again, our -- making sure that we have the equipment in both -- in all 3 of our major lines of business that is top of the market is probably the most important thing that we think about when we're thinking about capital. And then it really becomes what is the cadence of adding that equipment? What is the cadence of making sure that we're rightsized for the opportunity set that's out there? What are we looking at beyond that in terms of our balance sheet leverage? I don't think that we have any issues right now with leverage, to be honest. I'm very comfortable with where we are. And so that hasn't been as much of a focus, but then we look at the return to shareholders and whether or not we want to over step kind of our 50% commitment to our shareholder base. So that's kind of the order of operations. We will continue to high-grade our fleet. I mean, look, there are technology changes in all of our businesses over time. They won't be super lumpy, I don't think. They'll be pretty -- I think they'll be sort of pretty consistent over time, but we will continue to make sure that we're providing the best equipment and the best services out there because, again, we've had a lot of questions about pricing on this call, and pricing is going to follow performance. And we started the call today with a point that we're focusing on the things that we can focus on. And really, that's performance. I think we performed well in the field, and we did very well we have this quarter. And we have, for the past several quarters, and I think we will continue to, then pricing won't be quite the issue that it is if we were just thinking about this as a commoditized equipment business. So I really think that -- we don't have concerns around our balance sheet, if that's part of your question. I'm not concerned with where the leverage is from a capital allocation standpoint. And I think within our free cash flow, we have lots of opportunity to make sure that we're still providing the best services and the best equipment to our customers that we can. William Hendricks: Stephen, I'm just glad that we've committed to give back 50% of our free cash flow to shareholders, and we're on track right now to where it's almost 60% for the year. When we look at these capital allocation decisions, as Andy mentioned, we have opportunities for new technology, and we'll look at each of those on a project-by-project basis. And in some cases, it makes more sense for us to invest in these new technologies in drilling and completions versus buying back the shares. But we're certainly committed to at least 50% to shareholders, and we're running ahead of that right now. Operator: Your next question comes from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: Andy, I just wanted to go back to Scott's question. I fully appreciate your views and discipline around power and what you can bring to the table currently. But just maybe -- can we have an EcoCell update? I know typically, that's replacing a diesel generator on the rate with the battery. But just given the outlook for this type of technology, are there potential opportunities outside of oil and gas for EcoCell within your subsidiary of Current Power? William Hendricks: Derek, so I think there could be, and we've had some of those discussions. I think for us, though, the way EcoCell is packaged, it's designed for hazardous environment operations and drilling. It could fit in a production environment. You don't need all those qualifications just to put it next to a data center or an industrial application. We're certainly open and our teams continue to explore those possibilities. Again, when you get into that space of EPC construction and you're over 200 megawatts and approaching 1 gigawatt of power, you're competing with a lot of different companies out there. And sometimes, when it's an EPC project like that, it's big, the winner is essentially the lowest bidder, and that doesn't necessarily bring value for us. And so we're going to focus on things that we think can produce strong free cash flow. So it's designed for as well as a variable load because drilling rig surges as you engage the draw works or you engage the pumps in ways that industrial applications don't see. And so we've written custom software to manage that. So it's just a little bit of a different configuration and setup versus what you do for industrial applications. Derek Podhaizer: Got it. That's very helpful. I wanted to ask a question around drilling. So you talked about Permian being a soft spot here, but obviously pockets of strength, specifically in the gas basin. So just thinking about the rig count, it's up a little bit from where you are, you're going to be steady. If you think about the upside to rig count next year, whether that's gas or even the Permian recovering, how should we think about the required OpEx or CapEx invested back into these rigs that have been sidelined? And just thinking about what that could mean for the future margin expansion once we've rolled through all this contractor and all this pricing and then you're on actually I'm going to reinvest back into these rigs that have been sidelined for quite some time now. Just maybe some updated thoughts how we should think about that with your rig count today. William Hendricks: Yes. We haven't done any of that math recently, but I can tell you, historically, when we reactivated a rig, it's been several million dollars to get a rig reactivated from a capital standpoint. And so we would take that into account any agreement that we're working out. But the other is that as we have some of these discussions with E&Ps for what they're going to need over the next couple of years, they're also wanting more technology on the rig, more capacity on the rig, longer laterals, deeper Haynesville gas, things like that. And so that's going to drive some larger conversations, but it's also going to drive larger day rates. And so we will look at them on a project by project basis like we always do when we restart a rig. And if we're adding more technology than we normally would or we're doing structural upgrades, then we'll get paid for that at a high return as well. Operator: Your next question comes from the line of Keith MacKey with RBC. Keith MacKey: Just wanted to start out first on the drilling services guide for Q4. I talked about a 5% decline in adjusted gross profit, though, on steady activity levels. So can you maybe just give us a little bit more color in terms of the drivers of that 5% decline? Is it more seasonal? Or is there a continued kind of lowering in average pricing on the rigs or something like that? William Hendricks: There's a little bit of decline in the pricing in general. It's relatively steady in terms of activity from where we are today, but we have seen a decline in the overall industry rig count and our rig count since the beginning of the year. So a little bit of a softening in the market that we're dealing with. But my expectation is going forward after Q4 outside of some seasonal things that we have in Q1 to be relatively steady. Keith MacKey: Got it. Okay. And Andy, just wanted to follow up on the last question about the rig technology and the incremental capacity that E&Ps are looking for. Can you give us a few examples of the types of things that your customers are asking you for as they look to drill longer wells in various areas across the U.S.? William Hendricks: Yes, we could talk about a few of those points. So first, the easy one is structural. So as we drill deeper wells in the Western Haynesville with the laterals that they're drilling, the casing loads are getting bigger, so the structural capacity is moving up from, say, what we've had over the last decade, which has been a 750,000-pound rig in general for the industry, up to 1 million pounds. And so we're seeing those request for the structural upgrades. But we have E&Ps that are wanting that as well for the Delaware where we're drilling deeper and longer laterals and they're using more drill pipe and they want to stay efficient, not have to lay down the drill pipe. So they want that structural capacity to be able to rack back more pipe just for those efficiencies in the Delaware. So it's a combination of the 2 and for those different plays, but it's a similar rig style and similar engineering that we have to do for that as well. The other piece is automation. I'm really excited about what's happening in the areas of automation and what our teams are doing with artificial intelligence. I'll just let everybody know, we had an update with the Board this quarter on all the different artificial intelligence projects that we're doing in the company, and we've let those grow up from our engineering teams and drilling and completion, and excited about the way they're looking at things. And when we say artificial intelligence, for us, it's not necessarily your traditional large language model that everybody uses on a daily basis. We do a lot with artificial intelligence and machine learning. And we feed data into our systems from our data science teams to allow our models to learn how wells have been drilled so that we can take that forward into the field and deploy those automation and machine learning models onto the equipment, whether it's drilling or completions, and so that the equipment can now function at a higher level with more efficiency, which improves reliability, longevity of the equipment and also brings benefit to the E&Ps as well. Operator: Your next question comes from the line of Jim Rollyson with Raymond James. James Rollyson: Andy, you've been through a lot of cycles and I think you've talked about a little bit on this call, this cycle has definitely been a bit different than typical cycles. And in that, I'm kind of curious, as you think through '26, '27, historically, we come down in a pretty violent manner. And when U.S. land balances, it kind of comes from both drilling and frac, and you ultimately get pricing leverage again after you've had -- they go in the wrong way for you. And this cycle has kind of played out differently in that pricing has held up better, there's a lot of technology you've kind of discussed. And I'm just curious, as you think through once we hit the bottom and the gas rig count starts to go up and oil rig count eventually starts to recover to replace production, how do you think about how this cycle unfolds? Because I'm assuming frac probably has better chance of getting pricing sooner just because [indiscernible] but then you've got the technology kind of benefits coming on both sides. So maybe lay out how you -- in your world, how you think this plays out as we get to the other side of this kind of dip. William Hendricks: Thanks, Jim, and thanks for reminding me that I've seen a lot of cycles. I appreciate that this morning. Yes. This one has been an interesting one where it's really been about 2.5 years of activity coming down across drilling and completions for various commodity reasons. And so we've had to look and say, okay, what's happening next, how do we adjust the company and the structure for where we are, where we think it's going. And we continue to do that. So even though we're saying we think activity is relatively steady from here, we continue to look at the structure of the company and make sure we're rightsized for where we are and where we're going. With it coming down in the pattern that it has this time, I think there's a chance that the reverse look similar, but there could be a little bit quicker inflection on the gas side. But either way, we see upside from where we are, whether it's continuing to adjust our company for where we are in the market or upside from gas activity later in '26 and '27, we still see upside. So we think we're in a great position. We've got strong balance sheet, lots of flexibility with the cash and continue to deploy technology and get paid for it. And so even though it's -- we're in this -- what do you want to call it, a softening market or moderating market or however you want to describe it over the last period, we're still upbeat about where we are and where the company is in the market. James Rollyson: Got it. That's helpful context. And then maybe lastly, just on the kind of digital suite that you laid out in the completion side that you've already started putting on, and I think you mentioned every fleet will have it by the end of the year. Maybe some goalposts around what is like the revenue and profit opportunity in that space if you get a high rate of customer adoption? Just when you think about how that maybe offsets the general activity trend that we've seen as we go forward. William Hendricks: Well, I think it's still early days. And on the completion side, we're still signing some contracts to do that and providing those digital services for next year. On the drilling side, it's millions of dollars a year in revenue that we're generating off the digital. We rolled out our Cortex operating system years ago, and we continue to add applications to that on the drilling side. And now those applications, through our data science team, are incorporating artificial intelligence, will be layered into those as well. And so that's just going to enhance the productivity of those applications. So I think it's still early days in the technology journey. We've built out the infrastructure. For those of you that have come to see our PTEN Digital Performance Center, you know we've made the investment. We've got the platform. And so now we've got teams that are building on top of that. And we're talking software. This is not heavy capital in terms of an investment, but yet there's revenue upside for us. Operator: Your next question comes from the line of Dan Kutz with Morgan Stanley. Daniel Kutz: So just wanted to ask on the kind of nameplate Emerald fleet side. I think last quarter, you guys that you had over 225,000 horsepower of capacity. And then you flagged the latest direct drive delivery at the end of this last quarter. Could you just update us on what kind of the Emerald fleet size is at the that latest delivery? William Hendricks: It's around that 250,000 level right now. We've still got some more of those Emerald 100% natural gas that are being delivered this quarter. We're deploying them this quarter and still have some more coming in, but it's still around that level. In the overall horsepower, which I think is even more interesting. Like I mentioned earlier, we had, had as much as 3.3 million, but we brought that down to 2.8 million. And I think there's others in the market that are doing similar. And that's why I'm constructive on the market for completions and pressure pumping just because I think that overall horsepower continues to come down in the market. Daniel Kutz: Great. And maybe just to close that out, after everything that has been ordered or you're still waiting for delivery. After all that's delivered maybe by the end of this quarter, what's kind of the capacity of the Emerald fleet at that point? William Hendricks: It will be a little over 250,000, and we'll update you on the next call when we have all those numbers. Daniel Kutz: Okay. Great. Understood. And then maybe -- you guys have already shared a lot of this, but maybe just to kind of ask directly if you could juxtapose some of the differences between the Emerald electric fleet and the direct drive fleet just on a relative basis, the build costs and maintenance costs, kind of fuel and operating costs, operating efficiencies and maybe a lot of that remains to be seen as you guys deploy the direct drive fleet and actually get the real-time data. But yes, wondering if you could just, at this point, how are you thinking the 2 types of technology would perform and the relative kind of build and maintenance cost between the 2? William Hendricks: Sure. Let me just explain it this way, and I'll give you some high-level round numbers on it. So our Emerald electric is performing really well in the field. We have customers that want to use that. We actually grew the amount of horsepower in our Emerald electric this year because we had customers that wanted to move from standard frac size to simul-frac and trimul-frac with the electric. When we do that, you also have to increase the power supply at the well site. And so we've gone from, for instance, on one job, a single 35-megawatt turbine up to a 35-megawatt turbine and combine it with some smaller turbines as well to generate enough power to run larger frac spreads than what we would normally do with a 35-megawatt turbine. The turbines are expensive. 35-megawatt turbine is generally talking about capital costs deployed in the field in the $40 million to $45 million range. And then when we put the smaller turbines out there as well, you're in the $15 million to $20 million range per turbine. So you're talking about a lot of capital costs tied up just on power, and you're also competing in the market for that power with everything that everybody else has talked about and where power is going to go over the next couple of years. So it's not just capital costs, but you're competing for those types of power-generating devices as well. When we look at the 100% natural gas to drive engines, and these are high horsepower engines, 3,600 horsepower. So it's a new technology that's being deployed versus other technology that may have been deployed in the past couple of years. We're excited about this. This is a great supplier, a well-known manufacturer of the engines and the transmissions and then we spec out the rest of it, including our own control systems on it. And we think that with our control systems on it, we can help manage it. When you look at the overall capital cost versus an electric with the turbines, I don't have the actual numbers and differentials in front of me, but it's certainly lower. Our teams have done all the work on that. When you look at the OpEx, the OpEx for a natural gas director of engine is going to be higher than in diesel, but the overall OpEx or 100% natural gas direct drive engine, in our projections, is lower than trying to maintain both electric pumps and the turbine generators at the same time. And so overall, when we look at the amount of capital deployed, you're talking about 25%, maybe 30% reduction in some cases to get the same amount of horsepower at location where you're still burning 100% natural gas. Does that help? Daniel Kutz: That was very helpful. Operator: Your next question comes from the line of Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Can you hear me okay? William Hendricks: Yes, Sean. Sean Mitchell: But keep on hit it on the drilling guide, but I want to turn to the completion got a little bit trying to better understand the typical seasonal slowdown in budget shortfalls and hoping you guys might be able to offer some color on this? At this point, do you have any fleets which have been idled, where you know that fleet will go back to its prior customer in the first half of '26? And maybe any way you can frame the magnitude, that might be helpful. William Hendricks: So we haven't idled any fleet per se. And the way -- the best way I can describe that is quarter-on-quarter, we're still working the same amount of horsepower pumping similar horsepower hours in field, but we've grown some fleets to do more simul-frac and trimul-fracs. So there's been a shuffling of horsepower around to different places. The fleet count, at the end of the day, is really kind of hard to judge. It's not such a great metric because of the fluctuation in fleet size as we do more simul-frac and trimul-frac. And I think you'll see companies like ourselves where the actual horsepower per fleet grows a bit because we're doing higher intensity fracs. We're doing more volumes on pads, things like that. So -- but we -- to sum it up, we are working the same amount of horsepower, pumping similar horsepower hours quarter-on-quarter. So we didn't really stack any technology. C. Smith: Yes, Sean, I'll just add to that. When we look out at the fourth quarter and try to predict seasonality, I mean, we're giving a little bit of -- we take an assumption around kind of what we think we'll see in terms of some downtime around the holidays, maybe potentially some downtime around some weather. And sometimes it's better, sometimes it's worse. And so it's -- you just -- as you go through the quarter, you just have to kind of play it as it comes. Sean Mitchell: Yes. Maybe one more. Just as you talk about a lot of technology, some exciting stuff in the industry today, how much of the improvement initiatives that you're seeing are self-directed versus kind of maybe being requested or suggested by your customers? William Hendricks: I think it's kind of even balanced. We've got customers that request certain things, but we've also got a lot of smart engineers in the company that say, hey, if I deploy machine learning in this way, then we can do this, and it's going to improve our ability to drill a longer lateral or manage how we pump a stage into a well. And so I think it's a mix of both. Operator: Your next question comes from the line of Don Crist with Johnson Rice. Donald Crist: Andy, I wanted to first applaud you for sticking to your guns and which I'll do is a core competency, and not chasing the latest fad as some of your competitors, including very large competitors are doing. But in that vein, I kind of wanted to ask a question about M&A. We've seen a lot through the E&P side and investors keep on asking all the analysts, is there going to be another wave of M&A on the oilfield service side. And a lot of us don't really see it. But do you see some of your larger competitors that are chasing the power side actually freeing up some of that equipment that could be attractive to you all in the future, to where you could, number one, stick to your core competencies, but go into another kind of M&A transaction that would be accretive in the future, possibly overseas? William Hendricks: Okay. There were several different questions in that one, but let me try to take some of that. So first off, I'll say, we don't have to do any M&A. We're really happy with where the company is today, the cash production profile that we have with the company, the technology deployment that we're doing. So there's nothing that we need to do. We've got great segments that are doing great work and strong competitors in the market today and leading in a lot of areas. So happy with what we have. In terms of some consolidation, I think that, let's say, on the completion side, there's probably still some room for some smaller companies to get together. And I think that would shore up some of the completions market if that happens over time. When you look at drilling, it's already a disciplined market. And so not really anything to do there. And so -- we just don't see a lot. And we've looked at a lot of things. We tried to see if there's anything out there similar to Ulterra. We really like the profile of that company, where it's relatively low CapEx compared to our bigger businesses that are heavier in CapEx. And we like what we've done there, and that team is doing a fantastic job. But we're happy with what we have. We don't have to do anything. C. Smith: Yes. Don, I would just add. As it relates to some of our current competition or industry participants that would be pivoting away from maybe their core businesses, I kind of find that hard to buy today that there would be a wholesale pivot. And so to the extent they would be selling anything out of their sort of fleet, it's probably not going to be at the level of technology that we'd want to participate in or want to buy. So I think probably the likelihood of that is pretty low. Donald Crist: Would that include some international operations? Like I know Bakers sold something to Cactus recently and there may be some other opportunities there. Would something to get a stranglehold on the Middle East be kind of attractive to you all? C. Smith: Well, I mean I think we'd certainly be interested in looking at it. But I don't put a high likelihood of anything being separated out in terms of our core businesses right now that would come across our [indiscernible] that we probably look at. Operator: At this time, there are no further questions. I will now turn the call back over to Andy Hendricks for closing remarks. William Hendricks: Well, I want to thank everybody who dialed in this morning. It was a really strong third quarter for us. I want to thank all the men and women at Patterson-UTI across all of our segments for everything they're doing and all the great results they had in the third quarter. And just want to say thanks, appreciate it. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to Ladder Capital Corp.'s Earnings Call for the Third Quarter of 2025. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended September 30, 2025. Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack. Pamela McCormack: Good morning. During the third quarter, Ladder generated distributable earnings of $32.1 million or $0.25 per share, delivering a return on equity of 8.3% with modest adjusted leverage of 1.7x. Credit performance remained stable and the quarter was marked by 3 notable developments, a significant acceleration in new loan originations, continued progress in reducing office loan exposure and the successful closing of our inaugural investment-grade bond offering. These results reflect our disciplined business model and conservative balance sheet philosophy, positioning Ladder for continued earnings growth and greater capacity to capitalize on investment opportunities across market cycles. Loan portfolio activity. Origination activity accelerated in the third quarter with $511 million of new loans across 17 transactions at a weighted average spread of 279 basis points, our highest quarterly origination volume in over 3 years. The spread reflects the mix of assets originated, which were predominantly multifamily and industrial, consistent with our focus on stable income-producing collateral. Net of $129 million in paydowns, the loan portfolio grew by approximately $354 million to $1.9 billion, now representing 40% of total assets. Year-to-date, we originated over $1 billion in new loans with an additional $500 million under application and in closing. Notably, the full payoff of our third largest office loan, a $63 million loan secured by an office property in Birmingham, Alabama, reduced office loan exposure to $652 million or 14% of total assets. Approximately 50% of the remaining office loan portfolio consists of 2 well-performing loans secured by the Citigroup Tower in Downtown Miami and the Aventura Corporate Center in Aventura, Florida. Securities portfolio. As of September 30, our securities portfolio totaled $1.9 billion, representing 40% of total assets. During the quarter, we acquired $365 million in AAA-rated securities, received $164 million in paydowns through amortization and sold $257 million of securities, generating a $2 million net gain. Paydowns and sales exceeded purchases, resulting in a modest net reduction in securities holdings this quarter. This reflects our disciplined approach to capital allocation as we did not replace certain securities that ran off, consistent with our view that spreads may widen in the mortgage market given recent volatility and the Federal Reserve's ongoing runoff of mortgage-backed securities. Consistent carry income from our real estate portfolio. Our $960 million real estate portfolio generated $15.1 million in net operating income during the third quarter. The portfolio primarily consists of net lease properties with long-term leases to investment-grade rated tenants and continues to deliver stable, predictable income. Capital structure and liquidity. During the third quarter, we closed our inaugural $500 million 5-year investment-grade unsecured bond offering at a rate of 5.5%, representing 167 basis point spread over the benchmark treasury, the tightest new issuance spread in Ladder's history. The offering was met with strong demand and the bonds have since traded tighter in the secondary market, reaching spreads as low as 120 basis points. This transaction validates the strength of our conservative balance sheet philosophy and disciplined business model. As one of our premier debt capital markets bankers noted, it also firmly planted Ladder's flag in the investment-grade market. The continued tightening of our bonds positions us for lower borrowing costs, stronger execution and improved shareholder returns. As of quarter end, 75% of Ladder's debt consisted of unsecured corporate bonds and 84% of our balance sheet assets remain unencumbered. We maintained $879 million in liquidity, including $49 million in cash and $830 million of undrawn capacity on our unsecured revolver, which provides same-day liquidity at highly competitive rates. Outlook. Ladder's unique investment-grade balance sheet, disciplined use of unsecured debt and robust origination platform positions us to capitalize on investment opportunities, while maintaining prudent credit risk management. We expect fourth quarter loan originations to exceed third quarter production. Recent credit rating upgrades and our successful inaugural investment-grade bond issuance have lowered our cost of debt and expanded our access to a deeper, more stable capital base that remains consistently available across market cycles. Over time, we expect our strong balance sheet, modest leverage and reliable funding profile to position Ladder alongside a broader set of high-quality peers, including equity REITs rather than solely within the commercial mortgage REIT space. As investors increasingly recognize the strength of our senior secured investment strategy and conservative capital structure, we believe our equity valuation will reflect this alignment. Combined with our disciplined credit risk management and ability to deploy capital with speed and certainty, these attributes reinforce our capacity to deliver strong, stable returns for shareholders across market cycles. With that, I'll turn the call over to Paul. Paul Miceli: Thank you, Pamela. In the third quarter of 2025, Ladder generated $32.1 million of distributable earnings or $0.25 per share, achieving a return on average equity of 8.3%. In the third quarter, we closed our inaugural investment-grade bond offering of $500 million 5-year bond at 5.5%. The proceeds were partially used to call the remaining $285 million of bonds that were maturing in October and fund loan originations. As of quarter end, $2.2 billion or 75% of our debt is comprised of unsecured corporate bonds across 4 issuances with a weighted average remaining term of 4 years and a weighted average coupon of 5.3%. Our next corporate bond maturity is now in 2027. The offering strengthened our balance sheet and affirmed our commitment to the investment-grade bond market as our primary source of capital. We're encouraged by the bond's strong trading performance in the secondary market and believe our bonds offer attractive relative value to fixed income investors with [ meat on the bone ] to tighten further as the market continues to recognize Ladder's distinct long-standing investment strategy, anchored by conservative lending attachment points, AAA-rated securities and high-quality real estate equity investments. As of September 30, 2025, Ladder's liquidity was $879 million, comprised of cash and cash equivalents and our undrawn capacity of $850 million unsecured revolver. Total gross leverage was 2.0x as of quarter end, below our target leverage range. Overall, our balance sheet remains strong and primed for continued growth as our investment pipeline continues to build. As of September 30, 2025, our unencumbered asset pool stood at $3.9 billion or 84% of total assets. 88% of this unencumbered asset pool is comprised of first mortgage loans, investment-grade securities and unrestricted cash and cash equivalents. As of September 30, 2025, Ladder's undepreciated book value per share was $13.71, which is net of a $0.41 per share CECL reserve established. In the third quarter of 2025, we repurchased $1.9 million of common stock or 171,000 shares at a weighted average price of $11.04 per share. Year-to-date in 2025, we've repurchased $9.3 million of common stock or 877,000 shares at a weighted average price of $10.60 per share. As of September 30, 2025, $91.5 million remains outstanding on Ladder's stock repurchase program. In the third quarter, Ladder declared a $0.23 per share dividend, which was paid on October 15, 2025. As of today, our dividend yield is approximately 8.5% with a stock price that we believe has been pulled down by the broader market concerns around private credit. We'll note that our dividend remains stable and our asset base continues to turn over into freshly originated loans, AAA securities, high-quality real estate equity investments. With a stable earnings base complemented by our investment-grade capital structure, we believe there's ample room for our dividend yield to tighten, specifically when compared to other investment-grade REITs with similar credit ratings to Ladder. We continue to expand our investor outreach efforts now as an investment-grade company, and we look forward to further educating the market on our story. Building on Pamela's overview of our performance, I'll highlight a few additional insights to how each of our segments fared in the third quarter. As of September 30, 2025, our loan portfolio totaled $1.9 billion with a weighted average yield of approximately 8.2%. As of quarter end, we had 3 loans on non-accrual totaling $123 million or 2.6% of total assets. In the third quarter, we resolved 2 non-accrual loans, first through the payoff at part of a $16 million loan through the sale by a sponsor of 2 mixed-use properties in New York City; and the second be a foreclosure of a loan collateralized by an office property in Maryland with a carrying value of $22.7 million. No new loans were added to non-accrual in the third quarter. Our CECL reserve remained steady at $52 million or $0.41 per share. We believe this reserve is adequate to cover any potential losses in our loan portfolio, including consideration of the ongoing macroeconomic shifts in the U.S. and global economy. As of September 30, 2025, our securities portfolio totaled $1.9 billion with a weighted average yield of 5.7%, of which 99% was investment-grade and 96% was AAA-rated, underscoring the portfolio's high credit quality. As of quarter end, approximately 80% of the portfolio of almost entirely AAA securities were unencumbered and readily financeable, providing an additional source of liquidity, complementing our same-day liquidity of $879 million. In the third quarter, our $960 million real estate segment continued to generate stable net operating income. The portfolio includes 149 net lease properties, primarily investment-grade credits committed to long-term leases with an average lease term of 7 years remaining. For further information on Ladder's third quarter 2025 operating results, refer to our earnings supplement presentation, which is available on our website and our quarterly report on Form 10-Q, which we expect to file in the coming days. With that, I will turn the call over to Brian. Brian Harris: Thanks, Paul. The third quarter was a particularly gratifying one, highlighted by the successful completion of our first corporate unsecured issuance as an investment-grade issuer. We now have access to a much larger investor base in the investment-grade market than the high-yield market where we had issued our prior 7 offerings over the last 13 years. Having access to this larger pool of capital should allow us to further optimize our liability management in the years to come. We believe that by being a regular issuer in the investment-grade corporate bond market, we will be able to lower our overall interest expense to a greater extent than what we could expect in the secured repo and high-yield markets. We prioritized getting to investment-grade ratings several years ago. So having that distinction today from 2 of the 3 major rating agencies is very satisfying, and we plan to maintain or improve our ratings over time. While Ladder has historically been grouped into a peer group of other commercial mortgage REITs, we believe we are more properly comped against other investment-grade rated property REITs who finance their operations like we do, primarily with the use of corporate unsecured debt and large unsecured revolvers. If we succeed in curating an equity investor base that views us more in line with investment-grade property REITs, we think our stock price will start to reflect a lower required dividend yield more in line with how these investment-grade property REITs with lower leverage are valued. In the fourth quarter and beyond, we expect to continue adding to our inventory of higher-yielding balance sheet loans, while staying nimble enough to pivot into securities acquisitions during periods of high volatility when these investments provide extraordinary opportunities to add safer, more liquid investments as market turbulence flares up. We are hopeful that the yield curve will steepen much more next year as the Fed makes good on market predictions of several cuts to the Fed funds rate. This in turn should pave the way for more regular contributions to securitizations. We are always on the lookout for opportunities to own more real estate, but we expect most of the lift to earnings next year to come from organic growth of our loan portfolio. We're expecting to finish this transformational year on a positive note as market conditions do appear to favor our business model as we head into 2026. We can take some questions now. Operator: [Operator Instructions] Our first question comes from the line of Jade Rahmani with KBW. Jade Rahmani: I'm interested to know if you're doing anything differently on the origination side from prior to the IG rating. Perhaps that has opened you up to deals that are closer to stabilization or perhaps larger in size. Clearly, the IG rating might give you a competitive advantage over non-bank lenders. So if you could provide any color on that, it would be helpful. Brian Harris: Sure. Thanks, Jade. Yes, I would say, we're looking at some slightly larger transactions and it's just a lot more stability around it financing it this way. You don't have to go about trying to figure out if an individual lender will see the assets the same way you do. But I wouldn't call it anything wholesale indifference. Slightly larger, yes, everything is a little bit more profitable when your cost of funds go down. But for the most part, the one real change that I see in this part of the cycle versus the last time is the assets on which we're lending are of much, much better quality than the garden apartment buildings and older warehouse properties. So we seem to -- when I take a look at the assets that we're lending on, they're really newly built Class A apartment complexes, resort style almost. And a lot of the industrial portfolios are also quite new as a result of all the onshoring that took place. Jade Rahmani: And on the origination side, I noticed a difference between fundings and commitments upfront that seemed, at least from the outside, a little larger than historically. Were there any construction loans in there or any large CapEx projects in those deals, if you could provide any color? Brian Harris: I wouldn't say as a rule, but we generally don't write construction loans. So there are no construction loans in that portfolio that you're looking at. And as far as heavy CapEx work, I think if you're gravitating towards a slightly wider spread than maybe you're expecting, I don't think it's as a result of a higher construction component or a lot of TI hammer swinging. It really is just -- we're just getting a little bit better. I think the portfolio doesn't look like it's changing meaningfully. Right now, it's most of the assets are industrial and multifamily. I'm not sure it will stay that way. And we haven't been avoiding hotels. We put one under app recently, but we just haven't run across too many of them. And as I said, a lot of the -- we try to focus more importantly rather than property types is on acquisitions where the borrower is buying something usually at a reset basis. Some of these resets are quite remarkable. But as opposed to cash out refinances. The only real cash out refinances that we're doing is if a guy is coming off a construction loan on an apartment building, and he's only 50% leased now. So those oftentimes have 30% or 40% equity in them. And sometimes there's a cash out refi because the property is now complete and half leased. So other than that, it's pretty straight down the middle lending on apartments and industrial properties. Operator: Our next question comes from the line of Steve Delaney with Citizens JMP. Steven Delaney: Congrats on the strong quarter. Curious, let's start with lending. You seem to like the market. You have plenty of capacity. But let's talk about just the $1.9 billion rather than the $5 billion overall portfolio, focusing on the loan portfolio because you appear to be increasingly active there. Do you see -- looking at that portfolio, if we were to look out over the next year, do you see further growth and meaningful growth in that $1.9 billion loan portfolio? And can you give us some idea of a range with your current capital base, how large the loan portfolio might be able to grow? Brian Harris: Sure. Thanks, Steve. let's start with capital first because if you remember, in the second half of 2024, we took in over $1 billion in loan payoffs. And while we began originating loans more frequently, we were not originating at that pace. So what was happening is each quarter, the loan book would get a little bit smaller. This is really the first quarter in a while where we've originated more than has paid off, and we expect that to continue. So the fourth quarter is off to a very good start. I would expect or as I said originally, the organic side of growth will come from just building up the bridge book. I think that's the place where we're focused right now. And we're pretty happy with where spreads are. They're a little bit less competitive than they were really, I would say, just a couple of months ago, which tends to happen after you hit the midpoint of the year. But -- so I would expect that $1.9 billion portfolio to go up by $1 billion in all likelihood. Maybe I would -- if I had to take the over-under on that $1 billion, I would take the over. We're quite active right now and business begets business. So I think that when we had a pretty strong origination quarter, that gets noticed by borrowers as well as brokers and the phone rings a little bit more. As Pamela mentioned, we have over $500 million in loans under application right now. You never really know how many of these are going to close depending on what happens with the volatility sometimes coming out of the political picture as well as the geopolitical side of things. But generally, I would expect that we -- I think we had that loan book up to around $3.4 billion a couple of years ago, and I would like to get back there. And I think that will come from a few places. One, we have a larger revolver that's mostly undrawn. We have a lot of securities. Securities are paying off at a much more rapid clip than loans right now. And I think that's a testimony to the payoffs that have been coming in and the capital markets becoming more welcoming to single asset transactions. So as you pay down those AAAs in a CLO, the financing becomes quite unpopular. So they've been calling a lot of those bonds, and we'll expect that to continue. I think that our securities portfolio will, through attrition pay off, but also we will sell them. As we said in the quarter, we sold a little over $250 million. We own over -- I think we own over $2 billion today. I would expect that number to go down, but I would expect the loan inventory book to go up. Steven Delaney: That's really helpful color, Brian. In terms of [ specialty ] comparison, you mentioned the property REITs and their valuation is something that you would be envious of on a -- whether it's on a PE or a dividend yield. Looking at the ROE at 8.3%, I would say, it kind of strikes me as being solid, but in terms of valuation and where the stock is trading relative to book that some improvement to that, maybe something in the 9% to 10% range might be very beneficial to the stock price, and therefore, your valuation relative to book. Is that improving the ROE in a prudent manner? Is that part of your vision for the next 1 to 2 years? And do you think the strategy you have in place will necessarily take your ROE some higher? Brian Harris: I would say yes to all of those parts of that question. The game plan is to write more loans and we'll get through the cash component of our liquidity. As you remember, we had a lot of T-bills when T-bills were yielding 5.5%, and that kept us away from very tight mortgage loans because if it wasn't at the margin worth sacrificing the liquidity and safety of the securities, we really didn't do it. But now with the Fed cutting rates and promising to cut further, we have a nice mix of floating rate and fixed rate liabilities. So we would expect our cost of funds to be going down. That revolver, I'll remind you, is now priced at SOFR plus 1.25%. So if I am of the opinion the Fed is going to cut rates 100 basis points, usually probably bridging over Powell's last few stance as well as the next Fed official that comes in. And if that happens, you get SOFR down around 3% we can borrow unsecured at 4.25% at that point. So that should all bode well. We've got floors in our bridge loan portfolio up around 6%, 6.25%. And so the loan -- the rates we're able to write loans at these days have actually gone up not down in the last quarter anyway. So we're going to continue doing that. And after we get through the cash component of our liquidity, we'll then begin to sell down or pay down the securities. And the way it comes out on paper, we're hoping to add $1 billion to $2 billion of assets net on the balance sheet and we're hoping to pick up 3% to 4% of profit margin. So if we can take a security that we're earning 5.5% on and get it and pay that loan -- pay the security off and then redistribute, reinvest that money into a loan portfolio that's earning 8.5%, we think that bodes very well for dividend, ROE as well as earnings. So it's not a hard ping-pong ball to follow. That is going to be what we're going to do. It's what we've been saying we're going to do. The one thing that has really masked all the work that we've done has been the very rapid pace of payoffs. And those are high-yielding instruments and we hate to see them go. But when they've been around a little bit past their expiration date, you do want them to pay off, and we've been pretty successful at that. So credit, very stable. We like what we're seeing. The quality is good. The borrowers are good. They've been patient. They're not in difficult financial binds as a result of owning too many over-levered properties. So it looks strong. And you got the stock market at an all-time highs, you got spreads low, rates low, Fed cutting. These are all good conditions on the weather map for a successful lending business at Ladder. Operator: [Operator Instructions] Our next question comes from the line of Tom Catherwood with BTIG. William Catherwood: Brian, I just wanted to go back to something that you said in response to Steve's question, and I want to make sure I heard it right. Did you mention that -- I thought you said rates we can get on loans have gone up, not down. Did I hear that right? Brian Harris: The ones we're looking at, yes. I think -- well, you're seeing -- I mean, I'm not immune to looking at corporate spreads, credit spreads, mortgage spreads. But there's a couple of things going on more recently in the -- literally the last 60 days, I would say. The Fed is letting the mortgage-backed securities portfolio run off. So the agency securities market is actually not as tight as you would think on spread. And the reason why is the Fed is effectively letting $30 billion roll off. I think it's $30 billion. I'm not a Fed watcher. So if I have that wrong, please don't send me a bunch of e-mail. But the other -- after April, when the tariff talk started and now the back and forths that go on, the commercial sector was -- as it always does, and I've said this to you probably several times. In January, every year, we go to a convention down in Miami called CREFC. Everyone is a bull. Everyone comes out, it's going to be its best year ever, and they put a carry trade on until the middle of June. Around the middle of June, they think maybe we paid too much for these things and they start to sell them and they're less aggressive. At Ladder, we have found a nice little theme I think in loan sizes. We traditionally like loans at $25 million to $30 million on middle market lenders by choice. However, we dabbled occasionally in larger loans. The banks are not really writing loans in the $100 million range. That's a little too small for them to put on their balance sheet and then try to securitize. They'll write $1 billion loan with a consortium of banks, but $100 million loan is under their radar and $100 million is probably a little too big for a lot of the CLO issuers that are out there that we mainly compete with. So we're actually very happy in our $50 million to $100 million range right now and we'll try to stay there. And so don't think that we've changed our stripes if we start picking up loans that are a little larger than average. We're still doing plenty of smaller loans, too. But the $100 million type loan is a better asset. It's newer. It's got better financial characteristics to it. And it is higher rate because the competitive landscape is just not as bad as it was. And keep in mind, I'm talking about the last 60 to 90 days. The first half of the year was very, very tight and we were not originating a lot for that reason. In fact, we were buying a lot of securities. Another good proxy, Tom, if you want to take a look at it, is the CLO market. So there's a lot of CLOs coming to market. And they're in the 145, 155, 160 area for AAAs. That's wider than they were just a few months ago. It's not extraordinarily wider. But you're also seeing the VIX tick up. I think it was around 25 the other day after being at 15 for a month. So when you see the VIX ticking up like that and all the volatility around the rhetoric and the political circles, we're able to find things that are pretty attractive. Again, I also think we have a reputation as being very reliable. So as we get to the year-end here, we tend to do -- we always do better in the second half of the year than the first year -- first half of the year when it comes to production. That has been something that has followed me around through my whole career. And I think it has more to do with seasonality and what happens. As you know, insurance companies, they allocate money into fixed income. Usually, by June or July, they're fully invested. So even that competitive force kind of backs off a little bit, too. So we actually prefer to fatten up going into the end of the year. William Catherwood: Got it. Really appreciate that answer, Brian. And then if I think about then sources and uses -- and again, I know you laid it out before, how you think about funding things. But if the spreads and securities are somewhat widening and the revolver is priced at S plus 125, wouldn't it make sense to then just put everything on the revolver and then term it out with unsecured once you get to $400 million, $500 million and just keep wash rents repeat that? Or is -- do you think selling down securities along with using the revolver gives some other benefit? Brian Harris: Well, I think it's almost like we have several companies at Ladder with the products that we dabble in. But on the floating rate side -- I'm sorry, on the securities side, I mean, if you take a look at the rating agency REITs, the agency buyers like AGNC and Annaly and a couple of others, these guys are throwing off dividends of 14%, 15%. And they're levered, I don't know, 7x, 8x in many cases. That's way too hot for us on leverage, but with government-guaranteed paper, with a lot of duration, I think your risk is in the duration side of that. But at where we are, these securities, there -- if we levered them up and easily can, the financing cost is around SOFR plus 50 on a AAA. If we're buying things at 150, you can figure out that there is a pretty good spread in there. So we can lever those up to about 15%, but it's a lot of leverage. And the road we're on is not to just have a low cost of funds so we can lever things up. The game plan is to focus more and more in the years ahead on unsecured debt that we extend. But the game -- the change at Ladder versus before we were IG, we would normally be thinking about issuing another bond here because we're growing rapidly, we're going to need more capital. We've got sources of ability to get capital, but we might think about that. But if you really think the Fed is going to cut rates by 75 or 100 basis points, it would not go out and do a bond deal right now because that revolver is going to get down to a low-4% rate. And that's what we think will happen. It doesn't have to happen. But if it does, that's probably the first thing we'll do is draw that. We don't want to draw all of that because that's not what the agencies and investors want to see on the bond side. So -- but my guess is we'll probably -- I don't think securities were ever meant to be a long-term hold for us. They're kind of a parking spot for us while we're waiting for better opportunities to come by on the loan side. And I think our patience has been rewarded because I think Paul mentioned that our spread on the loans we wrote in the $500 million or so was around $279 million. I think the spread on what's coming in the fourth quarter is going to be wider than that. Operator: Our next question is a follow-up from Jade Rahmani with KBW. Jade Rahmani: Just curious if you would contemplate launching a securities fund, if you can deliver 15% type returns with leverage, you could put the leverage in the fund, not on Ladder's balance sheet and create value for investors looking for that type of return profile. And of course, comparing to residential mortgage securities, commercial has a lot more predictable duration. So you don't have the prepayment volatility that the agency REITs deal with. Brian Harris: Yes. I mean, we've done that before. When we first opened, we ran a few investment portfolios even some individuals that we knew because sometimes securities get cheap, but most people with the first and last name don't know how to go buy them. And so oftentimes, we'll get a call and say, why don't you buy these? So we have an asset that's yielding, as I said, a levered yield of around 15% I think. So that's generally attractive, but it does come with a lot of leverage. We've historically looked -- we've looked at that. We've looked at stapling on a residential mortgage arm of things because we all understand that business also, but haven't done it. And the last thing we've looked at too is possibly spinning off our triple net portfolio because we don't get much for that in valuation. So this is going to be -- 2026 is going to be a year about really fine-tuning the columns and what the right cap rate should be on those things. We have an internal manager that has no value apparently. So there's lots of things we can do now around the edges, but the first step is going to be becoming an investment-grade company. And we still like the -- given where we are in the cycle right now, we like the commercial mortgage business better than the residential side. The residential side could get very interesting though, not from a loan, but from a standpoint of if there's too much supply due to the absence of the Fed. So those are very attractive, but as I said, they do have a lot of duration on them. So -- but we're probably -- we're agnostic as to holding on to things that yield 15% or selling things that make 1 to 2 points and then recycling the money. And I think that, that is an option open to us right now, as you saw in the small sales that we did in the third quarter. Jade Rahmani: And then the New York office equity investment you made, how are you feeling about that? Is that a long-term hold? It looks like it was pretty prescient in terms of timing. But could you also remind us the size of that? Brian Harris: Sure. Our investment -- we're a minority participant in the equity on that. But we may very well get involved in the debt side of that situation later on, but we have a loan from an insurance company for now. But that building, 780 Third Avenue, by the way, if anybody cares, is -- we put in a $13 million or $14 million investment. At the time, the building was about 50% occupied. I don't know where we are on free rent, but I do believe we've now -- the building is leased over 90% in just a short -- under 1.5 years. So we do like that one. Again, that's a very high-quality building. Third Avenue is not known for high-quality buildings, but a lot of the lower quality is becoming residential. And a lot of those poorly occupied office buildings that are becoming residential, those tenants are looking for space. The real benefit we picked up was between JPMorgan and Citadel, Park Avenue is being just gobbled up on space and a lot of those tenants are also moving. So we didn't -- we thought we were going to get Third Avenue tenants looking for an address. We wound up getting Park Avenue tenants that were being displaced by JPMorgan's expansion. So all going well. I wish we had done more of that. And do we like that? We are looking at another situation right now of larger size than the one we did at 780 Third Avenue, and we like it. These transportation hubs in New York City tend to do better. They come out a little bit quicker, especially when people have concerns around safety on mass transportation. I think that situation has largely corrected itself with the return of people. Our offices are full. We haven't ordered anybody to be in 5 days a week, but most of them are. So we generally like pockets of the office market, but we do understand the obsolescence associated with some of the older ones. So yes, we like where we are. We're happy to do more of those investments. And that long-term hold is the last part of your question there. I would say, we're going to hold that for a while, yes. Operator: We have no further questions at this time. Mr. Harris, I'd like to turn the floor back over to you for closing comments. Brian Harris: Thanks, everybody, for listening and those who dialed in afterwards. And good year 2025, we're in the fourth quarter. The reason I say that now is because we're not going to talk again until after the new year comes and we get through the audited financials. But a lot of this is just falling into place the way we largely expected it. The only real surprises were the rapid paydowns that took place in the second half of last year, but we're catching up quickly. We've had an inflection point here in the last quarter where we originated more than paid off, and we think that, that is going to be a consistent theme over the next 4 or 5 quarters. So thank you for tuning in, and we'll catch up with you after the new year. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Welcome to the PowerCell Group Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Richard Berkling and CFO, Anders During. Please go ahead. Richard Berkling: Good morning, and a warm welcome to this quarter 3 report on what is a very busy day on the Stockholm Stock Exchange with a lot of companies making their presentations. So we're extremely happy to see that many joining us at PowerCell. So we have closed quarter 3, and we are quite happy with the outcome. Previously, in quarter 1 and quarter 2, we reported with the headlines of steady pace through rough waters in quarter 1, which actually gave a good description on how quarter 1 played out. Quarter 2 had the headline steady pace through improving waters, really showing that we saw improvement in the market. And now the third quarter, what is describing the headline is the steady growth and solid margins, which actually described the company quite well where we are at the moment. We saw good growth in quarter 3 compared to 2024, up 90% compared to last year. Year-to-date, it is up over 50%, which is quite encouraging. Gross margin is continued to improve, although not on record levels, but we have talked about this before that we see volatility over the quarters. Also encouraging to see that the rolling 12 months revenue remained over SEK 400 million, which is the top line momentum we want to have in the company. Also encouraging that we protected the EBITDA in a way that we are still positive overall [Technical Difficulty]. Can you hear me? Anders During: Yes. Go ahead, please. Richard Berkling: I was kicked out for some reason. So continued positive EBITDA on rolling 12 months, also very encouraging. This is one of the focus areas we had for PowerCell. I would say, since the beginning, we need to show a breakeven level also in the early stage of this technology shift. So this is quite interesting. Anders will go more into details on this. We managed to leverage on the fixed cost base and drive growth and then despite having a slightly lower quarterly volume. So we're really happy with this progress that we can now show. Also some orders in quarter 3, although I would have expected or hoped for more, but it's also quite volatile in this market. What is encouraging is that we are continuing to see more OEM orders in the marine sector, where we now broke into the bulk carrier segment with the first -- world's first bulk carrier to GMI Rederi in Norway. So quite encouraging to see how the quarter was playing out. What we are in is a time of very focused execution where we also see then a quite good tangible process. I would say that the middle section here, where we talk about the operational resilience, is what is most important to me. We managed to provide a positive EBITDA on rolling 12 months because we are now in delivery mode. We are now actually tomorrow shipping the final shipments to our large Italian marine OEM, which means that we have completed deliveries of all those orders. And now in quarter 4, we are ramping up the final production assembly and will complete delivery to Torghatten up in Northern Norway with a large 2x 6.4 megawatt ferry installation, which means that we have now actually managed to build a company that is industrially stable. Starting production as we did in April this year is always something that you need to ramp up and industrial stability doesn't come for free. So the fact that the organization has been able to pull this off, deliver high quality on time or even before time, is something that is a very important quality mark for PowerCell. So the focused execution is something that I think that we should talk more about the PowerCell. Quite often, we talk about growth and we talk about the innovation of the company. But being an industrial credible partner is something that is going to win the orders going forward because with the OEMs that are placing the trust in new technology, they also need to place the trust in a very, very stable partner. So this is something that we're quite happy to be able to provide and also report. We also see, as we said, repeated demand around the Marine System 225 that we introduced last year in June. And that has been a very strong commercial success based on the fact that it is world-leading when it comes to performance, when it comes to energy density and when it comes to the value it creates for the customers that put this into operation. And then for PowerCell, once again, the operational resilience that we were able to start production and work on productivity, efficiency protecting the gross margin, which is extremely important for PowerCell going forward. So the combination of this is something that I'm quite happy to be able to report. With this, I would like to hand over to Anders on the numbers, and then I will come back and talk more about the outlook and how this connects into the broader context. Anders During: Thank you, Richard. I will take the opportunity to just run through the numbers. I think these numbers, after having listened to Richard, are in a way that, of course, the 19% growth is something to notice. I remember us saying in the beginning of this year and even at the quarter 4 report last year that we would find some more stabilization between quarters. And I think the third quarter is another evidence for that the more even, let's say, turnover in each quarter is there to stay for the future. Gross margin is slightly up. That is -- I mean, to the volumes we have and to the product mix we have when we sell, the variation of 6 percentage in a single quarter is not for us anything that is unexpected. It's more important to look at it when we get to the accumulated numbers and understand why the changes are there. EBITDA, I think, it goes without saying that we are happy with only being at minus SEK 2 million, given that we have taken SEK 5 million in provisions for the reorganization that we have announced. And I think the burning platform, and that what everyone is more concerned about listening to us today, is the operating cash flow. I think we have been quite explicit in the report describing what has happened in the first 3 quarters this year. I think that having listened also to now Richard saying that we're in final deliveries of immediately one of our larger orders ever and then continuing final deliveries of the second one, everyone can understand what that will do to cash flow as we progress into the future quarters of this year and the beginning of next year. So we go on to the accumulated numbers. We look at this point basically on the gross margin. Everyone recognized from the second quarter that we had a large deal with Bosch that brought in a lot of gross margin to us, given the fact that we were selling IP. And of course, for the remainder of this year, we will still see, on an accumulated level, a very high gross margin based on that deal. That is a level that, if I would guide anyone on this thing, may not be contained over the near future. We hopefully get back there later on. But short term, in each quarter, that level will not be maintained. I think it's important to also see that if we look at -- Richard mentioned operational leverage, you can claim a lot of things about what different things derives from. But one thing is certain that given the turnover we had last year, given the turnover this year and the change, excluding for all unusual items in the different accumulated book numbers are about SEK 88 million. And that for us feels very strong, acknowledging that at least half of it, when you make comparison, derives from the deal we made in Q2 with Bosch. But still, it's a very impressive for us at least change in how we manage profitability and earnings in the company. And as I mentioned and as I've highlighted to the right in this picture, background being given and everything that we feel completely comfortable about is that we have passed a lot of what has been described as the reason for building up working capital, and we also come to a stage where we can see that we are delivering and what follows with that. So moving on to the next one. It is basically saying that we feel comfortable having a stable path. We grow 30% plus in our industry. If you went back 5 years, I guess, that would be viewed as very humble. If you flip it around and say that this is an industrial company in an earlier stage of the market, it's a number that I feel that we are very comfortable with. And also that we have brought on rolling 12 months EBITDA to a positive number of SEK 21 million, and that makes us feel comfortable for the future as well. Having said so, I will leave it back to Richard for the continuation of the presentation. Richard Berkling: Then also reminding you on the upcoming reports, quarter 4 report February 4, 2026, and then quarter 1 report in 2026 on April 23. So then if we look at the segment highlights and what is building up the result and the business at the moment, we see good commercial traction in Marine, all subsegments. We saw the order from GMI Rederi, which was quite encouraging because that is, as we said, the first break into the bulk carriers. We need to mention then the IMO decision or postponement of decision last week. It was a disappointment to the industry. Many put their trust in the fact that the IMO would regulate the net zero tariffs on a global scale. However, in Europe, we already have in place even stricter regulations. So to me, I'm not too surprised that they delayed it because it takes time to change industries in a technology shift. So you will always have resistance. So hopefully, a year from now, they will have a resolution that is signed that is perhaps a bit more easy to adapt for the operators. But in the meantime, we continue to see a strong demand from especially Europe, but a lot of interest globally as well. Power generation, we were quite happy to yesterday report that Zeppelin Power Systems placed an order for 2 different systems implemented in Europe. The fact that they are now exploring to different applications is quite interesting because power generation, as we have pointed out, we believe that power generation will be the largest segment going forward. The difference from marine is that we have still not seen a trigger where an OEM is putting a stick in the sand and said, now we do this. But we are seeing a more clear commercial landscape emerging for backup power and peak shaving applications. There is a lot of discussion on data centers. Of course, we have a quite close collaboration with parties out there. But as I said, we have not seen the trigger where somebody is really putting a stick in the sand and say, now we do this. So we try to contribute with that. We try to challenge the industry, and I will have later on in the presentation some more news on what we will do in that segment. In aviation, we continue the certification process with ZeroAvia and other aerospace partners. They're not the only one who are in certification process. What is quite encouraging is that now ZeroAvia actually have delivered their first systems to customers, and they will be put in operation in 2027. So now we have a deadline on that one, which is really, really encouraging. This is the first information we have seen from them on when this will be put into operation. What we also have seen is that we have now industry validation that our strategy with the medium temperature PEM, which is our next-generation fuel cell stack is the good enough step for larger turbo aircraft in the next generation. So more interest in our collaboration together with Honeywell on the Newborn platform, which is already materialized in the commercial agreement in marine. But for aviation, the fact that we can do with the medium temperature is a technology step that is really valuable to PowerCell because that's where we have invested our position from a technology perspective. Going once back to the operational leverage. One reason why we are able to show this rather good underlying progress when it comes to operational leverage is that we have had for 2025, a strategy to consolidate. And we have consolidated to be able to accelerate. We have consolidation of product platforms. Previously, it was a bit fragmented, which was a risk for a company like PowerCell because you might end up in doing projects everywhere. Now since the introduction of MS 225, we have seen now a serious delivery, which you see in the bottom there. Start of production in April. We now have more than 100 systems in order and in the pipeline. As we said, we are completing the delivery to our Italian shipyard this week, tomorrow, which, of course, is one of the reasons why we have been tying up working capital to the extent that you have seen in the report. Now when we move on to delivery to the Norwegian ferries up in Bodo that is just one more proof point on how well the consolidation strategy have worked, which is also seen in the gross margins of PowerCell. But then in quarter 3, we also reported a change in the management group, which is also a consolidation of the organization. When building up a company like PowerCell, we changed more or less everything in the last 4 years, building up technology portfolios, product portfolios, operations, marketing, sales. I wanted to have a large management group to be able to cover all the aspects of PowerCell. Now we are more mature. We now see a more clear path towards growth. And then we need to have a more streamlined operational management team, which is also why we have consolidated the organization. So this is to increase speed and acceleration and also clear out more accountability now when we actually will speed up everything we do. Anders talked about this before, the fact that we have growth without cost base inflation, I think, is really, really important. Many companies like PowerCell when they grow, they tend to overinvest and always scale up with more and more resources. We are actually going to run 2026 on a lower overhead cost base than we have had before, which is also one proof point of this consolidation strategy, which is also then, I would say, a mitigation to make sure that we can defend both EBITDA and EBIT breakeven on lower levels than most of our colleagues in the industry. So the strategy is, of course, being profitable and scale through discipline. This is something that is in the DNA of the company, but you always need to be there and protect it, especially when you grow. But we see now that we maintain a breakeven level at around SEK 400 million of top line revenue. So then looking at the product strategy and next-generation platform. This is now something we have had in the reports a number of times, but it's worth reiterating. We see that the Marine System 225 platform that was introduced in June last year has been very successful. I would say the most dominant product in the marine industry for fuel cells. Now we are complementing it with a CE marking in quarter 4, optimized for power generation segment, which is a very important proof point and a quality stamp for PowerCell. We continue to see interest in the methanol reformer, both cruise ships, service vessels [indiscernible] and but we also see a growing interest from power generation. The main value there is that you get more energy on a smaller energy storage footprint. So where we have backup power for potential data centers with hydrogen, you need 1/6 of the size, if the energy is stored as methanol. So there is a large interest in this technology from the power generation segment as well. Also availability of methanol is quite good in different regions of the world at a low cost. So this could be something that is enabling growth in areas where you don't have access to hydrogen. And then power generation. In quarter 4, we will have an enhanced product offering in power generation, more optimized for that segment. It is built on the Bosch collaboration that we communicated in quarter 2, to be able to attract more price-sensitive applications. And this is something that is quite important in a technology shift that willingness to pay between segments are different. Marine commercial, for instance, have much higher requirements on performance, quality, robustness, et cetera, which makes the product there more expensive. For power generation, we need to have something that is a bit less expensive. It's a bit more price-sensitive segment, and this is where we now will introduce a new product platform in quarter 4. And then as we said before, we have a strong interest in our next-generation fuel cell stack, which is, I would say, our guarantee for future earnings, which is quite valuable to PowerCell. So reiterating what we said before, the building of the strategic foundations for PowerCell is that we have a platform system and product readiness, the ability to actually have industrialized components because right now, we see growth with a rather short from order to delivery. The demand is a bit volatile, but when we see an order, it's rather short delivery time. And this is really important to us that we are able to meet that. This is also why we have tied up a bit more working capital than perhaps we would have liked, but that is a trade-off that you have to do as both CEO and CFO in a company like PowerCell. It's also important to have the industrial partnerships because the OEMs will drive growth in the industry. They are the Tier 1 to the end user, and they need to invest and be the guarantee of technology, not just as a delivery but also over the life cycle as a service partner. We support with service to them as the second tier. And then, of course, the fiscal discipline. This is really, really important for PowerCell. And we will protect breakeven at low volumes, more or less regardless of anything. So if we then look back to what we set out to achieve in 2025, this was part of what we have said as the focus areas for 2025. So one focus was to reach breakeven on rolling 12 months. We can check that one. We also had an ambition to continue to grow with OEM contracts because we believe that, that is what we give the most sustainable growth. Also, those customers put products in operation. So they are proven and tested and actually validated that they generate value to the end customer. That one with the 2 recent OEM contracts that we have signed in quarter 2 and quarter 3 is quite encouraging. We have said that we need to scale existing product generation. And this is also what has now been generating the growth and also the fact that we reached breakeven. We are doing this, while still investing into the next generation. And I think that the last sentence there is quite important that we are proud of the ability to balance innovation, industrial stability and leverage growth. It's quite easy for a company like PowerCell to optimize on either/or. But the fact that the company has been able to provide this and also that we have had the support from the Board to pursue this sometimes complex strategy is something I'm really happy about because it is not just giving us the fact that we have breakeven today on low volumes. But with the next-generation products, we are now also well positioned for what will happen in future earnings. So that balanced approach is something that I'm really happy about, and I'm proud that we have had the support from both Board but also the commitment and the, I would say, brilliant performance from our team, both in operation and innovation and technology and sales and marketing. So really happy with that progress because it's -- we need it. It's difficult to do business in any technology shift, but we have proved that we can do it and we can actually breakeven on very low volumes. So with that, we open up for questions. Operator: [Operator Instructions] Richard Berkling: Now I have to admit that I don't see the question. Let me see here. Here we are. Do you have any concrete initiatives in the data center area? We know that Bloom Energy and the situation in the U.S. is a question from [ Ari ]. Yes, of course, but as always, we cannot talk about things before they have materialized. There is a massive interest from the data center industry. And this is not only for CO2 emissions, but it's also for energy resilience. In many areas, the grid is full. So getting access to the grid, getting access to stable electricity is quite difficult. So replacing some of the old diesel generators with either fuel cells or something else is quite attractive for the data center operators. And they also have rather high margins on their own business, so they can do this. So we see a lot of commitments from the larger players. We met with some of them in New York during the New York Climate Week. But as I said, it is a combination of getting the whole value chain in position. You need to have supply of fuel, you need to have the grid access, et cetera. So finding the right balance point has been a bit tricky. But in quarter 4, as I said, we will come back with a more clear product offering and hopefully some clarity also in the potential that we see in this industry. So let me see here if we have more. Operator: [Operator Instructions] Richard Berkling: Anders? Anders During: Yes. Richard Berkling: Yes. We had a question, of course, on the cash position and how we see the end of the year and the beginning of next year, even though we don't make the detailed forecast, do you want to comment on that one? Anders During: I think it's without making forecast, which we will try not to do, but we would like to guide everyone reading the report as we understand that this is one of the key questions from a financial standpoint. And I think the efforts we have done in the first 3 quarters this year would -- either way you would have done it, accumulated more working capital. On top of that, we also spent money on those proceeds that we discussed during the share issue last year. And following what Richard just mentioned in the beginning of the presentation that we are in final delivery stages in 2 large projects. Obviously, those 2 large projects has terms and conditions included in them that indicates that once delivered, we get paid to not giving you any guidance, but with more stating that we feel comfortable about those dynamics. We are comfortable at this point in time. Richard Berkling: Very good. And then we had a question from [ Niklas Holmgren ] here. Once again, regarding the data centers, do you think you have the right product offering to make this a significant source of revenue for PowerCell over time? So far, it's been mainly SOFC manufacturers like Bloom Energy has been successful in this space. That is a very good question, and it requires some explanation. One reason why our technology, the PEM fuel cell complements the SOFC is that SOFC is a very stable installation. It doesn't take dynamic load well. So where we see a potential growing demand is for backup power and peak shaving because that's when you have the fast dynamic load that the PEM fuel cell is very strong with. The solid oxide fuel cell cannot do that because it takes a very long time to ramp up and ramp down. So there are different applications. So I think that the different technologies complement each other. And we believe that PEM fuel cells and the backup power peak shaving is a very relevant application for data centers because there are today very few areas globally where you can fully rely on grid access. So we believe that our technology will have a strong opportunity for the data center segment. With that said, as we presented here in the report in quarter 4, we will come back with a more clear product offering because we believe that the price point is slightly different from other segments. And we are now preparing an introduction of more targeted products to be able to capture that growth. So it's a very good question, and it gave us an opportunity to also explain the difference between our technology and the one that has been prevailing so far in this segment. Then also, we have a question on Torghatten. With Torghatten final delivery, can you comment on the service agreement with Torghatten? Yes, I can. Since we are completing delivery, we start delivery now in quarter 4 and will be completed in quarter 1. That means that for 2026, the service contract will be in place. It is a 10- to 15-year service contract that we will sign together with Torghatten. But the details of that contract, we need to come back to when it's signed because it's still under discussion. But of course, now when we are getting more large installations in operation with customers, the service side of PowerCell will be more interesting because now we will have a service revenue and a service opportunity that has been lacking before. And this is also one positive benefit of moving away from the early stages of project execution to more normal industrial applications and customers that put products into operational service. So it is both an opportunity for revenue, but also an opportunity to learn more and also show the industry how this works. So it's a good question. We had a question from Rakesh at Chevron Shipping. How do you expect the IMO Net-Zero talk failure to affect future orders? Well, since we didn't see any effects on the contrary that we had a positive effect because the IMO was not signed yet. This was just a proposal. It's been postponed now for 12 months. I think that the -- what we see now is that certain areas will wait. That is for sure, but I think that they waited anyway. So the segments and geographical areas where we see growth like Europe, that will continue because Europe already, as we said, have a more strict regulatory framework than what the IMO proposal was. So it's more likely that we see a continued hesitation in the U.S. for certain marine applications. But on the other hand, there are also those who want to accelerate because this is actually making business sense in certain areas already now. So we will continue to follow this and monitor, but we don't see any immediate impact on the order book or on the leads funnel that we are operating. I think that, that more or less concluded. We are now 1 minute past the deadline. So as always, thank you very much for listening in. We always encourage you to come and visit us in Gothenburg at the factory if you have time, regardless if you are a shareholder or if you are a financial analyst. So look us up, come visit us. And with that, have a nice day, and see you in February. Anders During: Bye-bye.
Bertina Engelbrecht: Good afternoon and a warm welcome to the webcast of our annual results for the year ended 31 August 2025. I am Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. Joining me here today is Gordon Traill, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of our presentation. This slide sets out the outline we will follow. I will start with a review of our financial year. Gordon will follow with an overview of our financial results. I will take you through the trading performances of our business units; first Clicks, then UPD; and I will then close with the outlook for the group. Please submit any questions that you may have via the webcast platform during and after the conclusion of our presentation. Sue Hemp from our Investor Relations team will read out your questions to which Gordon and I will respond. I will now commence with a review of the year. At the macro environment level, green shoots are starting such as a slight expansion of GDP growth, the easing of domestic inflationary pressures and lower debt servicing costs. Although confidence levels are below historic averages, the latest consumer confidence index reported a modest easing of pessimism. Despite some challenges, particularly the high unemployment rate and fiscal constraints, we maintained performance momentum because of our focused results orientation, resilient business model, brand strength and incredibly loyal ClubCard customers. In the year, we delivered diluted headline earnings per share growth of 14.1%. This is comfortably within our guidance range and an enviable return on equity of 49.2%. We are reaping the benefit of the foresight of past leaders who launched our loyalty program in 1995. In August, our ClubCard celebrated its 30th anniversary with over 12.6 million active members who contributed 82.6% to our sales. Last year, I said I would be disappointed if we did not exceed our store and pharmacy rollout targets. True to form, our teams did not disappoint. We increased our Clicks store count to 990, pharmacy count to 780 and primary care clinics to 225. We are strengthening our relationship with the Department of Health, a key stakeholder. Post the year-end, additional pharmacy licenses are being issued. This supports our pharmacy expansion program. In a subdued trading environment, customers focus on value by switching to lower priced brands, buying on promotion and using loyalty programs. As a value retailer with a respected private label program, we were well positioned to leverage our market-leading shares in defensive retail categories. Customers responded favorably to our product and price offers resulting in market share gains in our core health and beauty categories. I will provide greater detail on the market share and category performances in the retail segments review stabilized and the business is gaining positive traction. Purchasing compliance from both Clicks and the listed private hospital groups have recovered. Expense management, as Gordon will share in more detail, was exceptional. As a group, we embrace inclusive transformation with a strong emphasis on gender diversity and local empowerment, the results of which are reflected in our BBBEE level 3 rating and our top achiever status in the UN Women's Empowerment Principles. I now hand over to Gordon, who will take you through the group's financial results. Gordon Traill: Thank you, Bertina. Good afternoon. As in previous years, we will cover the financial performance of the group starting with the group highlights. If we consider the financial highlights, group turnover increased by 5.3%. Retail turnover grew 6% for the year with half 2 slightly slower due to new stores and pharmacies being opened later in the year and lower inflation. UPD had a slower second half after the recovery from the system implementation in the previous year. Total income margin grew by 90 basis points resulting from strong growth in private label, supply chain efficiency income and lower shrink in the retail business. The group trading margin at 9.8% increased by 60 basis points due to the growth of retail and good cost control from UPD. Diluted headline earnings per share for the group increased to ZAR 13.62 per share, up 14.1% on last year within our guided range of 11% to 16%. The group's operations generated strong cash inflows of ZAR 6.6 billion. During the year, we returned over ZAR 2.7 billion to shareholders in dividends and share buybacks. The group's return on equity at 49.2% increased from 46.4% in the prior year. And the dividend declared for the year has been increased by 14.2% to ZAR 0.886 per share, which is a 65% payout ratio. Retail had a slower second half due to the later opening of stores and pharmacies, inflation remaining muted and a slower flu season. UPD's compliance levels in both its main channels continued improving resulting in good growth in sales to Clicks while positive growth was maintained in the hospital channel. If we exclude the Unicorn disposal in the prior year, retail grew 7% with same stores growing 4.7% excluding the additional trading day in the prior year. New stores and pharmacies added 2.3% to the top line while selling price inflation averaged 2.6% for the year, lower in the second half. Distribution business had a consistent performance in the second half with good compliance from its major sales channels. The business grew despite continuing genericization in the hospital channel and lower inflation. Bertina will cover the detail of each business' performance later in the presentation. This slide reflects our total income earned, which has increased by 8.4% for the year. You can see the total income margin in retail was 70 basis points higher than last year as there was good growth across pharmacy, health and beauty and personal care driven by private label. In addition, the previous investments in systems has allowed us to generate additional supply chain efficiency income. UPD's total income margin was down 10 basis points to 9.9% and this was due to the higher SEP increase granted in the previous year. Overall, the faster growth of the retail business at 8.1% and the growth in UPD has resulted in the group's total income margin being 90 basis points higher than last year. Retail costs grew 7.9%, which was lower than in the first half and remained well controlled. In the second half, cost growth was 7.3%. Store staff bonuses have increased by 9%, which is on top of a 21% increase in the prior year and is well deserved based on this year's performance. In the year, we have added a net 55 Click stores and a net 60 pharmacies. We are looking forward to continue accelerating our pharmacy growth in the next financial year. We would also like to thank the Department of Health for their support in the last year in working with us to close the gap in stores without pharmacies. Comparable retail cost growth, excluding new stores, was up 5% for the year with costs growing at a lower rate in the second half. The IFRS 16 interest charge increased as a result of the increase in number of renewals in the period. The growth has slowed from the prior year. UPD's costs have grown lower than turnover as the systems implementation was completed and efficiencies have been extracted. It is pleasing to note that costs grew 1.6% in the first half and 2.2% in the second half. Employment costs in the second half continued to be well controlled although were ahead of the first half due to the provision of performance bonuses. Other costs fell by 3.9% in the second half as a result of good cost control and lower debtor provisions required. The investments in solar have paid off with electricity, water and generator costs for the year declining by 35% despite the higher electricity tariffs. Our investment in electric vehicles has resulted in further efficiencies with transport costs down 0.2% year-on-year. Further investments have been made to allow delivery with electric vehicles, which will come through in our financial year 2026. This further supports reducing our carbon footprint. Retail grew trading profit by 8.4% with the margin improving by 30 basis points to 10.5%. This has been due to good sales growth, strong other income generation together with efficient cost management. UPD's trading profit increased by 9% with the trading margin increasing by 10 basis points to 3.3% and this was due to consistent sales growth and good cost control. Overall, the group's trading profit increased by 12.1% to ZAR 4.7 billion for the year. This slide reflects the growth in turnover, trading profit and margin of the group over the past 5 years. The company has sustainably grown its performance through various economic cycles. And to note that in last year, inflation has moderated, interest rates have reduced and we have all benefited from the lack of load shedding in the past year. There are some concerns though with the impact of external tariffs further straining the economy. That said, the group has demonstrated its ability to continue to evolve the trading margin over the past 5 years. Inventory levels for the group has increased by 4 days to 78 days. Retail stock days are 1 day higher than last year and inventory remains well controlled although increased due to the later opening of new stores in the year and higher levels of inventory being held ahead of the warehouse management system going live in Cape Town. UPD stock days at 45 days are 3 days higher than last year partially due to higher levels of GLP-1 buy-ins and Unicorn stock held at year-end. Overall, working capital was well managed with net working capital days at 34 days. This slide shows the movement of cash during the year. As you can see, we started the year with cash of ZAR 2.7 billion reflected in dark blue on the left-hand side and ended the year with ZAR 3.3 billion on the right-hand side of the slide. The group has generated cash of ZAR 6.5 billion highlighted in green, working capital inflows of ZAR 73 million, repayment of lease liabilities amounting to ZAR 1.1 billion and tax payments of ZAR 1.2 billion. ZAR 985 million was reinvested in capital expenditure across the group. From this amount: ZAR 599 million was invested in new stores as well as quick store refurbishments, ZAR 152 million was spent in distribution centers including the expansion of our Centurion DC and ZAR 234 million was spent in IT and other retail infrastructure. We returned ZAR 2.7 billion to shareholders this year and this was in the form of dividends of over ZAR 1.9 billion and share buybacks of ZAR 751 million. Final cash dividend of ZAR 1.5 billion will be paid out to shareholders in January. This slide shows our commitment to a disciplined approach to capital allocation. We expect to continue to invest in the business and return capital to our shareholders through dividends. Over and above this, our preference is to return any excess cash through share buybacks, which is demonstrated in this graph. Since 2006, we have bought back 164 million shares at a cost of ZAR 7.8 billion. At the closing share price on 31 August 2025, the value of these shares would have amounted to ZAR 61.2 billion. CapEx of over ZAR 1.2 billion is planned for the year ahead. ZAR 662 million will be invested in our store and pharmacy network and this will include 40 to 50 new Clicks stores and pharmacies and 70 to 80 retail store refurbishments. ZAR 594 million will be spent on IT systems and infrastructure, ZAR 88 million of this amount will be invested in UPD IT and warehouse equipment and we will invest the balance of ZAR 506 million in retail IT systems and infrastructure. This will include the completion of our new pharmacy management system and rollout of the implementation of the new warehouse management systems to our 2 other DCs and further investment in solar. We will continue to grow and invest in the retail footprint. UPD is positioned for growth now that the implementation has been completed and we will continue investment in systems for pharmacy and our distribution centers in the retail business. This slide reflects our medium-term financial targets. We have made good progress against these. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store base. While we have shown good progress, these targets will not be revised at this stage. As indicated earlier, we have increased our investment in the business for growth. In framing these medium-term targets, we continue to seek to optimize the balance sheet, improve working capital efficiency, enhance cash returns to shareholders and maintain the dividend payout ratio between 60% and 65%. This slide demonstrates how the group has sustained its financial performance over the past decade. This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share of 13.5% per annum and dividend per share growth of 14.2% per annum. The compound annual total shareholder return over the past 10 years equates to 17.3% per annum. These excellent growth rates have been driven by strong organic growth, particularly in our health and beauty business, which has been supported by an efficient supply chain. This has in turn translated into strong cash returns, which have not only been reinvested in the business, but also allowed us to progressively increase our dividend. This graph shows the group's share price performance over the last 10 years. This performance is all the more pleasing when compared to the return in the Food and Drug Retailers Index of 4.6% and the Top 40 index of 7.8%. This performance is a testament to the hard work of all our employees throughout the group. Earlier, I noted that bonuses for employees have again increased. It is pleasing to note that our long-term shareholders have also benefited. I will now hand over to Bertina to cover the trading performance. Bertina Engelbrecht: Thank you so much, Gordon. I will now take you through our trading performances starting with Clicks followed by UPD. This is the review of the Clicks business. Despite the subdued trading environment and a muted cold and flu season, the retail business delivered a solid result. Existing stores grew sales by 4.7% excluding the extra trading day in 2024. Inflation slowed down from 6.3% last year to 2.6% this year and we achieved volume growth of 2.1%. I now turn to the 4 categories to provide you with greater detail. Pharmacy sales grew 6.9% despite a soft cold and flu season as well as significant price reductions in key molecules to align with medical scheme formulary compliance requirements. Turnover in our 24-hour UniCare format achieved growth of 8% driven by strong support from doctors, the implementation of our after-hours doctor service and the exceptional performances of wound care, diabetes, primary care and IV clinics. Despite the delay in opening new pharmacies, we accelerated in the second half to open a total of 62 new pharmacies for the year, of which 29 were in the last quarter. ClubCard customers contributed over 87% of pharmacy sales and we continue to be rated as the customer's first choice retail pharmacy. We have increased our primary care clinic count to 225. Clinic sales increased by 10% driven by medical aid funded services and support for our virtual doctor consultation services. Front shop health and baby achieved strong growth with value growth of 8% and volume growth of 10.1%. In the baby category, volumes were up 15.3% compared to value growth of 6.2%. Front shop health growth was driven by the extension of our health care elevation to 138 stores, exceptional performances in sports and slimming which was up 27% and the continuing strong momentum of branded supplements up 29%. Our integrated baby strategy is entrenching our position as the leader in baby. Despite price deflation driven by supplier branded diapers and baby foods as well as supplier infill challenges. This category is continuing to perform well with private label and exclusive ranges the key to our success. Sales in our stand-alone Clicks baby stores were up 23%. Baby store-in-store sales grew by 12.4% and online baby sales grew 27%. Sales growth, as you can see, is gaining momentum and we are evolving margin. Sales in our beauty and personal care category was up 7.4%. Despite a heavily competed beauty market and the disappointing performance of The Body Shop, we grew sales ahead of the market fueled by new launches and the continued rollout of the elevated beauty hall concept in key nodes. The personal care category delivered a strong performance up 9.8% driven by strong private label sales which was up 17.6%, strong promotional sales and innovation in [indiscernible], Being Kind, Dove and Vaseline product ranges. Our exclusive body freshness range was up 42.6% driven by exponential growth in Spritzer, which was up 44%. In May, the new Body Shop owners unveiled their post-acquisition turnaround strategy with new product development launches such as Spa of the World and Passionfruit. These new ranges are in store and the teams are working to improve the infill rate. General merchandise sales performance was disappointing, up just 4.4% due to our underperformance of small household electrical appliances. In the next section, I will provide you with more detail. Despite the increasingly competitive environment, we are continuing to extend our market shares in core beauty and beauty retail categories. Let me take you through these starting with health. It is a relief to report that our intentional efforts at engaging collaboratively with the Department of Health to advance our public health agenda of improving the accessibility and affordability of health care is delivering results. We opened 62 new pharmacies in the year. Although 29 pharmacies only opened in July and August, we gained market share of 20 basis points creating positive momentum for our new financial year. Front shop health declined by 30 basis points despite strong gains across sports and slimming up 140 basis points, first aid up 290 basis points and incontinence up 100 basis points. Our comprehensive baby execution; which integrates our private label and online offering, convenient locations, competitive pricing and Baby ClubCard benefit strategy; drove our market share gain of 80 basis points in baby. Exceptional gains were recorded in diapers up 110 basis points, baby wet wipes up 270 basis points and baby dry foods up 230 basis points. Pleasingly, we have identified even more opportunities to grow our share of baby. We continue to gain market share in beauty and personal care. Skin care gained another 20 basis points fueled by strong share gains in face wash, lip care and moist wipes and we defended our market-leading share in hair care. Personal care continues to gain market share up 60 basis points across every measurement period with strong gains in body freshness, [ sun pro ] and sun care. In general merchandise, we declined by 40 basis points in our legacy category of small household appliances. This was due to significant out of stocks in the first half and an oversupply in the market. What is encouraging though is that over the last quarter, we were once again regaining market share. I now turn to the key drivers that support our growth starting with value. Our brand position of feel good, pay less supported by generous ClubCard rewards, extensive private label and exclusive ranges and convenient locations resonated with consumers. Despite heightened competition, we stayed true to our legacy as a value retailer with great everyday pricing and promotions. In so doing, we maintained our competitive pricing against all major retailers on a volume-weighted price index that excludes our 3 for 2 promotions, bulk offers and ClubCard cashbacks. We grew promotional sales by 12.4% to account for 47% of turnover across all front shop categories. We are committed to delivering on our public health care agenda of extending access to affordable health care for all. The convenience of our pharmacy and clinic network, virtual doctor offering and partnerships with health care funders enable us to deliver on our agenda. In the year, generics grew by 8.8% accounting for 59% of sales by value and 71% of sales by volume. Cash rewards are relevant especially in a tough economic environment. During the year and with the support of our affinity partners, we returned ZAR 855 million to loyal customers in the form of cashback rewards. Our differentiation strategy is premised on responding to changes in consumer demographics, preferences and shopping behaviors within the context of the trading environment we face. Our private label and exclusive ranges are core to offering the consumer choice. Private label and exclusive brands delivered sales of ZAR 9.7 billion as it continues its momentum of growing sales ahead of total retail sales. Customers trust our private label brands because of their proven quality and price positioning. This year, 1 in every 3 products sold in our front shop was a private label or exclusive product. Private label and exclusives contributed 25.9% to total sales, 30.6% to front shop and 12.3% to pharmacy sales. Our private label and commercial teams drive innovation and quality in addition to supporting our sustainability and local empowerment goals. In the year, 6 of the private label products won SA Product of the Year in their respective categories. Sales in our 6 stand-alone baby stores grew 23.7%. We increased our store-in-store executions from 5 last year to 14 this year. This is what enabled our gains in baby market share as we also improved margins in this category. The execution of our elevated beauty halls, which is now in 44 stores is driving increased sales in the big beauty brands and in brands exclusively available in Clicks. Our affinity partnership with and equity investment in ARC, a retail brand focused on the premium beauty market, enables us to extend our access to the premium beauty customer. In this month, ARC opened the largest beauty store in Africa at Sandton City to great acclaim. This year we are celebrating the 30th anniversary of the Clicks ClubCard loyalty program. The nostalgic reflections of loyal customers who shared their ClubCard journey with us and on their social media platforms fill us with pride. 30 years on, we are still growing with an active ClubCard membership base that increased to 12.6 million this year. The contribution of ClubCard members to total sales increased to 82.6% accounting for 80.7% of front shop and 87.4% of pharmacy sales. The 2025 Truth and BrandMapp loyalty white paper confirmed the ClubCard program as the most used loyalty program in South Africa. It continues to provide us with the mechanism to attract, engage and retain customers through personalized experiences that reinforce emotional affiliation to our brand. The use of advanced analytics to drive focused customer segmentation and tailored personalized rewards is critical to the success of the ClubCard loyalty program. This is an area that requires targeted investment in technological enablement as well as in the correct skill sets. Although online sales grew by 15.9%, we can and we will do better. Pharmacy is a key driver of our sustained performance. By November, we will have completed the national deployment phase of our LEAP pharmacy management system. We can now leverage the system to enhance service levels and increase sales. The expansion of our store network is progressing well and we are accelerating our pharmacy and clinic rollout program because of its proven positive impact on front shop growth. Internally, we have invested in people and improved processes to support our growth aspirations. We ended the year on 990 Clicks stores, 1 UniCare specialized 24-hour pharmacy store, 780 Clicks pharmacies and 225 primary care clinics. We remain committed to delivering affordable, accessible health care. 53.2% of the South African population live within a 5-kilometer radius of a Clicks pharmacy. We have increased our primary care clinics to 225. These are profitable due to medical aid funded services such as diabetes and the extension of our virtual doctor consultations. Now that M-Kem has been integrated and the rebranding of the UniCare concept approved, we will be extending our specialized 24-hour UniCare format by 2 greenfield sites and 2 acquisitions by February of next year. As with property, we have invested in the skills required to accelerate the growth of this format and we are accelerating our presence in lower income areas with 247 of our stores located in such areas contributing 23.7% of turnover. That completes the review of the Clicks business. I will now turn to UPD's trading performance. UPD's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts, was up 5.2% despite the subdued cold and flu season and lower inflation, a pleasing improvement against last year's negative 0.5% performance. This performance is attributable to greatly improved service levels, which has always been a core UPD strength. All operational service metrics are being met and the investments we made in systems, people and processes are bearing results. I will briefly turn to the core customers in this channel. As UPD's largest customer, Clicks contributed 58.4% of the turnover. Sales to Clicks pharmacies grew by 9.5% as purchasing compliance improved to over 98%. Clicks is growing ahead of the market and is accelerating its new pharmacy openings and importantly, actively driving purchasing compliance. This will greatly benefit UPD. Sales to the private hospital channel, which contributed 36.2% of turnover, grew by just 1.4% despite improved purchasing compliance. Volumes were up 8.8% due to increasing genericization and growth in the nonlisted acute hospital space. The continued decline of sales to independent pharmacies and other smaller channels is eroding UPD's market share, which is down to 26.2%. The improved purchasing compliance from both Clicks and the private hospitals as well as the stabilization of UPD's operational and service metrics will sustain its performance. UPD's total managed turnover, which includes fine wholesale sales as well as turnover managed on behalf of bulk distribution clients, was up 2% to ZAR 30.5 billion. In the prior year, UPD's total managed turnover was down 6.7%. So this is a good turnaround. The growing contribution of generics now 75.7% of volume versus 68.8% last year coupled with lower price inflation had a deflationary impact on turnover. The UPD team focused on improving quality and service levels and invested in its key account management principles to drive sales. During the year, UPD stock levels were elevated to improve stock availability for retail pharmacy and hospital formulary lines and to also improve access to GLP-1 medicines for its customers. The termination of excess property leases has been completed. We have, as Gordon pointed out, extracted the surplus costs carried during the wholesale system rollout and we have now also implemented more effective management practices to reduce variable employment costs. The UPD team achieved excellent cost management at a low growth of just 1.9% aided by its early investments in solar, batteries and electric vehicles. The wholesale systems implementation is complete. On the bulk side, the new systems have been rolled out to 7 distribution clients with the rollout to the remaining distribution clients on track to be completed by March next year. In support of our commitment to a sustainable carbon neutral future, we are in the process of ordering another 40 electric vehicles for use nationally. This completes the review of our trading performance for the year. It was a challenging year. Despite positive shifts in macroeconomic indicators, the early promise of an improved trading environment did not fully materialize. The resilience of our business model and our teams was tested. I am incredibly proud of our performance. It was forged by teams with an unrelenting focus on excellence. In retail, the teams delivered superior income growth and margin expansion coupled with truly outstanding shrink and wastage results. The continued growth of private label and exclusive ranges inspires confidence and the contribution of ClubCard to turnover is positive. Our new stores, pharmacies and clinic openings as well as the record number of store revamps exceeded expectations. Bongiwe Ntuli has inherited a healthy business from Vikash Singh. I'm confident that she will lead the team to even greater success. Gwarega Mangozhe and the new Rest of Africa team delivered a stellar performance with sales growth in every territory exceeding target due to strong delivery of the operational and customer service metrics. I'm going to call out Corne Visser and the Namibia team in particular who delivered a consistent exceptional performance. The UPD's team performance in the second half of the year was outstanding. The operational and customer service metrics are aligned to our goals and the work that Trevor McCoy and the team have put into improving the business has created positive momentum for the new financial year. Our group services team under the leadership of my colleague here, Gordon Traill, has been instrumental on delivering and might even say getting very, very close to the upper end of our medium-term financial targets. The IT team under his control has partnered well with the business to progress our IT investments. We still have so many opportunities to increase our scale, to leverage our loyalty and strengthen customer loyalty, to extend our private label offer, to extract efficiencies and to improve on our digitization. What matters most is our people, especially our store, pharmacy teams and our DC teams. Last night, we were privileged to have our Top 10 store managers and our Top 10 pharmacy managers as well as our Clicks and UPD DC general managers join our senior leadership team as we took our teams through our results after close of the market. This provided them with the opportunity to represent their teams and for us to publicly recognize their contributions. In presenting our results here today, Gordon and I acknowledge that we do so on behalf of our people. From our Board and executive teams to all of our people and their extended families, thank you. I will now conclude our presentation with the outlook. Although the macroeconomic indicators are improving, the consumer remains constrained. The consumer is therefore prioritizing value, convenience and rewards from companies that inspire trust. Our retail strategic pillars of value, convenience and differentiation supported by our private label and exclusive program and ClubCard loyalty program is aligned to the consumer needs and positions us for sustained growth. In distribution, our strategic pillars of quality, efficiency and customer excellence is fundamental to profitable growth. We remain well positioned to thrive in this environment due to our competitive advantage in defensive health and beauty sectors, our growing market-leading shares in core retail categories and in pharmaceutical wholesale and distribution, our sustained long-term growth opportunities underpinned by our value proposition and customer service and our increasing scale which enables us to maximize efficiencies and leverage it for effective execution and reach. Over the past 5 years, we invested in systems in both retail and distribution for growth. We have invested in Lee, a modern pharmacy management system to fuel our pharmacy growth. We invested in infrastructure and in the expansion of our store, pharmacy and clinic network to support growth. And we invested in adjacencies in health and beauty to extend our access to market segments in which we are underindexed. We are now poised to fully leverage these investments made to improve service and increase sales in our network. In the 2026 financial year, we will increase the number of UniCare 24-hour specialized pharmacy stores to a total of 5. The Sorbet and ARC customers are our most profitable ClubCard customers. And increasingly, we still have opportunity to increase ClubCard penetration in these businesses. Our first Sorbet master franchises for Botswana and Mauritius will be concluded in 2026 and we are on track to extend the number of Sorbet stores in South Africa. We will deliver on our medium-term target of 1,200 Clicks stores. In 2026, we will open another 40 to 50 stores and 40 to 50 pharmacies and over the medium term, we will open 10 to 15 UniCare stores. Our private label and exclusive program is core to our offering and we are driving towards our goal of achieving a 35% contribution to our front shop sales. The objectives outlined above require investments, which will be supported by our planned CapEx spend of ZAR 1.3 billion per annum over the medium term. The increasing scale of the business and requirement to plan for succession necessitated a review of our executive structure. In September, the group executive was expanded to 6 members to drive focus, create capacity for growth, invest in core capabilities and to prepare for succession in our usual disciplined manner. The expanded group executive portfolios in addition to the CEO and CFO covers Retail South Africa, Rest of Africa Retail, UPD, our investments in health and beauty and people. The complementary diversity profile, broad sector experience and track record of performance of the expanded group executive team significantly strengthens our leadership capability. Earlier, Gordon shared with you our pleasing performance against our medium-term targets. No wonder I remain confident of the group's capability to continue to delight shareholders by delivering on our medium-term targets. Thank you so much for listening. I will now hand over to Sue Hemp, who will assist us with taking your questions. Sue Hemp: The first set of questions I have come from Michael Jacks at Bank of America. Congrats on the solid results. I have 3. One, can you please elaborate a little more on the LEAP system implementation, expected benefits and whether it is a differentiator of Clicks or UPD versus peers? Bertina Engelbrecht: I can take that one. So first of all, Michael, thank you very much for the message that you’ve sent us. Let's talk a little bit. By November, we will have completed the rollout of LEAP to all our pharmacies. In my notes, what I said is now the next step for us post deployment is to really utilize the system in order for us to improve service levels and of course as well to increase sales. How will we do that? It's to ensure that the pharmacists when they are consulting with the customer has the opportunity to now also talk about expanded services, first of all, within our network; but importantly, some of the complementary medicines that the patient ought to be taking. When we take an antibiotic, ideally we should be taking a probiotic as well. So that's what we mean in terms of the expanded benefits. We are of course also because of our ability to service the customer much more quicker, what it means is the pharmacist has more time to consult with a patient that is standing right there with them. Differentiation, all of the pharmacy management systems were built at a time when there was no corporate retail pharmacy. And so what we have done is to acknowledge that retail pharmacy is the bedrock of our performance. And so what we have done is really to ensure that we've got a modern system, which no one else has, that will create for us an incredible advantage going forward. The process to develop a modern pharmacy management system will take years. Gordon, I’m not sure if you wanted to add anything. Gordon Traill: The only other point is probably the last point regarding does it give us a differentiation? Well, bottom line is it does give us a differentiation because there is no other system in the market just now that is modern and web based and our competitors are going to have to find something that they can use. Sue Hemp: His second question, market share trends are positive in many categories, but you lost some share in general merchandise. Has this been due to online or offline competition? Bertina Engelbrecht: The way that we look at the competitor is every competitor not only in South Africa in terms of bricks and mortar, but every online player within South Africa and every online player globally. That's really our competitive set because we had significant out of stocks in the first half of the year and there was a drought of supply in the market itself. And really what we have to take is we look at all of these opportunities and say where can we do better. And I would say we didn't do good enough and so now we are poised to really focus on that in our usual manner. And as I've noted, in the last quarter of the year, we were once again regaining market share in that legacy category of ours. I will not give up on it. Sue Hemp: His third question. You mentioned earlier in the year that you were accelerating on e-commerce. The online store and app looks great, but delivery options and lead times are still limited. What are you doing to address this? Gordon Traill: So I think we recognize that we can do better in this area. So over the next 12 months we are going to be replatforming our online system both on the app and the web and that's going to allow us further delivery options. But not only that, a lot of other functionality that we're going to be able to roll out. So I think the advice is watch this space and in 12 to 18 months, we should be in a very different position. Sue Hemp: Another set of questions from Michael de Nobrega at Avior Capital Markets. Well done on the great set of results. His first question. On the beauty and health care segment, growth has moderate yet Clicks has maintained market share despite increased competition and accelerated rollouts from peers. Could you please elaborate on how you see the competitive landscape evolving and where you view growth to come from in this category? Bertina Engelbrecht: Well, let me talk about the market in terms of 3 segments. First of all, thank you very much, Michael, for the comment. The market really is in 3 sectors. So first is the super high LSM customer, which is super protected against any of the economic indicators in the country and you see that really in the performance of ARC. Now that's the reason 5 years ago we took an investment decision to invest in ARC and so we've got that exposure to that premium beauty customer. And the way in which it works, ARC is an affinity customer. That customer comes and redeems the cashback rewards within the Clicks store. We of course play very, very solidly within the middle and the end of the market and there the things that we have done is of course we use our ClubCard program and of course what we do is as well, we've got private label and exclusive brands. And so that I think is great. We have to grow our market share. We have specifically elevated our execution in beauty and that's the 44 elevated beauty halls that I speak about and we have seen incredible growth in those stores. We are learning from what we've done there and we are improving even more. Our performance and market share in skin care is not by accident. It is because of the way in which we have changed the customer journey by bringing skin care much more to the front of the store itself. And then there's the lower end of the market. Now interestingly, we have got a private label brand actually at the lower end of the market called [ Swatch ], which in the SA Product of the Year actually won the SA Product of the Year award -- 2 actually of the awards. So I think great opportunity for us there. But yes, here we competed and that's the reason why the way which we are preferring to, if you will, respond to the changes in the market and competitive activity is to really stratify the market into these 3 broad sectors and to ensure that we are acting in order to respond to the needs of every one of those segments. Sue Hemp: His second question, could you please expand on the rationale for the WMS rollout across the 3 retail distribution centers? Do you expect any large operational disruption during the implementation and what efficiency or benefits do you anticipate once it's fully deployed? Gordon Traill: So the rationale was to create capacity because the ways of working on the previous warehouse management system limited the amount of product that we could get through these DCs. So in introducing the new warehouse management system, it allows parallel working and just allows throughput through those DCs and extends the life of these without further expansion. Expansion will be necessary at some point and we've been doing that in Centurion over a period of time. Do we expect disruption? I haven't been through our system implementation yet, but there isn't some disruption. But what I am pleased to say is that yesterday, we were actually picking up in the Cape Town DC above levels that we were doing in the prior year. So it's hard work and I really commend our systems implementation partner, our IT teams and especially our DC teams for working with us. I think we've got over the hump in that one and everything is really firing at Cape Town DC now. Sue Hemp: His third question. Clicks Group has built up a strong cash position of ZAR 3.2 billion. How are you thinking about capital allocation priorities going forward? In particular, would you consider accelerating store expansion or increasing share buybacks? Gordon Traill: I think we always look at investing in the business and that we've been doing on a consistent basis for a number of years and reinvesting in our systems and we've also increased the number of stores. We've also done some acquisitions over the past few years. We've set out what our dividend policy is. We’ve given the range of 60% to 65% and where the opportunity has come up, any excess cash has been returned to shareholders through share buybacks. But I don't think any of that is going to change over the next few years. We would consider expanding or accelerating store growth where the opportunity came up and we've done that in the past where in certain years we've grown store expansion by 100 stores where there's been an acquisition. Sue Hemp: Yes. Last question on post period trade is also asked by Sa'ad Chothia from Citi who says well done on the pleasing results. Can you give some color on post period trade? Bertina Engelbrecht: One of the teams actually asked the question last night and I said well, I'm not displeased. Gordon and I certainly am not displeased by the performance since we started the new financial year. Sue Hemp: His second question is what sort of inflation can we expect in FY '26? Gordon Traill: I think since our Reserve Bank is doing such a great job on inflation and it's got to be commended for that, you would probably expect that inflation is going to be remaining on the lower side. Bertina Engelbrecht: And if we could encourage the Reserve Bank to then also look at the interest rates, I think that the consumer would certainly welcome that. Sue Hemp: [ Ander Tyami ] from Invest Securities says please can you provide some color on occupancy costs in retail remaining flat year-on-year despite higher than guided store growth? Gordon Traill: I think the thing to bear in mind with occupancy cost growth is it's not actually rental related or it's not the rents and it’s largely the other aspects of store costs that include parking, et cetera. It does include some turnover rentals, but it's really the lowest element of the cost growth related to stores. Store cost growth sits in our ROU depreciation and our IFRS 16 charge. Bertina Engelbrecht: But it also would be fair to say, Gordon, that we have taken control of that. We put in metering for example, we check all of the bills that are coming through for payment. We don't take it for granted. We've invested in solar. So there are a number of things. We've got automatic switches for example in the stores to switch off electricity at night when it's not trading. So it's also not as a consequence of luck. We have done work to get us to that point. Sue Hemp: And it also asks about post period trade, which we've answered, but say particular store openings, including pharmacies. And I think we've given numbers in the presentation of 40 to 50 stores and 40 to 50 pharmacies. But if we get more opportunities, we will open more. Bertina Engelbrecht: We will. And maybe the point to call out is that the teams have promised me that we will get to number 1,000 by December. Sue Hemp: Jovan Jackson from Fairtree. How should we think about the normalization of intra-group profit on Unicorn stock? Do you recoup this through increased retail margin in FY '26? Gordon Traill: So this is a little bit of an odd year. Because of the Unicorn disposal in the prior year, what we had was we had an intra-group profit related to the Unicorn stock that we had purchased when Unicorn was still our subsidiary. So that's been unwinding during the year, which is where the intra-group profit comes through. That is not a one-off because that does move into retail that will sit in the retail division next year. So this year is an odd year. Sue Hemp: Kgomotso Mokabane from Sanlam Private Wealth says well done on the net 55 new stores. Can you give some color on the execution challenges or constraints that resulted in the bulk of openings being delayed until Q4 of the financial year? Gordon Traill: We would always prefer to open our stores earlier. What impacted us probably more last year was some weather-related challenges that impacted landlords that just pushed store openings later. But it's not something that we plan to do, but it was an unfortunate impact. Sue Hemp: Kgomotso also asks or says commercial and private label sales were both up strongly in double digits. And with internal inflation low, one would have expected a bit more of a pickup in volumes than the 2.1% reported. Can you give some color on what's driving the volume outcome? Gordon Traill: So we did have some really excellent growth in certain categories. Where it was probably a little bit slower in the year was on the pharmacy side and that was due to later opening of pharmacies, both this year and in the previous year when we couldn't open pharmacies. So although we've worked really well with the Department of Health, we still got over 100 applications for new pharmacies that are waiting to be considered there. So as we get these, we're really seeing a very nice volume boost in the pharmacy side and that also impacts the rest of the store as well as those pharmacies are rolled out because we see a real lift in front shop when we drop in the pharmacies. Sue Hemp: Another question from Kgomotso. With the rollout of the new pharmacy management system LEAP, have there been any teething issues or disruptions to operations? Gordon Traill: LEAP was a very different rollout because we could do it on a store-by-store basis so it was in a very controlled manner. So no, we haven't really seen any impact of the store rollout. Bertina Engelbrecht: I was also going to say one of the things that we learned through the UPD system is that we have invested in project management capability. And secondly, understanding the changed management must be integrated into any UPD particular project as well as training. So I think that's the reason probably, Gordon, even if you look at SEP upgraded UPD September last year, looking at the LEAP program, we're looking even WMS; I think they've all gone a whole lot smoother because we've taken the lessons and we have applied those lessons and we are trying to do better. Sue Hemp: Another question from Kgomotso. Can you comment on the performance of the 247 stores located in low income areas relative to convenience and destination formats? What percentage of these stores include a pharmacy component and have there been any unexpected trends or outliers in performance so far? Gordon Traill: Generally, these stores actually ramp up in terms of sales much quicker and have been performing ahead of the rest of the estate. I think the trends that you see are probably in line with what you would expect. You see a very big component of baby in those stores and because we offer such good guarantees in our electrical and electrical is also a favorite destination in these stores. So while it's better, it’s not dissimilar to the performance that we see in the other stores. Sue Hemp: A question from [indiscernible]. If 55% of population that's within 5 kilometers radius to Clicks, would that mean co-mobilization is possible? Bertina Engelbrecht: The way that we look at it is it's 53.2% to a Clicks pharmacy and remember, we've got 780 pharmacies. So not every store currently has a pharmacy because, as Gordon called out, we still have the gap that we're working to close with the Department of Health in terms of the issue of the pharmacy licenses. Sue Hemp: [indiscernible] says well done on the results. You mentioned that the wholesale market share loss is due to decreased sales to independents. Is this a strategic choice? Bertina Engelbrecht: Well, we've always said the reason we acquired the UPD business in the first instance was for it to be the preferred supply chain partner to Clicks in order to fuel Clicks' growth in pharmacy and that it does very well. And if you look over the period how the Clicks market share within UPD's wholesale channel has just grown and that's good for UPD. The second one is that UPD has got strength in terms of the listed private hospital groups where you see that happening. And of course partly it's because UPD up until probably the first half of the year was a little bit hamstrung by the effects of its systems implementation, but that has now recovered. But what is happening within the private hospital space is there's increased genericization. So that's having an impact there. Now are we super concerned about independence? Not necessarily and the reason for that is because we've always said UPD because of its low margins has to always focus on efficiency and profitability. And what we shouldn't be is a place where people use us just to circle through because they are managing their credit risk. Sue Hemp: Warwick Bam from RMB Morgan Stanley asks what are the challenges of The Body Shop? Bertina Engelbrecht: The challenges of the Body Shop is as always when you've got a change of ownership, first of all, there are some transition challenges there. The second bit is that the new owners, as one could expect, focus on the areas that they wanted to turn around first, which was the Body Shop corporate portfolio in both the U.K. and of course within the U.S. And what that meant is that product development and innovation, which is so critical to any beauty brand, was maybe put later on the agenda. Now that's where we are and we can see the new product ranges coming through. So I mean I think we are cautiously optimistic about what the future holds. Sue Hemp: His second question is about what we think about the medium-term prospects for the small electrical appliances sales growth. I don't know if there's anything more you want to add from what you’ve already said. Bertina Engelbrecht: We didn't have sufficient stock in the first half and the market had an oversupply. Sue Hemp: I have a very complicated list of questions here so I'll take them one by one. Given the disinflationary pressure on comparable store sales; volume growth, OpEx control and further total income margin expansion will likely be required to provide earnings support. With this in mind, could you provide a bit of color on, one, the GLP-1 opportunity for Clicks in SA? Gordon Traill: GLP-1s have been growing very, very fast over the past 24 months and we referenced that at the interim. To bear in mind on the high sales, that’s because we maintain a very low dispensing fee, our income that we generate from those GLP-1 is much lower than any sales growth. The opportunity would be as the originators genericize and that is where there would be likely to be some margin that's possible because generally in the generics, you're earning a higher margin than the originators especially on UPD side in terms of distribution. Sue Hemp: Secondly, is there any expected benefit to Clicks following the recent Supreme Court ruling allowing pharmacists to now administer HIV treatment? Bertina Engelbrecht: What we have done is in that particular case, we did provide commentary. Obviously, our public health agenda is how do you extend access to affordable health care. And you're talking here about a vulnerable segment of the population that we could most certainly support both through our pharmacy program. So we are reviewing very carefully the implications of the decision or the judgment and what, if any, how would we respond to that. But we are supportive broadly of the outcome of the judgment. Sue Hemp: Thirdly, the rollout of PCDT or primary care drug therapy pharmacist model and whether you're seeing any consumer traction here? Bertina Engelbrecht: We're probably seeing more traction in terms of the virtual doctor consultations and most certainly an increase in medical aid co-funded services through the clinics itself. So those are probably the 2 areas we'll continue to focus on. Sue Hemp: Four, are there any OpEx levers you can pull to drive positive operating leverage in existing stores? Gordon Traill: I think some of that is going to come out of the systems investment because that was the reason for investing in LEAP so to free up the time of the pharmacist to consult with patients and hopefully to deal with more patients in the same period of time. There are always opportunities that we've got because we can look at the same that we've done with UPD, rolling out smaller electric vehicles within the retail DC network because we saw that UPD managed to slightly reduce the overall transport cost for those. So we're always on the lookout. The big things that we've done, but we've always been able to eke out further efficiencies. Sue Hemp: And I think we've answered his remaining 3 questions which are on Africa inflation, the benefits of LEAP and the WMS possible disruption. [ Lulama Qongqo ] from Mergence Investment Managers says well done on the performance. On UniCare, how are the store economics of the 24-hour store versus a normal Flexicare with the pharmacy in it? What are the opportunities with this kind of format? Bertina Engelbrecht: Obviously it is about ensuring that we in the mind of the customer, in the mind of doctors and the health care profession are seen as a place to go to. So first, I think understand our position in terms of health care. What UniCare does? UniCare offers a comprehensive suite of services. So that's why we talk about the wound care clinic. In fact the catchment area, if your normal catchment area for a Clicks pharmacy is 5 kilometers, for a UniCare store it's actually 50 kilometers. And so you've got a much broader catchment area from which you draw patients. You now find that many of the specialist doctors actually refer their patients to a UniCare store. Thirdly, there is an opportunity for medical aid. So I think that the specific data point is that something like over 50% of medical aid members who go to an ER 24 service should not have gone there first if they could have gone to a doctor. So the fact that we've got a 24-hour doctor service attached to the 24-hour specialized pharmacy means that we can support medical aid scenes in that regard and of course the script flows into that store. There's other things such as for example diabetes management, the IV infusion clinics and the travel clinics. UniCare for example works a lot with corporates to drive vaccination. So very often corporate people that are traveling or local municipalities, the people that work for example in sanitation, they got to have certain vaccinations. And so it's a very, very different format; high, high, high service touch that we have there. Sue Hemp: Junaid Bray from Laurium Capital says congrats on the results. How much of a concern is Sorbet's spa's expansion into pharmacy? And with regards to your market share gains, who are you gaining market share from? Bertina Engelbrecht: I guess we're thinking about that one for a minute. First, I mean my own view always is competition is good because if we weren't doing a good job as a drug store, then no one would be interested in trying to emulate our success. So that's the first I'd take from that. The second is to always remember you mustn't be arrogant and you mustn't be complacent about your success. So that's the second part. Then we look at the competitors coming in and we understand that it's because we've been able to show them that you can do this successfully and profitably. And I think it's always been aware of what it is that they're doing and how do you respond to it. To really, really, really compete with us, you have to have an integrated pharmaceutical distribution, wholesale and retail pharmacy model supported by an independent group such as Clicks. And I think that is probably our single biggest advantage. Our single biggest advantage is that we've got a completely integrated strategy. And then of course the fact that if you spoke only about -- if you ask the customer maybe a pharmacy, well, we come up first consistently. Someone else comes up second not a grocer. And third comes up [ Clicks ] , which is a brand that we own. So I think that we are very well positioned without being arrogant and without being complacent because we are still nowhere as great as we could be. We are only on the path to greatness though. Sue Hemp: [ Junie from AAP ] asks with 47% of sales now promotional, do you see that as a new normal? And how will you protect margins if that level persists? Gordon Traill: I think if we look at the last few years, we have consistently grown promotional sales as a percentage of our total sales, which we've been happy to do because suppliers have worked with us because they wanted higher volumes and have funded the growth in promotions. It's also supported by the growth in our private label, which is at a higher margin and that's also allowed us to evolve margins over the last few years. I don't see that this is going to change. Sue Hemp: Craig Metherell from Denker Capital. Given the trading margin is near the top of the medium-term target range and you've alluded to not updating your targets at this point, could you provide any further detail around the margin profile going forward? Gordon Traill: I think we will always be aiming to evolve our margin, which is one of the graphs showed. However, we have also got to bear in mind that if you take something like the UniCare format, which is profitable and it's much higher turnover and to a certain extent that could result in a little bit of margin dilution, but not profit. So we've just got to bear that in mind over the next 12 to 18 months. But the rest of the business will be evolving the margin. Sue Hemp: I have some more questions from Kgomotso Mokabane from Sanlam Private Wealth. Can you give some color on how Flexicare is performing and whether it's starting to gain real traction or scale within the business? Also, are there deliberate plans in place to accelerate growth of the offering? Bertina Engelbrecht: We are working with the Discovery team. It would be fair I think to say that we are not satisfied with the performance of Flexicare. And so we are working with our partner, which is Discovery, to say what is it that we have to do to improve the performance of the Flexicare product. Sue Hemp: And I think in the interest of time, the last question from Kgomotso. Can you give some color on the rationale behind strengthening and expanding the group executive team? Where did you identify capability gaps or areas needing reinforcement? Bertina Engelbrecht: It's not so much about identifying gaps. It's about what is it that we have to do to ensure that we are positioned for the future. That's really what it is all about. So first South Africa, there can be no doubt South Africa has got tremendous opportunities for us to expand and it therefore made sense that we focus on South Africa and that is why Bongiwe Ntuli was appointed to specifically focus on South Africa. Then when I look at the Rest of Africa Retail and the complete unperformance of it made complete sense to say now what we do need is an executive that can focus specifically on the Rest of Africa because every market is different and we most certainly want to make sure that we get the offer right. So this is about Southern Africa and the areas in which we already are. If you look at Namibia as an example where we have added 2 stores in the last 12-month period, the forecast for Namibia's GDP growth is fantastic. Why would we not be there when it’s about focus on the Rest of Africa. The third one is around people. Are you seeing enough people in corporate affairs? And it was making sure that we do not neglect that in a retail business the people are the difference and that we needed to have a person at this level. And then finally, it's well, of course UPD. And then the final one is that we've made investments in adjacencies such as Sorbet and in M-Kem, which are all health and beauty. What we now need to do is to ensure that we've got dedicated focus on that as well. So that was the reason for expanding the group executive not gaps, but opportunities to do better. There being no further questions. Thank you so much, everyone, for dialing into our webcast. The questions that you asked were really great. It's made me think and I'm sure Gordon as well and we'll leave it at that. Thank you.
Stacy Pollard: Good morning, everyone. I'm Stacy Pollard. I'm here with Dassault Systèmes' CEO, Pascal Daloz; and the CFO, Rouven Bergmann. Unfortunately, our Head of Investor Relations, Beatrix Martinez, could not be with us today. She's out for a couple of weeks. So I have the pleasure of being in this room again. It's been a few years since I sat in the chairs beside you guys. So it's very interesting to be a different perspective on this side of the podium. Now let me move on and formally welcome you to Dassault Systèmes' third quarter webcast presentation. At the end of the presentation, we will take questions from participants in the room and online. Later today, we'll also hold a conference call. Dassault Systèmes' results are prepared in accordance with IFRS. Most of the financial figures in this conference call are presented on a non-IFRS basis, with revenue growth rates in constant currencies unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentations will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 universal registration document published on the 18th of March. I will now hand over to Pascal Daloz. Pascal Daloz: Thank you, Stacy. Good morning to all of you. It's always a pleasure to be here in London and to have a chance also to interact directly with you. So we're going to review the Dassault Systèmes performance for Q3. Let me give you some -- at least my reading of the numbers. I think this quarter is a solid quarter with healthy margin, and I think Rouven will come back on this. And we -- with a strong EPS growth, and we continue to grow the recurring revenue part, which is, I think, the important thing because this is reflecting the strength and the resilience of our business model. Now if you look at the numbers, the revenue grew 5%, thanks to a strong demand across our core industries. Our subscriptions business is up 16%, accounting for almost half of the recurrent part of the revenue. If you remember, a few years ago, it was only 1/3. So this is growing extremely well. We hit a 30.1% operating margin, which I think is reflecting our focus on running profitable and efficient business. And finally, the earnings per share came at EUR 0.29 and growing at 10%. So behind this number, I think there are certain things I would like to highlight and which are our strengths. The first one is Industrial Innovations, especially Transportation & Mobility, we continue to expand our footprint. And despite the ongoing challenges in this sector, we have also a strong momentum behind 3DEXPERIENCE and SOLIDWORKS this quarter. The second thing is, I think our focus on accelerating SaaS adoption is starting to pay off this quarter, you will see. This is driving the revenue growth and the strong market traction. And to further support this momentum, we have established a new leadership at Centric to fast track the adoption of the SaaS business model. Lastly, in the field of artificial intelligence, I think we are shaping the future with a powerful combination between the industry most comprehensive data sets, the scientific rigor, the advanced modeling and simulations being combined with the real-world evidence, we call it the real-world validations. And AI for us is really not an add-on. It's embedded in the core of the 3DEXPERIENCE platform for a long time because you remember the 3DEXPERIENCE platform, this is really how we are managing the knowledge and the know-how for many of our customers. This quarter, we are coming with new category of solutions. And you remember the Virtual Twin as a Service, the generative experience and the virtual companions, and we will say more about this. And they are really transforming the way our industry, our customers, they are designing, producing and operating the life cycle. Now for the full year, we are confident enough at least to reaffirm the earnings guidance, and we expect the EPS to grow between 7% to 10%, with the total revenue rising 4% to 6% on an adjusted basis, and it's mainly due to 3 factors. The first one is the lower growth from MEDIDATA, which is in line with Q3, in fact, the impact of the SaaS acceleration for Centric and the volatility impacting some of the timing to close. Now let's dig into some details behind those results. Let's zoom first on the manufacturing sectors. As I was telling you, Transportation & Mobility has once again proven its resiliency. And to give you the numbers, this quarter, we are growing at 18%, one-eight. Why so? Because it's usually when it's a difficult time for our customers that they have to take radical decisions. And this quarter, we have some -- Ford took the decisions to go with us to expand outside of the engineering borders, and we have signed a contract with them for the next 5 years to use the platform across all the different programs. I will tell you more on this probably next quarter. But there is also another very important flagship customer we signed this quarter with Stellantis. And I know some of you were expecting us to move along this way, and I will come back on this. Why those companies are basically adopting widely the 3DEXPERIENCE platform, is because they are using our solution first to speed up innovation. And speed is becoming really one of the key topic. You remember a few years ago to develop the car, it was almost 48 months. Now we are talking about 16 months. So it's a little bit like fast-moving goods. And to master the complexity, you need a different approach, and this is where I think we are making a difference. Sustainability is also a topic. The electrification is driving the cycle. You know it. And more and more with the SDV, we are creating a personalized experience for the customers. And this is really the combo, if you want, of what we can provide with our solutions. We are also seeing a strong growth in defense. It's growing double digit this quarter, where programs are becoming more complex and collaborative. And I think our 3DEXPERIENCE platform, combined with what we call the model-based system engineering, MBSE, which is now a standard in the industry is more and more widely adopted, and this is really opening a new opportunity for us, not only in Europe, but also in the rest of the world. Life Sciences, the market remains unstable and challenging. I think Rouven will say more about this. We still see the new clinical trial start being contracted. Nevertheless, we landed with some big contract this quarter. And more importantly, I think we're also being encouraged by some large win backs. AbbVie is one of them. And you remember, it was one of the flagship customer of Viva a few years ago. They signed with us a contract for the next 5 years. And I think this is the proof that what we do is extremely critical. And I think also this is a proof that what we have built as a foundations is critical for them also for the AI-based programs, and I will come back on this. In Infrastructure & Cities, the demands keep growing, in fact, for autonomous and sovereign infrastructure, you remember, especially in the energy space. But we are more and more seeing new use cases or new opportunity emerging. One of them is the nuclear decommissioning. As you know, it's a big topic because you have many reactors around the world aging. And we are using our solution to do virtual twin as a service to manage the safety and the efficiency of this process and to manage the end of life of those nuclear reactors. So this space is really, again, a way for us to establish leadership in a domain where we are the challenger because in this space, I think we do not have the same footprint than the others. Now let me show you some key wins. Stellantis, for you know the company, I mean -- and you remember, we had a significant footprint with PSA, but the rest of Stellantis was much more in the hands of our competition. So what do -- they took the decisions to -- I mean, to standardize on 3DEXPERIENCE platform on the cloud, which is, I think, important for their system engineering backbone. And this is extremely important because, as you know, the system engineering is the foundation to do the SDV. And all the car players are moving along this way, and they are using our system approach, system-to-system approach as a way to standardize across all the domains to unify the bill of materials, but more importantly, against, they are building the foundation for their AI initiatives because one way to reduce the cycle of time to develop the car is to be much more generative and you need an infrastructure to do this. And that's what the 3DEXPERIENCE platform is ready for. So we are extremely proud to support this transformation. And it's a significant one because it's a ramp-up at the end with more than 20,000 users we need to equip with the systems. Moving to Life Sciences. I already say a few words. So AbbVie, it's a global biopharma. It's one of the top 10 global pharma. And it's a win back. And it's a win back of a win back, let's say this way, because again, a few years ago, they took the decisions to open some clinical trials with Viva. And now they are back with us. And there are a few reasons for that. One of them is the time. They were sharing with us that we are 10x faster in the way to run the processes and the clinical operations. It's also a big cost saving, which is an interesting takeaway because you remember one of the arguments which was used was this EDC is becoming a commodity and it's price sensitive. And the reality is the price is one thing, the savings and the efficiency is another one. And it's -- here, you have the proof. And the last argument, all the pharma sector, a little bit like the auto sectors, they are building their AI programs in order to automate, in order to use in a better way the data set they have. And they have seen through our platform, the ability to develop their own program on top of what we do. So those are the reasons, if you want, behind these win backs. Finally, from a customer standpoint, this is an interesting case also. Korea Hydro & Nuclear Power is the largest energy public enterprise in Korea, and they have launched the digital transformation to manage, I was telling you, the decommissioning of 26 reactors. So the reactors is first generation. They are progressively replacing it with a new generation. And to do this, it's a complex process. They have to decommission this large installed base. They showcased this example, this case in Koreans 3DEXPERIENCE forum a few weeks ago, and I was having the chance to participate to this. And frankly speaking, you should really look at it. It's amazing what they have been able to do because it's a very complex process. Safety is at stake. Compliancy is at stake. It's a very, very sensitive process because you have to manipulate the reactor when the reactor is still working. At the same time, you need to do it in a very precise manner. And to manage this complexity, to predict the complexity of the process to prevent the risk, to keep track of everything because you have to be compliant. They are using the platform and they are using the virtual twin in order to make this. So why I pick those examples? Because behind all of them, there is a clear pattern. We are not only the partner for them. I think in many cases, we are the game changer for them. We are the one allowing them to accelerate their industrial transformation, whatever it's in the mobility, life sciences and the energy sector. Now let's speak about 3D UNIV+RSES. So you remember, we announced it in Feb this year, and I was making this statement, 3D UNIV+RSES is not an extension of what we do. It's really a leap forward. And there are a few things I want you to keep in mind. What are our differentiations? The first one is we are building our AI engine on the large and the most structured industry corpuses. And it's the result of 40 years, having 400,000, almost 400,000 customers worldwide in a very different sectors, building the virtual twin of all the objects you can see on the slides. And this is a unique purpose to train our systems. So -- and remember, AI without having high-quality data is just only a noise. But if you have the right data, it's becoming game changer. The second takeaway is the data set is not enough for what we do. You need to build AI on science. And this is extremely important because if you are only relying on patterns matching and recognitions, it's not enough for what we do. The AI needs to be built on physics, biology, material sciences, engineering principles. And why so? Because when life are at stake, whatever it's -- when you develop a drug, when you fly in objects, when you have driving an autonomous car, you cannot take risk. The system should not guess, should not hallucinate. You need to understand how the parts fit together, how the materials behaves. And this is really what we have been able to build, which is an AI which is rooted in sciences. The third element is we are coming today, I mean, today, a few weeks ago on the market with the new category of solutions. So you remember, we presented it during the Capital Market Day. And now I'm really pleased to introduce you to our virtual companions. And in fact, it's a family of 3 for the time being. You have AURORA which is our business strategies, focusing on the outcome and efficiency. You have Léo for engineering experts, and Léo is really diving deep into design and simulations. And you have MARii is our scientific authorities handling the -- probably the most advanced questions on research. The interesting things, if you ask the same questions to all of them, you have different answer. So more than a long explanation, let's look at the video. [Presentation] Pascal Daloz: So as you can see, it's not just about AI. It's about having an AI, which is behaving like your team because you need -- when you do engineering activities, you need to assemble different domain expertise at the same time. And if you try to converge too rapidly to the solutions, at the end, you are letting some open opportunities untapped. And this is basically what we are doing with the virtual companions, which are a way to complement and to enrich the roles we have developed. Now this is also an interesting thing because you can use AI as a way to take smarter decisions and faster. And here is, again, a concrete example. It's AURORA. And AURORA is widely used by many industries for currently to deal with the tariff, with the trade policies, the supply chain issues. because this is changing so much that you need almost every day to reactualize your what if scenario. So AURORA, in this case, is not only anticipating but reacting. She anticipates the turnaround, the uncertainty. She try to manage with data-driven insights, the consequences. And this is important because for many industries, the margin is at stake. So to keep it you ahead, the system, if you want, is helping you to collaborate, is bringing you the right expertise, is telling you what are the different avenue you have in front of you in order to fix the problems at the right times. Now let's speak about SOLIDWORKS. This is an interesting -- this is a very important year for us. It's a milestone because we are celebrating the 30 years anniversary of SOLIDWORKS. And why this is important? Because if we step back, after 30 years, I think no one will debate that SOLIDWORKS is the undisputed leader in the 3D CAD. And I put some numbers on the slide just to give you the proof, 8 million users. It's by far the largest design community around the world, 1.5 million commercial license, which is truly addressing the large company, but also the start-ups and all the shakers. It's almost 300,000 clients worldwide and again, covering the large spectrums of all different industry we serve. So it's a lot of legacy of innovations that we are keep pushing from a product development forward. And I think now with SOLIDWORKS, we are also introducing the artificial intelligence to build the next phase to make it faster, smarter, easier to use, in fact. And the topic for us is not only to automate tasks, but more importantly, to give more time for the creativity. And we have some features we are introducing and some functionalities. The first one is obviously the generative design. Second one is what we call assistive features. which is an intelligent and pattern of recognition when you do, for example, an assembly. And all those kind of things are really helping the users to work smarter, but not harder. Behind this, I think if there is one message I want you to keep in mind is this AI approach is a way to do the docking bridge with the 3DEXPERIENCE platform. As you know, this topic is at stake for several years. And I think now I believe we have find the routes to connect the SOLIDWORKS' large installed base we have with the 3DEXPERIENCE platform. It's a way if you want to turn the SOLIDWORKS users into the lifelong experience partner. So I think -- and Rouven will come back on this, but you will see the performance of SOLIDWORKS this quarter is really extremely good. It's growing at double digits. Now to conclude, I think why everything I share with you matters. There are a few things. I'm sorry, I should not anticipate your presentation Rouven. The first one is 3D UNIV+RSES is giving a few and large advantages. The first one is, you remember, we are helping our customer not only to manage the full life cycle of their products but more and more to manage the life cycle of the intellectual property. And you should remember what I'm telling you. In this AI periods, the most important is assets is intellectual property because everything you built is leveraging the intellectual property. And if you do not have a way to manage it safely to take it as a real asset to manage your life cycle the same way you manage the life cycle of the products, you take the risk to be out of the game. And this is what we are bringing to our -- to mix the different knowledge coming from different sources, but at the end, still tracking will belong to what to. The second thing is, in many domains, we are turning compliance into a competitive advantage. If you take aerospace, if you take health care, if you take energy, those are extremely heavily regulated industry. And one of the answer to the tariff war is to put more regulations. That's the way to protect, if you want certain markets. The flip side of this, if you are an industrial company, you have to manage with this complexity. And AI is a fantastic tool to read millions of documents to extract 1,000 rules and us, what do we do with those rules? We do design -- we do compliance by design, if you want. The system is checking automatically that everything you do, every design you do, every decision you do are compliance by design. The third element, I think generative AI is really a game changer as soon as you can trust it. And your AI in many industry we serve needs to be certifiable. If you cannot certify the output of what you have produced with AI is useless. And the way to do it, if you remember, we are training our AI on very comprehensive data sets, which is pretty unique. And those are very high quality of data sets. And it's validated by the science, which is even more important. And we are deploying those artificial intelligence capabilities into a secure and sovereign environment, which is what we do with 3DS OUTSCALE. So this combination is pretty unique on the market. It's very differentiate -- it's a huge differentiations compared to many of our peers. And this is, in my view, a game changer in many, many customer engagements we have right now. The last but not least, I think we are coming on the market with a new category of solutions. You have seen this morning the virtual companions, AURORA, Léo and MARii, but you will see more and more the generative experience, the virtual twin as a services. We have a road map for this -- for '26, '27, and this will accelerate the contribution of AI in our revenue streams. So with this, I think it's time for me to hand over to you, Rouven to give more flavor on the numbers and probably the outlook for the rest of the year. The floor is yours. Rouven Bergmann: Thank you, Pascal, and also welcome from my side to our call today. Thank you for joining us online and here in the room in London. Let me start with 3 key messages. First, top line growth and margin expansion are our top priority. Second message, the 3DEXPERIENCE platform is driving our business model shift to subscription and recurring revenue growth. This engine is working well with 16% growth of subscription this quarter. The third message is we are mission-critical, as you saw in the examples to our clients. In fact, in 2025, we are winning significant contracts with many of the top industrial companies across the world, and this is laying the foundation to long-term value creation with cloud and AI. It is these powerful long-term partnerships that give us confidence in our long-term targets. Now before I dive into the specifics of the quarter, a few more things to summarize briefly for you. Our financial results for the quarter were solid with 5% revenue growth and an expanding operating margin, which is up 100 basis points and 10% growth in EPS. Industrial innovation is driving the growth of 9% in the quarter and 8% year-to-date, while MEDIDATA and Centric were softer than expected. As discussed previously, the repositioning of MEDIDATA is ongoing. The change of the model to reduce the dependency on clinical trial activity will take time as we are doubling down on the enterprise and the PLM opportunity in Life Sciences. And for Centric, we're accelerating the SaaS transition. And to this effect, we have promoted a new leadership team, as you heard from Pascal. Now looking at the full year, we adjust our revenue outlook to 4% to 6% ex-FX, in line with our current trajectory of 5% top line growth year-to-date. At the same time, we maintain our EPS growth target of 7% to 10% ex-FX. This is thanks to the strengthening of the operating margin driven by additional efficiencies we are generating in the business. With this in mind, let me take you through the details. In Q3 and year-to-date, total revenue software were both up 5% ex-FX. Recurring revenue was strong, up 9% in the quarter, and it highlights a very solid acceleration when compared with 7% year-to-date. Subscription revenue growth was 16%, and it was driven by new deals signed in the quarter and the increasing visibility from large contracts that are ramping. As a result, subscription revenue now represents almost half of the recurring revenue base. It's up 3 points from last year. And starting in 2026, subscription revenue will surpass maintenance revenue in absolute terms. 3DEXPERIENCE was the growth engine behind that, up 16% in Q3, and the signings of Ford and Apple contributed to the strength in subscription growth. Upfront license revenue declined 13% as our clients continue to adopt the subscription model at an increasing rate. The best proof of this is that recurring revenue now accounts for 84% of the total software revenue year-to-date. The operating margin improved 100 basis points for the quarter and is driving strong EPS growth of 10%, thanks to the productivity gains and cost discipline. In fact, OpEx was up 3.1% in the quarter, and we continue to rebalance resources to support our growth strategy. Now turning to the growth drivers. In Q3, we saw very good 3DEXPERIENCE revenue, and it's now representing 40% of software revenue year-to-date. The growth was broad-based, up 16%. Cloud revenue was 8% in Q3, 7% year-to-date. 3DEXPERIENCE cloud revenue grew 36% in the quarter and 29% year-to-date. The key wins for 3DEXPERIENCE cloud, such as Ford, [indiscernible], Dallara Automobili and Stellantis demonstrate the value of the platform for our clients where transformation is critical as is the need to leverage AI. Now let me review the Q3 actuals versus our objectives briefly. Total revenue came in at EUR 1.461 billion in the quarter, mainly affected by currency headwinds. Excluding currency, growth was 5% at the low end. Operating margin was 30.1% and above the objective to 60 basis points from performance and a negative currency effect of 20 basis points. EPS was EUR 0.29, driven by better operating performance against a small currency headwind. Now looking at the geographies and product lines. The Americas rose 7% in Q3 with good performance in Transportation & Mobility, High Tech and Aerospace & Defense during the quarter. Europe was a bit softer at 4% in Q3 with double-digit growth in Southern Europe, solid performance in France and also Germany. This was supported by subscription momentum, especially in Aerospace & Defense. Asia was up 4%. India had an outstanding quarter. Korea was up double digit. Here again, strong performance of Transportation & Mobility as well as Aerospace & Defense. China experienced softness in Q3, but also on a tough comparison base when looking at last year's number. Now let me review the performance of our product lines. As mentioned previously, Industrial Innovation delivered excellent results in 2025 across key domains led by CATIA, ENOVIA and DELMIA as well as SIMULIA, highlighting the value of the 3DEXPERIENCE platform is delivering to our clients. So it's broad-based across domains. We are mission-critical to the transformation of our clients with superior capabilities to generate virtual twins. Life Sciences growth was lower than expected. It was down minus 3% in the third quarter with MEDIDATA impacted by continued study start declines, but importantly, continuing to gain market share. Overall, from an industry standpoint, the volume business continues to face pressure. When we entered 2025, we had assumed that volumes would stabilize, helping to support our forecasted growth in the second half. Conversely, we observed a decline in high single digits in Phase III studies and mid-single-digit decline across Phase I and Phase II since the beginning of this year. While we are expanding our market share, the impact of the decline in study starts is not yet compensated by the growth from the expansion with our enterprise and mid-market clients who proved resilient. As you heard from Pascal, we had a major MEDIDATA platform win back, the top 25 pharma, AbbVie, after a brief period with a competitor, AbbVie decided to return to MEDIDATA for all clinical trials, leveraging AI everywhere. This validates the trust clients place in us and the value of the MEDIDATA platform. Additionally, in Q3, we expanded partnerships with Sanofi. You see the press release this morning and also expanding our business with IQVIA, including Patient Cloud. Looking at Life Sciences outside of MEDIDATA is the opportunity to win with PLM is our clear priority. For the first 9 months, growth is up double digit, highlighting the strong potential of our portfolio to address the challenges of this industry. Now moving to mainstream innovation. Growth in this segment was mainly driven by SOLIDWORKS, as you heard. The shift to subscription is well underway at SOLIDWORKS. Centric growth was slower than expected in the quarter due to some shifted renewals, and we saw an acceleration in the share of clients adopting the SaaS model. Now turning to cash and the balance sheet IFRS items. Cash and cash equivalents totaled EUR 3.910 billion as of Q3 compared to EUR 3.953 billion at the end of 2024. This decrease of EUR 43 million on a euro basis was driven by a negative currency impact of EUR 269 million. At the end of the quarter, our net cash position totaled EUR 1.321 billion, a decrease of EUR 138 million versus a net cash position of EUR 1.459 billion at the end of last year. Now let's take a look at what drove our cash position at the end of the third quarter year-to-date. We generated EUR 1.334 billion in operating cash flow for the first 9 months versus EUR 1.348 billion last year. The cash conversion from non-IFRS operating income was 97% for the first 9 months. Cash conversion is a top priority, and we expect the conversion to improve going forward. And starting Q1 2026, we expect working capital to support cash conversion reaching the 2024 levels with the potential to improve further. As discussed previously, 2025 operating cash flow is impacted by significant contracts that we signed in the quarter as well as higher payments related to tax and social charges as well as negative FX. For the full year, we now expect operating cash conversion -- for the full year 2025, we now expect operating cash conversion to be in the range of 78% to 80%. To sum up, operating cash flow year-to-date was mainly used for the -- for investments, EUR 581 million, of which EUR 240 million was for acquisitions, EUR 216 million for the purchase of the Centric noncontrolling interest with the remainder of CapEx of EUR 123 million to support our cloud growth. We paid EUR 343 million in dividends and made a net repurchase of treasury shares of EUR 186 million. For any additional information, you will find the operating cash flow reconciliation in our presentation that we published this morning. Now let's transition to our financial objectives for 2025. Net-net, our year-to-date revenue is up 5%. For the full year, we now adjust our revenue outlook to reflect this trajectory and expect growth of 4% to 6% ex-FX for both the total revenue and software revenue versus 6% to 8% previously. In absolute terms, we are adjusting the full year revenue outlook by approximately EUR 140 million to the midpoint. This reflects an impact of EUR 30 million from Q3 and an FX impact of about EUR 20 million. The remaining delta can be explained by 3 factors: a, the lower growth from MEDIDATA in line with the Q3 performance; b, the impact of the SaaS acceleration at Centric; and last but not least, we also factor in an increasing macro volatility with the potential to impact the timing to close large transactions. Please also remember that we had a high comparison base in Q4 of 2024. Now looking forward, the change of model for Centric is on -- sorry, the change of model for MEDIDATA is ongoing. And we are confident as well into the accelerated SaaS transition of Centric given its strong positioning in a very large market and clients are endorsing it. For Industrial Innovation, we have built a very strong foundation in 2025, where we signed significant contracts, and we expect in 2026 to expand on these partnerships, transforming with virtual twins and generative experiences. And last but not least, the SOLIDWORKS momentum is strong. Recurring revenue outlook remains stable. It's at 7% to 8% growth. And underscoring what I said at the beginning, we are implementing a sustainable recurring growth model with increasing visibility. Above all, I mentioned the strength of our operating model, highlighted by the margin improvement. As such, we are maintaining our EPS growth expectation of 7% to 10% growth or EUR 1.31 to EUR 1.35. To achieve this, we expect Q4 OpEx to continue to trend in the same range of Q3, delivering margin expansion of about 100 basis points, which is driven by ongoing productivity initiatives, having the right people at the right place to make it simple. So this is all based on FX assumptions for an average rate for the year of euro to dollar at $1.13 and euro to yen at JPY 166.7. Now briefly on Q4. As you can see, the revenue range of 1% to 8% is fairly large. This is predicated on potential uncertainties in the timing of deal closing, mainly for the upfront license business, while subscription growth of 8% to 12% is solid on a high comparison base. Operating margin is expected in the range of 37.2% to 38% and EPS growth of 7% to 17% ex-FX to hit EUR 0.41 to EUR 0.45 EPS for the quarter, reflecting the ongoing operating leverage. Now as I reflect on the performance so far this year, I want to highlight that our operating model is resilient, and we apply strict financial discipline to support our long-term growth. We occupy a unique leading market position in which that makes us mission-critical today and tomorrow for our clients. Profitable growth and improving cash conversion, as mentioned, is a top priority with clear objectives to show results starting 2026. AI and cloud are 2 main growth drivers. We are confident we will deliver on their ambitious growth targets. We are committed to continue to invest right for innovation, for clients and for shareholder value. Now Pascal and I look forward to take your questions. Operator: [Operator Instructions] We pause for a brief moment and take questions from participants in the room first. Adam Wood: It's Adam Wood from Morgan Stanley. Maybe just to start off, you finished off even identifying that it is a reasonably large range for the fourth quarter in terms of revenue growth. Could you maybe just talk a little bit about what is in there at the bottom and top end of those ranges in terms of pipeline conversion assumptions on big deal closings? I mean, at the bottom end, are we assuming that none of the big deals close? Just to give us a little bit of a feeling for what's in there and how conservative that bottom end is? And then maybe just secondly, Pascal, you talked about the huge breadth of customer data that you have that you can train models on and use for AI. First of all, could you just talk about how challenged that is where customers are still on-premise? And then how much does that force them and accelerate the shift to cloud with the impact that has on the revenue transition? Rouven Bergmann: Thank you, Adam. I'll take the first question. The -- can you hear me well? Just working with microphone. Yes, there's a wide range on license. The recurring subscription part is fairly consistent compared to our performance year-to-date. I think that's important to note. On the range, the low end of the range is derisked with large transactions. We have a long list of large deals that we have all validated extremely detailed to see where they can fall and the size of those transactions in different scenarios. What I said, given that increasing macro volatility and the timing that -- and the impact on timing of closing this could create, we were prudent to reflect at the low end, a more conservative and prudent perspective of large deal contribution. So the midrange -- the midpoint requires some of those large deals, but we have the potential to do better because our pipeline is strong, but it's depending on the timing of closing of those large deals and the size of those large deals. Pascal Daloz: Coming back to your question about the transition from the on-prem to the cloud and how it is linked with AI. Definitively, AI is accelerating the trend, right? And there are a few reasons for that. One is because no need to wait to have transition everything before to start AI. And the way we do it, we do what we call supplemental. So when you have a large installed base or large deployments of the 3DEXPERIENCE platform on-prem, we come with an instance on the cloud in order to basically enable all this AI new category of services we are developing. And this is really accelerating the trend. And you have seen in the number, it's 36% growth this quarter, the cloud related to 3DEXPERIENCE platform. It's 30% since the beginning of the year. And it's extremely correlated also with the subscriptions acceleration with 16% this quarter. So in a way, this is helping the transition. And if you remember a few years ago, we were convinced the collaboration will be the catalyst for the people to move to the cloud. I think AI is the way to go. Mohammed Moawalla: Rouven, Pascal. Mo from GS. Firstly, just it's encouraging to see on the industrial business, there is pretty good momentum, particularly with Stellantis, Ford. As you look kind of into next year, as we think of some of the headwinds and the tailwinds, how should we think about the kind of growth across the different sort of segments of the business? Because obviously, in mainstream Centric has a transition still to navigate. On the Life Science side, it sounds like kind of visibility is still reasonably low, but the industrial business is ramping. So how should we think about the sort of puts and takes for growth next year? And then secondly, as we think about the Life Science business, have you sort of -- clearly, it's sort of behind plan. How do you think about the kind of strategic sort of view of this business over the medium term? You're willing to kind of write it out? Or is it something that perhaps maybe you need to kind of change the scope of to try to extract more of the growth areas that are probably better positioned? Pascal Daloz: Do you take the first one, Rouven? I'll take the second one. Rouven Bergmann: Okay. In terms of the building blocks more, when we look at the trend of 2025, Industrial Innovation up 8% year-to-date, 9% for the quarter, very much supported by the strong growth in 3DEXPERIENCE adoption. That's a very healthy and sustainable trend. That was always our objective to convert that growth into recurring revenue and subscription growth. As I mentioned that in year-to-date, there is -- and in Q3, there is always good contribution from new deals that we are signing, but also contribution from deals that we have signed in previous quarters that are ramping and are contributing to growth in the current quarter. With many of the significant deals we signed in 2025, this will be the case in 2026. So from an industrial standpoint, manufacturing industries, including for SOLIDWORKS because in SOLIDWORKS momentum is also favoring. I think we are fairly confident in our ability to continue to transform these huge industries. And in a way, many of the deals that we signed are a starting point for what's expected in 2026 and beyond. So without giving you guidance for 2026, but I think from that perspective, the 2025 trends are healthy and stable and sustainable. Related to MEDIDATA, the growth profile, yes, is very much affected by the volume business as we are changing the model to become more enterprise and more sticky by really looking at an enterprise solution to transform life sciences with the objective to generate evidence and outcomes faster for patients. And that's not just in the clinical trial, it's in research, in biology, but also in manufacturing and quality management and the whole life cycle of real-world evidence and trials and patients. So the opportunity is large, and we are making the changes to be in a better position in 2026 now. Now for 2026, I think we want to be cautious on the growth contribution from that part. We're not expecting a decline in 2026 from Life Sciences. I think we are in a better position in 2026 than 2025. That's our starting point. And for Centric, the situation is difficult in 2025, but it will improve in 2026. The SaaS acceleration is imminent. It's already happening as we are speaking, because customers are transitioning faster to the SaaS and cloud solutions than to the on-premise. And we expect around mid-teens growth for this business next year. And if you add all of that, I think we are -- we should enter 2026 with confidence. Of course, the macro standpoint is going to weigh, and we have to assess that. But the building blocks are in place and are shaping. That's the message to you. Pascal Daloz: The second part of your question, Mo, is if we do -- if we consider Life Sciences still being strategic for Dassault Systèmes, right? Ultimately, this is the question you ask. And the answer is yes. And there are a few reasons for this. One, if you look at who are the industry spending the most in research and development, Life Sciences and High-Tech are the 2. In the previous century, it was the auto and aerospace. In this century, they are the 2 spending the most. And if you remember, the core market we serve is really the innovation space, and we are obviously serving the one spending the most in innovation. So from market attractiveness, there is no doubt. The second reason is because we did not diversify in the life sciences only for the purpose to expand or to diversify the market. It was also a way for us to learn new scientific -- at least to develop new scientific foundation. Let me tell you why. If we want to address the sustainability challenge, we need to understand how life is generating life, right? This is -- it seems maybe a little bit far from the day-to-day numbers. But from a scientific standpoint, this is extremely important for us to crack how life is designing things. And my bet is the next generation of generative design will -- from a scientific standpoint, will come from this space. So this is the second reason why this is so important to continue to invest and to crack this sector in a good way. Now the question, what are we doing to change the game? Rouven already answered partially to these questions. The first one is we need to minimize the dependency on the volume of clinical trial. That's obvious because right now, the model is extremely sensitive to this. So when the market is booming, we are getting the full benefit of it. You have seen it during the COVID time and just after the acquisition of MEDIDATA. But when the market is shrinking, basically, you are penalized. And I know every quarter, I'm repeating this, the worst of the worst is, in fact, we are gaining market share. But you have hard time to figure out because you see the number decreasing. In a way, we are reinforcing our position into this space. So the way to do it, there are 2 different axes. One is to be more sticky and less dependent on the number of clinical trials, which is the enterprise approach, which is nothing more than the PLM approach we are applying to the sector. And we see a lot of traction downstream. All the topics which are related to the manufacturing, to the supply chain management, how to accelerate the transfer from the lab to the production system are extremely critical. Why -- the reason why we signed with Sanofi, the extension was they have 12 molecules in their pipelines. They need to basically put on the market in the next 3 years. They want to speed up the ramp-up for the production and to gain almost a year compared to what they used to. And the way to do that is very simple. You do most of the ramp-up production when the molecule is still at the lab level in terms of development. So you do what we do in other industries, except we do it specifically for the life sciences. So this is one axis to be enterprise-wide and to focus on the downstream and basically climb up, if you want, the value chain. The second one is MEDIDATA is a medical platform. The 3DEXPERIENCE platform is an enterprise platform, but MEDIDATA is a medical platform. And if you look at what kind of information we have into the systems, those are the medical insights for right now only the clinical trial and the intent is to expand the usage of this medical platform when the patient, they are under treatment. So this is what we call the patient centricity because there is no reason we cannot follow the patient when the patient is taking the drugs. And we can follow this, we can follow the adverse effect, we can follow -- we can make prescriptions, how to do -- to take the drugs, when it is the appropriate time, right? There are many, many services we could imagine around this way. And this is the strategy we are building around myMedidata. Those are the 2 axes we are using as a way to, if you want, be more sticky and less dependent on the volume of things. Now this is requesting to change the offer, right? And this is what we are doing. In the way we report the number, there is a little bit something which is hidden. In fact, you do not see the traction of the rest of what we do in Life Sciences because in the Life Sciences and Healthcare line, we are only reporting basically MEDIDATA and BIOVIA. But we are selling more and more DELMIA, ENOVIA, SIMULIA and also CATIA and SOLIDWORKS in the med device, and this is reported into the Industrial Innovations. So if you combine all those things, the picture is, in fact, better. Balajee Tirupati: I'll repeat my question. The first question is on MEDIDATA. How are you seeing the dynamics in the U.S. evolving? It would appear that some of the overhangs, regulatory overhangs have been reducing of late. And separately, we have also seen some of the CROs in IQVIA, ICON reporting decent booking numbers of late. So where are you seeing incremental growth headwinds for MEDIDATA coming from? And as we go in 2026, are you seeing a better visibility or some improvement in the decline in starts that we have seen in 2025? Rouven Bergmann: Yes, Balajee, thank you. I think the IQVIA and ICON outlooks were mixed, to be fair. So I don't think that anyone is saying we are yet through the decline in clinical trial activity. For sure, when we just look at clinical trial starts, Balajee, and the public available number that where all pharma companies are reporting their clinical trials that are starting, the numbers are down. And as I mentioned before, for Phase III, they are down significantly, and this is where the lion's share of value is concentrated for a software vendor as well, also for CROs because this is where there's the largest operation and there's -- most of the people are involved, and it is where the lion's share of the value is created. This is what's affecting us. And we have yet, to Pascal's point, to show that we can rebalance that headwind that we are facing from the volume decline with growth by creating a more sticky offering, connecting the dots across the life sciences enterprise to have that growth outweighing the decline just from the volume in terms of number of trials started. This is the challenge that we are facing. This is what we're seeing right now in our numbers reflected of minus 3%. At the same time, when I look just at the segment level from enterprise and mid-market, both parts are growing. But also for those 2 parts, they have less clinical trials in their portfolio than what they were doing in 2019, even before COVID. So we are already rebalancing, right, with our offering and improving our -- increasing our footprint with more value that we are creating for clients for which we are -- that we are able to monetize. But when you then include the pure volume part, still it overweighs and it reduces the growth in this quarter to minus 3%. I think regarding the U.S. regulation, right now, biotech funding is still not great, right? And that's also a reason why there's less trials started in the U.S. and in Europe. But we see an increasing trial activity, for example, in Asia, specifically in China. And that's a market opportunity that we are also addressing, but it's a different market with different economics. And now looking into 2026, it's difficult to predict what trial starts will be in 2026. I think what we should assume at this point is that our mix in 2026 is improving versus 2025 to be in a better position to offset that volatility. And offerings like clinical data studio are an enterprise offering. They are not clinical trial related. And this offering is going very, very well, and we are leading with this offer in the industry. One important part of the AbbVie announcement is the AI everywhere part. So when you are making decisions today as a company to go -- to think 5 years out, AI is at the center. And our AI strategy is resonating very well. And this is a catalyst for 2026. So I'm a bit -- you hear, I'm a bit more optimistic than what we're seeing in 2025, but it's too early to declare victory. Balajee Tirupati: Thanks for very comprehensive answer. If I can have a follow-up question. So following up on the AI debate that we have right now, and I appreciate it is a bit different for vertical software companies. But are you seeing your clients taking a pause in decision-making also on account of trying to understand what -- where the debate moves of software versus foundation model and also as your own 3D UNIV+RSES offering matures. So are customers also weighing decision and taking a pause in decision-making? Pascal Daloz: So it's a very good question. In fact, for many of our large customers, they started the AI initiative 2 years ago, in fact, by doing a lot of by themselves or sometimes partnering with start-ups. After 2 years, they are coming to the conclusion, it's promising, but you need to integrate this foundational model in the way you operate the company. And we are at this point. Let me give you an anecdote. I was with Ford a few weeks ago. And the CIO was telling me he stopped almost all the AI initiatives because now he wants to rationalize. But he want to rationalize in the productive way. He say, obviously, it's a lever for us. We have investigated many use cases. Now we need to focus on the one being more promising. And usually, the way to do this is very simple. You look at the moonshot, the one really changing the game. If you focus AI on the things which are making some improvement in what you do, you will never have your payback because AI is costly. However, if you focus on things you cannot do or you can do with a very different level of efficiency, the payback is there. And we are really at this stage. So for us, I will say it's driving against the adoption of the platform as the data lake. They are building more and more on the foundation because there is no need to redo the job. We have already done it. And more importantly, it's already integrating in everything they do. Because at the end, if you want to design the car, you still need CATIA. The fact that CATIA is driven by an AI engine is one thing, but you still need CATIA to produce the model, to produce the geometry, to produce basically the instruction for the shop floor. This is really where we are game changer. And this is extremely difficult to do without having our foundation, in fact. So to come back to your questions, I think, yes, there is a pause in a way people are doing less experiment -- but now they are taking the decision to focus on the core use cases, which are really productive and making the moonshot, I call it the moonshot, I mean, having a significant lever on the efficiency or opening new avenue. For example, this is what we are seeing in the material science. There are certain things you cannot do if you do not have an AI engine to do that. We are at this crossroad, but we are much more benefiting from this than something else. Charles Brennan: It's Charlie Brennan here from Jefferies. Apologies, 3 questions for me. Firstly, I'm struggling to match the narrative on to the actual numbers. You're attributing the weakness in the quarter to MEDIDATA and Centric, but MEDIDATA is a recurring revenue business and recurring revenues actually beat expectations. Centric is partially a license business, but it doesn't feel big enough to account for the size of the license decline. Is there anything else going on there, maybe a change in revenue allocation between the 2 lines? Or what else went wrong in the quarter to justify the shape of the numbers? Secondly, I'm hearing accelerating subscription as one of the themes coming across -- is that just Centric? Or is it more broad than that? And traditionally, it's tough to accelerate growth when you're moving to subscription. Do we need to think about a phase in '26 and '27 with accelerating license declines? And do we have to think about that in the shape of growth going forward? And then thirdly, I should probably sneak one in on cash flow. 84% conversion in 2026 is a surprisingly precise guide given the recent track record on cash flow. Are you confident that, that takes account of all of the working capital terms on deals that you're going to sign in 2026? Or is there scope for payment terms on deals in '26 to disrupt that 84% cash conversion? Rouven Bergmann: Okay. Thanks, Charlie, for the questions. Let's start -- go through this one by one. On the quarter, there's nothing else than what I outlined. I don't know where the disconnect is, but maybe I just reiterate it in simple form. Yes, MEDIDATA is a recurring business, but it also has a volume aspect of clinical trials that are starting and ending in a way they are not recurring, right? I think we were always clear about that. There's a subscription part where we contract over a period of time. And then there are studies that are starting and ending, and there is volatility to that. Charles Brennan: [indiscernible] Rouven Bergmann: Of course. But when studies are ending, they stop recognizing revenue. So there's a lot of studies ending. There's new studies are starting. If you're down minus 3% in a quarter on EUR 250 million, you can do the math in terms of how many this is, but there's a number of trials. We are running thousands of trials, Charlie. So in a market, as Pascal said, where the volume is stable, right, where we can gain growth through market share expansions, it's a solid generator of growth. And this has been the model of MEDIDATA for a long time. Now today, the volume part or the consumption business, you might say, represents about 30% of the overall business. And that business is down high single digits. And that's impacting the quarter, high single digit to low double digit for that volume business. Now it's offset by the increase in subscription contracts from deals that we are expanding and winning in the market. So that's to the MEDIDATA part. There is no magic to that other than this. On the subscription acceleration, as I said in my remarks, it's twofold. It's deals that we are signing in the quarter and ramps that are contributing to the growth from deals that we have signed in previous quarters. We are transitioning our installed base to cloud. But in many cases, it's not a 100% transition. In the case that Pascal mentioned in his -- in the presentation, the company, Stellantis, that's 100% for that part, right? It's not contributing to subscription this quarter. It will contribute over the period of time. But we have other deals where we have on-prem and cloud hybrid deals where there is a portion in the license subscription and a portion in the cloud subscription. And that has a higher impact on the in-quarter revenue in the subscription line. But it's still recurring and it's building over time. And this high structure of deals helps us to get away from the subscription license where the upfront portion is most significant and helps us to spread revenue more equally over time to create a more recurring base. And of course, when you look at our subscription on a quarter-to-quarter basis, it's -- I know where you're coming from, it's not sequentially up every quarter because of the on-premise part of subscription, which we well understand that depending on the start time of renewal or renewal dates, there is a fluctuation from quarter-to-quarter on our subscription business. You can go back years and you can see that. So rounding up the point, there is a contribution from deal signing in the quarter that are hybrid, where we have on-premise and cloud portion, where the cloud is over time and on-premise has more of a point-in-time impact. And then we are seeing ramping deals from deals that we have signed before. So also here, there's no impact from -- for the Centric part -- for the multiyear deals of Centric that we have recognized over the last quarters and last year specifically and before, that revenue is part of upfront license because it's a license subscription where you upfront revenue and it impacts the license part. So that's not driving the subscription business, Charlie. But going forward, as we are transitioning this business more to an ARR model to a SaaS model, it will support the subscription growth. And that's the whole point of what we are doing. From a cash flow perspective, Well, I think 2024 is an outlier in terms of several effects that we are facing related to tax impacts, social charges that are higher compared to 2024. That is all going to be in our base in 2025 compared to 2026. So we don't have those onetime effects any longer. At least they are not foreseeable at this point in time. And as it relates to the ramping deals that I talked about on the subscription line, they will generate significant higher cash in 2026 than in 2025. I have that level of visibility. Now that's the baseline for the assumption to be back at the 2024 levels. Now is there a possible variability? Yes. But the baseline assumption is the 2024 performance. Pascal Daloz: Maybe one additional comment I should make. Charlie, there is no trick. I think my commitment is very simple. I want to continue to gain market share in all the industry we serve. And I think quarter after quarter, I can -- I hope I'm proving to you that this is what we do, including in sector where it's extremely competitive. And the second thing is we are accelerating the transition to subscription and to the cloud. That's what we do. So my view, we are doing the right things. It's the appropriate time. Against, we were pushing this for a few years ago, but the market was not ready in our space for the cloud. Now it is, they are. And if you remember, the subscription used to be 1/3 of the recurring revenue 3, 4 years ago. Now it's 50%. And we are on a path in the next 3 years to be almost 2/3 of the recurrent part of the revenue. So I think we are walking the talk. That's what the commitment to do. This is what we are doing. We are redirecting the deal. And I think at the end, the numbers are reflecting this extremely, I mean, transparently, Charlie. Operator: We have an online question coming from the line of Laurent Daure at Kepler Cheuvreux. Laurent Daure: Yes. I have 3 quick questions. The first, if you could elaborate a little bit giving us an update on your pipeline of large deals by maybe verticals and your discussions with those clients, the long sales cycle, is it just the macro? Or is there anything else on the discussion you have with them? My second question is if you could give us a bit more color on the change in management at Centric and also on the 15% growth you're expecting for next year, the visibility you have on that, given that you will continue to move subscription? And my final question is, when you refer to a couple of years to rebalance the Life Science business, do you see a risk that maybe for 2 or 3 years that this business end up being kind of flattish? Pascal Daloz: Okay. So Laurent, I will take it, and Rouven, feel free to add whatever you want at the end. So the pipeline coverage is 2x, which is good. For Q4, usually, this is where we are. So -- and it's relatively balanced between the large deals and, let's say, the midsized deals, which is also important because when you have too much on the large deals, this is sometimes difficult to manage. In terms of industry contribution, it is relatively consistent with Q3. So you still have a fraction which is transportation and mobility centric. We have a large part also coming from aerospace and defense. And we also have a good visibility on industrial equipment. So that's for the core industry. And again, we -- the pipeline coverage is definitively not the topic. What we observe, and we have been explicit about this, sometimes 1 or 2 big transactions can shift from one quarter to another one, independently of us. And that's what Rouven is mentioning when he says the volatile geopolitic is basically putting some volatility on the time to close. But it's only a question of time to close. It's not a question related to the pipeline. Coming back to the Centric management change. In fact, it's very simple. You know Chris is turning 70. Chris, the founder of Centric, turning 70. For a few years, he was preparing Fabrice Canonge to be -- to take the positions. So we say it's the right time. We completed the acquisition of the remaining piece of Centric. So from basically a timing standpoint, it was appropriate to make the changes right now. And as part of the new setup, the new leadership, we have put this transition to the cloud as one of the objectives for the team and the EUR 1 billion threshold, which is the size of this business we want to achieve in the coming years, also one of the objectives for this new team. The last thing is related to Centric performance for next year. Rouven Bergmann: Life Sciences, the next 2 to 3 years. What is our expectations, the rebalancing of Life Science. Pascal Daloz: The rebalancing is already happening again. So except -- and this is what I was telling you, we are reporting in a line which is not making it visible for you. So probably something we need to change for you to have a visibility to understand how the momentum is going in order to basically balance between the volume-based business versus the enterprise-based business in Life Sciences. Now if we step back a little bit, I think the booking growth is good for Centric -- for MEDIDATA. So the topic is not the booking, it has to accelerate, obviously. But it's against this termination of studies and not having a new one starting again, which is the topic. I do expect we are reaching the bottom, frankly speaking. I told you this last year, I remember. And again, it was not -- it was based on facts because we were tracking all the pipelines. The way we do this, we look at how many Phase I, how many Phase IIs. We make some assumption about the move from one to another one. And this is how we are computing, if you want, the potential new studies starting every year. Now there is a big change, and you highlight it. We see Asia contributing to the trend, especially China, right, which was not the case in the past. And we were relatively dependent, as you say, on the U.S. dynamic for the creation or at least the most promising molecules coming on the market for the Phase III. Now we see basically this being much more balanced between the different continents. And this is also giving hope for me because we see -- and if you track it, we are seeing a lot of investment in the biotech in China, but also in Korea as well, Japan as well. So I do believe if we combine the 2 together, we will be in a much better situation. And Centric because that was also the question. Again, we have this massive renewal last year. That's the reason why we have the base effect this year. And if you combine this with the fact that we want to accelerate, I want to accelerate the transition to the cloud and the SaaS business model, this is creating the gap. But this basically, in 2026, we will be in a much better situation because we will not have the base coming from the big renewal. Anyway, the trend and the acceleration of the cloud is already happening. So that's the confidence I can share with you. Operator: Our next question comes from Frederic Boulan at Bank of America. Frederic Boulan: I've got 2 and a short clarification. Firstly, around AI, if you can spend a minute on your commercial model of the offering you've presented, any kind of attach rate you foresee on a midterm view? Second, coming back on the free cash flow side and your 84% conversion from next year. Any specific moving parts or action plans you want to call out to underpin your confidence in free cash flow acceleration? And then short clarification on MEDIDATA, can you confirm the comment you made on expect similar growth or similar revenue decline? Is this a comment about Q4 versus Q3 level of minus 3%? Pascal Daloz: So Rouven, I take the first one. For the cash flow. So the way it works for the AI new category of solutions is very simple. You remember the portfolio is structured around role, processes and solutions. So in front of the role, we have the virtual companions and the virtual companions are there to advance the role and to extend the roles. The generative experiences are there to basically automate the processes. And the solutions ultimately is what we want to do with the virtual twin as a service. So keep this in mind for the purpose of the clarity. Now how do we price each of them? The virtual companion is priced on a fraction of the cost of the people we are either augmenting it or basically substituting sometimes. That's how we price. For the generative processes, the generative experiences, it's a usage-based model. So it's a token base like many companies do. And why so? Because I really want to ease the adoption and to accelerate the adoption with this consumption model. And it's something we master relatively well because it's almost the same approach we have for simulation for a long time, right? And for the virtual twin as a services, it's an outcome-based model because at the end, you are not selling any more the tools, you are selling basically the end result of what the tool is producing. So it will be an outcome-based model. Now from an attach rate standpoint, it's still a little bit early because we came on the market with this. But we could expect that for many roles you have in the market being used right now, you will have an extension with the virtual companions for sure. You could expect that for processes, which are the most complex one, the generative experiences will be a way to accelerate significantly the time to market and the efficiency. This is true for the design. This is true for the manufacturing. This is also true for the compliance, as I was highlighting it. And virtual twin as a service, it's something we do specifically in the new industry because they are not equipped. Usually, they do not have all the skills, and we are gaining a lot of time by doing so. One example of what I'm saying -- in the Life Sciences, when we are speaking about the manufacturing systems and the production systems, more and more, we go straight with the virtual twin as a service, which is an easy way for us to deploy our solutions and to reduce the time for the adoption. That's how we are basically pricing and how we are planning. And you remember what Rouven say, say the contribution of those new category of solutions, we are expecting EUR 0.5 billion in the coming plan, which is ending in 2029. Rouven Bergmann: Okay. Thank you, Frederic. I'll go through the cash flow question. Regarding the 84%, what are the kind of puts and takes and level of visibility and action items that we have underway. I think first, important to mention is we have a certain level of visibility from large contracts that we have signed where there are clear payment terms that are going to drive cash in 2026, early 2026. So that gives us a clear perspective on the puts and takes between '25 and '26, which I call the timing effect that we had. So that's one part. We also have some other nonrecurring payments in 2025 that will not recur in 2026. We also have visibility to this. Now above that, -- when I look at our DSO and the impact of the DSO in context what we just discussed on Centric. Centric has been a big driver of the increase in DSO or has contributed to the increase in DSO, I should better say. And now as we are moving to a recurring model, we will see the benefit of that also in terms of better aligning revenue and cash. So the conversion from that perspective should also will benefit from this change that we have decided. And then the last point is we are applying strict discipline on cash management, and that will have an impact also in 2026, and I already see that happening in 2025. The last point regarding the MEDIDATA comment, yes, this was related to Q4. So the trend of Q3 to be expected similar in Q4 2025. Pascal Daloz: So this is concluding this morning's session. So thank you very much for the one being there with us in London and for the people being connected. Look forward to seeing you on the road, either Rouven or myself, we will do some roadshow in the coming weeks. And see you no later than early next year. Thank you very much.
Bertina Engelbrecht: Good afternoon and a warm welcome to the webcast of our annual results for the year ended 31 August 2025. I am Bertina Engelbrecht, Chief Executive Officer of the Clicks Group. Joining me here today is Gordon Traill, our Chief Financial Officer. We will be taking you through the presentation of our annual results and respond to your questions after the conclusion of our presentation. This slide sets out the outline we will follow. I will start with a review of our financial year. Gordon will follow with an overview of our financial results. I will take you through the trading performances of our business units; first Clicks, then UPD; and I will then close with the outlook for the group. Please submit any questions that you may have via the webcast platform during and after the conclusion of our presentation. Sue Hemp from our Investor Relations team will read out your questions to which Gordon and I will respond. I will now commence with a review of the year. At the macro environment level, green shoots are starting such as a slight expansion of GDP growth, the easing of domestic inflationary pressures and lower debt servicing costs. Although confidence levels are below historic averages, the latest consumer confidence index reported a modest easing of pessimism. Despite some challenges, particularly the high unemployment rate and fiscal constraints, we maintained performance momentum because of our focused results orientation, resilient business model, brand strength and incredibly loyal ClubCard customers. In the year, we delivered diluted headline earnings per share growth of 14.1%. This is comfortably within our guidance range and an enviable return on equity of 49.2%. We are reaping the benefit of the foresight of past leaders who launched our loyalty program in 1995. In August, our ClubCard celebrated its 30th anniversary with over 12.6 million active members who contributed 82.6% to our sales. Last year, I said I would be disappointed if we did not exceed our store and pharmacy rollout targets. True to form, our teams did not disappoint. We increased our Clicks store count to 990, pharmacy count to 780 and primary care clinics to 225. We are strengthening our relationship with the Department of Health, a key stakeholder. Post the year-end, additional pharmacy licenses are being issued. This supports our pharmacy expansion program. In a subdued trading environment, customers focus on value by switching to lower priced brands, buying on promotion and using loyalty programs. As a value retailer with a respected private label program, we were well positioned to leverage our market-leading shares in defensive retail categories. Customers responded favorably to our product and price offers resulting in market share gains in our core health and beauty categories. I will provide greater detail on the market share and category performances in the retail segments review stabilized and the business is gaining positive traction. Purchasing compliance from both Clicks and the listed private hospital groups have recovered. Expense management, as Gordon will share in more detail, was exceptional. As a group, we embrace inclusive transformation with a strong emphasis on gender diversity and local empowerment, the results of which are reflected in our BBBEE level 3 rating and our top achiever status in the UN Women's Empowerment Principles. I now hand over to Gordon, who will take you through the group's financial results. Gordon Traill: Thank you, Bertina. Good afternoon. As in previous years, we will cover the financial performance of the group starting with the group highlights. If we consider the financial highlights, group turnover increased by 5.3%. Retail turnover grew 6% for the year with half 2 slightly slower due to new stores and pharmacies being opened later in the year and lower inflation. UPD had a slower second half after the recovery from the system implementation in the previous year. Total income margin grew by 90 basis points resulting from strong growth in private label, supply chain efficiency income and lower shrink in the retail business. The group trading margin at 9.8% increased by 60 basis points due to the growth of retail and good cost control from UPD. Diluted headline earnings per share for the group increased to ZAR 13.62 per share, up 14.1% on last year within our guided range of 11% to 16%. The group's operations generated strong cash inflows of ZAR 6.6 billion. During the year, we returned over ZAR 2.7 billion to shareholders in dividends and share buybacks. The group's return on equity at 49.2% increased from 46.4% in the prior year. And the dividend declared for the year has been increased by 14.2% to ZAR 0.886 per share, which is a 65% payout ratio. Retail had a slower second half due to the later opening of stores and pharmacies, inflation remaining muted and a slower flu season. UPD's compliance levels in both its main channels continued improving resulting in good growth in sales to Clicks while positive growth was maintained in the hospital channel. If we exclude the Unicorn disposal in the prior year, retail grew 7% with same stores growing 4.7% excluding the additional trading day in the prior year. New stores and pharmacies added 2.3% to the top line while selling price inflation averaged 2.6% for the year, lower in the second half. Distribution business had a consistent performance in the second half with good compliance from its major sales channels. The business grew despite continuing genericization in the hospital channel and lower inflation. Bertina will cover the detail of each business' performance later in the presentation. This slide reflects our total income earned, which has increased by 8.4% for the year. You can see the total income margin in retail was 70 basis points higher than last year as there was good growth across pharmacy, health and beauty and personal care driven by private label. In addition, the previous investments in systems has allowed us to generate additional supply chain efficiency income. UPD's total income margin was down 10 basis points to 9.9% and this was due to the higher SEP increase granted in the previous year. Overall, the faster growth of the retail business at 8.1% and the growth in UPD has resulted in the group's total income margin being 90 basis points higher than last year. Retail costs grew 7.9%, which was lower than in the first half and remained well controlled. In the second half, cost growth was 7.3%. Store staff bonuses have increased by 9%, which is on top of a 21% increase in the prior year and is well deserved based on this year's performance. In the year, we have added a net 55 Click stores and a net 60 pharmacies. We are looking forward to continue accelerating our pharmacy growth in the next financial year. We would also like to thank the Department of Health for their support in the last year in working with us to close the gap in stores without pharmacies. Comparable retail cost growth, excluding new stores, was up 5% for the year with costs growing at a lower rate in the second half. The IFRS 16 interest charge increased as a result of the increase in number of renewals in the period. The growth has slowed from the prior year. UPD's costs have grown lower than turnover as the systems implementation was completed and efficiencies have been extracted. It is pleasing to note that costs grew 1.6% in the first half and 2.2% in the second half. Employment costs in the second half continued to be well controlled although were ahead of the first half due to the provision of performance bonuses. Other costs fell by 3.9% in the second half as a result of good cost control and lower debtor provisions required. The investments in solar have paid off with electricity, water and generator costs for the year declining by 35% despite the higher electricity tariffs. Our investment in electric vehicles has resulted in further efficiencies with transport costs down 0.2% year-on-year. Further investments have been made to allow delivery with electric vehicles, which will come through in our financial year 2026. This further supports reducing our carbon footprint. Retail grew trading profit by 8.4% with the margin improving by 30 basis points to 10.5%. This has been due to good sales growth, strong other income generation together with efficient cost management. UPD's trading profit increased by 9% with the trading margin increasing by 10 basis points to 3.3% and this was due to consistent sales growth and good cost control. Overall, the group's trading profit increased by 12.1% to ZAR 4.7 billion for the year. This slide reflects the growth in turnover, trading profit and margin of the group over the past 5 years. The company has sustainably grown its performance through various economic cycles. And to note that in last year, inflation has moderated, interest rates have reduced and we have all benefited from the lack of load shedding in the past year. There are some concerns though with the impact of external tariffs further straining the economy. That said, the group has demonstrated its ability to continue to evolve the trading margin over the past 5 years. Inventory levels for the group has increased by 4 days to 78 days. Retail stock days are 1 day higher than last year and inventory remains well controlled although increased due to the later opening of new stores in the year and higher levels of inventory being held ahead of the warehouse management system going live in Cape Town. UPD stock days at 45 days are 3 days higher than last year partially due to higher levels of GLP-1 buy-ins and Unicorn stock held at year-end. Overall, working capital was well managed with net working capital days at 34 days. This slide shows the movement of cash during the year. As you can see, we started the year with cash of ZAR 2.7 billion reflected in dark blue on the left-hand side and ended the year with ZAR 3.3 billion on the right-hand side of the slide. The group has generated cash of ZAR 6.5 billion highlighted in green, working capital inflows of ZAR 73 million, repayment of lease liabilities amounting to ZAR 1.1 billion and tax payments of ZAR 1.2 billion. ZAR 985 million was reinvested in capital expenditure across the group. From this amount: ZAR 599 million was invested in new stores as well as quick store refurbishments, ZAR 152 million was spent in distribution centers including the expansion of our Centurion DC and ZAR 234 million was spent in IT and other retail infrastructure. We returned ZAR 2.7 billion to shareholders this year and this was in the form of dividends of over ZAR 1.9 billion and share buybacks of ZAR 751 million. Final cash dividend of ZAR 1.5 billion will be paid out to shareholders in January. This slide shows our commitment to a disciplined approach to capital allocation. We expect to continue to invest in the business and return capital to our shareholders through dividends. Over and above this, our preference is to return any excess cash through share buybacks, which is demonstrated in this graph. Since 2006, we have bought back 164 million shares at a cost of ZAR 7.8 billion. At the closing share price on 31 August 2025, the value of these shares would have amounted to ZAR 61.2 billion. CapEx of over ZAR 1.2 billion is planned for the year ahead. ZAR 662 million will be invested in our store and pharmacy network and this will include 40 to 50 new Clicks stores and pharmacies and 70 to 80 retail store refurbishments. ZAR 594 million will be spent on IT systems and infrastructure, ZAR 88 million of this amount will be invested in UPD IT and warehouse equipment and we will invest the balance of ZAR 506 million in retail IT systems and infrastructure. This will include the completion of our new pharmacy management system and rollout of the implementation of the new warehouse management systems to our 2 other DCs and further investment in solar. We will continue to grow and invest in the retail footprint. UPD is positioned for growth now that the implementation has been completed and we will continue investment in systems for pharmacy and our distribution centers in the retail business. This slide reflects our medium-term financial targets. We have made good progress against these. Importantly, the group has continuing headroom for growth, particularly in expanding the retail store base. While we have shown good progress, these targets will not be revised at this stage. As indicated earlier, we have increased our investment in the business for growth. In framing these medium-term targets, we continue to seek to optimize the balance sheet, improve working capital efficiency, enhance cash returns to shareholders and maintain the dividend payout ratio between 60% and 65%. This slide demonstrates how the group has sustained its financial performance over the past decade. This is reflected in the 10-year compound annual growth rates achieved in diluted headline earnings per share of 13.5% per annum and dividend per share growth of 14.2% per annum. The compound annual total shareholder return over the past 10 years equates to 17.3% per annum. These excellent growth rates have been driven by strong organic growth, particularly in our health and beauty business, which has been supported by an efficient supply chain. This has in turn translated into strong cash returns, which have not only been reinvested in the business, but also allowed us to progressively increase our dividend. This graph shows the group's share price performance over the last 10 years. This performance is all the more pleasing when compared to the return in the Food and Drug Retailers Index of 4.6% and the Top 40 index of 7.8%. This performance is a testament to the hard work of all our employees throughout the group. Earlier, I noted that bonuses for employees have again increased. It is pleasing to note that our long-term shareholders have also benefited. I will now hand over to Bertina to cover the trading performance. Bertina Engelbrecht: Thank you so much, Gordon. I will now take you through our trading performances starting with Clicks followed by UPD. This is the review of the Clicks business. Despite the subdued trading environment and a muted cold and flu season, the retail business delivered a solid result. Existing stores grew sales by 4.7% excluding the extra trading day in 2024. Inflation slowed down from 6.3% last year to 2.6% this year and we achieved volume growth of 2.1%. I now turn to the 4 categories to provide you with greater detail. Pharmacy sales grew 6.9% despite a soft cold and flu season as well as significant price reductions in key molecules to align with medical scheme formulary compliance requirements. Turnover in our 24-hour UniCare format achieved growth of 8% driven by strong support from doctors, the implementation of our after-hours doctor service and the exceptional performances of wound care, diabetes, primary care and IV clinics. Despite the delay in opening new pharmacies, we accelerated in the second half to open a total of 62 new pharmacies for the year, of which 29 were in the last quarter. ClubCard customers contributed over 87% of pharmacy sales and we continue to be rated as the customer's first choice retail pharmacy. We have increased our primary care clinic count to 225. Clinic sales increased by 10% driven by medical aid funded services and support for our virtual doctor consultation services. Front shop health and baby achieved strong growth with value growth of 8% and volume growth of 10.1%. In the baby category, volumes were up 15.3% compared to value growth of 6.2%. Front shop health growth was driven by the extension of our health care elevation to 138 stores, exceptional performances in sports and slimming which was up 27% and the continuing strong momentum of branded supplements up 29%. Our integrated baby strategy is entrenching our position as the leader in baby. Despite price deflation driven by supplier branded diapers and baby foods as well as supplier infill challenges. This category is continuing to perform well with private label and exclusive ranges the key to our success. Sales in our stand-alone Clicks baby stores were up 23%. Baby store-in-store sales grew by 12.4% and online baby sales grew 27%. Sales growth, as you can see, is gaining momentum and we are evolving margin. Sales in our beauty and personal care category was up 7.4%. Despite a heavily competed beauty market and the disappointing performance of The Body Shop, we grew sales ahead of the market fueled by new launches and the continued rollout of the elevated beauty hall concept in key nodes. The personal care category delivered a strong performance up 9.8% driven by strong private label sales which was up 17.6%, strong promotional sales and innovation in [indiscernible], Being Kind, Dove and Vaseline product ranges. Our exclusive body freshness range was up 42.6% driven by exponential growth in Spritzer, which was up 44%. In May, the new Body Shop owners unveiled their post-acquisition turnaround strategy with new product development launches such as Spa of the World and Passionfruit. These new ranges are in store and the teams are working to improve the infill rate. General merchandise sales performance was disappointing, up just 4.4% due to our underperformance of small household electrical appliances. In the next section, I will provide you with more detail. Despite the increasingly competitive environment, we are continuing to extend our market shares in core beauty and beauty retail categories. Let me take you through these starting with health. It is a relief to report that our intentional efforts at engaging collaboratively with the Department of Health to advance our public health agenda of improving the accessibility and affordability of health care is delivering results. We opened 62 new pharmacies in the year. Although 29 pharmacies only opened in July and August, we gained market share of 20 basis points creating positive momentum for our new financial year. Front shop health declined by 30 basis points despite strong gains across sports and slimming up 140 basis points, first aid up 290 basis points and incontinence up 100 basis points. Our comprehensive baby execution; which integrates our private label and online offering, convenient locations, competitive pricing and Baby ClubCard benefit strategy; drove our market share gain of 80 basis points in baby. Exceptional gains were recorded in diapers up 110 basis points, baby wet wipes up 270 basis points and baby dry foods up 230 basis points. Pleasingly, we have identified even more opportunities to grow our share of baby. We continue to gain market share in beauty and personal care. Skin care gained another 20 basis points fueled by strong share gains in face wash, lip care and moist wipes and we defended our market-leading share in hair care. Personal care continues to gain market share up 60 basis points across every measurement period with strong gains in body freshness, [ sun pro ] and sun care. In general merchandise, we declined by 40 basis points in our legacy category of small household appliances. This was due to significant out of stocks in the first half and an oversupply in the market. What is encouraging though is that over the last quarter, we were once again regaining market share. I now turn to the key drivers that support our growth starting with value. Our brand position of feel good, pay less supported by generous ClubCard rewards, extensive private label and exclusive ranges and convenient locations resonated with consumers. Despite heightened competition, we stayed true to our legacy as a value retailer with great everyday pricing and promotions. In so doing, we maintained our competitive pricing against all major retailers on a volume-weighted price index that excludes our 3 for 2 promotions, bulk offers and ClubCard cashbacks. We grew promotional sales by 12.4% to account for 47% of turnover across all front shop categories. We are committed to delivering on our public health care agenda of extending access to affordable health care for all. The convenience of our pharmacy and clinic network, virtual doctor offering and partnerships with health care funders enable us to deliver on our agenda. In the year, generics grew by 8.8% accounting for 59% of sales by value and 71% of sales by volume. Cash rewards are relevant especially in a tough economic environment. During the year and with the support of our affinity partners, we returned ZAR 855 million to loyal customers in the form of cashback rewards. Our differentiation strategy is premised on responding to changes in consumer demographics, preferences and shopping behaviors within the context of the trading environment we face. Our private label and exclusive ranges are core to offering the consumer choice. Private label and exclusive brands delivered sales of ZAR 9.7 billion as it continues its momentum of growing sales ahead of total retail sales. Customers trust our private label brands because of their proven quality and price positioning. This year, 1 in every 3 products sold in our front shop was a private label or exclusive product. Private label and exclusives contributed 25.9% to total sales, 30.6% to front shop and 12.3% to pharmacy sales. Our private label and commercial teams drive innovation and quality in addition to supporting our sustainability and local empowerment goals. In the year, 6 of the private label products won SA Product of the Year in their respective categories. Sales in our 6 stand-alone baby stores grew 23.7%. We increased our store-in-store executions from 5 last year to 14 this year. This is what enabled our gains in baby market share as we also improved margins in this category. The execution of our elevated beauty halls, which is now in 44 stores is driving increased sales in the big beauty brands and in brands exclusively available in Clicks. Our affinity partnership with and equity investment in ARC, a retail brand focused on the premium beauty market, enables us to extend our access to the premium beauty customer. In this month, ARC opened the largest beauty store in Africa at Sandton City to great acclaim. This year we are celebrating the 30th anniversary of the Clicks ClubCard loyalty program. The nostalgic reflections of loyal customers who shared their ClubCard journey with us and on their social media platforms fill us with pride. 30 years on, we are still growing with an active ClubCard membership base that increased to 12.6 million this year. The contribution of ClubCard members to total sales increased to 82.6% accounting for 80.7% of front shop and 87.4% of pharmacy sales. The 2025 Truth and BrandMapp loyalty white paper confirmed the ClubCard program as the most used loyalty program in South Africa. It continues to provide us with the mechanism to attract, engage and retain customers through personalized experiences that reinforce emotional affiliation to our brand. The use of advanced analytics to drive focused customer segmentation and tailored personalized rewards is critical to the success of the ClubCard loyalty program. This is an area that requires targeted investment in technological enablement as well as in the correct skill sets. Although online sales grew by 15.9%, we can and we will do better. Pharmacy is a key driver of our sustained performance. By November, we will have completed the national deployment phase of our LEAP pharmacy management system. We can now leverage the system to enhance service levels and increase sales. The expansion of our store network is progressing well and we are accelerating our pharmacy and clinic rollout program because of its proven positive impact on front shop growth. Internally, we have invested in people and improved processes to support our growth aspirations. We ended the year on 990 Clicks stores, 1 UniCare specialized 24-hour pharmacy store, 780 Clicks pharmacies and 225 primary care clinics. We remain committed to delivering affordable, accessible health care. 53.2% of the South African population live within a 5-kilometer radius of a Clicks pharmacy. We have increased our primary care clinics to 225. These are profitable due to medical aid funded services such as diabetes and the extension of our virtual doctor consultations. Now that M-Kem has been integrated and the rebranding of the UniCare concept approved, we will be extending our specialized 24-hour UniCare format by 2 greenfield sites and 2 acquisitions by February of next year. As with property, we have invested in the skills required to accelerate the growth of this format and we are accelerating our presence in lower income areas with 247 of our stores located in such areas contributing 23.7% of turnover. That completes the review of the Clicks business. I will now turn to UPD's trading performance. UPD's fine wholesale turnover, which excludes bulk distribution and preferred supplier contracts, was up 5.2% despite the subdued cold and flu season and lower inflation, a pleasing improvement against last year's negative 0.5% performance. This performance is attributable to greatly improved service levels, which has always been a core UPD strength. All operational service metrics are being met and the investments we made in systems, people and processes are bearing results. I will briefly turn to the core customers in this channel. As UPD's largest customer, Clicks contributed 58.4% of the turnover. Sales to Clicks pharmacies grew by 9.5% as purchasing compliance improved to over 98%. Clicks is growing ahead of the market and is accelerating its new pharmacy openings and importantly, actively driving purchasing compliance. This will greatly benefit UPD. Sales to the private hospital channel, which contributed 36.2% of turnover, grew by just 1.4% despite improved purchasing compliance. Volumes were up 8.8% due to increasing genericization and growth in the nonlisted acute hospital space. The continued decline of sales to independent pharmacies and other smaller channels is eroding UPD's market share, which is down to 26.2%. The improved purchasing compliance from both Clicks and the private hospitals as well as the stabilization of UPD's operational and service metrics will sustain its performance. UPD's total managed turnover, which includes fine wholesale sales as well as turnover managed on behalf of bulk distribution clients, was up 2% to ZAR 30.5 billion. In the prior year, UPD's total managed turnover was down 6.7%. So this is a good turnaround. The growing contribution of generics now 75.7% of volume versus 68.8% last year coupled with lower price inflation had a deflationary impact on turnover. The UPD team focused on improving quality and service levels and invested in its key account management principles to drive sales. During the year, UPD stock levels were elevated to improve stock availability for retail pharmacy and hospital formulary lines and to also improve access to GLP-1 medicines for its customers. The termination of excess property leases has been completed. We have, as Gordon pointed out, extracted the surplus costs carried during the wholesale system rollout and we have now also implemented more effective management practices to reduce variable employment costs. The UPD team achieved excellent cost management at a low growth of just 1.9% aided by its early investments in solar, batteries and electric vehicles. The wholesale systems implementation is complete. On the bulk side, the new systems have been rolled out to 7 distribution clients with the rollout to the remaining distribution clients on track to be completed by March next year. In support of our commitment to a sustainable carbon neutral future, we are in the process of ordering another 40 electric vehicles for use nationally. This completes the review of our trading performance for the year. It was a challenging year. Despite positive shifts in macroeconomic indicators, the early promise of an improved trading environment did not fully materialize. The resilience of our business model and our teams was tested. I am incredibly proud of our performance. It was forged by teams with an unrelenting focus on excellence. In retail, the teams delivered superior income growth and margin expansion coupled with truly outstanding shrink and wastage results. The continued growth of private label and exclusive ranges inspires confidence and the contribution of ClubCard to turnover is positive. Our new stores, pharmacies and clinic openings as well as the record number of store revamps exceeded expectations. Bongiwe Ntuli has inherited a healthy business from Vikash Singh. I'm confident that she will lead the team to even greater success. Gwarega Mangozhe and the new Rest of Africa team delivered a stellar performance with sales growth in every territory exceeding target due to strong delivery of the operational and customer service metrics. I'm going to call out Corne Visser and the Namibia team in particular who delivered a consistent exceptional performance. The UPD's team performance in the second half of the year was outstanding. The operational and customer service metrics are aligned to our goals and the work that Trevor McCoy and the team have put into improving the business has created positive momentum for the new financial year. Our group services team under the leadership of my colleague here, Gordon Traill, has been instrumental on delivering and might even say getting very, very close to the upper end of our medium-term financial targets. The IT team under his control has partnered well with the business to progress our IT investments. We still have so many opportunities to increase our scale, to leverage our loyalty and strengthen customer loyalty, to extend our private label offer, to extract efficiencies and to improve on our digitization. What matters most is our people, especially our store, pharmacy teams and our DC teams. Last night, we were privileged to have our Top 10 store managers and our Top 10 pharmacy managers as well as our Clicks and UPD DC general managers join our senior leadership team as we took our teams through our results after close of the market. This provided them with the opportunity to represent their teams and for us to publicly recognize their contributions. In presenting our results here today, Gordon and I acknowledge that we do so on behalf of our people. From our Board and executive teams to all of our people and their extended families, thank you. I will now conclude our presentation with the outlook. Although the macroeconomic indicators are improving, the consumer remains constrained. The consumer is therefore prioritizing value, convenience and rewards from companies that inspire trust. Our retail strategic pillars of value, convenience and differentiation supported by our private label and exclusive program and ClubCard loyalty program is aligned to the consumer needs and positions us for sustained growth. In distribution, our strategic pillars of quality, efficiency and customer excellence is fundamental to profitable growth. We remain well positioned to thrive in this environment due to our competitive advantage in defensive health and beauty sectors, our growing market-leading shares in core retail categories and in pharmaceutical wholesale and distribution, our sustained long-term growth opportunities underpinned by our value proposition and customer service and our increasing scale which enables us to maximize efficiencies and leverage it for effective execution and reach. Over the past 5 years, we invested in systems in both retail and distribution for growth. We have invested in Lee, a modern pharmacy management system to fuel our pharmacy growth. We invested in infrastructure and in the expansion of our store, pharmacy and clinic network to support growth. And we invested in adjacencies in health and beauty to extend our access to market segments in which we are underindexed. We are now poised to fully leverage these investments made to improve service and increase sales in our network. In the 2026 financial year, we will increase the number of UniCare 24-hour specialized pharmacy stores to a total of 5. The Sorbet and ARC customers are our most profitable ClubCard customers. And increasingly, we still have opportunity to increase ClubCard penetration in these businesses. Our first Sorbet master franchises for Botswana and Mauritius will be concluded in 2026 and we are on track to extend the number of Sorbet stores in South Africa. We will deliver on our medium-term target of 1,200 Clicks stores. In 2026, we will open another 40 to 50 stores and 40 to 50 pharmacies and over the medium term, we will open 10 to 15 UniCare stores. Our private label and exclusive program is core to our offering and we are driving towards our goal of achieving a 35% contribution to our front shop sales. The objectives outlined above require investments, which will be supported by our planned CapEx spend of ZAR 1.3 billion per annum over the medium term. The increasing scale of the business and requirement to plan for succession necessitated a review of our executive structure. In September, the group executive was expanded to 6 members to drive focus, create capacity for growth, invest in core capabilities and to prepare for succession in our usual disciplined manner. The expanded group executive portfolios in addition to the CEO and CFO covers Retail South Africa, Rest of Africa Retail, UPD, our investments in health and beauty and people. The complementary diversity profile, broad sector experience and track record of performance of the expanded group executive team significantly strengthens our leadership capability. Earlier, Gordon shared with you our pleasing performance against our medium-term targets. No wonder I remain confident of the group's capability to continue to delight shareholders by delivering on our medium-term targets. Thank you so much for listening. I will now hand over to Sue Hemp, who will assist us with taking your questions. Sue Hemp: The first set of questions I have come from Michael Jacks at Bank of America. Congrats on the solid results. I have 3. One, can you please elaborate a little more on the LEAP system implementation, expected benefits and whether it is a differentiator of Clicks or UPD versus peers? Bertina Engelbrecht: I can take that one. So first of all, Michael, thank you very much for the message that you’ve sent us. Let's talk a little bit. By November, we will have completed the rollout of LEAP to all our pharmacies. In my notes, what I said is now the next step for us post deployment is to really utilize the system in order for us to improve service levels and of course as well to increase sales. How will we do that? It's to ensure that the pharmacists when they are consulting with the customer has the opportunity to now also talk about expanded services, first of all, within our network; but importantly, some of the complementary medicines that the patient ought to be taking. When we take an antibiotic, ideally we should be taking a probiotic as well. So that's what we mean in terms of the expanded benefits. We are of course also because of our ability to service the customer much more quicker, what it means is the pharmacist has more time to consult with a patient that is standing right there with them. Differentiation, all of the pharmacy management systems were built at a time when there was no corporate retail pharmacy. And so what we have done is to acknowledge that retail pharmacy is the bedrock of our performance. And so what we have done is really to ensure that we've got a modern system, which no one else has, that will create for us an incredible advantage going forward. The process to develop a modern pharmacy management system will take years. Gordon, I’m not sure if you wanted to add anything. Gordon Traill: The only other point is probably the last point regarding does it give us a differentiation? Well, bottom line is it does give us a differentiation because there is no other system in the market just now that is modern and web based and our competitors are going to have to find something that they can use. Sue Hemp: His second question, market share trends are positive in many categories, but you lost some share in general merchandise. Has this been due to online or offline competition? Bertina Engelbrecht: The way that we look at the competitor is every competitor not only in South Africa in terms of bricks and mortar, but every online player within South Africa and every online player globally. That's really our competitive set because we had significant out of stocks in the first half of the year and there was a drought of supply in the market itself. And really what we have to take is we look at all of these opportunities and say where can we do better. And I would say we didn't do good enough and so now we are poised to really focus on that in our usual manner. And as I've noted, in the last quarter of the year, we were once again regaining market share in that legacy category of ours. I will not give up on it. Sue Hemp: His third question. You mentioned earlier in the year that you were accelerating on e-commerce. The online store and app looks great, but delivery options and lead times are still limited. What are you doing to address this? Gordon Traill: So I think we recognize that we can do better in this area. So over the next 12 months we are going to be replatforming our online system both on the app and the web and that's going to allow us further delivery options. But not only that, a lot of other functionality that we're going to be able to roll out. So I think the advice is watch this space and in 12 to 18 months, we should be in a very different position. Sue Hemp: Another set of questions from Michael de Nobrega at Avior Capital Markets. Well done on the great set of results. His first question. On the beauty and health care segment, growth has moderate yet Clicks has maintained market share despite increased competition and accelerated rollouts from peers. Could you please elaborate on how you see the competitive landscape evolving and where you view growth to come from in this category? Bertina Engelbrecht: Well, let me talk about the market in terms of 3 segments. First of all, thank you very much, Michael, for the comment. The market really is in 3 sectors. So first is the super high LSM customer, which is super protected against any of the economic indicators in the country and you see that really in the performance of ARC. Now that's the reason 5 years ago we took an investment decision to invest in ARC and so we've got that exposure to that premium beauty customer. And the way in which it works, ARC is an affinity customer. That customer comes and redeems the cashback rewards within the Clicks store. We of course play very, very solidly within the middle and the end of the market and there the things that we have done is of course we use our ClubCard program and of course what we do is as well, we've got private label and exclusive brands. And so that I think is great. We have to grow our market share. We have specifically elevated our execution in beauty and that's the 44 elevated beauty halls that I speak about and we have seen incredible growth in those stores. We are learning from what we've done there and we are improving even more. Our performance and market share in skin care is not by accident. It is because of the way in which we have changed the customer journey by bringing skin care much more to the front of the store itself. And then there's the lower end of the market. Now interestingly, we have got a private label brand actually at the lower end of the market called [ Swatch ], which in the SA Product of the Year actually won the SA Product of the Year award -- 2 actually of the awards. So I think great opportunity for us there. But yes, here we competed and that's the reason why the way which we are preferring to, if you will, respond to the changes in the market and competitive activity is to really stratify the market into these 3 broad sectors and to ensure that we are acting in order to respond to the needs of every one of those segments. Sue Hemp: His second question, could you please expand on the rationale for the WMS rollout across the 3 retail distribution centers? Do you expect any large operational disruption during the implementation and what efficiency or benefits do you anticipate once it's fully deployed? Gordon Traill: So the rationale was to create capacity because the ways of working on the previous warehouse management system limited the amount of product that we could get through these DCs. So in introducing the new warehouse management system, it allows parallel working and just allows throughput through those DCs and extends the life of these without further expansion. Expansion will be necessary at some point and we've been doing that in Centurion over a period of time. Do we expect disruption? I haven't been through our system implementation yet, but there isn't some disruption. But what I am pleased to say is that yesterday, we were actually picking up in the Cape Town DC above levels that we were doing in the prior year. So it's hard work and I really commend our systems implementation partner, our IT teams and especially our DC teams for working with us. I think we've got over the hump in that one and everything is really firing at Cape Town DC now. Sue Hemp: His third question. Clicks Group has built up a strong cash position of ZAR 3.2 billion. How are you thinking about capital allocation priorities going forward? In particular, would you consider accelerating store expansion or increasing share buybacks? Gordon Traill: I think we always look at investing in the business and that we've been doing on a consistent basis for a number of years and reinvesting in our systems and we've also increased the number of stores. We've also done some acquisitions over the past few years. We've set out what our dividend policy is. We’ve given the range of 60% to 65% and where the opportunity has come up, any excess cash has been returned to shareholders through share buybacks. But I don't think any of that is going to change over the next few years. We would consider expanding or accelerating store growth where the opportunity came up and we've done that in the past where in certain years we've grown store expansion by 100 stores where there's been an acquisition. Sue Hemp: Yes. Last question on post period trade is also asked by Sa'ad Chothia from Citi who says well done on the pleasing results. Can you give some color on post period trade? Bertina Engelbrecht: One of the teams actually asked the question last night and I said well, I'm not displeased. Gordon and I certainly am not displeased by the performance since we started the new financial year. Sue Hemp: His second question is what sort of inflation can we expect in FY '26? Gordon Traill: I think since our Reserve Bank is doing such a great job on inflation and it's got to be commended for that, you would probably expect that inflation is going to be remaining on the lower side. Bertina Engelbrecht: And if we could encourage the Reserve Bank to then also look at the interest rates, I think that the consumer would certainly welcome that. Sue Hemp: [ Ander Tyami ] from Invest Securities says please can you provide some color on occupancy costs in retail remaining flat year-on-year despite higher than guided store growth? Gordon Traill: I think the thing to bear in mind with occupancy cost growth is it's not actually rental related or it's not the rents and it’s largely the other aspects of store costs that include parking, et cetera. It does include some turnover rentals, but it's really the lowest element of the cost growth related to stores. Store cost growth sits in our ROU depreciation and our IFRS 16 charge. Bertina Engelbrecht: But it also would be fair to say, Gordon, that we have taken control of that. We put in metering for example, we check all of the bills that are coming through for payment. We don't take it for granted. We've invested in solar. So there are a number of things. We've got automatic switches for example in the stores to switch off electricity at night when it's not trading. So it's also not as a consequence of luck. We have done work to get us to that point. Sue Hemp: And it also asks about post period trade, which we've answered, but say particular store openings, including pharmacies. And I think we've given numbers in the presentation of 40 to 50 stores and 40 to 50 pharmacies. But if we get more opportunities, we will open more. Bertina Engelbrecht: We will. And maybe the point to call out is that the teams have promised me that we will get to number 1,000 by December. Sue Hemp: Jovan Jackson from Fairtree. How should we think about the normalization of intra-group profit on Unicorn stock? Do you recoup this through increased retail margin in FY '26? Gordon Traill: So this is a little bit of an odd year. Because of the Unicorn disposal in the prior year, what we had was we had an intra-group profit related to the Unicorn stock that we had purchased when Unicorn was still our subsidiary. So that's been unwinding during the year, which is where the intra-group profit comes through. That is not a one-off because that does move into retail that will sit in the retail division next year. So this year is an odd year. Sue Hemp: Kgomotso Mokabane from Sanlam Private Wealth says well done on the net 55 new stores. Can you give some color on the execution challenges or constraints that resulted in the bulk of openings being delayed until Q4 of the financial year? Gordon Traill: We would always prefer to open our stores earlier. What impacted us probably more last year was some weather-related challenges that impacted landlords that just pushed store openings later. But it's not something that we plan to do, but it was an unfortunate impact. Sue Hemp: Kgomotso also asks or says commercial and private label sales were both up strongly in double digits. And with internal inflation low, one would have expected a bit more of a pickup in volumes than the 2.1% reported. Can you give some color on what's driving the volume outcome? Gordon Traill: So we did have some really excellent growth in certain categories. Where it was probably a little bit slower in the year was on the pharmacy side and that was due to later opening of pharmacies, both this year and in the previous year when we couldn't open pharmacies. So although we've worked really well with the Department of Health, we still got over 100 applications for new pharmacies that are waiting to be considered there. So as we get these, we're really seeing a very nice volume boost in the pharmacy side and that also impacts the rest of the store as well as those pharmacies are rolled out because we see a real lift in front shop when we drop in the pharmacies. Sue Hemp: Another question from Kgomotso. With the rollout of the new pharmacy management system LEAP, have there been any teething issues or disruptions to operations? Gordon Traill: LEAP was a very different rollout because we could do it on a store-by-store basis so it was in a very controlled manner. So no, we haven't really seen any impact of the store rollout. Bertina Engelbrecht: I was also going to say one of the things that we learned through the UPD system is that we have invested in project management capability. And secondly, understanding the changed management must be integrated into any UPD particular project as well as training. So I think that's the reason probably, Gordon, even if you look at SEP upgraded UPD September last year, looking at the LEAP program, we're looking even WMS; I think they've all gone a whole lot smoother because we've taken the lessons and we have applied those lessons and we are trying to do better. Sue Hemp: Another question from Kgomotso. Can you comment on the performance of the 247 stores located in low income areas relative to convenience and destination formats? What percentage of these stores include a pharmacy component and have there been any unexpected trends or outliers in performance so far? Gordon Traill: Generally, these stores actually ramp up in terms of sales much quicker and have been performing ahead of the rest of the estate. I think the trends that you see are probably in line with what you would expect. You see a very big component of baby in those stores and because we offer such good guarantees in our electrical and electrical is also a favorite destination in these stores. So while it's better, it’s not dissimilar to the performance that we see in the other stores. Sue Hemp: A question from [indiscernible]. If 55% of population that's within 5 kilometers radius to Clicks, would that mean co-mobilization is possible? Bertina Engelbrecht: The way that we look at it is it's 53.2% to a Clicks pharmacy and remember, we've got 780 pharmacies. So not every store currently has a pharmacy because, as Gordon called out, we still have the gap that we're working to close with the Department of Health in terms of the issue of the pharmacy licenses. Sue Hemp: [indiscernible] says well done on the results. You mentioned that the wholesale market share loss is due to decreased sales to independents. Is this a strategic choice? Bertina Engelbrecht: Well, we've always said the reason we acquired the UPD business in the first instance was for it to be the preferred supply chain partner to Clicks in order to fuel Clicks' growth in pharmacy and that it does very well. And if you look over the period how the Clicks market share within UPD's wholesale channel has just grown and that's good for UPD. The second one is that UPD has got strength in terms of the listed private hospital groups where you see that happening. And of course partly it's because UPD up until probably the first half of the year was a little bit hamstrung by the effects of its systems implementation, but that has now recovered. But what is happening within the private hospital space is there's increased genericization. So that's having an impact there. Now are we super concerned about independence? Not necessarily and the reason for that is because we've always said UPD because of its low margins has to always focus on efficiency and profitability. And what we shouldn't be is a place where people use us just to circle through because they are managing their credit risk. Sue Hemp: Warwick Bam from RMB Morgan Stanley asks what are the challenges of The Body Shop? Bertina Engelbrecht: The challenges of the Body Shop is as always when you've got a change of ownership, first of all, there are some transition challenges there. The second bit is that the new owners, as one could expect, focus on the areas that they wanted to turn around first, which was the Body Shop corporate portfolio in both the U.K. and of course within the U.S. And what that meant is that product development and innovation, which is so critical to any beauty brand, was maybe put later on the agenda. Now that's where we are and we can see the new product ranges coming through. So I mean I think we are cautiously optimistic about what the future holds. Sue Hemp: His second question is about what we think about the medium-term prospects for the small electrical appliances sales growth. I don't know if there's anything more you want to add from what you’ve already said. Bertina Engelbrecht: We didn't have sufficient stock in the first half and the market had an oversupply. Sue Hemp: I have a very complicated list of questions here so I'll take them one by one. Given the disinflationary pressure on comparable store sales; volume growth, OpEx control and further total income margin expansion will likely be required to provide earnings support. With this in mind, could you provide a bit of color on, one, the GLP-1 opportunity for Clicks in SA? Gordon Traill: GLP-1s have been growing very, very fast over the past 24 months and we referenced that at the interim. To bear in mind on the high sales, that’s because we maintain a very low dispensing fee, our income that we generate from those GLP-1 is much lower than any sales growth. The opportunity would be as the originators genericize and that is where there would be likely to be some margin that's possible because generally in the generics, you're earning a higher margin than the originators especially on UPD side in terms of distribution. Sue Hemp: Secondly, is there any expected benefit to Clicks following the recent Supreme Court ruling allowing pharmacists to now administer HIV treatment? Bertina Engelbrecht: What we have done is in that particular case, we did provide commentary. Obviously, our public health agenda is how do you extend access to affordable health care. And you're talking here about a vulnerable segment of the population that we could most certainly support both through our pharmacy program. So we are reviewing very carefully the implications of the decision or the judgment and what, if any, how would we respond to that. But we are supportive broadly of the outcome of the judgment. Sue Hemp: Thirdly, the rollout of PCDT or primary care drug therapy pharmacist model and whether you're seeing any consumer traction here? Bertina Engelbrecht: We're probably seeing more traction in terms of the virtual doctor consultations and most certainly an increase in medical aid co-funded services through the clinics itself. So those are probably the 2 areas we'll continue to focus on. Sue Hemp: Four, are there any OpEx levers you can pull to drive positive operating leverage in existing stores? Gordon Traill: I think some of that is going to come out of the systems investment because that was the reason for investing in LEAP so to free up the time of the pharmacist to consult with patients and hopefully to deal with more patients in the same period of time. There are always opportunities that we've got because we can look at the same that we've done with UPD, rolling out smaller electric vehicles within the retail DC network because we saw that UPD managed to slightly reduce the overall transport cost for those. So we're always on the lookout. The big things that we've done, but we've always been able to eke out further efficiencies. Sue Hemp: And I think we've answered his remaining 3 questions which are on Africa inflation, the benefits of LEAP and the WMS possible disruption. [ Lulama Qongqo ] from Mergence Investment Managers says well done on the performance. On UniCare, how are the store economics of the 24-hour store versus a normal Flexicare with the pharmacy in it? What are the opportunities with this kind of format? Bertina Engelbrecht: Obviously it is about ensuring that we in the mind of the customer, in the mind of doctors and the health care profession are seen as a place to go to. So first, I think understand our position in terms of health care. What UniCare does? UniCare offers a comprehensive suite of services. So that's why we talk about the wound care clinic. In fact the catchment area, if your normal catchment area for a Clicks pharmacy is 5 kilometers, for a UniCare store it's actually 50 kilometers. And so you've got a much broader catchment area from which you draw patients. You now find that many of the specialist doctors actually refer their patients to a UniCare store. Thirdly, there is an opportunity for medical aid. So I think that the specific data point is that something like over 50% of medical aid members who go to an ER 24 service should not have gone there first if they could have gone to a doctor. So the fact that we've got a 24-hour doctor service attached to the 24-hour specialized pharmacy means that we can support medical aid scenes in that regard and of course the script flows into that store. There's other things such as for example diabetes management, the IV infusion clinics and the travel clinics. UniCare for example works a lot with corporates to drive vaccination. So very often corporate people that are traveling or local municipalities, the people that work for example in sanitation, they got to have certain vaccinations. And so it's a very, very different format; high, high, high service touch that we have there. Sue Hemp: Junaid Bray from Laurium Capital says congrats on the results. How much of a concern is Sorbet's spa's expansion into pharmacy? And with regards to your market share gains, who are you gaining market share from? Bertina Engelbrecht: I guess we're thinking about that one for a minute. First, I mean my own view always is competition is good because if we weren't doing a good job as a drug store, then no one would be interested in trying to emulate our success. So that's the first I'd take from that. The second is to always remember you mustn't be arrogant and you mustn't be complacent about your success. So that's the second part. Then we look at the competitors coming in and we understand that it's because we've been able to show them that you can do this successfully and profitably. And I think it's always been aware of what it is that they're doing and how do you respond to it. To really, really, really compete with us, you have to have an integrated pharmaceutical distribution, wholesale and retail pharmacy model supported by an independent group such as Clicks. And I think that is probably our single biggest advantage. Our single biggest advantage is that we've got a completely integrated strategy. And then of course the fact that if you spoke only about -- if you ask the customer maybe a pharmacy, well, we come up first consistently. Someone else comes up second not a grocer. And third comes up [ Clicks ] , which is a brand that we own. So I think that we are very well positioned without being arrogant and without being complacent because we are still nowhere as great as we could be. We are only on the path to greatness though. Sue Hemp: [ Junie from AAP ] asks with 47% of sales now promotional, do you see that as a new normal? And how will you protect margins if that level persists? Gordon Traill: I think if we look at the last few years, we have consistently grown promotional sales as a percentage of our total sales, which we've been happy to do because suppliers have worked with us because they wanted higher volumes and have funded the growth in promotions. It's also supported by the growth in our private label, which is at a higher margin and that's also allowed us to evolve margins over the last few years. I don't see that this is going to change. Sue Hemp: Craig Metherell from Denker Capital. Given the trading margin is near the top of the medium-term target range and you've alluded to not updating your targets at this point, could you provide any further detail around the margin profile going forward? Gordon Traill: I think we will always be aiming to evolve our margin, which is one of the graphs showed. However, we have also got to bear in mind that if you take something like the UniCare format, which is profitable and it's much higher turnover and to a certain extent that could result in a little bit of margin dilution, but not profit. So we've just got to bear that in mind over the next 12 to 18 months. But the rest of the business will be evolving the margin. Sue Hemp: I have some more questions from Kgomotso Mokabane from Sanlam Private Wealth. Can you give some color on how Flexicare is performing and whether it's starting to gain real traction or scale within the business? Also, are there deliberate plans in place to accelerate growth of the offering? Bertina Engelbrecht: We are working with the Discovery team. It would be fair I think to say that we are not satisfied with the performance of Flexicare. And so we are working with our partner, which is Discovery, to say what is it that we have to do to improve the performance of the Flexicare product. Sue Hemp: And I think in the interest of time, the last question from Kgomotso. Can you give some color on the rationale behind strengthening and expanding the group executive team? Where did you identify capability gaps or areas needing reinforcement? Bertina Engelbrecht: It's not so much about identifying gaps. It's about what is it that we have to do to ensure that we are positioned for the future. That's really what it is all about. So first South Africa, there can be no doubt South Africa has got tremendous opportunities for us to expand and it therefore made sense that we focus on South Africa and that is why Bongiwe Ntuli was appointed to specifically focus on South Africa. Then when I look at the Rest of Africa Retail and the complete unperformance of it made complete sense to say now what we do need is an executive that can focus specifically on the Rest of Africa because every market is different and we most certainly want to make sure that we get the offer right. So this is about Southern Africa and the areas in which we already are. If you look at Namibia as an example where we have added 2 stores in the last 12-month period, the forecast for Namibia's GDP growth is fantastic. Why would we not be there when it’s about focus on the Rest of Africa. The third one is around people. Are you seeing enough people in corporate affairs? And it was making sure that we do not neglect that in a retail business the people are the difference and that we needed to have a person at this level. And then finally, it's well, of course UPD. And then the final one is that we've made investments in adjacencies such as Sorbet and in M-Kem, which are all health and beauty. What we now need to do is to ensure that we've got dedicated focus on that as well. So that was the reason for expanding the group executive not gaps, but opportunities to do better. There being no further questions. Thank you so much, everyone, for dialing into our webcast. The questions that you asked were really great. It's made me think and I'm sure Gordon as well and we'll leave it at that. Thank you.
Operator: Greetings, and welcome to the Tri Pointe Homes' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Lee, General Counsel at Tri Pointe Homes. You may proceed. David Lee: Good morning, and welcome to Tri Pointe Homes earnings conference call. Earlier this morning, the company released its financial results for the third quarter of 2025. Documents detailing these results, including a slide deck, are available at www.tripointehomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call the most comparable GAAP measures can be accessed through Tri Pointe's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's Chief Executive Officer; Glenn Keeler, the company's Chief Financial Officer; Tom Mitchell, the company's President and Chief Operating Officer; and Linda Mamet, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug. Douglas Bauer: Good morning, and thank you for joining us today as we review Tri Pointe's results for the third quarter of 2025. I want to begin by recognizing our entire Tri Pointe team, their dedication and focus allowed us to deliver strong results in a period that continues to present challenges to the housing industry. In the third quarter, we exceeded the high end of our delivery guidance, closing 1,217 homes at an average sales price of $672,000 generating $817 million in home sales revenue. Our adjusted homebuilding gross margin, excluding $8 million of inventory-related charges, was 21.6%, while adjusted net income was $62 million or $0.71 per diluted share. We remain focused on creating long-term shareholder value. During the quarter, we spent $51 million repurchasing 1.5 million shares, bringing our year-to-date total spend to $226 million, representing a total of 7 million shares. This activity has reduced our share count by 7% year-to-date and by 47% since we initiated the program in 2016, underscoring our disciplined approach to enhancing shareholder returns. Additionally, we also strengthened our liquidity by increasing our term loan by $200 million with optionality to extend the maturity into 2029. We believe this incremental leverage is prudent, supporting capital efficiency, funding for our community count growth and continued flexibility to return capital to our shareholders. We ended the quarter with $1.6 billion in total liquidity, including $792 million in cash and a debt-to-capital ratio of 25.1% and a net debt to net capital ratio of 8.7%. Market conditions remained soft throughout the third quarter. Home buyer interest remains somewhat muted with lower confidence driven by slow job growth and broader economic uncertainty. However, we continue to see underlying demand homeownership among needs-based buyers. We anticipate that home shoppers are preparing to reengage when conditions stabilize, leading to more normalized absorptions. Our management team has successfully navigated multiple housing cycles, and we remain focused on near-term execution while staying aligned with our long-term growth strategy. In the short term, we are prioritizing inventory management, disciplined cost control and the sale of move-in ready homes while steadily increasing the mix of to-be-built homes over time. For long-term success, we continue to invest in both our core and expansion markets with the goal of scaling our operations, consistently growing community count and increasing book value per share to drive sustained shareholder returns. We are encouraged by the progress of our new market expansions in Utah, Florida and Coastal Carolinas. Development activity is well underway and strong local leadership teams are in place. While initial contributions will be modest, we expect these divisions to generate meaningful growth beginning in 2027 and beyond as they gain scale. During the quarter, we are pleased to open our first two communities in Utah, a key milestone for that region. A cornerstone of our strategy is to invest in well-located core land positions close to employment centers, high-performing schools and key amenities. We currently own or control over 32,000 lots, position us well for community count growth in the years ahead. We expect to end 2025 with approximately 155 communities, and we anticipate growing our ending commuting count by 10% to 15% by the end of 2026. The majority of this growth will be driven by expansion in our Central and East regions. This disciplined growth strategy enhances our operating scale, increases geographic diversification, and positions Tri Pointe for sustainable, profitable growth as demand improves and our expansion divisions mature. At Tri Pointe, our product is primarily targeted to premium move up buyers with financial strength, seeking better locations, larger homes, curated finishes and elevated lifestyles. This segment has demonstrated resilience even amid shifting market conditions, supported by strong income profiles, down credit and larger down payments and our backlog reflects this strength. Homebuyers financing through Tri Pointe Connect, our affiliated mortgage company have an average household income of $220,000 FICO score of 752, 78% loan-to-value ratio, an average debt-to-income level of 41%, consistent with recent quarters. These strong characteristics have reinforced the financial stability and quality of our customer base and the durability of our future deliveries. As consumer confidence improves, we expect pent-up demand to grow the pool of move-up buyers attracted to our premium communities and design-driven offerings that align with their lifestyle aspirations. Our premium brand community locations and innovative product design continue to differentiate Tri Pointe in the marketplace. We have the financial strength and operational discipline to invest through the cycle while returning capital to shareholders. Together, these strengths, along with an experienced management team, positions Tri Pointe to drive long-term performance and value creation. With that, I'll turn the call over to Glenn to provide additional detail on our financial results. Glenn? Glenn Keeler: Thanks, Doug, and good morning. I'd like to highlight key results for the third quarter and then finish my remarks with our expectations and outlook for the fourth quarter and full year. The third quarter produced strong financial results for the company. We delivered 1,217 homes, exceeding the high end of our guidance. Home sales revenue was $817 million for the quarter with an average sales price of $672,000. Gross margin adjusted to exclude an $8 million impairment charge was 21.6% for the quarter. SG&A expense as a percentage of home sales revenue was 12.9%, which is at the lower end of our guidance, benefiting from savings in G&A and better top line revenue leverage as a result of exceeding our delivery guidance. Finally, net income for the year was $62 million or $0.71 per diluted share, also adjusted for the same inventory related charge. Net home orders in the third quarter were 995 with an absorption pace of 2.2 homes per community per month. Regionally, our absorption pace in the West was 2.3, with the Southern California markets outperforming and the Bay Area experiencing softer market conditions. The Central region averaged 1.8 absorption pace for the quarter, with increased supply of both new and resale homes in Austin, Dallas and Denver impacted pace during the quarter, while Houston continued to outperform in the region. In the East, absorption pace was 2.8 led by strong results in our D.C. Metro and Raleigh division, while Charlotte was consistent with the company average. We invested approximately $260 million in land and land development during the quarter and ended with over 32,000 total lots, 51% of which are controlled via option. Looking at the balance sheet. We ended the quarter with $1.6 billion in liquidity, consisting of $792 million of cash and $791 million available under our unsecured revolving credit facility. As of the end of the quarter, our homebuilding debt-to-capital ratio was 25.1%, and our homebuilding net debt to net capital ratio was 8.7%. As Doug mentioned, we increased our term loan by $200 million to a total outstanding amount of $450 million and added extension rights that if exercised could extend the due date to 2029. The term loan is an effective source of additional liquidity to help fuel our future community count growth and other capital needs. Now I'd like to summarize our outlook for the fourth quarter and full year of 2025. For the fourth quarter, we expect to deliver between 1,200 and 1,400 homes at an average sales price of between $690,000 and $700,000. We anticipate homebuilding gross margin percentage to be in the range of 19.5% to 20.5%. We expect our SG&A expense ratio to be in the range of 10.5% to 11.5% and we estimate our effective tax rate for the fourth quarter to be approximately 27%. For the full year, we expect deliveries between 4,800 and 5,000 homes with an average sales price of approximately $680,000. We anticipate our full year homebuilding gross margin to be approximately 21.8%, which excludes the inventory-related charges recorded year-to-date. Finally, we anticipate our SG&A expense ratio to be approximately 12.5% and we estimate our effective tax rate for the full year to be approximately 27%. With that, I will now turn the call back over to Doug for closing remarks. Douglas Bauer: Thanks, Glenn. In closing, I want to thank our team members, customers, trade partners, and shareholders for their ongoing trust and support. We're proud to have been recognized once again as one of Fortune 100 best companies to work for in 2025. A reflection of the culture and values that drive our performance. While the near-term environment remains uncertain, our long-term outlook is very positive, and we are confident that our strategy, our people and our financial and operating discipline, position Tri Pointe Homes to deliver sustainable growth and long-term shareholder value. With that, I'll turn the call over to the operator for any questions. Operator: [Operator Instructions] Our first question is from Paul Przybylski with Wolfe Research. Paul Przybylski: I guess, first off, could you provide some color on the monthly cadence of your orders and incentives through the quarter? Glenn Keeler: Sure, Paul, this is Glenn. The monthly cadence was pretty consistent actually through the quarter. If you look at absorption, it was roughly the same each month, with September being a little bit better than August. And then on incentive, incentives were also consistent throughout the quarter. Incentive on deliveries were 8.2% for the quarter. Paul Przybylski: And then I guess your absorptions are getting down close to the 2 level. Is there an absolute floor that you want to maintain on your sales pace, i.e. increase incentives to keep a level? Douglas Bauer: Paul, it's Doug. It's a good question. I mean the industry is kind of working through a big -- it's like tudging through mud right now. And somewhere between 2 and 2.5 is kind of where everybody seems to be landing and if you're looking at -- we're really looking at a very strong community count growth in '26. So as we look towards that, and even under similar market conditions, we've got some pretty nice growth in orders going forward. Operator: Our next question is from Stephen Kim with Evercore. Stephen Kim: If I could just follow up on Paul's question here on the incentives, you said 8.2%, I think, of revenues or home sales. Were -- how much of those were financial incentives, if you sort of include closing costs and rate buydowns for purchase commitments and that sort of thing? Glenn Keeler: Stephen, it's Glenn. You're correct. It was 8.2% of revenue in the quarter and about 1/3 of those were financing related, including closing costs. Stephen Kim: Okay. And what do you -- how about forward purchase commitments specifically, do you use them very much? Linda Mamet: Stephen, this is Linda. Yes, we do. We primarily use forward commitments for advertising purposes and they do have good value in driving additional interest in traffic. But ultimately, as Glenn said most of our customers really don't need to have a significantly lower interest rate to qualify for the home, so they prefer to use more of their incentive dollars and design studio personalization. Stephen Kim: Yes. So like if you think of 1/3, let's say, the 35% or whatever that are financial incentives, how much of that 1/3 would you say is forward purchase commitments? Linda Mamet: It's very small, under 1%. Douglas Bauer: Yes, very small number. Stephen Kim: Yes. That's great. And then your average order ASP, not your closings ASP but your order ASP has come down to, call it, a 654, I think, this quarter. Last quarter, it was like about 665. So is it reasonable to think that eventually your closings ASP is going to be at roughly that kind of level, 650, 660? Glenn Keeler: It is, Stephen. I mean the mix within the quarter does play a part. But when you look at our growth next year of a lot of Central and East regions, and those do carry a little bit lower of an ASP versus the West. And so just -- it's really just mix for us more than anything else. Operator: Our next question is from Jay McCanless with Wedbush Securities. James McCanless: First one, the SG&A guide for the fourth quarter, it looks like you guys are getting much better leverage than what the top line would suggest. Are there some onetimes in there? Can you talk about how you're able to potentially get this figured SG&A to sales number? Douglas Bauer: No. We're all specific onetime there, Jay. It is just a little bit more revenue in the quarter with a higher delivery number, and that's what's really driving it. James McCanless: Okay. And then kind of -- that was actually going to be my next question. The gross margin guide is better than we were expecting. Is there some mix in there, more move up? Anything you can give us on that? Glenn Keeler: A little bit of mix. I think some of the divisions that continue to outperform our strong margin divisions like when you look at like Houston, Inland Empire and Southern California things like that have driven the mix of margin to our benefit. So that plays a little part into it, Jay. James McCanless: And then one more, if I could. Just kind of thinking about the newer markets you all discussed and just wondering what you all think ASP might look like next year, just given some of the smaller medium price markets that you're going to be expanding into? Glenn Keeler: We'll give that guidance next time, Jay, as we kind of roll out the plan and see what that looks like. But I don't think you're going to be too different than where we're at this year. Douglas Bauer: No, we're not getting significant contributions out of our new expansion divisions yet next year. So it should have a minimal impact. Operator: Our next question is from Alan Ratner with Zelman & Associates. Alan Ratner: Can you just update us on your spec position and strategy and how you're thinking about spec just in terms of the contribution to the business? And I guess just thinking forward to '26, you're going to enter the year with a backlog that's down quite a bit. So -- are you going to lean heavily on spec next year to kind of bridge that gap? Or is that kind of a TBD based on what happens in the spring? Douglas Bauer: Its Doug, Alan. We've got about 3/4 of our orders are running at specs as into the end of the year. All the builders have a little bit more inventory than what they anticipated. So we'll burn through that inventory going into the first quarter or so of next year and then get to a more balanced approach. Again, demand is very inelastic and we're going to continue to focus on price over pace as we go into the new year. We're just assuming similar market conditions. What we're really focused on is that strong community count growth even at similar market conditions, as I mentioned earlier, we'll have a really good order growth going into '26 and then '27. So we're really looking to the future while we've been dealing with some of the obviously, the challenges the market has posed to the entire industry. So that's kind of how we're looking at our approach. Linda Mamet: And just to add to that, Alan, we did reduce our total spec inventory by 17% quarter-over-quarter. Alan Ratner: Got it. Linda, is that total specs under construction or completed homes specifically? Linda Mamet: Both together. Alan Ratner: Got it. That's the total number. Perfect. Doug, you mentioned community count growth next year several times. I'm just curious, when you think about the pricing strategy there. Obviously, you guys have been very steadfast in your approach. When you open up communities, how do you think about pricing on those? Is the intention to kind of maybe come out of the gate with more attractive pricing and build up a backlog as you -- and then raise prices through the life cycle of the project? Or are you kind of maintaining a similar strategy to your active communities like you have an idea of what the value is and you're going to come to market with that price and whatever the absorption is, that's what it's going to be for the time being. Douglas Bauer: Yes. No, Tri Pointe, as you know, Alan, is more of a premium brand proposition. So we look at our value proposition as it enters the market. Sure, you'd love to start with some momentum, but there's not a any sort of material pricing thought process there because we're building along Main and Main, great locations, close to employment and great amenities. So the value proposition is what we're looking at. And frankly, as you said, I'm really -- my lens is to the future. We've been dealing with choppy market conditions, in my mind, for about 18 months. So -- and if it's more of the same next year, so be it, but we're going to have a strong community count and we'll price the product appropriately to the marketplace to have the right value proposition that we propose. Operator: Our next question is from Mike Dahl with RBC Capital Markets. Unknown Analyst: Is Chris on for Mike. Can you just talk through your initial thoughts around the administrations, affordable housing push? What conversations have you had to date? And how are you thinking about the opportunities and risks to your operating and capital allocation strategy? Douglas Bauer: Yes. No, obviously, several builders have already made comments on that, and we're kind of the tail wagging the dog here, so to speak. But we share the administration's goal of providing more housing in the U.S. As Duly noted, I mean, the industry has been underbuilt and been doing this for 35 years. It kind of started out to the great financial crisis that makes me very old. But we welcome working with the relevant stakeholders at the federal, state and local levels. It's a very complicated interrelated discussion. Most of it happens at the local and state level but we look forward to working with the administration wherever Tri Pointe can help. We will build -- I mean we've got 32,000 lots that we own and control. We're opening very strong community count growth of up to 15% next year. So we'll be doing our share of bringing in more communities that will be attainable for our buyer profile. Unknown Analyst: Makes sense. Yes, the community count growth was definitely encouraging. And just shifting to the 4Q gross margin guide. Could you just help bracket some of the big moving pieces moving pieces around the sequential step down in gross margin? How much of that is incremental incentives, mix, stick and brick, just help frame that for us. Glenn Keeler: Yes. This is Glenn. Good question. And it's not really stick and bricks or anything like that. I think it's a little bit of mix but also just we've increased incentives as we've gotten through the year. We have spec homes to sell and close within the quarter, and those generally carry a little bit higher of an incentive. So all that kind of goes into that margin guide. Operator: Our next question is from Ken Zener with Seaport Research. Kenneth Zener: I am hoping you can walk us through kind of the logic, not giving guidance or anything, but just kind of understand the cadence. So looking at starts and orders, it looks like you guys did about 500 starts this quarter in the third quarter versus orders that were higher than that. So as we exit the year, how are you thinking about starts versus orders because your inventory is down -- units are down about 30% year-over-year. So I'm just trying to understand, since you're talking about opening communities, And Doug, I think you just said upwards of 15%? Or is that what you had said as well community growth next year potentially? Douglas Bauer: We indicated that community count growth will be 10% to 15%... Kenneth Zener: So I'm just trying to see how we actually get these right, the units in the ground, which could portend future closings. So that's why I'm focusing on the starts versus the order and how you're thinking about that. Thomas Mitchell: Yes, Ken, this is Tom. It's a great place to focus on as we've been focused on it as well. As Doug mentioned earlier in the Q&A, we're focused on getting our business back to a more balanced approach of spec to be build. And you're right on with our starts for Q3 was about 577 and that's down significantly from where we were in Q1 and Q2. But again, it's relative to that balanced approach. I think you'll see Q4 starts more comparable with what Q3 was just because of the amount of in-process under construction homes that we have available, and that's our #1 goal to move through that inventory. And then after that, we'll move to a more normalized strategy, which takes into account absorption on a community-by-community basis. Kenneth Zener: What I heard you say 4Q starts is going to be similar to 3Q. Is that right? I mean that means you're ending inventory. I'm just trying to imagine the growth you're having in community count with the actual contraction in your inventory units. I guess I'm trying to -- is that -- I think if there's some greater inflection that I don't understand. Thomas Mitchell: No, I don't think you're missing anything there. I mean as you look at it on a community-by-community basis, obviously, when we're moving into new communities, we're making the necessary starts relative to our anticipated demand. But where we have existing communities, obviously, we have excess inventory that we're going to be working through before we move to a more normalized balance start strategy. Kenneth Zener: Appreciate it. And then on the community count growth, most of that G&A, the fixed G&A already kind of loaded in there. Is there any big lift we should expect there? Glenn Keeler: Not too much of a lift on the G&A side, maybe some incremental -- that's more field than sales that will exceed to open those communities, but... Operator: There are no further questions at this time. I'd like to turn the floor back over to Doug Bauer for closing remarks. Douglas Bauer: Well, thank you, everybody, for joining us today. We're looking forward to sharing our growth plan and strategy for 2026 and beyond with you at our next quarter's call. And as we go into 2026, we're very excited and bullish about the future for housing. So thank you, and talk to you next quarter. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time.
Operator: Good morning, and welcome to Dover's Third Quarter 2025 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Chris Woenker, Senior Vice President and Chief Financial Officer; and Jack Dickens, Vice President of Investor Relations. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir. Jack Dickens: Thank you, Chloe. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through November 13, and a replay link of the webcast will be archived for 90 days. Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn the call over to Rich. Richard Tobin: Thanks, Jack. Good morning, everybody. Let's get started on Slide 3. Overall, we are pleased with Dover's third quarter results. Revenue was up 5% in the quarter, driven by broad-based shipment growth in short-cycle components, continued strength across our secular growth end markets and very encouraging results from recently closed acquisitions. Order trends continued to positive momentum in the quarter, up 8% all in year-over-year or 4% organically, providing good visibility for the remainder of the year and into 2026. Margin performance in the quarter was excellent with a record consolidated EBITDA margin of 26.1%, up 170 basis points over the comparable period as a result of positive mix impact from our growth platforms, solid execution and our rigorous cost containment and productivity actions, all 5 segments posted margin improvements during the quarter. All in, adjusted EPS was up 15% in the quarter and is up 17% year-to-date. Capital deployment remains a key driver of our double-digit earnings growth. This year, we increased our investments in high ROI capital projects focused on productivity and capacity expansions as well as targeted footprint optimization. Our balance sheet strength is an advantage that provides flexibility and attractive optionality as we pursue value-creating bolt-on acquisitions and opportunistic capital return strategies. We have a constructive outlook for the remainder of 2025 and into '26. Despite some macroeconomic uncertainty, underlying end market demand is healthy across much of the portfolio and is supported by our sustained order growth. As a result, we are increasing our full year adjusted EPS guidance from $9.35 to $9.55 to $9.50 to $9.60. Let's go to Slide 5. Engineered Products revenue was down in the quarter on lower volumes in vehicle services, partially offset by solid performance in aerospace and defense components. Despite the organic volume decline, absolute segment profit improved in the quarter on well-executed structural cost management, product mix and productivity initiatives. Clean Energy & Fueling was up 5% organically in the quarter, led by strong shipments in clean energy components, fluid transport and North American retailing, fueling, software and equipment. Our recent acquisition of Site IQ, a provider remote site monitoring of fueling sites is off to a good start. Margin performance, as expected, was solid in the quarter, up 200 basis points on volume leverage and a higher mix of below-ground fueling equipment and restructuring benefit carryforward. Imaging & ID was up 3% organically in the quarter and growth in our core marking and coding business and in serialization software. Margin performance remains very good in the segment at 29% adjusted EBITDA margin as management actions on cost to serve and structural cost controls continue to drive incremental margins higher. Pumps & Process Solutions was up 6% organically with growth in single-use biopharma components, thermal connectors for liquid cooling and data centers and precision components and digital controls for natural gas and power generation infrastructure. SIKORA, which we acquired at the end of the second quarter is significantly outperforming our underwriting case. Segment revenue mix, volume leverage drove margin improvement on solid production performance and volume in secular growth exposed end markets. Revenue was down in the quarter in Climate & Sustainability Technologies and comparative declines in food retail cases and engineering services, which were collectively down 30% year-to-date. Industry-wide shipments of door cases are at a 20-year low in part because of tariff uncertainty has caused customers to delay maintenance and replacement upgrade spending. These projects cannot be delayed indefinitely and encouragingly, we saw a material acceleration in booking rates in the quarter, which signals volume improvement moving forward. Meanwhile, the segment had record quarterly volumes in CO2 systems as well as double-digit growth in heat exchangers and accelerating demand for liquid cooling of data centers and improving sentiment in European heat pumps. Despite the lower top line, the segment posted 120 points of margin improvement on productivity actions and a higher mix of U.S. CO2 systems and brazed plate heat exchangers. I'll pass it to Chris. Christopher Woenker: Thanks, Rich. Good morning, everyone. Let's go to our cash flow statement on Slide 6. Year-to-date free cash flow was $631 million or 11% of revenue, up $96 million over the prior year has increased year-over-year operating cash conversion more than offset an increase -- an expected increase in capital spending. Free cash flow generation accelerated in the third quarter, in line with our expectations and with historical trends, and we expect a further step up in the fourth quarter, which is historically our highest cash-generating quarter. Our guidance for 2025 free cash flow remains on track at 14% to 16% -- on strong conversion of operating free cash -- operating cash flow. With that, let me turn it back to Rich. Richard Tobin: Okay. I'm on Slide 7. Let's provide a little more detail on the bookings in the third quarter. Q3 consolidated bookings were up 8% in total and 4% organically from the prior year. I call out the 25% bookings growth in Climate & Sustainability Technologies a welcome sign as we expect the segment to return to growth in the fourth quarter on broad-based volume demand. On Slide 8, we highlight several end markets that are key drivers of our revenue growth in 2025 and beyond. We are benefiting from major investments in power generation, electricity infrastructure and artificial intelligence across multiple businesses. We are directly exposed to data center build-out by hyperscalers and the secular shift from air cooling to liquid cooling of new chip technologies. Between our thermal CPC connectors, which primarily connect to the back of the server rack manifolds and directly to the chip as well as our large and XL heat exchangers from SWEP that are key components in cooling distribution units and chillers, we expect to generate over $100 million of revenue in this year alone. Our recently closed SIKORA acquisition expands our exposure to electricity infrastructure through measurement and inspection control solutions for high-voltage polymer coated wires and cables, a direct beneficiary of growing electrification trends and demand for customers for product quality assurance and improvement. All this electricity has to come from somewhere and natural gas remains the most viable option for scalable, reliable energy for the foreseeable future. Our Precision Components and OPW Clean Energy businesses participate across several points of the natural gas infrastructure value chain, including gas and steam turbine components, midstream gas pipeline, engines and compressor infrastructure and valves and vacuum jacketed piping used in liquefification and gasification of LNG. End market data and customer discussions indicate a very bright future for these businesses. Our single-use biopharma components platform has returned to its long-term double-digit growth trajectory on volume demand and new product launches. Continued advances in biological drugs and therapies, coupled with an industry shift towards single-use manufacturing processes are fueling sustained high-quality growth for our products. In CO2 refrigeration, we maintain a clear market leadership position in the U.S., supported by a fully platformed product portfolio and a retrofitted plant in Conyers, Georgia that provides strong competitive moats in product performance, lead times and scalability. Economic and regulatory tailwinds are driving the transition to CO2 systems as large national retail chains accelerate their adoption with a line of sight of continued double-digit growth into 2026. A significant majority of the acquisition capital deployed in the past 5 years has been directed towards these high-end growth markets, which remain top priorities for continued investment. Collectively, these markets now represent roughly 20% of our portfolio and are contributing meaningfully to our margin expansion. Moving to Slide 9. Our investments in center-led functions and ongoing focus on productivity improvement are key drivers of our margin expansion. We have made significant progress building out our shared back-office services, digital capabilities and internal engineering services through the India Innovation Center. These center-led functions enable our operating companies to concentrate on what matters most: serving customers, driving new product development, and responding to market-specific needs while leveraging Dover's global scale and balance sheet. This structure remains a core competitive differentiator of our operating companies, and we extract cost synergies from our existing and acquired portfolio companies. Our Dover Business Services, Dover Digital and Innovation Center are now fully developed and integrated across the organization. With these operations fully built out, we expect meaningful scale and scope benefits as we continue to grow organically and through acquisitions, further reducing average transaction costs and driving attractive margin accretion. We believe that our shared back-office services will be the largest nonproduct beneficiary of artificial intelligence implementation. An important part of our business model is to drive productivity through targeted efficiency and fixed cost reduction programs. On the right are some of the key ongoing projects that we had highlighted in previous quarters, including our recently announced transition of the Anthony Glassdoor manufacturing from Sylmar, California, into our existing Hillphoenix refrigerated case facility in Richmond, Virginia, a move expected to deliver significant [indiscernible] these initiatives are projected to contribute $40 million in incremental carryover benefit in 2026 with additional benefits extending into 2027. Let's finish up on the outlook Slide #10. We expect Engineered Products to improve sequentially in the fourth quarter on double-digit growth in aerospace and defense components and improving market trends and competitive dynamics within vehicle services. Our outlook in Clean Energy & Fueling remains solid across most of the businesses. North American Retail Fueling is starting another capital deployment cycle and the outlook in Clean Energy components is positive as well. Vehicle wash continues to experience some headwinds, although we would expect that to recover in [indiscernible]. Imaging & ID should continue its long-term steady growth trajectory given its significant recurring revenue base and solid underlying demand with an additional upside from serialization software. We forecast this segment to continue its double-digit or its single-digit organic trajectory. The outlook for Pumps & Process Solutions is strong and broad-based with attractive top line forecast across single-use biopharma components, thermal connectors for liquid cooling and data centers and precision components for natural gas infrastructure. Bookings and backlog trends in our long-cycle polymer processing signally improving conditions and the business should return to growth in the fourth quarter for the first time in over 2 years. And finally, Climate & Sustainability Technologies should grow in the high single digits organically in the fourth quarter on continued strength in CO2 refrigeration systems and heat exchangers as well as growth in refrigerated door cases from improved booking rates. The full year guidance is on the left. We expect acceleration in our top line in the fourth quarter, driven by our secular growth businesses and sequential recovery in certain capital goods end markets. We are well positioned as we begin to transition into 2026 and our advantaged balance sheet provides attractive optionality to selectively play offense to continue driving shareholder returns. I'll pass it back to you, Jack. Jack Dickens: Okay. I guess, Chloe, before you get to the script on questions, if I could just interject quickly. We've had a lot of pickup in our analyst coverage over the last 12 months. So if we could please limit the Q&A to just 1 question, we would greatly appreciate that. I'll turn it over to you, Chloe. Operator: [Operator Instructions] We'll take our first question from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Rich, you mentioned an improving sequential outlook in vehicle services, improved booking rates in refrigerated door cases. But did you see improving bookings cadence across Q3 for the company? And would you expect book-to-bill over 1x in Q4? And then do these improvements and relatively easy comps set you up for better organic growth here in '26, at least closer to that algorithm that you've given out of 4% to 6% over time? Richard Tobin: That's about 5 questions, Andy, but let's -- I know where you're headed. Look, the year-over-year reduction in refrigeration on the basic retail refrigeration equipment, has cost us about 1.5% to 2% of organic growth on a full year basis. So the good news is that we've been able to cover that largely because of our growth platforms and the margin improvement over year-over-year. And the good news also is, which I called out in the press release is that because booking rates have accelerated, particularly in there, and we will do quite well on the comparative top line in that business that we're looking at close to $140 million, $150 million revenue headwind that we absorbed this year. So do we get it all back next year? We'll see, but I think we're going to get a significant portion of it back if the Q4 trajectory holds as we go through the end of the year. Operator: And we'll take our next question from Steve Tusa with JPMorgan. C. Stephen Tusa: It sounded like Andy was mowing the lawn there or something. I have surmised me of back-to-school, one question in 32 parts. But the -- just the implied organic in the fourth quarter, I mean, you have a pretty wide range there, but the low end of that range seems to be in and around the mid-single digits for the fourth quarter? And then totally unrelated follow-up to that. Are you guys thinking about buying back stock? I mean you guys have a ton of cash and you sold probably a subpar asset for a multiple that's now above where your stock is trading. So any thoughts around a potential buyback as well? Richard Tobin: Yes. I think if you go back and look in the transcript, you'll see the corporate speak for, we think our shares are cheap, and we're likely to intervene, number one. And number two, yes, I think that from -- on an organic basis, Q4 should be our highest quarter in the year. Operator: We'll move next to Jeff Sprague with Vertical Research. Jeffrey Sprague: Rich, just back to the sort of the restructuring. Is this the totality of sort of what you foreshadowed for us on the Q2 call? Or are there sort of other actions in place that could then even be additive to this? Or is this pretty much in flight what we should expect for 2026? Richard Tobin: We had a big debate in here whether to not... Jeffrey Sprague: I don't know if that was my... Richard Tobin: No. All right. I'll answer it again. That is -- look, we had signaled that we were going to give an update in Q3. So that's where we are in Q3 right now. I expect that number to increase as we close the year. It's just going to be a question of the timing, whether it's '26 or '27, but that number should go up. Operator: And we'll take our next question from Nigel Coe with Wolfe Research. Nigel Coe: I promise I'll keep this just to one question. So -- I promise I'll try... Richard Tobin: Nigel, we get complaints for cutting people off despite the fact we have the longest conference call. But anyway, go ahead. Nigel Coe: No, I know. I know. I know. You got a lot of -- you're a popular company. Any initial thoughts on '26? And I'm not asking for a range here, but it just seems that a lot of the business that are dragging today could well be meaningful tailwinds in '26. And if these secular growth businesses continue, then '26 organic could be quite acceleration. So just any thoughts as you see things right now for '26? Richard Tobin: Yes. I mean we like the setup. In a strange way, we took the headwinds that we had not forecasted in Refrigeration based on our discussions with customers. But because of rollover restructuring and a lot of productivity and some really healthy mix, we've been able to absorb it this year. So the good news is that the setup comparatively looks good there. I'm not aware of any business within the portfolio that's forecasting down revenue for next year. Now clearly, somebody will get it right and somebody will get it wrong, but it's not like the situation that we had with Maag in the past where it was cyclical and we knew it was going to come down. The rest of it, I think that we can look at the trajectory in Q4. If you put on just regular seasonality next year, I think the setup looks really good. Operator: And we will move next to Amit Mehrotra. Amit Mehrotra: Congrats, operator. That's a pretty good attempt on my last name. I appreciate it. Rich, if we go back 6 months, it feels like kind of a millennial ago, but you were kind of pressured by lapping $100 million in the back half kind of right off the top, and it looks like that's kind of been absorbed. As you think about rolling up the plan for '26, I mean, are you -- do you see the same -- I guess the macro backdrop has gotten better, but do you still kind of feel like that kind of conservatism is appropriate as you think about '26? And then just related to that, the margins have been incredible this year, I think all-time record in the third quarter. It feels like margins can move up again in '26, just given all the restructuring you did, but I just want to understand kind of you're starting off of a very high base and would love to get your thoughts on margin progression into '26. Richard Tobin: Sure. I'll deal with the margin one first. You do have an amount of mix effect within the segments. So I think we'd have to consider that to a certain extent, but absolute profit will be fine. I don't think that we're overearning from a margin point of view right now. If I look at each individual product line, there's nothing esoteric in there that said, yes, well, we really killed it here. So I don't expect them to come down. Look, the fact -- our business model, if we do things correctly, always has rollover restructuring and productivity. We don't -- that thing -- we can do this every year for multiple years. And that's always a little bit of a hedge that we have for either volatility in the top line or kind of a negative mix change. So that's positive. So to the extent that we get the product mix that we like and we're rolling forward another $40 million, that's positive to margins overall. So I think that we're good there. In terms of the setup, I think I answered it before. We took a pretty big headwind in Refrigeration here. It's almost twofold percent points of growth of organic growth, we're at a 20-year low in terms of unit volume into that space this year. I mean, do we come all the way back. But again, I think that let's -- we've got a pretty heady number in terms of organic growth for Q4. Let's get that under our belt and let's see where bookings are and everything else. But like the setup, as I said before, we like. Operator: We'll move next to Scott Davis with Melius Research. Scott Davis: Can you guys give some context to your data center exposure and kind of terms maybe around content per megawatt or opportunity per megawatt? I mean, do you look at it that way or... Richard Tobin: No. I mean, look, we have people that try to look at that way, but let's -- I mean, to be honest, in terms of participation, it's meaningful for us in terms of the volume and the margin. But in terms of the entire ecosystem and the billions of dollars being spent, we are who we are. Our focus is more getting the spec on the reference products for the reference customers. And that, I think that we've been highly successful in doing that on both the brazed plate heat exchanger side and the thermal connector side. So to the extent that the market grows the way we see it, we don't see a change in the competitive stack in those particular product lines. So if it grows, we'll get our fair share. Operator: We'll take our next question from Joe Ritchie with Goldman Sachs. Joseph Ritchie: Rich, can you just give a little bit more color on that SIKORA acquisition? I think you said that it was significantly outperforming. So that's great to see. And then maybe just give us an update on your deal pipeline and the potential to do more in the next 12 months? Richard Tobin: Yes, sure. SIKORA, I think that we had a head start there because we had been working with SIKORA with our Maag polymer processing equipment business on our own for our own uses, and then we got to know each other. So we were able to close that because as we learned about the company, not only for our own particular use, but what they were doing and where their exposure was, we really liked it. And knock wood, it's really done fantastically in Q1, significantly better than our deal model would have incorporated for the base year. We are in the process of integrating SIKORA. So if you take a look at that back-office slide that we put in there, in all 3 areas, we're working [indiscernible] of assembly operations pretty much done. So we're going to take what was a single site manufacturing site and probably expand it at least in 2 other different geographies over the next 24 months. So that's great. In terms of the deal pipeline, if you look at the overall stats on M&A, it looks like M&A is up significantly, and it is, but it's really very large deals and corporate breakups and a variety of things. The mid-market where we kind of play has been slow. We -- in terms of pipeline, we got an interesting pipeline there. In terms of valuation, valuations, I think they're trying to find its footing, and that's reason [indiscernible] so we're being selective as usual. But we've got enough in the pipeline that I would expect that we'd close on a couple of things over the next 12 months. Operator: We'll move next to Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to ask on orders. So a positive update here in Q3, up 8% or 4% organic. But could you provide some color or thoughts on the order to revenue, I guess, conversion for the company? Because you've had pretty good orders for a while now, and it hasn't really converted to the top line to the same degree that we've seen in orders. So I guess, any kind of thoughts on that? And it seems like going forward, you do expect better conversion, whether it's into Q4 or '26. Richard Tobin: Yes. I mean the amount of intention that orders get in organic orders and extrapolate that into revenue is one of the great mysteries in life. But we continue to give the data [indiscernible] that is more reflective than to me than orders kind of in terms of trajectory and everything. But you're right. I mean, look, at the end of the day, we would have liked organic growth to be higher this year. I think it's been really isolated in 2 particular businesses. We had an inkling on the vehicle services. We would probably have a challenging year. We missed it on refrigeration, clearly. The good news about that is we don't believe that, that has lost revenue. It's just been pushed largely into '26 now, although we'll get a nice uptick next year. So orders are up. Portfolio is in pretty good shape. I mean if you see segments, we see it down to the individual operating company basis. As I mentioned on an earlier -- to an earlier question, we don't see a cyclical decline in any portion of the portfolio rolling into '26. And that's probably the first time that we can say that in a couple of years. Operator: We'll take our next question from Joe O'Dea with Wells Fargo. Joseph O'Dea: Rich, you made the comment about how you're not aware of any businesses in the portfolio that are forecasting revenue down next year. I guess I'm curious about which ones you're most excited about the growth potential, just when you think about coming off of the Maag, SWEP, Belvac kind of situation last year and now you get sort of cases and doors in the vehicle lift side. And so just thinking about what could be poised to sort of deliver kind of growth that you're getting excited about next year? Richard Tobin: Sure. We highlight the growth platform. So I think you can go take a look at that. We think that we are in what should be a 2- to 3- to 4-year CapEx cycle in the fueling business overall, inclusive of the cryogenic components and everything that we bought in that space. So I think what was our growth this quarter like 5% organic, which is pretty good overall. And we don't see that slowing for the foreseeable future for a variety of reasons, whether it's customer CapEx or regulatory and everything else. Refrigeration, I think we've beaten that one to death at this point. We don't -- Belvac is growing this year. We -- I think it will grow some next year, but that's not going to move the needle in comparison to refrigeration and what's happening in brazed plate heat exchangers. Vehicle services, we'll see. I mean it's been a tough year because a lot of that is exposure to Europe. It's a little bit early to make a call on Europe, but I don't expect it to decline going forward. And actually, the management has done a really great job on the cost structure. So even despite the top line headwind that you see this year [indiscernible]. Joseph O'Dea: You cut out at the end, on me, but I heard through management doing a great job on cost structure and vehicle lift. Richard Tobin: Yes, yes. So what I'm saying is if it grows a little bit next year, the incremental margin should be positive. Operator: We'll take our next question from Deane Dray with RBC Capital Markets. Deane Dray: On Imaging, can you expand on the point about serialization software, kind of size what the opportunity is in some context, please? Richard Tobin: Sure. It's 16%, I guess, of the total revenue of the space. Christopher Woenker: Yes. It's about $60 million, $70 million. Richard Tobin: Anyway. Yes, it's levered almost exclusively to pharma. So as pharma builds out production lines, that's when we sell the software and the recurring revenue associated with it. I think that everybody is pretty well aware of what's going on in kind of incentivized reshoring of pharma. And I think that we'll get our fair share of that. Operator: We'll take our next question from Julian Mitchell with Barclays. Julian Mitchell: I just wanted to understand, Rich, a little bit better sort of how you've seen the demand environment play out because your tone is quite upbeat on the top line, but the revenue guide is reiterated. And so I guess to put a finer point on it, I wondered if any of the segment revenue assumptions for this year have changed since the figures you guided for in July and whether there had been anything in the bookings that had surprised you positively the last few months or so? Richard Tobin: Sure. Clearly, we missed on retail refrigeration, by a significant amount. All the customer information that we were getting, it was on the come. I think some of the commentary that we gave intra-quarter when we can see that it wasn't coming, we were like, okay, now it's not coming, but we're chasing our tail a little bit. So the quantum of that loss on a full year basis is 1% or 2% of organic revenue growth that we had. Now it's going to flex now because the orders popped. So at least optically, we'll have a good look in Q4 [indiscernible] $130 million, $140 million of revenue that we've got to make up year-over-year -- we'll take half of that growth for next year, Julian, at the end of the day. The balance of the businesses, the trajectory is fine in terms of orders. We always have to be a little bit careful in Q4 because we're guessing about our customers' behavior on their own inventory at the end of the day. But I think that someone asked earlier about -- someone did the math on the squeeze for revenue growth in Q4, and that's fair. So it stays within our window. It gives us a little bit of cushion just in case December is light in terms of shipments. But overall, there's really the only significant change is that biopharma hung in there because there was some thought about well, was this restocking? And clearly, it's not. We've run the numbers on that. So it's been pretty consistent in terms of demand and should be consistent in Q4. Same thing with Thermal Connectors. So overall, there's a little bit of cushion on the revenue side in Q4, but the trajectory and the only thing that's changed is we lost basically a quarter of retail refrigeration. Operator: And I would now like to turn the call back to the presenters for any additional or closing remarks. Jack Dickens: No, Chloe, you can wrap up. Operator: Thank you, everyone. This concludes our question-and-answer period and Dover's Third Quarter 2025 Earnings Conference Call. You may now disconnect your line at this time, and have a wonderful day.
Operator: Hello, everyone, and thank you for joining the Univest Financial Corporation Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instruction] I will now hand over to Jeff Schweitzer, President, Chairman and CEO of Univest Financial Corporation. Please go ahead. Jeff Schweitzer: Thank you, Claire, and good morning, and thank you to all of our listeners for joining us. Joining me on the call this morning is Keim, our Chief Operating Officer and President of Univest Bank and Trust; and Brian Richardson, our Chief Financial Officer. Before we begin, I would like to remind everyone of the forward-looking statements disclaimer. Please be advised that during the course of this conference call, management may make forward-looking statements that express management's intentions, beliefs or expectations within the meaning of the federal securities laws. Univest's actual results may differ materially from those contemplated by these forward-looking statements. I will refer you to the forward-looking cautionary statements in our earnings release and in our SEC filings. Hopefully, everyone had a chance to review our earnings release from yesterday. If not, it can be found on our website at univest.net under the Investor Relations tab. We had a strong third quarter, reporting net income of $25.6 million or $0.89 per share. This was an increase of $7.1 million or 38% compared to the same quarter in the prior year, primarily due to continued growth in our net interest income and margin, combined with prudent expense management as expenses are only up 2% year-to-date compared to the prior year. While loan outstandings contracted slightly during the quarter by $15.7 million, production has remained solid through the first 9 months of the year. However, we continue to be impacted by early payoffs and paydowns. Year-to-date, new commercial loan commitments through September 30 were $808 million compared to $659 million in the prior year. However, this has resulted in contraction in loan outstandings year-to-date of $41.1 million compared to growth of $163.5 million in the prior year. Deposits increased significantly during the quarter by $635.5 million during -- predominantly due to the seasonal build of public funds deposits of $473.2 million. Excluding the build in public funds deposits, deposits increased $162.3 million during the quarter. During the second quarter of this year, we recorded a $7.3 million charge-off related to a commercial loan relationship that had been placed on nonaccrual and had a $16.4 million carrying balance as of June 30, 2025. As of September 30, 2025, the carrying balance of loans and other real estate owned related to this relationship totaled $13.9 million and $1.4 million, respectively. The $13.9 million of loans is secured by commercial real estate, which is under the control of a court-appointed receiver. The receiver has entered into an agreement to sell the property, which is subject to court approval. If the sale is approved by the court and consummated in accordance with the executed agreement, we expect the proceeds will adequately cover our carrying balance, resulting in no further charge-offs. With regards to the $1.4 million residential OREO asset, the carrying balance is supported by an appraisal and eviction proceedings are underway. Before I pass it over to Brian, I would like to thank the entire Univest family for the great work they do every day and for their continued efforts serving our customers, communities and each other. I'll now turn it over to Brian for further discussion on our results. Brian Richardson: Thank you, Jeff, and I would also like to thank everyone for joining us today. I would like to start by highlighting a few items from the earnings release. First, reported NIM for the quarter was 3.17%, down slightly from 3.20% last quarter due to increased excess liquidity during the quarter from our seasonal public funds build. However, core NIM of 3.33%, which excludes the impact of excess liquidity, expanded by 9 basis points compared to the second quarter. We expect core NIM to be relatively flat in the fourth quarter. Second, during the quarter, we recorded a provision for credit losses of $517,000. Our coverage ratio was 1.28% at September 30, which was consistent with June 30. Net charge-offs for the quarter totaled $480,000 or 3 basis points annualized. Third, noninterest income increased $1.8 million or 8.8% compared to the third quarter of 2024. This includes $987,000 increase in BOLI death benefits. Fourth, noninterest expense increased $2.1 million or 4.4% compared to the third quarter of 2024. The increase was primarily driven by compensation costs, specifically annual merit increases and variable incentives. Additionally, we saw increases in bank share, tax and loan workout fees. As Jeff mentioned, through the first 9 months of the year, expenses were up 2% as we remain focused on prudent expense management. I believe the remainder of the earnings release was straightforward, and I would now like to provide an update to our 2025 guidance. First, for the full year, we expect loans to be relatively flat when compared to December 31, 2024. We expect net interest income growth to be 12% to 14% compared to 2024. Second, we expect our provision for credit losses to be $11 million to $13 million for 2025. However, the provision will continue to be event-driven, including loan growth, changes in economic-related assumptions and the credit performance of the portfolio, including specific credits. Third, 2024 noninterest income totaled $84.5 million when excluding the $3.4 million gain on sale of MSRs and $245,000 of BOLI death benefits. For 2025, we expect noninterest income growth of approximately 1% to 3% off the $84.5 million base. However, there is a risk to this guidance if the government shutdown continues and we are unable to originate and sell SBA loans during the fourth quarter. Fourth, we reported noninterest expense of $198 million for 2024. For 2025, we expect growth of approximately 2% to 3% -- as it relates to income taxes, our guidance remains unchanged at 20% to 20.5% based on the current statutory rates. This concludes my prepared remarks. We will be happy to answer any questions. Claire, would you please begin the question-and-answer session? Operator: We have our first question from Tyler Cacciator from Stephens. Tyler Cacciator: This is Tyler on for Matt Breese. If you could just walk me through the public funds, commercial and broker deposit inflows, what's going to be there versus coming out going forward? And then I guess, kind of the same question for cash balances. Mike Keim: Yes. We would expect that normal seasonality would be $75 million to $100 million of outflows of public funds per month in the fourth quarter, and then we see that trend continue into the first quarter. And the commercial deposit build that we saw, there were a couple of one-timers in there that are transaction-based where we'll see some of that flow out as well. So we'll see kind of consistent with prior years, we'll see that excess liquidity start to diminish potentially cut in half, call it, through the fourth quarter and then see it continue to wind down in the first quarter. Tyler Cacciator: Great, thank you and then my next question is just on the margin. If you could add some more color on the NIM outlook, the NIM and the outlook from there, I would also love to hear about incremental loan yields and where you think the cost of deposits settle out once the seasonal items roll off. Mike Keim: Yes. So as it relates to NIM, as I said, I'd expect the core NIM to be relatively flat and then reported NIM just based on the timing of excess liquidity outflows and the like, that will be within a couple of basis points of where we were here in the third quarter. We continue to see strong new loan yields hovering around just below the 7% range on the commercial side. Those have been north of 7% for the last several quarters. But with Fed rate action and the like, you start to see those ticking down a little bit. And on the cost of fund side, I mean, we still have the opportunity for CDs to be repricing as they mature and come through. So that's an opportunity that will continue to lead to a little bit of benefit there. And then again, as we see the higher cost public funds run out, you'd expect that to tick down a little bit as well. Tyler Cacciator: Great. And then if I could just squeeze one more in. You may have talked about it a little bit in the prepared remarks, but if you could just talk about the loan pipeline a little bit, what expectations are there for the next few quarters and kind of what the main drivers are there? That will be it for me. Mike Keim: Sure. Loan pipeline is healthy at this point in time, as Jeff referenced in the opening remarks, commitment and new activity actually exceeded last year. But this year, we're in a decline versus the growth last year. We are expecting some level of growth consistent with the guidance that Brian provided in the fourth quarter. It's always subject to what happens on the prepayment activity, but we feel good with the activity that we have in front of us and as we move forward here in the fourth quarter. We need to continue to match our loan growth with our deposit activity to keep our loan-to-deposit ratio in the range that we're targeting. So that continues to be the governor. And the other part of what's going on in our loan growth story is from a CRE perspective, we're much more focused on construction commitments. So those are going to ebb and flow based upon draw activity, whereas in the past, we are doing permanent takeout finance as well. So we're actually churning the same dollar of capital for construction activity multiple times and generating increased fee income, which is actually leading to some of the rationale behind our improvements in our profitability ratios. And on the mortgage side, we have returned over the last year plus back to more traditional mortgage banking, which has also led to a decline in the level of residential mortgages we're putting on our books. So there's a balance as we move forward here, but pipelines on the commercial side are healthy and continue to be strong. Operator: Our next question comes from Emily Lee from KBW. Emily Noelle Lee: This is Emily stepping in for Tim Switzer. Congratulations on the quarter and thanks for taking that questions. So I wanted to kind of ask about -- you mentioned the -- in terms of the cost of funds and opportunity for CDs to reprice as they come through. I was wondering what amount of CDs are set to reprice over the next few quarters? And also more generally, how has deposit competition been looking in your markets? I know last quarter, you mentioned it's been a little fierce. So I was wondering if you're still seeing that and if there's any opportunity to bring down those deposit costs further outside of CDs, too. Brian Richardson: Yes. This is Brian, Emily. On the CD side, we have a couple of hundred million dollars a quarter of CDs that are maturing and churning. And we had that throughout this year, and that continues to be the case for the foreseeable future. As it relates to rates, competition continues to be fierce, while at a lower absolute level just based on the interest rate environment, things still remain very competitive on the deposit pricing side for attractively and cost-effective deposits. Yes. And what we're seeing on the CD side, specifically from a competitive nature is that a lot of credit unions are -- we would offer that rate for maybe a 7-month term, and they're extending that into 24 months and beyond terms. And given what we're seeing and anticipating subsequently from Fed movements, that's just not realistic and not good for us from a net interest margin perspective. So that's where you see the biggest and strongest competition. Emily Noelle Lee: Understood. And also in terms of the NIM and as it relates to Fed rate cuts, how -- what's the exact impact or I guess, the range of the impact for each 25 basis point rate cut that would have on NII and the NIM? Mike Keim: So from a -- for the first -- the next couple of cuts, we'll call it, not expected to be overly impactful. There may be some timing within a quarter depending on when your variable rate loans and deposits may reset and the expectations of that leading up to a cut. But all things equal over a couple-of-month time horizon be relatively neutral for the first couple of cuts here. As you get deeper into a cut cycle, you'd start to see potentially a little bit of pressure. But again, that all gets back to the competitive environment at that point in time and what occurs. But our balance sheet model is out relatively neutral at this point. Emily Noelle Lee: Okay. Got it. And can you also remind us what portion of the loan book is floating rate? I believe a few quarters ago, it was roughly 1/3 of the book. And so I was wondering if that was still correct. Mike Keim: Yes, correct. It continues to be right in that range. Emily Noelle Lee: Okay. Got it. And then just two more questions, if that's okay. On capital deployment, you been, you've continued to be active on the buyback front. And I was just wondering how we should think about the buyback story going forward. And if you anticipate kind of sticking around the $6 million to $7 million range quarterly or if you kind of intend to pull back a little bit? Brian Richardson: So this is Brian again. As it relates to capital deployment, as we've said in the past, we're not looking to meaningfully grow our regulatory capital ratios, and we look at any capital that we do generate, we look at deploy and return it to shareholders via things like the buyback. So we look to toggle our buyback activity based on our forward forecast of earnings growth and balance sheet growth accordingly. So there's no anticipation at this time to cut back from that $6 million to $7 million per quarter, but we would look to opportunistically deploy. If we're in a position where capital is going to be growing, we would potentially be deploying more via buybacks. Emily Noelle Lee: Okay. Understood. And then also just wondering how you kind of think about M&A given kind of a regulatory easing environment and if your appetite for M&A has changed at all? Mike Keim: Yes, Emily. So our appetite really hasn't changed at this point. Part of the problem is when we look at the landscape, given that we're at the $8 billion range to buy something to bump up right to the $10 billion doesn't make a lot of sense. And also when we look around, there just isn't much that we're seeing out there that we feel is something that we would really want to go after at this point, especially considering we have a lot of internal initiatives we're doing on the efficiency front and with digital that we really don't want to take our eye off of the ball on what we're accomplishing there and what we're working on because we were basically doing an M&A transaction, we would have to put a lot of that on pause, and we see some good efficiency paybacks continuing to go forward as we continue to lower our efficiency ratio. and manage expenses, we don't really want to take our eye off that ball and we'd like to continue to work through those projects before we really start meaningfully looking at M&A. We're always open to it. If something popped that was very interesting and look like it could be really helpful to our franchise, but it's not one of our, I would say, top strategic priorities at this point. Emily Noelle Lee: Okay, understood. Well, congratulations on the great quarter and thanks for taking that questions, Jeff. Operator: We currently have no further questions. So I'll hand back to Jeff for any closing remarks. Jeff Schweitzer: Thank you very much, and thank you to everybody for participating today. We're excited about the quarter that we were able to print for the third quarter and look forward to finishing the year strong and talking to you in January. Have a good day. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Sandra Åberg: Good morning. Welcome to Essity's presentation of the Q3 results. We will start with an overview of the financial highlights and the business highlights and Ulrika will present the business highlights. Following that, we will have a session with our CFO, who will take us through the financials. Ulrika will then present the initiatives that we announced this morning, initiatives launched to accelerate Essity's profitable growth. We will, as usual, end today with a Q&A session where you have the possibility to engage directly with us. [Operator Instructions] With that, let's dive into the quarterly performance. Ulrika, over to you. Ulrika Kolsrud: Thank you, Sandra, and welcome also from my side to this presentation of Essity's Q3 results. And to summarize the quarter, we continue to deliver positive organic sales growth. We also strengthened our profit margins. We delivered a strong cash flow and a result above SEK 5 billion. Price, volume and mix all contributed to the 0.9% organic sales growth, with price being the most significant contributor. And we had organic sales growth in all our 3 business areas. Once again, we delivered record high gross profit margins and this quarter, it flowed through down to the bottom line. So the call to action that we had in July to pull the brakes on our SG&A cost development really made a difference. And we ended up at a profit margin of 14.6%. Setting aside the quarterly results now for a moment. This quarter has also been about how to set ourselves up for future success. As I shared in the Q2 webcast in my -- during my first month in this new role, I have done an extensive review of the business. And then together with the leadership team worked on what to change, what to improve, what to prioritize in order to accelerate our progress towards our financial targets and towards our vision. As a result of that, I am today launching 2 initiatives, that will improve our performance. The first one is the reorganization designed to sharpen our focus to become more fast and also more agile. And related to that, the second one, a cost-saving program that will reduce our organizational costs. More about that later, but let's now dive into the Q3 results, and we start with Health and Medical. Q3 now, for '25, marks the 18th consecutive quarter of growth for our Medical Solutions business. We are growing across the 3 therapy areas; Wound Care, Compression Therapy and Orthopedics. And what is very important for future growth and profitable growth in the medical categories is innovation. That plays a key role. There are still so many unmet needs, both for healthcare as well as for patients and consumers to innovate on. One example is for people with wrist fractures. Today, it's difficult for them to keep up with hygiene and keep up with the daily activities of lives with wrist braces that exist commonly in the marketplace. And with the launch of Actimove Manus Air, we are solving that problem. This wrist brace that you see now on the page here has a lot of advantages. It's water resistant so that you can wash your hands. It's food-grade resistant so that you can cook and keep up hygiene. It doesn't restrain the movements of the fingers and the hands, so you can keep on working if you work by the computer. Also, it has an open design. So if you're a health care professional, you can inspect the wound and change wound dressings with the brace on -- and all of this, while providing that stabilization that is needed in order to heal in a fast way. So certainly, this innovation is a very good addition to our offer in Orthopedics. Then if we move to incontinence care in health care, also in Incontinence Care, we were growing sales and volumes in the quarter. You might remember last quarter, then I talked about the challenging market conditions that we had in some markets, and that is still the case. However, we have very strong underlying growth in many other markets that is compensating for this. And in times where health care funding is under pressure, it's even more relevant to have products and solutions that are saving time for caregivers. And with the launch that we had this quarter with TENA, a new product concept, we are addressing exactly that. The TENA Pro skin stretch day and night is a unique product concept that we have put to market now that makes it easier to put on and take off the product. When it's in a closed fashion, then it is just as a TENA pant, you can pull it up and down just like normal underwear, making it easy for the wearer to use the product. The challenge with the pant though is that it's not so easy for a caregiver to apply the product. And this one is reopenable. You can open and close it, and that means that the caregiver can also very easily apply the incontinence protection. And that saves time for the caregiver. Now this is not the only impactful innovation that we are launching in the quarter. We're also launching a new product in the lighter range of our assortment, and that is the TENA Discreet Ultra. It's a very discrete product, super discrete to wear, yet it does not compromise on the superior TENA protection. And why is it then important to have a superior product in this part of the assortment? Well, this is where we attract consumers where we bring consumers into the category. And we, of course, want the women to experience the first little leaks to choose purpose-made products and to choose TENA as their purpose-made products. And many consumers do that. They choose TENA. And we see that because our incontinence sales in retail is continuing to grow at a very good rate. This is especially true for the U.S. And if you might remember that in U.S., we are investing to grow, and those investments are paying off. So in the quarter, we could enjoy a 21% growth of incontinence in U.S. retail. In Feminine Care, we're also continuing to grow in a very good way with high growth rates. Here, Mexico is an important market for us. We are clear market leaders, and we will continue to strengthen our position in Mexico by launching a new night product, SABA Noches. And also here, it's a very important segment to be superior in because not only do we provide a good night sleep for the wearer, but also it's a quality stamp for the brand. So as you can hear, we are continuing to grow strongly in the 2 higher yielding categories in consumer goods. So Feminine Care and Incontinence Care. On the other hand, in Consumer Tissue and in baby, we are declining. In Consumer Tissue, we are suffering in the branded sales from the weaker consumer sentiment. And also, we see a price competitiveness increasing across the consumer tissue business. The good news is that if we look at Mexico, we are growing very well in our Regio brand during the quarter. And also now we are really gearing up for the sneezing season making sure that we have the right hankers in the shelf to be ready for the sales boost that will come during the next quarter. And also, we continue with our efforts to have a high promotional pressure and to focus a lot on the value segment so that we can fuel growth in Consumer Tissue. Then what about baby? Well, you all know that we have had a period where we have had declining volumes on the back of lower birth rates and also very intense competition. We're still declining in baby, but we have improved. In the quarter, we turned around Libero in the Nordics big time. We had the actions of higher frequency rate, of promotions, of a limited edition. I was going to say that is called Wildlife that you see on the picture here and also stronger marketing campaigns. And all of that paid off. So the Libero consumers have found their way back to their brand. Another category where we can report a big improvement is in Professional Hygiene. Also here, we continue to see a challenging market situation, of the least in the U.S. in the HoReCa channel. However, we are improving volume sequentially in Professional Hygiene. And that is thanks to the activities that we have done with selective price adjustments and also more focus on the value segment that we talked about last time. What's also very good to see is that we continue to grow our premium products, so our strategic segments as we did also previous quarter. This is, of course, very important for us short term, but it's also important to fuel future profitable growth. And speaking about that, what's super important to fuel future profitable growth is that we are -- really have strong relationships with our customers. What's happening right now in the customer landscape in Professional Hygiene is that a lot of our distributors are consolidating. And then it's even more important than ever to be the preferred supplier. And therefore, it's so nice to see that one of our customers, Impacts, have this quarter named as the best supplier. And with that positive news, I hand over to our CFO, Fredrik Rystedt. Fredrik Rystedt: Thank you so much, Ulrika, and I will give a little bit of numbers background to what Ulrika just mentioned here. So I'll start with our sales. And as you've already heard, we are continuing to grow organically with 0.9%, so just under 1%. Now if you look at the absolute sales number, it is down by 4.5%. But of course, this is just due to the fact that the Swedish kroner is strengthening. So if you actually look at our sales in constant currency, we actually grew with a bit over SEK 300 million. So it's basically currency impact. So turning a bit back to the organic sales growth of 1%. As you see, the volume growth was 0.2%. And this is exactly what it was also in Q2 and similar to what it was also in Q1. So we've had this volume growth level now for a few quarters. It is, however, a bit different. And so you remember perhaps that we have struggled a bit with professional hygiene with baby and degree also with Inco Health Care. And those have all 3 improved this quarter. But on the other hand, that improvement has been partly offset by lower volume development in consumer tissue. So it is a bit different. We are happy to see the improvement in those areas that I mentioned. So to give you a little bit more flavor, if we start with Health and Medical, generally speaking, volumes picked up actually. So it is still challenging when it comes to Inco Health Care markets in general. But despite that fact, a bit as we expected, we have picked up volumes and it looks clearly a bit better at this point of time. Medical continues to grow, especially in the wound care, and we've seen that growth for so many quarters now. So it's a very, very good and continuous development for medical in general. It's wound care as I said, but it's also this quarter, actually a lot in compression. So good development overall in the volume sense. Now if I go then to consumer goods, geographically, we are growing everywhere when it comes to incontinence and feminine. So it continues with strong growth in both of those areas. Ulrika mentioned earlier that baby is looking a bit better. And of course, this is due to a much better performance in our Nordic branded area with Libero. So we've taken market shares there. It's still challenging on the European market for the retail branded European market for baby and that will also remain for a few quarters to come, most likely, but it's looking a lot better. So you may remember that we had a volume decline of about 4.5% or in that vicinity, volume decline in baby in Q2 and a similar decline also in Q1. And this quarter, it's been about 1% decline. So it looks clearly better. On the other hand, as we have already talked about here, Consumer Tissue is a bit more down, negative growth, and this is because we have prioritized margin rather than growth in volume. And we do continue to see actually a down trading in that market. So volume is not so good in consumer tissue. Finally, Professional Hygiene, looking a lot better, and the volume decline is still there, it's minus 1% roughly. And of course, that's a lot better than what we saw in Q1 and Q2. So clearly, looking better. As before, it is a base assortment that is declining and the premium products or strategic products as we sometimes call them, dispensary base is continuing to do quite well in terms of growth. So overall, mix is actually continuing to behave very, very well in professional hygiene. So turning a bit to price and mix. As you see, 0.7%, this is basically most of it actually related to price. And you can see from the slide here that Consumer Goods and Professional Hygiene, both performing well in terms of price performance. And Health and Medical is slightly down. This is all actually Inco. So this is selective price declines that we have -- that we have done. We did talk and Ulrika mentioned it earlier that we also have sequentially a little bit lower prices in professional hygiene. This is deliberate. We wanted to -- on top of expanding our value offering in Professional Hygiene, we also wanted to grow more generally by selective price decreases. So if you look at just sequential price decreases, we also see a little bit of that in Professional Hygiene, deliberate. So that's pretty much it on the volume and an organic sales side. So turning to our margin, that is improving both sequentially and year-on-year. So if we look at -- decompose the year-on-year improvement, you can see that a lot of is coming, of course, from the gross profit margin. And most of it, as we've already talked about, relating to obviously price to a smaller degree on mix and volume, but it's -- a lot of it is price. We also actually have a positive development in our COGS. And this is no surprise. Raw material is performing better, and so is energy. And -- but we also have other cost items there. One thing that we have talked about a lot is, of course, the savings that we do. In this particular quarter, we had about [ 115 ] or so in savings, which we were happy about. Generally speaking, it has been a tough year when it comes to saving in COGS. And we still aspire to reach our annual target range of about EUR 50 million to EUR 100 million. We're not there. We aspire to get into that range for the full year, but it is challenging, and this is, of course, due to the relatively low volume development that we have in our production. So that makes it a bit more challenging to get to our target range. A&P, not surprising. We've increased the absolute spending level and also as a percentage of sales. And this is a profitable proposition. We know that the return of A&P spend is attractive. So this is why we do that. We talked a lot about SG&A previously, and we've also announced measures to actually -- to make the growth rate become much lower. And there has been a lot of success there. So clearly, when you look at our SG&A development, is much better now than we have seen in the previous quarters. The growth in particularly IT and personnel cost is lower now. Let me just point out, though, that there is a portion -- a smaller portion, I should say, of the improvement that relates to lower bonus provisions. So the improvement is not as strong as you see here, there is a smaller portion that is due to that. But I'll come back to the future in a second. But generally speaking, if you disregard that, underlying performance of SG&A is much lower than the inflation rate. So the measures we've taken have clearly paid off. Now finally, there's a bit of other here. This is just a one-off in last year actually. We had an insurance payments last year and we didn't have it this year. So that's the final part. So overall, a very, very good quarter, I should say for the group in terms of margin. And basically, you can see year-on-year, that health and medical and professional hygiene are still slightly down and consumer goods up. But if you look at it sequentially, which we're happy about, both Health and Medical and Professional Hygiene have turned a little bit and actually now improved. So all in all, a good margin development. Turning to cash flow, a bit -- just some short comments, generally speaking, quite a good quarter, both in terms of underlying cash generation, but also in terms of working capital. We were not so happy about working capital in the second quarter, much better looking this quarter. So when you look at accounts receivables or accounts payables in working capital, the days are roughly about the same. It's still a bit too high when it comes to inventory. We are working our way down to that. So hopefully, we'll see a good development in working capital also as we go forward. And finally, the balance sheet as a consequence of that strong cash flow generation. We have been able to, in comparison to the 6 months balance sheet, we have been able to reduce our net debt with about SEK 3 billion or so, and of course, our net debt-to-EBITDA ratio is now down to SEK 1.2 billion. I think this is a good -- perhaps opportunity to give you a little bit about the flavor for what we expect for Q4. I mean, again, we don't give that much of forecast, but let me just give you a little bit. Strating with COGS. Perhaps, we expect to -- that COGS will actually, from a year-on-year -- compared to Q4 of 2024, we expect COGS to be lower this quarter coming up in '25. And the reason is mainly driven by input cost or and particularly so [indiscernible] cost. So we expect COGS to be lower. When it comes to A&P, we also -- we expect it to be flat to higher compared to last year. So Q4 versus Q4, we expect to spend more in A&P. As I said, this is a good return on those investments. And finally, when it comes to SG&A, this is worth mentioning that we will have, also in comparison Q4-Q4, a fairly low growth rate. So clearly, we will retain that lower growth rate than we've had in the previous year. But just worth noting that from a sequential standpoint, Q4 SG&A, excluding A&P is always much higher. So sequentially, you should expect higher cost but year-on-year, a quite a low growth rate. So finally, I guess, just a reminder, perhaps, we have our financial targets. They remain intact. So more than 3% in organic sales growth and more than 15% in EBIT margin, excluding items affecting comparability. As you know, as you've seen here in Q3, we're close to our margin target. And of course, we got some work to do when it comes to our annual organic sales growth. And that, Ulrika, I guess, you will talk more about. Ulrika Kolsrud: Yes. Thank you, Fredrik. So question then, of course, is how to deliver on those financial targets. And you all know this, but I think it's worth repeating. We will deliver on our targets by prioritizing the categories segments, market and channel combinations that has the highest potential for profitable growth and where we have a clear right to win. We will deliver on our financial targets, not the least by delivering differentiated innovations that are driving market share development and pricing power. Also by having the most effective and efficient go-to-market. It should be easy to do business with Essity. Also to really find efficiency savings across our full value chain and not the least to continue to grow our people and to continue to build that winning culture that we have. Now I've said before that this strategy is highly relevant and is something that we continue to execute on. My focus has been how do we accelerate the execution on this strategy because I see significant potential for us to fuel growth and improve our performance. For example, we could unlock the full potential of our portfolio by sharpening our focus on the most attractive categories and segments. Also, I see opportunities for unleashing the full power of our organization by creating more end-to-end accountabilities, by decentralizing decision-making and reducing our operational complexity in the organization. And we could, by freeing up resources to reinvest in A&P and in our growth initiatives, we could become -- drive profitable growth more forcefully and also be more competitive. And those are the reasons why we are now then launching 2 initiatives. The first one is the reorganization to become faster, to become more agile and also to sharpen our focus. What we will do is that we will create 4 new business units that are global and based on our product categories. They will have the full P&L responsibility and also have the end-to-end accountability, and that is what is different from before. Those 4 business units will be Health and Medical, Personal Care, Consumer Tissue and Professional Hygiene. And consequently, we will start reporting financially in these segments as from 1st of January, 2026. Now the benefits with doing this is that we are decentralizing decision-making. We are cutting out duplication, and we are becoming more consumer and customer-centric. And by that, we will be faster in our decisions, we will be faster in our execution, and we will be faster in responding to evolving consumer and customer needs. We will furthermore sharpen our focus then on the most attractive categories and segments. Now what I've explained now is how this organization will become more effective, but it will also drive efficiencies since we are simplifying the structure. And those efficiency gains is the key component of the cost saving program that we're also launching. And this cost-saving program is expected to generate a saving of SEK 1 billion and had full effect in the run rate by end of 2026. It's primarily SG&A we're talking about, and that is on top of the COGS saving program that we have that Fredrik was alluding to before, and that is generating SEK 0.5 billion to SEK 1 billion annually. Market A&P, so market investments are excluded. In fact, it's important that we maintain -- at least maintain both A&P as well as R&D investments in order to fuel growth. And we want to reinvest the savings that we generate into our growth opportunities in higher-yielding areas where we also have a proven track record of high return on investments. So with these 2 measures, we will unleash the full power of the organization, we will free up resources that we can invest in profitable growth, and we will unlock the full potential of Essity's product portfolio. Now let's summarize the quarter before we move into Q&A. In the quarter, as you have heard, we delivered positive organic sales growth. We strengthened our profit margins, had a good cash flow and delivered a profit above SEK 5 billion. We also launched 2 measures to improve performance and fuel growth. And needless to say, looking forward now, 2 of our key priorities will be to implement this organizational change as well as to achieve the SG&A and COGS savings that we have been talking about. In parallel with that, of course, a priority is for us to continue with our efforts to drive volume growth and profitable volume growth in a challenging market environment with the ambition to perform while we transform. Thank you. Sandra Åberg: Thank you, Ulrika, and thank you, Fredrik. We will now move into questions. [Operator Instructions] And please try to limit your questions to one at a time because that will give Ulrika and Fredrik, the possibility to give you the best answers. Are you ready to start with the questions? Ulrika Kolsrud: Yes. Sandra Åberg: So let's move into questions. So we have a first question from Aron Adamski. Aron Adamski: Sandra, Ulrika, Fredrik. My first question is on the divergence between lower COGS picture and the prices which are higher. In that context, it would be great to hear why your expectations for pricing across your biggest categories over the next couple of quarters? And also, are you currently seeing any pressures from retailers to roll back prices or maybe the competitive pressures accelerating? Ulrika Kolsrud: If I start, I could say that, as I mentioned, when it comes to Consumer Tissue, there is a high price competition across that business. And of course, also in other parts of our business, it's a high price competition. And we always look at ways to balance, of course, volume growth with having a good pricing performance. We've talked before in Q2, but also this quarter about the selective price adjustments that we do in Professional Hygiene, which is to fuel growth and to adapt to the market situation that we have there. Anything you want to add, Fredrik? Fredrik Rystedt: No, not really. I mean we didn't specifically talk about sequential price movement now in our presentation here, but we've seen a bit of price decline sequentially in Inco Health Care and Professional Hygiene and baby as you alluded to, and these are deliberate basically. I think it's fair to say -- we also saw a very, very tiny price sequential decline in Consumer Tissue. And exactly as you say that, of course, there is more room for that potentially when [indiscernible] comes down even further. But again, it's very difficult to discount. We always try to maintain a very solid price management. So it's difficult to comment in advance. Ulrika Kolsrud: I hope that answered your question, Aron, did it? Aron Adamski: Yes. Sandra Åberg: Thank you, Aron. So now it's time for Oskar Lindstrom, Danske Bank. Oskar Lindström: Good morning. A couple of questions from me. First off, on the cost savings. Of the SEK 1 billion, how much should we expect to sort of drop down to the bottom line or to EBIT? And how much will be reinvested in increased A&P spending. That's my first question. Should I go on with the other? Ulrika Kolsrud: No. Let me answer that one first because as I said, primarily, we are going to reinvest that saving into profitable growth. And then you will see the effect on margin as we grow volumes and then we'll have the operating leverage of margin. Oskar Lindström: Right, and about the timing here, should we expect the sort of reinvestment into A&P then to sort of come at the same time as the cost savings are being implemented or before? Or what's the timing going to look like? Essentially, what I'm looking for is, is this going to have a positive and negative impact on EBIT margins during 2026. Ulrika Kolsrud: If I start with the way we will work with this is that as the savings materialize, we will then have freed up resources that we can reinvest. So it will coincide to a big extent. Fredrik, do you want to comment on margin development in light of that? Fredrik Rystedt: No. I think one thing, Oskar, maybe just to remind you, is that we've always said that what will bring our margins higher is basically operating leverage, so it's volume. So what we are now doing is using the freed up -- as Ulrika just said, we are using the funds that we free up to fuel volume growth, and that volume growth in its turn will enhance margin. That's the plan. So it's not our intention to boost, if you say, the margin with the cost saving program, but rather to reinvest it as the savings occur. Does that make sense? Oskar Lindström: Yes, thank you. And just a final question on the sort of balance between lower-end private label and your own branded or higher-end branded product. I mean a lot of other consumer segments have seen this deteriorating from the producer's perspective in that consumers are down traded and you've also mentioned this during the past -- how is that developing? Are you seeing any -- is it worsening the same signs of an improvement? Ulrika Kolsrud: It's -- I would say, if we talk -- I mean we're talking consumer tissue, it's pretty much the same. I mean we see that there is a down trading, and that is what we see in our branded business is declining and the private label market is increasing. And I don't see any major movements. It's quite similar to what it's been. Sandra Åberg: Thank you, Oskar, for your questions. [Operator Instructions] And as I can see, Patrick Folan from Barclays, you have a question. Patrick Folan: I just joined some -- sorry, from repeating question already asked, but 2 for me. On health and medical, can you maybe walk through any kind of contracts that were gained or lost during the period? And maybe how you see kind of the outlook for the segments you're considering your experience there? And maybe more specifically kind of looking at the reorganization and the change in structure, I mean what was behind the decision to strip out personal care and tissue from the Consumer Goods unit? Is there more focus trying to go into certain segments? Or is it just trying to have more disciplined cost strategy in terms of how you allocate resources? Ulrika Kolsrud: Thank you, Patrick, if I start with the first question, I think if you look at Health & Medical, it's a lot of contracts, especially on the medical side, but also on the Inco side, it's a lot of contracts. So we don't necessarily talk about all those individual contracts and what we have gained and lost and so on over time. I think in the Incontinence Care, health care arena, it's quite stable when it comes to our contract base. And in Health and Medical, as you can see, we are continuing to grow. So we are growing with new contracts and taking new business as well as with growth within those contracts that we have. Then if we move to the organization, there is the intention, as you heard me -- or maybe you didn't hear explain, you said you came on a bit late. But we want to create this end-to-end accountability. And to do so, we want to work then with the different product categories more separated because then that allows us to have that end-to-end accountability with the business unit and the one P&L responsible is responsible for innovation, marketing, supply chain and sales. So that is one reason. Another reason is that it allows us to focus on the most attractive categories and segments. Both that Personal Care comes more in the limelight, and that will drive performance and focus on Personal Care, but also in Consumer Tissue, it allows us to focus more on the most attractive segments within that category. And then I would say thirdly is that Personal Care and Consumer Tissue, our businesses that have quite different character. And by running them separately, we can optimize the way we work based on the specific business drivers in those 2 businesses. Patrick Folan: Okay. Clear. And just a follow-up on that. In terms of the benchmarking exercise, for the SG&A kind of cost program. How did you guys arrive at that kind of SEK 1 billion number, I suppose? Fredrik Rystedt: Maybe I can try and answer that, Patrick. So 2 things. We looked at the reorganization if we start in that end and we looked at what kind of savings potential, that organizational change actually brought with it. So that was a starting point. We also looked at our other buckets of SG&A, and we looked at where we could optimize that spend. So as an example, our IT spend as we go forward, you will perhaps remember that we've had a very, very significant increase of our IT spending for various reasons over the course of a couple of years. We now feel it's appropriate to actually reduce that as an example. So there are many different things that has gone into that analysis. But the main part is actually related to the reorganization that we have described here today. Sandra Åberg: Thank you, Patrick. I hope you have your answers to your questions now. Then we will move to Niklas Ekman, DNB Carnegie. Niklas Ekman: Can I ask you about use of funds because you are now generating cash flow in the range of SEK 12 million, maybe SEK 13 billion, you have dividends that are slightly below SEK 6 billion and buybacks of SEK 3 billion. So you're essentially now improving your balance sheet significantly. Can you elaborate a little bit about -- on your thoughts here on M&A potential? Are you saving for future M&A potential? Is there scope to increase either the dividends or buybacks? Or what's your thoughts here on the use of funds? Ulrika Kolsrud: Well, if we start with the dividends, we stay with our policy to increase our dividends over a year and stay true to that. Then we see buybacks as a recurring way to allocate capital so that we will continue with as well. Then the good thing is that we have, as you say, a strong balance sheet. So we can both invest in organic growth and deleverage, and we can have the funds to invest in an M&A, should we find something that is value creating. Niklas Ekman: And just how is that market now and the potential for you to do M&A and also considering the valuation of your own shares at the moment? Ulrika Kolsrud: Well, I think we talked about that last quarter as well, right, that, of course, we want to be careful in making sure that our M&As that we potentially do are value creating. And then there has to be the synergies to bridge that gap between the valuation of a potential acquisition and our own valuation. Niklas Ekman: Very clear. Can I also ask about U.S. tariffs? That was not a big, but still an issue in the Q2 results. What is it looking like now? How is it impacting you? Fredrik Rystedt: Maybe I can take that, Niklas. We've had this quarter, Q3, SEK 110 million roughly and we are looking at a lower number, about SEK 70 million in Q4. And the reason between -- the difference between these numbers is simply that the Canadian government has actually taken out the tariffs on our exports from the U.S. to Canada. So this is the difference. So as I said, Q3, SEK 110 million, roughly about SEK 70 million in Q4. Sandra Åberg: The next question comes from Antoine Prevot, Bank of America. Antoine Prevot: A question from me on Latin America, I mean, continue to be strong compared to, I mean, maybe some of the part of Staples, which have been a bit weaker there. Anything specific you want to flag? Is it you mainly continue to gain market share there? And do you expect that to continue in the coming quarters? Ulrika Kolsrud: I don't know want to necessarily comment on the coming quarters because we don't know how that will play out. But what we can say is that we are doing well in what is a quite challenging market now in Latin America, where the consumer sentiment is changing and so on, but we are growing very nicely. We talked earlier now this morning about the feminine brands, for example, that is doing very well. And also in our Consumer Tissue business, we are growing in, for example, Mexico. Also, our incontinence business is growing very well in Latin America. So overall, it's looking good for us in Latin America. Antoine Prevot: Perfect. Just to follow up. I mean, it's more like innovations led to that market share? Or is there something else there? Ulrika Kolsrud: Can you repeat, sorry? Antoine, can you repeat your question? Antoine Prevot: Yes, sorry. Is it just -- what's driving these different strong performance in North America in the different categories you defined? Have you launched new product there? Or what has been kind of like backing that? Ulrika Kolsrud: It's a combination as in many cases. If we look at Consumer Tissue, it's been -- we've had quite good promotional season that has helped to boost growth in that category specifically. In feminine, as I shared, we have a new launch, and we have a very strong offer that we continue to invest behind, and we get the payoff from those investments. So -- but in most cases, it's a combination of really marketing our attractive offer, adding on new innovations and upgrades to fuel growth and then also promotions. Sandra Åberg: Let's now move to Charles Eden, UBS. Charles Eden: Just wanted to clarify your comments because I think there is perhaps an incorrect interpretation this morning, looking at how the share price has developed during the call. You said the cost savings are not going to improve the margin of the group, which one could conclude means your cost of business is going up and that you need to spend more just to stand still. Am I correct? What you're trying to say is you will reinvest these SEK 1 billion cost savings into the business with the aim of driving superior volume growth and market share gains. And then these factors should contribute to stronger margins over time as opposed to just trying to cut cost to drive the margin improvement? Is that the right way to look at it? Maybe that's been misinterpreted. Ulrika Kolsrud: Exactly. Charles Eden: Because I think people have sort of interpreted you saying we need to spend more just to stay where we are on the margins and that's not what you're trying to say, right? You're trying to say, look, we want to drive it through market share gains to push the margin higher rather than we have to spend more to stand still. Ulrika Kolsrud: Exactly. Charles Eden: Thanks for the clarification. Ulrika Kolsrud: Thank you for clarifying for us. Very helpful. Sandra Åberg: Then I think that we have another question from Aron Adamski, Goldman Sachs. Is that right, Aron? Aron Adamski: I have 2 very quick follow-ups. Firstly, on Baby Care. I think clearly, the business performance improved sequentially, but it's still below the midterm outlook that I think you laid out at the CMD last year. I was just wondering, since your targets were formed initially, do you think there has been any fundamental shift in the category fundamentals, specifically in Europe that could perhaps make the initial goals more difficult to achieve in the longer term? And then the second follow-up is very quick, just on Consumer Tissue and sorry, if you mentioned this already. How is your private label business performing both on volume and pricing. Is that still a significantly accretive part to this category? Ulrika Kolsrud: If I start with the first one, I'm not so sure, but the time horizon here what we are referring to. But generally speaking, I could say that we do see the lower birth rates and that is something that continues to develop. That has an impact on the fundamentals of the category. When it comes to weaker climate that we see and that some consumers are more price sensitive, that is more of a temporary situation. So that we expect to change over time. Then with the private label division, I mean that is still a value-creating part of our business, even if we now have lower -- we have lower volumes in that business in the third quarter. As we said, it's a high price competition in this category. Fredrik Rystedt: And there, we mentioned it earlier, Antoine, that we have maintained a margin protective stance a bit. So we have been eager to do that. And of course, with high price competition, it is a bit challenging on the volume side. But once again, this is more, you can say, normal fluctuations in that business. So nothing dramatic. Sandra Åberg: So I think that we are out of questions. So do we have any more questions? [Operator Instructions] No, I think we're out of questions. That means that we can wrap up. Any closing remarks, Ulrika, before we end? Ulrika Kolsrud: Yes. I think we are leaving -- we are leaving a positive quarter behind us now. And we are launching initiatives that will fuel our profitable growth going forward. And just on the previous discussion that we had, I think it's important to point that out that we have a lot of belief in our growth platforms that we have. And looking forward to freeing up resources so that we can continue to accelerate growth in those areas. And that will drive also margin improvement by operating leverage and mix improvement. So that I want to leave you with. Thank you for listening. Sandra Åberg: Thank you, Ulrika, and thank you, Fredrik. And thanks to our audience for listening in. And if you have any further questions, you know where to find us. Have a good rest of the day. Bye.
Adam Godderz: Good morning, everyone, and welcome to Euronet's Third Quarter 2025 Earnings Conference Call. On the call today, we have Mike Brown, our Chairman and CEO; as well as Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet's or its management's intentions, expectations or predictions of further performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in these forward-looking statements as a result number of factors that are listed on the second slide of our presentation. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we'll be using during the call to the most comparable GAAP measures. Now I'll turn the call over to our CFO, Rick Weller. Rick Weller: Thank you, Adam, and good morning, everyone. Thank you for joining us today. I'll start my remarks on Slide 5. We delivered revenue of $1.1 billion, operating income of $195 million, adjusted EBITDA of $245 million and adjusted earnings per share of $3.62. Revenue growth was below our expectations due to softness in certain areas of the business, which we believe was largely attributable to macroeconomic and policy decisions surrounding immigration around the world. However, the diversity of our business model, share repurchases during the year and effective expense management allowed us to offset those impacts and deliver another quarter of solid results. Finally, I want to highlight that our consolidated operating margins expanded by approximately 40 basis points over the prior year quarter. Next slide, please. Year-over-year, most of the major currencies we operate in strengthened compared to the dollar. To normalize the impact of currency fluctuations, we have presented our results adjusted for currency on the next slide. I'm now on Slide 7. Our EFT segment delivered another good quarter, where revenues grew 5%, operating income and adjusted EBITDA, each growing 4%. While results were somewhat lighter than expected, the business continues to drive growth, led by continued expansion in developing markets such as Morocco, Egypt and the Philippines, where we are expanding services, adding ATMs and strengthening banking and fintech relationships. Our merchant services business in Greece also delivered its strongest quarter since the 2002 acquisition with operating income up 33% year-over-year, driven by robust transaction volume and continued merchant expansion. Across Europe, travel volumes remained steady through the summer, supported by sustained demand for leisure travel. According to the European Travel Commission's report, overall tourism in Europe grew approximately 3.3% year-over-year. At the same time, Reuters noted that tourism related sales in Spain grew about 3%, roughly half the pace of the prior year as visitors curtailed discretionary spending on leisure and dining. Taken together, these reports highlight somewhat of a mixed picture across Europe. While consumer demand -- travel demand remains solid, spending patterns were more selective. Even so, our EFT business outpaced the broader European trend, growing about 5%. Although this remains slightly below our expectations, our broader geographic diversity, steady travel activity and continued network expansion position us well for sustained growth and resilience heading into year-end. In our epay segment, revenue declined by approximately 5% compared to the prior year, while operating income increased 4% and adjusted EBITDA 2%. The reduction in revenue reflects a shift within our wholesale mobile top-up business, where a high-volume, low-value product exited the portfolio. While this change reduced top line revenue, it only marginally impacted our operating income. Moreover, its impact was largely contained to the third quarter and accordingly, will have no meaningful impact on future quarters. Excluding this product discontinuance, our constant currency revenue would have grown at a rate similar to the operating income, constant currency growth rate. Our core digital content and payment processing activities remain stable and continue to provide a solid foundation for future growth. Money Transfer revenue grew 1% year-over-year, while operating income and adjusted EBITDA decreased by 2% and 1%, respectively. Revenue growth was driven primarily by a 32% increase in direct-to-consumer digital transactions, reflecting strong -- continued strong demand for our digital money transfer products. However, this growth was partially offset by softer transaction volumes across certain corridors. Mixed information on global economic uncertainty and recent immigration policy changes in the United States as well as in other areas of the world have slowed migration inflows and reduced remittance activity in key money transfer sending markets. According to Reuters, remittances to money to Mexico declined more than 12% year-over-year in mid-2025, underscoring how this shift -- how shifts in immigration policy can impact transaction volumes in real time. Remittances between the U.S. and Mexico represent approximately 1/4 of our U.S. remittance flows and only about 1/10 of our global transfers. This quarter, our U.S. to Mexico corridor was flat year-over-year. It's somewhat of a bittersweet feeling to have flat year-over-year growth to Mexico, bitter in that Reuters estimates a 12% year-over-year decline, but sweet in that our Money Transfer business outperformed the market by 12%. Interestingly enough, that's consistent with how Ria has performed over the last 18 years. It's this strength that gives us confidence for solid future growth. Operating income and adjusted EBITDA also reflected incremental year-over-year marketing investments to support continued expansion of our digital business and the Dandelion product. Despite some pressures, we believe solid third quarter consolidated -- we delivered solid third quarter consolidated earnings. And as we look to the fourth quarter, we expect to finish the year with year-over-year earnings growth to be generally similar to the third quarter, thereby supporting our confidence of being within the range of 12% to 16% year-over-year earnings growth as we previously provided. Next slide, please. Slide 8 presents a summary of our balance sheet compared to the prior quarter. As you can see, we ended the third quarter with $1.2 billion in unrestricted cash and debt of $2.3 billion. The decrease in cash is largely due to stock repurchases, offset by cash generated from operations. Cash returned from ATMs following the summer season peak and working capital fluctuations. In the third quarter, we completed a $1 billion convertible bond offering at an attractive interest rate of 0.625% maturing in 2030. The proceeds were used to pay down the majority of our revolving credit facility. This transaction strengthens our financial flexibility to invest in growth opportunities across our payments, money transfer and digital asset infrastructure initiatives. As we think about capital allocation, we look to maintain a debt level commensurate with an investment-grade rating, acquiring growth driving businesses in line with our digital initiatives and share repurchases. As for share repurchases, including the shares we've repurchased we made through the first 9 months of this year, we have repurchased on average, approximately 85% of our annual earnings over the past 4 years. Said differently, 85% of the earnings have been returned to shareholders through share repurchases. In this quarter, we repurchased approximately $130 million of our shares. These repurchases were beneficial in a number of ways, including the stabilization of our share price on the day of marketing the bonds and offset against any future dilution of convertible shares, which I sure would like to see happen. And finally, a locked-in pretax ROI of approximately 13%, given consensus 2025 adjusted EPS. With that, I'll turn it over to Mike. Michael Brown: Thank you, Rick, and thank you, everybody, for joining today. In the third quarter, we delivered adjusted earnings per share growth of 19% year-over-year, another quarter of double-digit earnings growth. As Rick mentioned, that keeps us on track to deliver our 12% to 16% 2025 earnings growth. This quarter's performance reflects effective execution across many areas of our business, and you'll know I'll call out some of those wins in just a minute. But I also think it is important to note that our growth was tempered by lighter-than-expected revenue across all 3 segments. As we inspected our business, it became clear that the broad global economic uncertainty played a role. The UN's Department of Economic and Social Affairs stated in their midyear update, the world economy is at a precarious moment, heightened trade tensions and policy uncertainty have meaningfully weakened the global outlook for 2025. We felt that uncertainty across most of our business from travel and consumer spending to cross-border remittances and payment processing. That said, we view these challenges as transitory headwinds, not long-term obstacles. The underlying fundamentals of our business remain strong, and we expect these pressures to ease. On top of the global uncertainty impacting all 3 segments, immigration policies in the U.S. and other countries have pressured the Money Transfer segment. The tightening of immigration reform, added enforcement and delays in work authorizations, which most of us in the U.S. see often in the press, have slowed cross-border remittances. But there are reform actions in other countries, most of us don't see. U.S. transfers to Mexico, a quarter that represents about 10% of our global remittance volume has seen the strongest pressure. In the third quarter, transactions in that quarter were flat compared to last year, which is unusual, given the consistent growth we've historically seen. While these policy changes have clearly weighed on our results, we believe they too are transitory in nature, and we would expect volumes to rebound once these conditions stabilize. Now we can't control the timing of these external factors, but we can control how we execute and invest for the future. I recently spent some time with our global leadership team and the energy in that room was unmistakable. From new market expansion and a strong pipeline for Ren and Dandelion to exciting work integrating AI into our operations and expanding our stablecoin on-ramp and off-ramp capabilities. All right. Let's move on to Slide #11, we'll talk about the quarter. Slide 11. This slide provides a high-level view of how and where we will drive our growth strategy into the future. As a reminder from our discussions over the past year, our business model is really built on 2 key revenue pillars, payment and transaction processing and then cross-border and foreign exchange, which drive our growth opportunities that continue to expand as payments become increasingly global, digital and flexible. The first pillar is payment and transaction processing, with which we facilitate high-volume transactions for banks, merchants and brand partners, continually expanding our use cases to stay aligned with evolving demand. During the quarter, we signed additional new merchants in our merchant services business continue to move forward to complete the acquisition of CoreCard and signed a new Ren and strategic network participation agreement. We'll get into more detail on these exciting deals later in the presentation. The second pillar is cross-border and foreign exchange, which powers our FX-related use cases and distributes FX services through both owned and third-party channels across both physical and digital touch points. This forms the foundation of our global money transfer business and the innovation behind our Dandelion platform, which delivers real-time cross-border payments to bank accounts, cards and digital wallets worldwide. In the third quarter, we signed a major new Dandelion partnership with Citigroup, enabling Citi's clients to make near instant full value payments into digital wallets across multiple markets. This agreement reinforces Dandelion's position as the world's largest real-time cross-border payment network and highlights the value global banks plays in our platform. During the quarter, we entered into a new partnership with Fireblocks, the leading digital asset infrastructure provider. This collaboration establishes an important element for our digital asset strategy, enabling interoperability with blockchain systems for faster, more efficient money movement. It also supports stablecoin-based remittances, consumer wallets and real-time settlement, advancing our long-term vision for integrating digital assets into our network. Now let's move on to Slide 12 and discuss our stablecoin use cases. A lot of people talk about stablecoin, but they don't quite know what they're talking about. Here's what we're doing. The passage of the GENIUS Act marks an important milestone for digital assets. It legitimizes stablecoins within regulated financial frameworks, bringing much-needed clarity to the industry. While Euronet was blockchain ready well before this legislation, this new framework opens the door for established players like us to responsibly integrate blockchain technology for stablecoin or tokenized payments across our global payment ecosystem. Through the utilization of our on- and off-ramp capabilities, including the ability to use our global ATM network to convert stablecoins into local currency, we're enabling customers and partners to move seamlessly between digital assets and fiat currency. In practical terms, this means that consumers can instantly convert digital assets to fiat currency to pay for everyday essentials, things like groceries, medicine, rent, utilities, through our trusted payout network. By combining our Ren and Dandelion platforms with the global reach of our Ria and XE distribution networks, we are making digital money usable everywhere securely and at scale. We plan to launch our first set of stablecoin enabled use cases in the first quarter of 2026, beginning with treasury settlement, cross-border transfers and consumer cash-out functionality in select markets. These pilots will demonstrate how our network and bridge, digital and fiat ecosystem, in a safe, compliant and practical way, creating new efficiencies for our partners and new choices for consumers. Finally, we'll leverage stablecoins or tokenized payments within our treasury operations to move funds between accounts and jurisdictions faster and more efficiently, reducing idle cash and enabling always on settlement. In summary, while we move money fast today, stablecoins will bring even more efficiencies and create new opportunities. I'm really excited to leverage our industry-leading global on- and off-ramp assets to deliver real-world stablecoin use cases to the world. Now let's go on to Slide #13. Slide 13, the EFT segment. It's comprised of 3 key components: banking services, the Ren Payments Platform and merchant services, each plays a key role in driving both transaction growth and digital expansion across our global payments ecosystem. Our banking services continued to have steady growth, reflecting the strength of our value proposition for consumers, financial institutions and merchants. In Poland, we expanded our footprint by adding 3 new merchant partners to support ATM deposit functionality. In the Philippines, we signed an ATM outsourcing agreement with Banco de Oro, the largest bank in the Philippines. And as we move on to Ren, on the heels of our agreement with a top 3 U.S. bank, we continue to gain momentum. This quarter, we signed a software licensing agreement with IDFC First Bank, one of India's leading private sector banks. Under this agreement, Ren will power the bank's ATMs, debit cards and transaction switching through a unique AWS architecture, the first of its kind in India. With the pending acquisition of CoreCard, we'll extend further into credit processing with provable, scalable, revolving credit technology. Together, Ren and CoreCard position us to deliver a full suite of real-time cloud-based solutions across issuing, acquiring and credit management. While subject to completion of the pending merger, the response from our customers and sales prospects has been very, very encouraging. Now here are a few comments on our merchant services business. This quarter, we processed the highest number of card transaction volume since the acquisition and added 7,000 new merchants. These results reflect continued momentum in our acquiring business and highlight how our digital initiatives continue to shift our revenue mix. Overall, it's been an exciting quarter for the EFT business with the combination of continued market expansion and the pending CoreCard acquisition, we're well positioned to deliver sustained growth. Now let's move on to epay. As you know, epay is a leading global provider of payment processing and prepaid solutions, specifically focused on connecting brands to consumers through innovation and our expansive distribution network. Our brand partners include the biggest names in tech, Apple, Google, Sony, Microsoft, Amazon, to name a few, along with thousands of others. Through a platform-as-a-service model, epay enables retailers, mobile operators and brands to manage transactions, payments and content in a manner that best aligns with their customer base. Increasingly, consumers are embracing the convenience of a fully digital experience. Today, about 70% of all epay transactions are digital, flowing across e-commerce merchants, digital banks or leading financial wallets around the world. As digital grows, epay continues to invest in security, scalability and compliance to offer the most trusted service in the industry to consumers, brands and merchants. During the quarter, we had several notable signings and launches that further expand epay's global footprint and strengthen our partnerships across digital content and payments ecosystem. On the success of our proprietary Prezzy Card in New Zealand, we launched Giftzzy, epay's own-branded non-reloadable open-loop Visa card in Australia. We expanded our partnership with Epic Games, introducing fixed denomination cards that enhance how players purchase digital content. Previously, users could only purchase Fortnite in-game currency called V-Bucks. Now users can use this card to purchase all content available in the Epic Game Store. We signed a new distribution agreement with Riot Games in India, broadening our reach with one of the world's fastest-growing gaming market. We also signed a gift card distribution agreement in Mexico with Mercado Libre, Latin America's largest e-commerce and marketplace platform. In our payment processing business, we continue to see strong momentum. We're cross-selling payment services to our existing epay content distribution merchants, both retail and online, and that strategy is paying off. Revenue from payments grew 27% year-over-year, reflecting the strength of our omnichannel approach. The pipeline remains robust with several exciting deals we expect to close in the near future. Now let's move on to Slide #15, and we'll talk about Money Transfer. As I mentioned earlier, changes to immigration policy and broader economic challenges weighed on our Money Transfer segment's revenue and transaction growth this quarter. However, as Rick mentioned, Ria continued to outperform the broader market decline to Mexico by 12%. Despite these near-term headwinds, we remain confident in Ria's ability to outpace the market, supported by its strong fundamentals and differentiated business model. Our omnichannel approach, expansive geographic presence, channel diversity and industry-leading real-time payments network set us apart from both digital-only and legacy multichannel competitors. This foundation differentiates us from our competitors and positions us well to capture new opportunities in cross-border payments, particularly through our Dandelion strategy, which continues to gain traction. Building on this momentum, as previously mentioned, we announced a new collaboration between Dandelion and Citibank. This partnership enhances the city's cross-border payments and remittance offering and expands its reach into the business to consumer uses such as payroll, social benefit and gig economy payments. We also launched Dandelion's service with Union Bank, the tenth largest bank in the Philippines and will soon launch Commonwealth Bank in Australia, another top 50 global banks. This and several other signings and launches during the quarter further validate Dandelion's role at the center of a faster, more modern global payments ecosystem. Within the remittance space, our digital business continues to perform well. Direct-to-consumer digital transactions grew 32% year-over-year and now represents 16% of total money transfer transactions, demonstrating continued adoption of our digital channel. Ria also achieved a key retail win this quarter through an exclusive partnership with Heritage Grocers Group, which operates 115 Hispanic-focused grocery stores under brands, including Cardenas Markets and Tony's Fresh Market. This was a competitive win and followed a successful mid-September launch. We are excited about the growth prospects with this partnership. On the network side, I want to briefly highlight again the partnership with Fireblocks and what that means for our Money Transfer segment. This collaboration will unlock interoperability between traditional and blockchain systems for faster, more efficient money movement. Within Money Transfer, this infrastructure will support stablecoin-based remittances on- and off-ramp capabilities, consumer wallets and real-time settlements advancing our long-term vision for integrating digital assets into our network. Bear in mind, these on- and off ramps are not easy to build. They're built one by one, a real advantage that we are excited to leverage. With that, we'll move on to the numbers -- to Slide 16, and we'll wrap up the quarter. As we wrap up, I'd like to highlight the growing traction across our Ren and Dandelion initiatives. While these opportunities often evolve long sales cycles and reference customers, our recent wins with Citi, the Commonwealth Bank of Australia and a leading U.S. bank demonstrates that our investments are paying off. We're entering a phase of accelerated adoption, and there's a lot to be excited about, including we delivered a record-setting third quarter results with adjusted EPS of $3.62, a 19% increase over the prior year. We continue to make steady progress towards completing the CoreCard acquisition with CoreCard shareholders scheduled to vote on the merger next week, an important milestone in expanding our digital payment capabilities. In August, we completed a $1 billion convertible debt offering at 0.625% interest rate maturing in 2030. The proceeds strengthened our balance sheet and increased our flexibility to pursue strategic growth opportunities. We signed a new partnership with Citibank, which will enable Citi's institutional clients to deliver near instant full value payments into digital wallets around the world through our Dandelion network, further validating Dandelion's leadership in real-time cross-border payments. And finally, we entered into a strategic agreement with Fireblocks, a leading digital asset infrastructure provider to bring blockchain stablecoin technology within Euronet's global payment network positioning us at the forefront of the next generation of financial connectivity and opening new and exciting opportunities to leverage our world-class on and off ramps. Together, these achievements demonstrate the continued strength, adaptability and innovation of Euronet's global payments network. As we look ahead, we are confident in our strategy, our technology and our ability to deliver sustained growth well into the future. We are looking forward to the fourth quarter. And once again, we are pleased to reaffirm our earnings expectations of 12% to 16% growth for the year. With that, I will be happy to take questions. Operator, would you please assist? Operator: [Operator Instructions] Our first question comes from Vasu Govil with KBW. Vasundhara Govil: Maybe to start off, Rick and Mike, if you guys could help unpack the slight softness in the EFT segment. It sounded like the travel trends you saw in Europe were pretty solid, but maybe there were some differences in spending patterns. So just trying to understand if the weakness was all in the ATM business or elsewhere like in the merchant acquiring and then whether it was transaction slowdown or just the transaction value slowdown? If you could help us unpack that, that would be helpful. Michael Brown: Okay. So first of all, all the data that we're getting from every place basically says that people are being very careful on their -- with their vacation spend, with hotels costing 40% more than they did in '19, airplane flights 50% more at least than they did in 2019 when people land, they have a little less money to spend. And then on top of that, there's a lot of worry across the world in the economy. So people are just being a little bit careful. So we've seen -- the nice thing about the -- we've seen that more in the ATMs. We actually have seen some of that too in merchant acquiring, but it's just our merchant acquiring, it's kind of growing like a band sheet. So we don't feel it quite as much there. But certainly, in the ATM business, people are just basically spending less, and then we see that at the ATMs. Vasundhara Govil: Got it. And then on the Money Transfer segment, I know immigration policies have been changing, and that's been a headwind in the industry, but you guys were actually bucking the trend up until last quarter. I recall you had a very strong 2Q. And I think you had called out July trends were actually improving versus June. So it would seem that most of the deterioration happened in August and September. So any color on the exit run rate, what you're seeing in October and sort of what changed... Michael Brown: Well, so we've seen that -- Vasu, we've seen that a little choppy. We said, yes, July looked good, and then sure enough, the next month or so, it went down. And like we landed where we landed and we're seeing October much stronger than we saw in September. So I think it's choppy, is the answer. I don't think I can tell you for sure what's going on, but it smells better right now. But it did last quarter at the same time. So we're just being cautious. We're 3 weeks in, and we're beating our forecast as we sit. We are growing many times faster than the industry is growing, and so many percent faster than the industry is growing. And in particularly, the largest quarter from the U.S. is obviously to Mexico. With that down 12%, and that's flat, I'd call that a win. So as this stuff settles, we'll be still be well positioned. And I think bucking the trend makes sense. I mean, we bucked it last time by about 8%. I think the industry was down in the neighborhood of 3% or 4%. We were up 5% or 6%. So we bucked the trend again last quarter. We are doing the same thing this quarter, but the trend is down. Operator: Our next question comes from Gus Gala with Monness, Crespi, Hardt. Gustavo Gala: You talk a little bit about pricing intra-quarter in Money Transfer. It seems like there were pricing drops in certain quarters, Mexico being one of them, U.S. to Mexico. Is there maybe a return to a less rational pricing environment? And if that's the case in the past, I think we saw it coming more so from smaller marginal players, how has this evolved? Maybe you can comment on how it looks along the vertices of digital versus retail and then domestic versus abroad? And I have a follow-up. Rick Weller: Yes. I would say on pricing, pretty consistent with what we've seen over time. There's pockets where it's a little bit more. I would tell you, we probably saw a little bit more of that in some of our Middle East kind of areas there, where a couple of -- and that's also kind of impacted a bit by the unusual nature of some of the black markets and how some of those currencies move in some of those markets. So that's where we've seen it a bit more. But on -- overall, on average, we had pretty consistent on a year-over-year basis in terms of revenues and gross profits per transaction. So I think our team did a nice job kind of balancing a little bit more the pricing pressure, like I say, in a couple of those markets with a little opportunity in some others. So net-net, it didn't show up in any kind of a meaningfully adverse way in the third quarter. Gustavo Gala: Got it. I appreciate that color. And then a similar line of questioning on Money Transfer just as the growth picked up from 29% to 32%. Over time, what do you think penetration of the transaction base could be digital? I think right now, it's about 13%, if you take the 6 million or so transactions. Michael Brown: I think our goal is to get our growth rate higher than 32%, and they're closer to 40%. That's our goal. And the nice thing is we're doing this without spending an absolute fortune. What people don't realize us compared to a pure digital player is when you walk through the immigrant neighborhoods, there are Ria plastered signs on all these little bodega windows. And so we've got a great marketing conduit there that's very reasonably priced. And so we hope to do better than 32%, but you're right. We watched ourselves grow from 30% or 29% to 32%. We hope that continues. And we're going to keep investing in it because it seems like those customers, their lifetime value is wonderful for us. Rick Weller: Yes. And we've gone from essentially -- well, we've gone from 0 to as we pointed out earlier, about 16% of those transactions are digital now. There are varying views as to what the market is out there. But let's say, in the 30% to 35% of the total business. And so we certainly have our goal set at getting to that mark. And as Mike said, as we grow in the 30-plus percent range, you could see how within a reasonable period of time, we could be at that level. So lots of growth ambition here. We'll have to see if the market continues to move farther up that, let's call it, roughly 1/3, that's more digitally oriented. In some cases, we're quick to think that customers will want to quickly use a digital product because it's easy, it's convenient. On the other hand, we know from talking with customers that not all customers want to use the digital product. They -- you have to remember the customer comes from a lesser developed country. They haven't used financial products like this before. They're not as comfortable with security and things like that. And so we have a lot of customers tell us we really like the over-the-counter product. We -- that's the way we prefer to do business. So we've got a business that's designed at delivering a product that the customer wants. We want to give them the product that's the most efficient for them. We'll continue to focus on that. But we just have to bear in mind that some customers out there absolutely want the product that we're doing a great job of delivering today. Michael Brown: And this is a great point. I mean what people don't get is that digital money transfers have been around for 20 years for 2 full decades and still the total penetration is about 35% of the market. Why is it after 2 decades that we can only get to roughly 1/3 of the potential transactions, I think it's consumer preference. So we want to make sure we're an omnichannel player. We're going to play it both ways. We're going to take people. We get a lot of our customers who are digital that actually go back and forth between, I think it was 13%, 14% of our digital customers go back and forth between physical and digital. Operator: Our next question comes from Mike Grondahl with Northland. Mike Grondahl: Revenues been decelerating this year, 9% in 1Q, 6% constant currency in 2Q and then 1% in 3Q. How do you want people to think about constant currency revenue 4Q in '26? Anything to call out epay promotions or anything? Can you just talk through that a little bit? Michael Brown: Well, all I can tell you is that our bottom-up forecast for Q4 look like it's turning around the other way. Now we'll see if that all comes through, but we've got early indications in October that it seems to be. So maybe we're through the worst of it, we'll find out. Mike Grondahl: Got it. And if you had to say, it looks like money transfer was the most pressure, and you've called out the immigration stuff. What would you put in the second and third bucket is where pressure really existed? Michael Brown: It's economics. I mean let's not -- so let's just say immigrant policy was exactly the same as it was 3 years ago. The reality is, with inflation going up, everything costing more, people are sending back less money or doing it less frequently because they just have less money. When the economy is strong, this is something you'll notice for all that's money transfer company. When the economy is strong, all our numbers go up. When the economy is weak, all our numbers go down. It really doesn't matter. So we've got a weakened economy now. And there -- and people are worried because some forecasters are predicting that it's going to get even weaker. So that's what's working against this. Mike Grondahl: Got it. And hey, post the convert transaction, and I know CoreCard is closing soon. How are you thinking about buyback versus acquisition? Michael Brown: I think it's the same as we always have, Mike. The reality is we look for good accretive acquisitions, ones that can add to our strategy and if we can't find those, then we will look to share buybacks if we believe that our stock is undervalued and it is now, so we just have to look. And the nice thing is we're seeing opportunities. We basically bought back the shares that are required for the CoreCard acquisition, we bought those back in the second quarter. So net-net for the year, it's really no impact. So -- but we kind of look at it every quarter and we say, okay, we threw off a little over $100 million in positive cash in quarter? What do we have on the plate for potential acquisitions? And if we don't see anything, then we will -- and our stock is undervalued, we'll look at buying back stock. We've got opportunities all over the place. I mean we've got them in Ren, we've got them in Dandelion, we've got them with CoreCard. Its a big one here that we're doing. We've got some acquiring things we're looking at. So I'm hoping that we can continue to spend -- what we've done is spend like -- Rick said, we spent 85% of our positive cash flow over the last 4 years on stock buybacks. I'd like to -- to me, a better balance might be 50-50. Mike Grondahl: Got it. And then just lastly, quick on the CoreCard. You're going to be issuing, is it about 2.5 million shares for that? Rick Weller: 2.3. Operator: Our next question comes from Charles Nabhan with Stephens. Charles Nabhan: I wanted to drill into your comments around epay. Specifically, I think you had mentioned that aside from the headwind, that segment would have grown in line with operating income, which is roughly 4%. So I guess, first, if my math is correct, that equates to a roughly $15 million headwind from the discontinuation of that business? And then secondly, I wanted to confirm that. And then secondly, if you put that aside, it's still growing by mid-single digits, which is below trend. So I wanted to see if there was anything going on from a promotional standpoint that was lower this quarter? Or if we should think about that mid-single-digit trajectory is sort of the normalized growth rate for epay? Rick Weller: No, I think first of all, I think you've got the math roughly right there. And then as Mike said, we feel a little of the economic pressure here, too, because a lot of the folks that purchase the epay product, it essentially is discretionary spend purchasing stuff. Gaming, entertainment and things like that. So kind of at the edge, if that takes off 2%, 3% or 4%, that kind of keeps you from being at that kind of upper single-digit growth rate rather than kind of a mid-single-digit growth rate. So that's kind of what we see. And most -- almost all of what we have in our epay business is outside of the United States. So those are economies that we don't see as much around here in the press. But it's the Asian economies and things like that. Some of these economies have the reciprocal effect of things like tariffs, if you think about it. Here you think tariffs are adding cost into the picture. Over there, it might be that tariffs are reducing the amount of sales that they're able to do, and that impacts jobs and things like that. And so we've seen that in that part of the business. So I don't see anything fundamentally in there. There wasn't anything different really on the promotion side of the business. And as we pointed out in here, we're making a lot of good headway signing up some alternative things with like the gaming community. There were some changes in that business whereby certain parties weren't allowed to restrict people's ability to use credits and things like that. We anticipate another party that's going to break open like that, too. So we see some movement in that area. Also, if you just take a look at the -- I'll just call it the entertainment gaming world there, you may or may not know, but those numbers now exceed the video, the movie industry. So we see good opportunity in that business, but I think we've just kind of felt a little of that pressure on the economy there as well. Charles Nabhan: Got it. And as a follow-up on Money Transfer, are you seeing your customers send larger balances at a lesser frequency? And then secondly, you had characterized the conditions as transient, particularly around the U.S. Mexico corridor. And I know it's tough to pin down the timing of that, but what gives you the confidence that we're going to move past this. Are you seeing anything in the data that just kind of gives you that confidence? Or are you having conversations with your customers or even regulators that just kind of gives you the confidence that we could eventually move past this over the next couple of quarters? Rick Weller: Well, I think it gets down to some real macro perspectives on the economy. And you've even seen some of these kind of things play out as the border restrictions have tightened in this new administration is not only the United States, but all developing -- developed countries, are essentially seeing population declines, they're seeing the need to have labor come in and support their economy. In the United States, we have a very strong need for labor in several industries. You could see it play out in, for example, the farming industry, where there were special appeals made so that there would be, let's say, potentially less pressure on migrant labor to help with crop harvesting and things like that. So we've seen kind of a little bit of that reaction where the administration has said, oh, okay, yes, we do need -- and they obviously acknowledge that we do need that type of labor to support this economy. You look at the estimates of immigration around the world. And again, like I say, in other developed economies that need it, we talked recently in the second quarter with the acquisition of this small business in Japan, another economy that is dependent upon having migrant labor come in to help in that market. So those are the things that we look to, to say, we believe that it will be migratory. The -- and then the transitory -- I'm sorry, not migratory, figure out which tories I'm talking about here. But that's what kind of gives us that view. And it's not different than if we look to the past 18 years that we've had the real Money Transfer business. We will see some ebb and flows in terms of what happens to different administrations and things like that. But at the end of the day, these economies are dependent upon these types of labor sources, and we feel that it will resume. Operator: Our next question comes from Darrin Peller with Wolfe Research. Daniel Krebs: This is Daniel Krebs, on for Darrin. If we could move back to the EFT Segment. I'm looking at ATMs growing pretty consistently, 4% to 5% overall this year. Could you unpack that by geography a little bit? What portion of that is driven by non-European ATMs? Rick Weller: It was a little heavier weighted towards the non-European side. And as you may recall, a number of our prior discussions as we continue to expand. Today, we called out places like Morocco, Egypt, some places like that. We see opportunity there. We were hoping to make a little more advancement in some of the South or Lat Am markets, one in particular. And then the sponsor bank we were using was the U.S. put a hold on doing business with that bank. So we had to scramble and change sponsor banks, which we've successfully done. And so it will now come back into the fold. But net-net, a little more biased towards the non-European side. Michael Brown: And let's not forget, too, that the non-European side throws off considerably more profit per ATM on average than the European one. So but they're a bugger to get into because you've got to get a sponsor bank. You've got to let the central bank has to give you authorization. You've got to find your source of cash. It's not like Europe where one license gives you access to all the markets. So it takes a while to do it, but they're very lucrative countries. Daniel Krebs: Got it. Understood. And then if we sort of extrapolate these trends, if you look out 5 years from today, Mike, do you envision having fewer ATMs in Europe than you do today for perhaps the trend is offset by more outsourced banking deal... Michael Brown: So that's an interesting thing. So on one hand, I would say if transactions continue to be stressed on how much people are spending and so forth, we may take a hard look at every one of our ATMs and just make sure that we call the ones that aren't profitable enough in Europe, and that could happen. On the other hand, we see another where we've seen that a number of countries and banks use us as an extension of banking infrastructure. It's not a tourist game anymore. You take a look at Spain, we had 2,000 ATMs in Spain, and then they were -- then they added a surcharge in Spain and then all the banks there wanted to have wholesale access to those ATMs because the central government was forcing the banks to give cash access, yet a number of the biggest banks in the market had combined and they closed a bunch of branches. If you want to look, Google it up, but you can look at the term cash desert all across Europe. Branches are closing. And so government are requiring banks to give easy cash access to people and work like the last man standing who has a good national ATM network. So we're basically being paid by the banks to do that requirement for them. So now in Spain, we have 4,000 ATMs, where we probably would have stopped at 2,000. So we've got some -- every market is a little bit different. So you could see in some markets, we might cull some ATMs, other markets, we might have an opportunity because we're playing the bank infrastructure game, which, by the way, is not tourist-based, like I said, and not tourists. You don't have to worry about how many -- how much the tourist spend because they just want x amount of ATMs that they have access to. That's a pretty good game for us. I think we have maybe one question left, operator. Operator: This question comes from Rayna Kumar with Oppenheimer. Anthony Cyganovich: This is Anthony Cyganovich, filling in for Rayna. Rick, you had mentioned some immigration impact in other markets outside of the U.S. in regards to Money Transfers. Is there any color you can give on which other corridors you're seeing a little bit of softer growth? Rick Weller: Well, now you're talking about, okay, corridors because some of these markets go across several of the corridors. We've seen some stuff like into like the Bangladesh area, like so transfers into those areas, the Pakistan type of areas and a little lighter transactions going into places, like Turkey. And if you kind of map some of those corridors with countries like Germany and U.K., you could see that they've got some immigration actions going on, some different positions that are being taken there. But those are kind of some examples of what we've seen out there. Anthony Cyganovich: Okay. Got it. That's helpful. I guess my follow-up question is, if you guys look at kind of these macro and policy-related challenges persisting over the next few quarters. I mean, Euronet historically has been a double-digit EPS grower throughout its history. I mean do you feel like this is -- if this persists, Euronet can still generate double-digit EPS growth in 2026? Michael Brown: Absolutely. Absolutely. I mean we've got so many things going on. We've been doing this for 20 years. We've had 1 year that we didn't do that out of 20 years -- 30 years, actually. And we see a lot of opportunities. I mean, we've got CoreCard hopefully, that if their shareholders vote for that. There's a lot of opportunity there. We kind of see it across the board. There are several other things we announced in these quarters do not kick off revenues instantly, but over time, they do, and that's what we're feeling comfortable about. Rick Weller: Yes. And let's kind of put in perspective the quality of the assets that we have in our business, okay? We've got operations literally around the world. We serve customers in different types of segments. We're moving much more rapidly towards digitization on everything, as we've shown you in the past, ATM, the money that we -- revenue we make off of ATMs is less than 20% of our consolidated revenue, with additions into our business like CoreCard, which opens up a new channel, a new product for us to sell. And it really has been -- it's really been exciting to see the energy coming from the sales team that have talked with folks about the credit product that we're going to be offering. And that's not in the United States. It's outside the United States, where credit has not been as highly exploited as it has been here in the United States. And so these fintechs and banks, they see real opportunity in that. Mike talked about the stablecoin. I think we're on the front edge of seeing something happen. And again, look at the quality of our asset infrastructure with our on- and off-ramps. You can throw some code together to do a blockchain transaction pretty quickly. But you can't throw together a network that's got 4 billion bank accounts connected to it, 3 billion wallet accounts, over 600,000 places to be able to pick up money or send money. We've got an enviable on- and off-ramp network that can really be leveraged with the advances in tokenization or stablecoins or things like that. And that's really been what you've seen over the life of Euronet. When we had picked up the epay business, I'll just recount that it used to be that it was 100% mobile top-up. It's now more than 70% non-mobile top-up, it used to be 100% at the retail. It's now more than 70% transactions are going through digital. So we've got this wonderful asset base here. We see some things happening on the horizon that really give us the advantage to go after that in a great way. And it's not restricted to any particular geography. We've got great technology that underpins all of this. So yes, I mean, Mike's comment, do we -- are we able to keep this? We don't see that there's any reason that we shouldn't be able to continue our history of double-digit earnings growth. Michael Brown: Thank you, everybody. I think that's it. Thank you, everybody, for joining today. Operator, you can close down the call, but thanks a bundle. See you next time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to the FirstEnergy Corp. Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Karen Sagot, Vice President of Investor Relations. Please go ahead, Karen. Karen Sagot: Thank you. Good morning, everyone, and welcome to FirstEnergy's Third Quarter 2025 Earnings Review. Our earnings release, presentation slides, and related financial information are available on our website at firstenergycorp.com/ir. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Factors discussed in our earnings news release during today's conference call and in our SEC filings could cause our actual results to differ materially from these forward-looking statements. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation. Our Chair, President and Chief Executive Officer, Brian Tierney, will lead our call today. He will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. They will discuss the team's continued strong execution and performance on key financial metrics as well as our bright outlook and positive momentum as we close the year. Topics include raising our full year 2025 guidance midpoint and narrowing the range, increasing our 2025 capital plan, our expectations for incremental investment opportunities, and our progress and time frame on regulatory activities. Now it's my pleasure to turn the call over to Brian. Brian Tierney: Thank you, Karen. Good morning, everyone. Thank you for joining us today and for your interest in FirstEnergy. We are having a great year with strong results across all of our key financial metrics. Yesterday, we reported third quarter GAAP earnings of $0.76 per share compared to $0.73 in the third quarter last year. Core earnings were $0.83 per share for the quarter compared to $0.76 in the third quarter of 2024. For the year-to-date period, our core earnings were $2.02 per share compared to $1.76 in 2024, an increase of 15%. Our results benefited from strong execution of our customer-focused investment plan, Pennsylvania base rates that went into effect in January and strong financial discipline. Through the first 9 months of 2025, we invested $4 billion of capital in our regulated utilities. This is a 30% increase compared to last year. We are pleased to be in a position to put even more resources into system reliability and resiliency for our customers. Today, we are announcing a 10% increase to our 2025 capital investment program to $5.5 billion. With our strong year-to-date results, we are raising our 2025 guidance midpoint and narrowing our range to $2.50 to $2.56 per share. We remain positive about the opportunities ahead. We are reaffirming our core earnings compounded annual growth rate of 6% to 8%. And early next year, we expect to roll out a higher CapEx plan for the 2026 through 2030 planning period. Turning to Slide 6. Load growth from data centers continues to transform our industry. FirstEnergy service territory, expertise, and assets are ideally positioned to support the remarkable demand growth and economic opportunity within and adjacent to our footprint. Within our operational area, data center interest remains high. Our long-term pipeline of demand, which includes interconnection requests from serious and reputable customers has nearly doubled since our fourth quarter earnings call in February. Our contracted customer demand increased by over 30% during the same period. The impact of this demand will be tremendous. Based on data center customers who are contracted or in our pipeline, we expect FirstEnergy's system peak load to increase 15 gigawatts or nearly 50% from 33.5 gigawatts this year to 48.5 gigawatts in 2035. Across PJM, peak load projections are forecasted to increase by nearly 48 gigawatts by 2035 or 30% of the current peak load of 162 gigawatts. FirstEnergy is uniquely situated to support this growing demand through customer-focused investments, specifically in our transmission system. This system is located in the heart of PJM, interconnecting with a broad number of neighboring utilities and encompassing strategic high-voltage corridors that are a vital part of the transmission grid. Turning to Slide 7. Earlier this month, we submitted our integrated resource plan in West Virginia that lays out our recommendations to keep power affordable, accessible, and reliable over the next decade. The IRP indicates a capacity need in West Virginia beginning in 2027. Our preferred plan provides the flexibility to adapt to the rapidly changing energy landscape while delivering reliable and cost-effective energy to West Virginia homes and businesses. Key aspects of the plan include adding 70 megawatts of utility scale solar in 2028, adding 1.2 gigawatts of dispatchable gas combined cycle generation around 2031, keeping our Fort Martin and Harrison coal plants operational through the planning period and using short-term power purchases to bridge the gap until new resources are online. The proposed gas and solar investments are aligned with Governor Morrisey's 50 by 50 initiative, which aims to boost West Virginia's energy capacity to 50 gigawatts by 2050. We are pleased to pursue generation projects in a state with strong executive, legislative, and regulatory support. To provide the best outcomes for West Virginians, we plan to issue a build-to-own transfer RFP for up to the full 1.2 gigawatts of natural gas resources. We are also evaluating building a portion or the entirety of this generation on our own. In the first quarter of 2026, we plan to file with the Public Service Commission seeking approval of the new gas generation. The proposed assets represent a 35% increase to our current regulated generation portfolio. This is an exciting opportunity for FirstEnergy, and we are pleased to support customer needs and economic growth in West Virginia. Turning to Slide 8. As I mentioned earlier, our transmission system will require significant incremental investments to ensure reliable electric service. At our stand-alone transmission and integrated segments, we need to ensure our critical infrastructure is resilient and reliable, especially as demand is projected to increase in the region. This includes investments to replace aging infrastructure, improve system performance, and increase operational flexibility. We are also participating in regional network upgrades, which are the investments awarded through PJM's RTEP open window process. This includes required system upgrades and improvements to address reliability, security, and load demands of the bulk electric system. Over the last few years, we have been awarded $4 billion of capital investments through the PJM open window process. We recently submitted proposals of capital investments through the 2025 open window to support increasing demand in Ohio, Pennsylvania, and Virginia. These proposed investments include several new and upgraded substations and high-voltage lines needed to support the increasing customer demand. The PJM Board is expected to award transmission projects in this open window by the first quarter of 2026. Any projects awarded to FirstEnergy in this open window will be included in our new 5-year plan. We now expect transmission investments included in the 2026 to 2030 capital plan to increase by 30% versus our current 5-year plan. This includes increases from reliability enhancements and regulatory required investments to improve the overall health and performance of our most critical assets on the system and to address growing demand and changes in generation in the region. Our company-wide transmission assets are a terrific growth engine. Our investments are expected to result in a compound transmission rate base growth of up to 18% per year through 2030. This means total transmission rate base would more than double through the planning period. On the generation side, we have a significant incremental investment opportunity associated with adding the 1.2 gigawatts of natural gas generation in West Virginia by 2031. This project at an initial estimate of $2.5 billion will be included in our long-term plan after we receive regulatory approval. Moving to Slide 9. We're in a strong position to make all of these investments that benefit our customers while keeping affordability a top priority. Today, our bills are on average 2.5% of our customers' share of wallet and on average, are 19% below our in-state peers. Even with an increasing investment plan, we will be below our in-state peers for the foreseeable future. However, we recognize that affordability is top of mind for our customers and that, on average, electric bills have increased 11% for our customers in our four deregulated states over the last year. As we drill into this, the generation component of the bill is driving 85% of this increase. This type of increase is not sustainable and needs to be addressed with new dispatchable generation. In that regard, we are advocating on behalf of our customers and working with state leadership in our deregulated states on how they can take the lead to drive meaningful change and attract new generation. It's a different story in West Virginia, our one traditionally integrated state. Total customer bills remain flat from 2024 to 2025, and the state is taking proactive steps through its IRP process and 50 by 50 program to maintain and expand its generating capacity. We are also working to protect current customers as demand increases from data center developers. This includes utilizing volumetric commitments and customer credit support as needed. Our approach leverages the balance sheet of the data center developers to protect existing customers. Turning to Slide 10. We are on track to have a successful year and look forward to a strong finish. Our updated earnings guidance of $2.50 to $2.56 per share is in the upper half of our original range. We are reaffirming our 6% to 8% core earnings CAGR through 2029. We are on pace to execute our 2025 to 2029 capital investment plan. And looking ahead, we see significant increase in our next 5-year investment plan. Most of this growth will come from high-quality transmission investments backed by forward-looking rates with constructive ROEs. We're also excited about new opportunities to invest in generation in a state that is supportive of these efforts. Our value proposition remains strong, encompassing robust growth, consistent financial discipline, and attractive risk profile and a 10% to 12% total shareholder return opportunity with upside potential. We are on course, and we are committed to achieving our goals and realizing our bright future as a premier electric company. Now I'll turn the call over to Jon. Jon? K. Taylor: Thanks, Brian, and good morning, everyone. We had another strong quarter and continue to make excellent progress this year. We delivered on each of our key financial metrics, including core earnings, capital investments, base O&M and cash from operations. You can review more details about our results, including reconciliations for core earnings and business segment drivers in the strategic and financial highlights presentation posted to our IR website yesterday afternoon. We delivered third quarter core earnings of $0.83 per share, a 9% increase versus 2024. This improvement was largely a result of new distribution base rates in Pennsylvania that went into effect earlier this year and total transmission rate base growth of 11%, including 9% for our ownership in stand-alone transmission rate base and 16% in transmission rate base within our integrated business. Additionally, as a result of our strong performance this year, especially with our controllable operating expenses, we were able to move a modest amount of maintenance work into the third quarter from future years, which gives us flexibility within our plan. Through the first 9 months of the year, core earnings improved to $2.02 per share, a 15% increase from the first 9 months of 2024. Again, our strong year-to-date results largely reflect the execution of our regulated strategies, stronger customer demand, and transmission rate base growth. I want to take just a second to highlight the financial performance and growth in each of our regulated businesses. In our distribution business, the $0.20 improvement in year-to-date earnings is a result of the $225 million annual rate adjustment in Pennsylvania that supports the capital investments and operating expenses we are deploying back into that business as well as higher customer demand and lower operating expenses as we execute on continuous improvement initiatives. In our Integrated segment, earnings improved $0.05 per share or 7% for the year-to-date period, resulting primarily from formula rate investments in the transmission system in New Jersey, West Virginia, and Maryland and higher customer demand, partially offset by higher depreciation. And finally, in our stand-alone transmission business, earnings increased approximately 7%, resulting from our strong capital investment program, delivering owned rate base growth of 9%, which was partially offset by the impact of new debt at FET Holding Company and the full year dilution impact of the FET minority interest sale. As you can see, our performance year-to-date at our regulated businesses is a testament to the execution on our regulated strategies, the constructive rate designs we have in each of our businesses, our strong customer-focused investment programs and a focus on financial discipline. Through the first 9 months of 2025, sales were 1% higher than last year and essentially flat on a weather-adjusted basis. For our industrial class, based on ramp-up schedules of some of our data center customers, we expect to see more meaningful increases in industrial load beginning in Q4 and into next year. As Brian mentioned, through September, we deployed $4 billion of customer-focused investments, which is a 30% increase as compared to the same period of 2024. The majority of this increase was associated with transmission capital, both at our stand-alone transmission and integrated businesses, which in total was $1.9 billion of CapEx through the first 9 months of the year, representing a 35% increase as compared to 2024. For 2025, we are increasing our planned investments from $5 billion to $5.5 billion. Over half of the increase is in transmission CapEx with the remaining on the distribution system, largely reflecting reliability and storm restoration investments. The team continues to do a nice job ensuring that our capital investments are targeted at improving reliability and the customer experience. Additionally, even though our CapEx programs have increased significantly over the past few years, we have strong confidence in our ability to deliver, if not exceed these plans, given our capital planning process, which is based on known and specific projects with resiliency built into the portfolio and our broad and deep relationships with our vendors and suppliers. For O&M, we continue to track better than planned and largely in line with last year despite executing additional maintenance work this year that will enhance reliability and give us flexibility as we finish this year and look to 2026. Our financial performance resulted in a consolidated return on equity of 10.1% on a trailing 12-month basis, which is slightly above our targeted ROE of 9.5% to 10% and represents a 70 basis point improvement from our 2024 consolidated return of 9.4%. Through September 30, to support our capital investments of $4 billion, cash from operations was $2.6 billion, which is better than our internal plan and an increase of more than $700 million as compared to 2024. And we successfully completed our 2025 financing plan with eight subsidiary debt transactions totaling nearly $3.5 billion at an average coupon of 4.8%, including a $450 million transaction at FirstEnergy Transmission and a $1.35 billion financing at JCP&L in the third quarter. Including the successful $2.5 billion FE Corp. convertible debt offering in June, our 2025 capital markets program encompassed close to $6 billion of debt financing, all significantly oversubscribed at a weighted average rate of 4.4%, demonstrating the attractive credit profile of our utilities and business mix. And finally, to close out my updates, we do expect an order in the Ohio base rate case in November. As soon as practical after that, we plan to file a multiyear rate plan to ensure timely recovery of the important investments needed in the state. We are very pleased with our progress as we close out 2025. As I mentioned earlier, we are ahead of plan on all of our key financial metrics and look to carry this momentum in the final months of this year and as we begin 2026. In closing, the team is extremely focused on the value proposition that we offer to shareholders. We are focused on delivering enhanced customer experience through strong customer-focused investments, which in turn will allow us to provide solid risk-adjusted returns to our investors. The future is bright for FirstEnergy, whether it be industry-leading transmission investment opportunities significant reliability investments in the distribution system or the build-out of regulated generation in a supportive state like West Virginia, we have a strong business plan and the right team to execute. We are committed to continuing our positive momentum and delivering value for our shareholders. Thank you for your time. Now let's open the call to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Nick Campanella with Barclays. Nicholas Campanella: I was just wondering on the West Virginia generation, you kind of talked about build and transfer versus self-build. Can you maybe kind of talk about how you've recovered the capital in either scenario and how we should kind of think about the impact to earnings '28 through 2031. And I guess if you're just kind of thinking about a build and transfer for 2031, is there really no earnings attribution until then? Or could there be milestone payments? Maybe you can kind of expand on that. Brian Tierney: Yes. So the build-own transfer, I think, is fairly straightforward. On the we build it side, we, of course, would file for CWIP during construction. And so we'd expect at least the recovery of that, if not the earnings component during the pendency of construction. But the real significant earnings component for that will come after the assets online. Nicholas Campanella: Yes. Okay. And then just maybe how you're thinking about rate case strategy for '26, mostly asking on Maryland, West Virginia, New Jersey, where the ROEs are trending a little lower than authorized? K. Taylor: Nick, it's Jon. Yes. So I think as we look to '26 and beyond, if you look back to the cadence that we went through, when we first started filing cases a few years ago, we started with Maryland, New Jersey, West Virginia. We'll start to look at that kind of cadence as we move into 2026. Obviously, it's going to be important for our utilities to earn close to their allowed returns. And so as they're deploying capital, we need to make sure that we get timely recovery through increases in base rates. Operator: The next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering just any thoughts you could give on as you're talking about these increased CapEx opportunities from both transmission and potentially on West Virginia generation. How does that impact the earnings growth outlook and the range that you've got as you consider out closer to the end of the decade? Brian Tierney: Yes. David, we think of it as firming up the ability for us to be in that 6% to 8% earnings per share range over the planning period. People don't traditionally think of utilities as growth investments. But as we look at the opportunity to invest in our system, increasing CapEx over the period, it gives us real confidence that we'll solidly be in that 6% to 8% earnings per share growth range. David Arcaro: Okay. Got it. And then I guess looking at the data center pipeline, I was wondering if you could refresh us on just the activity seems to continue to be very strong. And as you see more gigawatts maybe come in and firm up, I guess, is there a way to give any rule of thumb for how much increased transmission CapEx you could see going forward, like on a per gigawatt basis? I think you've given that rule of thumb in the past, but the CapEx that you're adding to the plan here seems to be quite a bit stronger. So just wondering your current thoughts on as more and more data center activity continues to come to your service territory, what that could mean going forward? K. Taylor: Yes. David, it's Jon. So in total, right now, as we look at what's contracted and just our transmission CapEx program in total, I think you could say there's probably easily $1 billion of CapEx associated with transmission interconnection requests, whether that be direct connection projects or network upgrades to support large loads. So that's what we see now based on the contracted and active large load customers that we have. But I think that will vary as we move into the future. And we've seen a wide range of capital deployment based on interconnection request depending on the location and the size. Operator: The next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just a quick follow-up on the transmission CapEx point. Just as you continue to raise sort of the upside opportunity there now at 30% this quarter. I guess, can you talk a little bit about kind of what's giving you the confidence to do that? And ultimately, if we should be thinking about that as a floor looking into the 4Q update or if there's potential for further upside there? Brian Tierney: Yes. I think the upside that we mentioned that 30% for the next 5-year plan is what we feel comfortable with at this point. And again, we're going to come out with that full CapEx plan early in '26, but I think that's what we would guide to be the number right now. As we think about that and where we're spending the transmission CapEx, about 60% of it is associated with reliability enhancements, upgrade health of system, replacing aging reliability type investments. And the 40% of it is what we call regulatory required. That's transmission interconnection requests and things like the PJM open windows. So we have some pretty good insight into where we're spending those dollars and what the increase will look like for the next 5-year plan. So I'd expect it to be very, very close to that number. Carly Davenport: Great. Okay. That's really helpful. And then maybe just on the data center pipeline. I appreciate all the updates on that front. I guess just as we think about that contracted bucket, are you able to share how much of what is contracted is under an ESA versus another type of contractual agreement? Brian Tierney: Yes. So that's a great question. Thank you, Carly. The ESA is usually the last thing that happens before power starts flowing. So that happens very late in the process traditionally. But making sure that they're contracted to either build the facilities that are needed to happen, that we put in place the credit support that they're going to need to make sure that they show up and take what we're spending. Those type of things happen earlier in the process. So we feel really confident once we have put them in that contracted category that they're going to show up even if we don't yet have an ESA signed. Operator: The next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: You touched on in your comments, I guess, the bill increases and the impact generation has had on that. And I was just wondering if you could expand a bit more there, I guess, on the appetite to build new generation elsewhere across PJM, if there is the proper underpinnings to it? And how do conversations look on that? And anything new to report there? Brian Tierney: Yes. So nothing new to report there, Jeremy. I mean, the place where we have a clear window, a supportive governor commission and legislature is in West Virginia. And so that's how we're able to move forward so quickly with those plans. The idea that we'd be building in any of the other states on a long-term basis would really just be speculative at this point. Jeremy Tonet: Got it. Understood. And turning to Ohio. I was just wondering if you could expand any more there on the backdrop and talking about filing as soon as practical there, what that could look like? Brian Tierney: Yes. So we expect the order on the base rate case during the fourth quarter. And we need to get that to see what the treatment of various aspects are in that base rate case. But given that we've been making investments in the state and want to continue making investments in that state since that test year, which ended in May of '24, we're going to have to go in right away given that we don't have trackers and riders in the state anymore. And so given the forward-looking nature of the multiyear rate plan, we think that's the perfect avenue to do it. And as soon as we know what our situation is coming out of that base rate case, we'll know what we need to file for, and we'll be going in right away. Operator: The next question comes from the line of Ryan Levine with Citi. Ryan Levine: Regarding the 30% CapEx upside in the prepared comments, what regions in PJM are you seeing the majority of the investment opportunity? And is there any cost inflation associated with the labor or equipment that is a component of that 30%? Brian Tierney: Yes. I'd say most of that 30% is really associated with incremental work rather than inflationary proceeds -- impacts. And it's across the system in terms of where we're investing. It's in all five of our states, and I'd say fairly evenly distributed in those five as well. So -- it's broad-based. It's that reliability type investment. It's the regulatory required. It's the new customer hookups. It's the open windows. It's really broad-based, but it's incremental work that's driving that 30% increase. Ryan Levine: Okay. And then in terms of the load forecast embedded in your planning, do you have a lot of confidence in the visibility of those forecasts in light of some of the FERC and other PUC recent commentary on that front? Brian Tierney: We do, Ryan. So as we're looking at the planning period, the next 5-year period. A lot of that is associated with what is contracted, not necessarily in the pipeline. So we have pretty good visibility into what the load forecast is going to be in that time frame. When you get out a little bit farther is when you're starting to look at the significant increases that we talked about with data center load and up to the 15 gigawatts. As we're looking at those load increases, we're looking at things, various criteria, like does the developer own and control the land? Do they have building permits? Do they have development plans? Do they publicly announced what the project is going to be, who the customer is, all those things. We look at those factors to get a comfort level in is the customer actually going to show up and does it make sense to put them in the pipeline? And it's that level of confidence that we have in that 15 gigawatts that we're talking about in the next 10 years. Operator: The next question comes from the line of Ross Fowler with Bank of America. Ross Fowler: Just maybe circling back to West Virginia. This is going to be a self-build. I think that's what you said on the call, if I caught it correctly. So as you file for CWIP and you go through that, how are you thinking about the supply chain connected to that 1.2 gigawatts? Do you have a turbine in the queue? Do you have a queue position? And kind of what are you seeing for pricing there? Because I know the turbine prices have increased over time. Brian Tierney: Yes. So that's all factored into what we've forecasted in the IRP, assuming it's going to be about $2.5 billion. And we haven't made a determination yet as to whether or not it's going to be build-own-transfer or self-build. We're going out with an RFP for the build-own transfer, and we'll see what that brings in. But we're also seeing things come in a little bit. So we're not seeing that 4- to 5-year that people have been talking about. We're seeing more of the 3- to 4-year lead time on major equipment. But the pricing remains pretty strong on that. We've not secured a space yet, but we think that we'll be able to do that given the regulatory framework that we have for getting approvals and getting the facility up and running in the 2031 time frame. Ross Fowler: And then -- and Jon, as you kind of talked about rate case cadence, you talked about sort of New Jersey. I mean, obviously, Ohio is coming very soon as soon as practicable, but New Jersey might be next in that cadence as you wind through it. How are you thinking about sort of the affordability pressures in that state? Obviously, it's been an issue in the governor's race. Is it well understood from your perspective in that state that most of that is coming from the generation portion of the bill or kind of contextualize that for us a little bit? Brian Tierney: We think that's well understood that generation is really what's driving so much of that increase. At the end of the day, as a political issue, though, that doesn't much matter. People see their bills going up and are concerned about that. And we're trying to do everything we can in our power to keep those bills as low as possible for the portions that we control. And so we're being very thoughtful about how we're spending our O&M. We're advocating on behalf of our customers to stop the madness that is these PJM capacity auctions right now, which are paying for new generation that's just not showing up, and we don't think it's appropriate that our customers bear that kind of burden. So we're doing everything we can to try and mitigate the impact of the higher generation costs, but we think it's well understood that that's where the increases in those rates are coming from. Operator: The next question comes from the line of Steven Fleishman with Wolfe Research. Steven Fleishman: Just a quick follow-up on the transmission upside, the 18% rate base growth. When we're going to get these open window outcomes and such over the next few months or start seeing them, should we assume those are embedded in there already? Or would those be upside to that? Or how should we think about as we see these announcements? Brian Tierney: Steve, we put a very modest amount in there, but it's our practice to not put things in the plan until we have the approvals that are needed from PJM. But in this case, we put a very modest amount in there. K. Taylor: Yes. And I would say, as I mentioned in my prepared remarks, the portfolio is what we call resilient. So we have hundreds and hundreds of projects that we can fill in as needed, all needed for reliability purposes. So depending on how things shake out with the open window, which, quite frankly, we feel really good about the solutions that we submitted in the open window process, our track record, where the congestion constraints are, and we feel really good about our prospects there. But to the extent that anything varies from our plan, we have a resilient portfolio. Steven Fleishman: Okay. And then just to clarify that answer because there's the plan right now, then there's the upside plan or the next plan we're going to get. So when you made your comments, Brian, is that relative to the next plan or the current plan, I guess. Brian Tierney: That makes sense. The 30% increase that we talked about, there is a very modest amount from the pending PJM open window that's in there. So if we get significant incremental awards from that, we'll be refreshing that plan. Operator: The next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: First, a question on the CapEx update, and this is sort of a high-level question, but you're talking about very meaningful upside to the transmission CapEx. The West Virginia IRP is calling for a lot of spending there, plus you have the Ohio rate case. My question is, when we look at the update coming in a few months, are you expecting to reallocate some spending away from the other segments and businesses? Or do you think the balance sheet and the labor force could handle what might be a pretty sizable increase for the plan overall? I don't know if the whole $28 billion plan is going to go up by 30%, maybe it will. But how do you think about limiting factors for the upcoming increase? Brian Tierney: Yes. We don't see taking from one jurisdiction at this point and giving to another. We see increases across the jurisdictions. But Andrew, we've already factored in the needs of the various jurisdictions, the opportunities in the various jurisdictions. And to be honest with you, they're all different. And that's why we put in place the management structure that we have with the presidents, five presidents overseeing those five properties that we own so that they're very thoughtful about what's going in. Do we need energy efficiency in one jurisdiction that we don't need in another. Just things like that so that our CapEx plan is very, very tightly tailored to each of the jurisdictions that we serve, and that's what goes into how we put our plan together. We're not -- we don't view the plans that we're talking about, the West Virginia and the incremental transmission is taking away from another jurisdiction, but we view that as all expansive across our five jurisdictions. Andrew Weisel: Okay. Great. And then I think on the industrial load, Jon, you made a comment about that accelerating in the fourth quarter and into next year. I think you said that was specific to some data center customers ramping up. Can you speak more broadly? I think I may have asked you this on prior calls as well, but it sounds like generally flattish for the industrial customers. Maybe you can talk about trends in the outlook outside of the specific data center ramping. K. Taylor: Yes. I think we -- yes, we are starting to see a little bit of rebound in fabricated metals and steel manufacturing. So that has been kind of a headwind for us over the past few quarters. We're starting to see that come back a little bit. But I think as we move into the fourth quarter and especially into next year, you'll start to see meaningful increases in industrial load, mainly from data centers. And I'm talking like mid-single digits by the time we get to maybe Q2 to maybe even higher than that, significantly higher than that by the time we get to the fourth quarter of next year. Operator: The next question comes from the line of Sophie Karp with KeyBanc Capital Markets. Sophie Karp: How do you envision a response on the state level from policymakers to these rising consumer energy costs? Brian Tierney: I think people are concerned about it, as are we, and that's why we're engaging with regulators, legislators, and others to both, a, point out what is causing the increase and, b, trying to work with them on mitigating those increases and what are things that we think makes sense for our customers. And so again, we are not advocates of continuing this madness of the PJM capacity auctions that are paying people for new capacity that they're not getting and look for other mechanisms like a 2-tiered structure, one that would pay existing capacity one price and have another structure that would attract incremental capacity and any other ways that we can attract new capacity and have customers actually get what it is they're paying for. But we're concerned about increases in customer bills and again, making sure that customers get what it is they're paying for and with the capacity auctions, that's not happening. Sophie Karp: And do you think there's enough, I guess, momentum behind these efforts now for them to come up in the next legislative sessions? Brian Tierney: Yes. I think there's certainly a lot of attention being paid to it across all of our unregulated jurisdictions. And so yes, I think we'll see people starting to take notice, have plans for mitigation and start enacting those in the near term. Operator: The next question comes from the line of Anthony Crowdell with Mizuho Securities. Anthony Crowdell: I just wanted to -- and I apologize, I just may have not understood it. A response to Carly's question and a response to Steve's question. On Carly's question, and when I think you were talking about CapEx, it seemed that you were more looking at these additional projects are going to strengthen and lengthen the current 6% to 8% plan. And again, I don't want to front-run your fourth quarter call. But then on Steve's question, I think you talked about your current plan is very modest with very little of this additional CapEx in there, leading that there's actually potential for a big change in that growth rate. I wonder if you could help me connect the two dots there. Brian Tierney: Yes. So thank you for the question, Anthony, if there was any confusion around this. This increase in CapEx that we're talking about gives us extreme confidence in the 6% to 8% earnings per share growth range. So we would like to be in the upper end of that, but we're not at a point today where we are going to change that growth rate. But it gives us considerably more confidence to be in the upper part of that range. So in response to Steve's question, the increase that we're talking about is in the 6% to 8% growth. The specific part that I was talking about with Steve was the PJM transmission open window component that's pending. We have a very modest amount for that, that we think that we will be awarded. If it's higher than that, that will be incremental to the plan. But in any event, we don't see us changing the earnings per share growth rate that we've guided to, but the CapEx plan that we talked about and the increase in it gives us confidence to be in that range and targeting the upper end of that range. Does that answer the question? Anthony Crowdell: Yes. So if you're better than your plan in the PJM open window, there's more of a bias towards the upper end of the range of the 6%. Is that fair? Brian Tierney: No, no, no. Let me -- again, I don't want you to put words in my mouth. The existing plan and the increase that we're talking about is in the plan and gives us the confidence to be in the upper end of that range. If we get something more than what we talked about in the open window, we'll factor that into the plan, and we don't expect us to take it out of the plan, but we're already expecting to be confidently in the 6% to 8% range, and we're targeting the upper half of it, regardless of what happens with the PJM open window. Anthony Crowdell: Great. Got it. And then just one housekeeping item. On large load tariffs, are you guys -- I just apologize, I'm not familiar with every state you're operating in. But are you guys applying for large load tariffs? Or are they all in place as this growth is hitting the PJM service territory? Brian Tierney: Yes. So we don't see the need for them the way our tariffs work. We think that we can enter into terms and conditions that make the data center developers responsible for the incremental investment that we're making and protect our existing customers. So we see others doing that, and they may not have the flexibility that we do in our existing tariffs and contract structures. And it's not something that we see the need for today. If that changes going forward, we'll evaluate that and make changes at the time. Operator: This concludes the Q&A session. I'd like to turn the call back over to Brian Tierney for closing remarks. Brian Tierney: Great. Thank you all for joining us today, and thank you for your interest in FirstEnergy. We look forward to seeing many of you at the EEI conference in a few weeks, and we hope you have a safe and enjoyable rest of your week. Take care. Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.